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the remaining $14,700,000 of the consolidated HGI note to City as
a return of capital.8 In the case of each distribution by
Finance, City recorded capital contributions to HGI of the
amounts of the consolidated HGI note distributed by Finance.
HGI, in turn, recorded the extinguishment of the amounts of the
consolidated HGI note transferred by Finance to City.
Tax Reporting of the Transactions
City filed Forms 1042, U.S. Annual Return of Income Tax To
Be Paid at Source, for the taxable years ended December 31, 1979
through 1985, attached to which were Forms 1042S, Income Subject
to Withholding Under Chapter 3, Internal Revenue Code, for each
year reporting gross amounts of income paid to Finance and
claiming a zero-percent rate of withholding tax for such payments
based on Forms 1001, Ownership, Exemption, or Reduced Rate
Certificate.
Respondent subsequently issued petitioner a statutory notice
of deficiency, determining additional amounts of tax required to
be withheld by City for the years at issue.
OPINION
Sections 871(a)(1) and 881(a)(1) generally impose a tax of
30 percent on amounts received as interest from sources within
the United States by nonresident alien individuals and foreign
8 The record does not indicate what was done with the FR
notes upon the liquidation of Finance.
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