John A. Francisco - Page 16




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          limitation, even though foreign countries generally did not tax             
          that income.  H. Rept. 99-426, supra at 382, 1986-3 C.B. (Vol. 2)           
          at 382; S. Rept. 99-313, supra at 358, 1986-3 C.B. (Vol. 3) at              
          358.                                                                        
               Section 863(d) was enacted in 1986.  Section 863(d)(1)                 
          provides generally that income earned by a U.S. person from                 
          personal services performed in an ocean-based activity is U.S.              
          source income, and income derived by a non-U.S. person for such             
          services is not U.S. source income.  Sec. 863(d)(1); 1986 TRA               
          sec. 1213(a), 100 Stat. 2540.                                               
               Petitioner contends that Congress intended for section                 
          863(d) to apply based on the residence, and not the citizenship,            
          of the taxpayer.  If petitioner’s contention were correct,                  
          section 863(d) would not apply to petitioner (i.e., it would not            
          treat his income earned from personal services performed in                 
          international waters as U.S. source) because he is not a U.S.               
          resident.  Petitioner bases this contention on the following                
          language in the House Ways and Means Committee report                       
          accompanying enactment of the 1986 TRA:                                     
               all income from space or ocean activities is sourced in                
               the country of residence of the person generating the                  
               income: income derived by a U.S. resident is U.S.                      
               source income and income derived by a nonresident is                   
               sourced outside the United States. * * *                               
          H. Rept. 99-426, supra at 382, 1986-3 C.B. (Vol. 2) at 382.                 








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