John A. Francisco - Page 27




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          argument, and we conclude that application of effectively                   
          connected income concepts leads to the same result as occurs by             
          applying the sourcing rules discussed above in paragraph C-5.               
                    a.     Sources Within                                             
               Section 864(c)(1)(A) determines whether income from sources            
          within the United States is effectively connected with a U.S.               
          trade or business.  Under the effectively connected rules                   
          applicable to income from sources within the United States,                 
          income is effectively connected to the extent it has a U.S.                 
          source.  See sec. 864(c)(3).  Thus, the effect of applying the              
          principles of section 864(c)(3) to section 931 would be that a              
          taxpayer’s income would qualify for the section 931 exclusion to            
          the extent the income is from an American Samoan source.  That              
          analysis leads to the same result that we reached above at                  
          paragraph C-5.                                                              
                    b.     Sources Without                                            
               Section 864(c)(4) determines whether income from sources               
          without the United States is effectively connected with a U.S.              
          trade or business.  The effect of applying the section 864(c)(4)            
          principles to construe section 931(a)(2) here is the same as                
          applying the sourcing rules (see par. C-5, above) for two                   
          reasons.  First, income from sources without the United States is           
          effectively connected with a U.S. trade or business of an                   
          individual only if the income is earned through an office or                






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