John A. Francisco - Page 26




                                       - 26 -                                         
               6.   Whether Petitioner’s Income Was Effectively Connected             
                    With a Trade or Business in American Samoa                        
               We next consider whether, as petitioner contends, his income           
          is excludable from U.S. income on the grounds that it was                   
          effectively connected with a trade or business in American Samoa.           
               As stated earlier, section 931(a)(2) provides that the                 
          income of an individual who resides in, for example, American               
          Samoa, is excludable from U.S. income if it is “effectively                 
          connected with the conduct of a trade or business” in American              
          Samoa.  Petitioner contends that all his fishing-related income             
          is effectively connected with the conduct of a trade or business            
          in American Samoa because he performed substantial services in              
          American Samoa (e.g., preparing the vessel before trips and                 
          unloading the catch afterwards) and that those services were a              
          material factor in the production of his income.                            
               Under section 864(c), income can be “effectively connected             
          with the conduct of a trade or business within the United States”           
          if it is from “sources within”, or “sources without”, the United            
          States.  Sec. 864(c)(1)(A), (c)(4).  In the absence of                      
          regulations under section 931(a)(2) defining the phrase                     
          “effectively connected with the conduct of a trade or business”,            
          both parties refer to provisions governing whether income is                
          effectively connected with a U.S. trade or business under section           
          864(c), and contend that application of those principles favors             
          their respective position.  We believe respondent has the better            





Page:  Previous  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  31  32  33  34  35  Next

Last modified: May 25, 2011