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is U.S. source income. Petitioner relies primarily on section
931(a) and on section 1.863-6, Income Tax Regs., for the
proposition that the compensation he earned for services
performed in international waters is sourced in American Samoa or
is effectively connected with a trade or business in American
Samoa.
2. Ocean-Based Personal Services Income
We first consider respondent’s contention that petitioner’s
income earned in international waters is U.S. source income under
section 863(d).
Generally, personal services income of U.S. persons9 is
sourced where the services are performed, without regard to the
location of the payor, the residence of the taxpayer, the place
of contracting, or the place of payment. Secs. 861(a)(3),
862(a)(3); Dillin v. Commissioner, 56 T.C. 228, 244 (1971); sec.
1.861-4(a), Income Tax Regs.
Before 1987, income earned by U.S. citizens and residents
from personal services performed in international waters was
generally sourced where the services were performed; thus, income
from those activities was generally treated as foreign source
income. Sec. 862(a)(3); H. Rept. 99-426, at 381 (1985), 1986-3
C.B. (Vol. 2) 381; S. Rept. 99-313, at 357 (1986), 1986-3 C.B.
(Vol. 3) 357; H. Conf. Rept. 99-841, at II-599 (1986), 1986-3
C.B. (Vol. 4) 599. This resulted in a larger foreign tax credit
9 A U.S. person is a citizen or resident of the United
States. Sec. 7701(a)(30)(A).
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