*1174 Hele, income and absenteeism taxes paid by petitioner to the Republic of Mexico on salaries received by her in 1935 and 1936 from a Mexican corporation are not allowable as credits against her income tax in the absence of proof that she rendered any services to the corporation either within or without the United States.
*489 These proceedings were brought to redetermine deficiencies in the income taxes of the petitioner for the years 1935 and 1936 in the sums of $992.65 and $1,075.73, respectively.
The sole issue is whether or not income taxes and absenteeism taxes paid to the Republic of Mexico are allowable credits against the *490 petitioner's income taxes under the provisions and limitations of section 131 of the Revenue Acts of 1934 and 1936.
It was stipulated that for the year 1935 the petitioner is entitled to a further deduction of $393.47 for taxes paid, in addition to those allowed in the notice of deficiency.
FINDINGS OF FACT.
The facts were stipulated substantially as follows:
The petitioner is an individual and*1175 citizen of the United States. During the years 1935 and 1936, she resided in San Francisco, California, and was never out of the United States.
During the years in question the petitioner was president of the Mexican Candelaria Co., S.A., a Mexican corporation owning and operating mine properties in the States of Durango and Sinoloa, Mexico. The properties were for upward of 50 years controlled through stock ownership by D. M. Burns, father of the petitioner, and more recently by Charles Dunphy, husband of the petitioner. On the death of Dunphy in 1933 this control passed to the petitioner and she was thereupon elected to the office of president of the company. As president of the corporation she received a salary of $24,000 a year during each of the taxable years.
The stock of the Mexican Candelaria Co., S.A., is owned 100 per cent by the San Dimas Co., a corporation organized and existing under the laws of the State of Nevada. The stock of the San Dimas Co. is owned 47 1/2 percent by the Mexican Securities Co., and 52 1/2 percent by various outside stockholders. The stock of the Mexican Securities Co., a personal holding company, was formerly owned 80 percent by Charles*1176 Dunphy, and 20 percent by the petitioner. After Dunphy's death in 1933 the 80 percent owned by him was held in his estate until 1937, when it was distributed one-half to the petitioner and one-half in trust for the children of Dunphy and the petitioner. The Mexican Securities Co. is a corporation organized and existing under the laws of the State of Nevada.
The petitioner filed income tax returns with the collector of internal revenue for the first district of California for the years 1935 and 1936, reporting thereon salary of $24,000 per year received from the Mexican Candelaria Co., S.A., and claimed as credits against the taxes shown to be due on the returns, income taxes and absenteeism taxes paid to the Republic of Mexico by the petitioner in respect to the salary of $24,000 a year.
The properties of the Mexican Candelaria Co., S.A., are in a very mountainous district in Mexico, four days by mule from the nearest railroad station. Communication by mail between the mines and *491 San Francisco requires approximately four weeks. Mining operations are managed and supervised by a general superintendent at the mines, under a general power of attorney from the corporation.
*1177 The taxes paid by the petitioner to the Republic of Mexico for the years 1935 and 1936 were as follows:
| 1935 | 1936 | |
| Income taxes | P3,322.44 | P3,324.48 |
| Absenteeism tax of 2% | 1,286.00 | 1,704.00 |
| Additional income tax for 1934 - 10 months at P174.60 | 1,746.00 | |
| Total pesos | 6,354.44 | 5,328.48 |
| Converted to dollars at 3.55 pesos per dollar | $1,789.98 | $1,500.98 |
The Commissioner disallowed the credit claimed on the ground that the salary on which the tax was assessed by the Republic of Mexico represented compensation for services actually performed within the United States and that, hence, the allowance is prevented by the limitations of section 131(b) of the Revenue Acts of 1934 and 1936. However, he allowed the amounts so paid as deductions from the petitioner's gross income.
OPINION.
VAN FOSSAN: The petitioner seeks credit for income and absenteeism taxes paid to the Republic of Mexico under the provisions of section 131(a) and (b) of the Revenue Acts of 1934 and 1936. 1
*1178 The respondent contends that the petitioner may not receive such credit because of the limitations of section 131(b) and argues that the petitioner's income from the Mexican Candelaria Co., S.A., was received as compensation for services rendered within the United States and is income from sources therein. Consequently, the respondent *492 claims, there being no income from sources without the United States, the credit here sought can not exceed zero.
However, section 131(e) 2 of the same acts specifically refers to the provisions of section 119 as determining the income derived from sources without the United States. Section 119(a)(3) and 119(c) (3) 3 include compensation for labor or personal services performed in or without the United States in the items of gross income which shall be treated as income from sources within or without the United States, respectively. The crux of the case at bar is the phrase "compensation for labor for personal services performed in the United States." If the petitioner performed such services without the United States it is clear that she is entitled to the credit which she claims.
*1179 The record discloses that the petitioner inherited a business controlled originally by her father and later by her husband. Upon her husband's death, she was elected president of the company. She received an annual salary of $24,000 as such officer. The record does not reveal that she performed any services whatever for the company, either in the United States or in Mexico. That she performed no such services without the United States is inferable from the stipulated fact that she was not absent from this country at any time during 1935 or 1936. In any event, the burden is upon her to prove the contrary. See ; affd., ; certiorari denied, .
Nor was the petitioner's salary paid to her as interest, dividend, or any other item of gross income which is elsewhere comprehended in and designated by the statute as a basis for credit. She must come within the classification of section 119(c)(3) to entitle her to the credit.
*493 In the absence of the proof of credit required by the statute the petitioner is not entitled as a credit to the amounts paid by her as income and*1180 absenteeism taxes to the Republic of Mexico.
Decisions will be entered under Rule 50.
Footnotes
1. SEC. 131. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF UNITED STATES.
(a) ALLOWANCE OF CREDIT. - If the taxpayer signifies in his return his desire to have the benefits of this section, the tax imposed by this title shall be credited with:
(1) CITIZEN AND DOMESTIC CORPORATION. - In the case of a citizen of the United States and of a domestic corporation, the amount of any income, war-profits, and excess-profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States; and
* * *
(b) LIMIT ON CREDIT. - The amount of the credit taken under this section shall be subject to each of the following limitations:
(1) The amount of the credit in respect of the tax paid or accrued to any country shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's net income from sources within such country bears to his entire net income for the same taxable year; and
(2) The total amount of the credit shall not exceed the same proportion of the tax against which such credit is taken, which the taxpayer's net income from sources without the United States bears to his entire net income for the same taxable year. ↩
2. (e) PROOF OF CREDITS. - The credits provided in this section shall be allowed only if the taxpayer establishes to the satisfaction of the Commissioner (1) the total amount of income derived from sources without the United States, determined as provided in section 119, (2) the amount of income derived from each country, the tax paid or accrued to which is claimed as a credit under this section, such amount to be determined under rules and regulations prescribed by the Commissioner with the approval of the Secretary, and (3) all other information necessary for the verification and computation of such credits. ↩
3. SEC. 119. INCOME FROM SOURCES WITHIN UNITED STATES.
(a) GROSS INCOME FROM SOURCES IN UNITED STATES. - The following items of gross income shall be treated as income from sources within the United States:
* * *
(3) PERSONAL SERVICES. - Compensation for labor or personal services performed in the United States;
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(c) GROSS INCOME FROM SOURCES WITHOUT UNITED STATES. - The following items of gross income shall be treated as income from sources without the United States:
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(3) Compensation for labor or personal service performed without the United States. ↩