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Petitioner contends that, in the absence of regulations
under section 931(d)(2), we should conclude that under section
1.863-6, Income Tax Regs., petitioner’s fishing income is
American Samoa source and thus excludable under section 931(a).
We disagree. Sections 1.861-1 to 1.863-5, Income Tax Regs.,
adopted before 1986, do not treat income earned from personal
services performed in international waters as U.S. source income;
instead, they provide that the source of income from personal
services is the place where the services are performed. Sec.
1.861-4(b)(1), Income Tax Regs. Income earned from personal
services performed in international waters was not treated as
U.S. source income until section 863(d)(2) was enacted in 1986.12
Thus, section 1.863-6, Income Tax Regs., does not support
petitioner’s position.
The Secretary has not proposed that section 1.863-6, Income
Tax Regs., be changed to refer to section 1.863-8, Proposed
Income Tax Regs. Thus, section 1.863-6, Income Tax Regs., does
not incorporate section 1.863-8, Proposed Income Tax Regs. As a
result, income earned from services performed in international
waters, which is sourced in the United States by section 863(d)
and section 1.863-8, Proposed Income Tax Regs., is not treated as
American Samoan source if earned by a resident of American Samoa.
12 Sec. 863(d) is effective for tax years beginning after
Dec. 31, 1986. 1986 TRA sec. 1213(b); see also sec. 1.863-8(b),
Proposed Income Tax Regs.
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