*236 Decision will be entered under Rule 50.
Where petitioner performed only services in bringing about sales of debentures of a German concern, and all of the services in bringing about the purchase and the sale were performed in Germany, held, that the compensation received for the services shall not be included in income for the year 1940, under section 116 (a) of the Internal Revenue Code, which was in effect in 1940 and was not amended until thereafter.
*727 Respondent determined a deficiency in income tax for the year 1940 in the amount of $ 67,140.43. Not all of the adjustments are in dispute and petitioners claim an overpayment of tax. The issues raised by the pleadings are (1) whether petitioners' net short term capital gain should be reduced by the allowance of commissions and stamp taxes paid by petitioners upon the sale of certain German corporate stock; (2) whether petitioners sustained a loss upon the sale of 300 shares of United States Rubber Co. preferred stock in the taxable year; and (3) whether petitioner Herman A. Kollmar*238 is taxable on the amount of $ 95,000 which was received by him during the taxable year in connection with the sale of certain securities in Germany. On brief respondent concedes that the first two issues should be decided in petitioners' favor. Effect will be given to this concession in the recomputation under Rule 50. The only issue remaining is the third issue raised by the pleadings. The parties concede that the amount of $ 95,000 received by Herman A. Kollmar is taxable income under section 22 (a) of the Internal Revenue Code unless it is exempt from taxation under section 116 (a) of the code, in effect during the taxable year.
The petitioners filed a joint income tax return with the collector of internal revenue for the first district of New York.
FINDINGS OF FACT.
The petitioners, who are husband and wife, reside in Staten Island, New York. Since the issue relates to income received by the husband, Herman A. Kollmar, he will be referred to hereinafter as the petitioner. He was a nonresident citizen of the United States from January 1 to March 26, 1940, and from August 1 to December 9, 1940.
During the taxable year petitioner was the German representative of the Chemical*239 Bank & Trust Co. of New York. He had acted in that *728 capacity since 1933 and his duties generally required him to be outside the United States for at least ten months of each year. He was also an officer of the Chemical Bank & Trust Co., his title being assistant manager. His salary from the bank was deposited regularly by the bank into his personal account at the National City Bank in New York City.
On July 19, 1940, petitioner was informed that it would be necessary for him to go to Germany for business purposes. Shortly thereafter he mentioned his contemplated trip to two individuals named Gottlieb and Romney.
These men were formerly bankers in Berlin and in the taxable year they were financially interested in Transfer Trust Ltd. of London and Mexico City. In the course of the discussion between petitioner and Gottlieb and Romney, they requested petitioner to remember them to certain of their friends in Germany. They also mentioned the names of approximately thirty American firms with huge investments in Germany and suggested that, since petitioner would be the only American banker in Berlin in wartime, he might have an opportunity of negotiating some of the repatriation*240 of German securities that was going on at that time. He was further informed that they might communicate with him, and if any business developed, they would make it worth his while. Since Gottlieb and Romney, for political reasons, could not communicate with petitioner in Berlin under their own names, it was arranged that they would do so through a broker named von Gibara.
Petitioner sailed for Europe on or about August 1, 1940. The day before he sailed he met Gottlieb and Romney in their offices in New York City. At that time they informed him that they were very friendly with Jacob Goldschmidt, who was the former president of the Darmstadter National Bank of Berlin and was the banker responsible for the sale by Siemens & Halske A. G. of 25,000 of its debentures of the face value of $ 400 each to a subsidiary of the General Electric Corporation. Gottlieb and Romney stated that Goldschmidt, who had influential friends in General Electric Corporation, was of the opinion that General Electric might wish to dispose of the debentures at a favorable price. Petitioner was informed that no definite statement could be obtained at that time from General Electric Corporation, due to the*241 absence of the person in charge, but that there was a possibility of the situation becoming acute in the near future. Petitioner was requested to keep himself ready for cable communications, and, if a favorable occasion should arise, to sound out Siemens & Halske A. G.
In the early part of September 1940 petitioner at a luncheon in Berlin discussed the matter with the financial head of Siemens & Halske A. G. He was informed that Siemens & Halske A. G. was *729 interested in purchasing its obligations if a fair price could be arranged.
On September 16, 1940, petitioner received a cablegram in Berlin from von Gibara advising him that General Electric was possibly prepared to sell some of the participating debentures of Siemens & Halske A. G. at $ 480 a debenture. Thereupon, petitioner again visited the head of Siemens & Halske A. G. and was informed that it would purchase its debentures at a price in marks equal to the original sum in marks received by it. However, since the sale was to be for United States dollars, petitioner was told that it would be necessary to secure permission from the Reichsbank for the sale and for foreign exchange. Between the middle of September *242 and early November petitioner had twenty or thirty interviews with different people at different times, and during that period the entire 25,000 debentures owned by General Electric Corporation were sold to Siemens & Halske A. G. for over $ 11,000,000.
As compensation for his services in connection with the sale of these debentures, petitioner received the sum of $ 95,000 from Transfer Trust Ltd. of London and Mexico City. He did not have any arrangements with Gottlieb and Romney as to the payment of any set fee in the event of the sale of the debentures, and he did not have any arrangements with them with respect to a salary. The $ 95,000 was paid into petitioner's account at the National City Bank, New York City, by order of Transfer Trust Ltd. Petitioner did not know how the amount was arrived at and he never questioned Gottlieb and Romney, since he considered it ample. He did not split the $ 95,000 with anyone else.
Petitioner did not own any stock in, or have any financial interest in Transfer Trust Ltd., nor was he a director or officer of that company. He did not put up any of his own money or pledge his credit in connection with the sale of the debentures, nor did he agree*243 with anyone at any time to put up his money or pledge his credit. He was not a participant in a joint venture for the sale of the debentures.
