John A. Francisco - Page 25




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               Section 1.861-4(b)(1), Income Tax Regs., provides that,                
          where appropriate, income from services performed within and                
          without the United States may be allocated on the basis of time.            
          Under that approach, the amount included in gross income is the             
          amount that bears the same relation to total wages as the number            
          of days the taxpayer performed services in the United States                
          bears to the total number of days for which the taxpayer                    
          performed services for which wages were paid.                               
               We disagree that all of petitioner’s fishing-related income            
          was sourced in American Samoa.  The location of the payor, the              
          place of contracting, and the place of payment do not control for           
          purposes of sourcing service income.  Sec. 861(a)(3); Dillin v.             
          Commissioner, 56 T.C. 228, 244 (1971); sec. 1.861-4(a), Income              
          Tax Regs.  Petitioner was chief engineer of the M/V Sea Encounter           
          while it was fishing in international waters, which was the vast            
          majority of the days petitioner performed the services at issue             
          here.  We believe that the fact that petitioner was paid based on           
          fish tonnage shows that petitioner’s services performed in                  
          American Samoa were not disproportionately important.  Thus, we             
          find no reason to depart from the proportionality rules of                  
          section 1.861-4(b), Income Tax Regs.                                        
               We conclude that the portion of petitioner’s income that is            
          eligible for the section 931(a) exclusion is based on the number            
          of days he worked in American Samoa.                                        






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