In his return for the taxable year, filed on or about March 15, 1941, petitioner reported as tax due the amount of $ 38,143.36. Payments of the tax were made in installments, as follows: Check dated March 1, 1941, in the amount of $ 9,535.84; check dated June 13, 1941, in the amount of $ 9,535.84; and check dated August 27, 1941, in the amount of $ 19,071.68.
The amount of $ 95,000 was received by petitioner as compensation for personal services rendered by him from September through November 1940 in Berlin, Germany. These services consisted of contacting and negotiating with the financial officials of Siemens & Halske, the German Reichsbank, and several other German banks. The $ 95,000 was earned income from sources without the United States.
*730 OPINION.
The question in this proceeding is whether the sum of $ 95,000 received by petitioner in the taxable year is exempt from tax under the provisions of section 116 (a) of the Internal Revenue Code1 in effect during the taxable year. (This section was amended by section 148 of the*244 Revenue Act of 1942.) Respondent contends that section 116 (a) is inapplicable under the facts of this proceeding. He concedes that petitioner was a citizen of the United States and a bona fide nonresident of the United States for more than six months during the taxable year, but denies that the $ 95,000 was earned income or was received from sources without the United States.
*245 Under section 116 (a) it is a prerequisite to exemption that the amounts received from sources without the United States shall constitute earned income as defined in section 25 (a) (4) (A) of the code, in effect during the taxable year. That section defines earned income as "wages, salaries, professional fees, and other amounts received as compensation for personal services actually rendered * * *." We have found as a fact that the $ 95,000 was received by petitioner as compensation for personal services actually rendered. The record adequately supports this finding. In fact, there is no evidence in the record to the contrary. However, respondent argues that the $ 95,000 was received by petitioner as a profit from participating in a joint venture and that profits from a joint venture can not constitute earned income. We have not found it necessary to determine whether such profits may constitute earned income either in whole or in part, since we have found as a fact that there was no joint venture between petitioner and Gottlieb and Romney. When petitioner left for Europe on August 1, 1940, he had no commitments with either Gottlieb or Romney. He merely placed himself at the*246 disposal of these individuals if any business might arise. Since Gottlieb and Romney anticipated the possibility of the sale of the bonds and they were unable to negotiate with the authorities in Germany, they agreed to pay petitioner for his services in Germany in the event of a profitable sale. However, petitioner did not agree to put any of his own money in the transaction or to pledge his credit, and in fact he did not do so. He was not connected in any way with Transfer Trust Ltd. and his only *731 agreement was to use his best efforts to promote the sale of the debentures if he were so instructed by cable from New York. From the testimony, it is not apparent how Gottlieb and Romney profited from the transaction. The bonds were sold by the General Electric Corporation to Siemens & Halske A. G. It may be that the profit derived by Gottlieb and Romney was in the nature of a broker's commission. Petitioner testified that he did not know any of the details of the transaction, nor did he know how the amount of $ 95,000 was determined. Since he considered this amount sufficient for his services, he did not question Gottlieb and Romney as to the profits made on the transaction. *247 His uncontroverted testimony was that the $ 95,000 was paid to him for his personal services in Berlin in contacting and negotiating with the financial officials of Siemens & Halske A. G., the German Reichsbank, and several other German banks. His services were valuable and extended over a period of almost two months. He was the only American banker in Berlin at that time who could adequately handle negotiations of that nature. We think it clear that the $ 95,000 was paid to him as compensation for his personal services in Berlin. The payment for those services constituted earned income under the statute.
Respondent also argues that petitioner has failed to establish that the $ 95,000 was received from sources without the United States. As support for his argument, respondent points to the fact that Gottlieb and Romney were located in New York City and that the $ 95,000 was paid into petitioner's account with the National City Bank in New York City. However, this argument is entirely inconsistent with respondent's prior rulings. He has consistently held that, in determining whether compensation is from sources within or "without the United States," the place where the services*248 are performed and not the place where the compensation is paid is the controlling factor. See I. T. 2293, C. B. V-2, p. 33; I. T. 2286, C. B. V-1, p. 52; S. M. 5488, C. B. V-1, p. 51; and S. M. 5446, C. B. V-1, p. 49. See also Regulations 103, sec. 19.119-4. These rulings are in accord with section 119 (c) (3) of the code, 2 in effect during the taxable year.
Respondent's final argument is that if it should be held that the $ 95,000 was paid to petitioner for personal services and is earned income as defined in section 25 (a) (4) (A) of the code, in effect during the taxable year, a proportionate part of such compensation should be treated as income from sources within the United States. This argument*249 is predicated on respondent's assumption that petitioner performed *732 some services in the United States. However, the facts are otherwise. All of petitioner's services in connection with the sale of the debentures were performed in Germany. The fact that during the course of his negotiations he sent cablegrams to New York does not mean that he performed any services in New York. Respondent's determination on this issue is reversed. Petitioner claims that he has overpaid his tax.
Accordingly,
Decision will be entered under Rule 50.
Footnotes
1. SEC. 116. EXCLUSIONS FROM GROSS INCOME.
In addition to the items specified in section 22 (b) the following items shall not be included in gross income and shall be exempt from taxation under this chapter:
(a) Earned Income from Sources Without United States. -- In the case of an individual citizen of the United States, a bona fide nonresident of the United States for more than six months during the taxable year, amounts received from sources without the United States (except amounts paid by the United States or any agency thereof) if such amounts would constitute earned income as defined in section 25 (a) if received from sources within the United States; but such individual shall not be allowed as a deduction from his gross income any deductions properly allocable to or chargeable against amounts excluded from gross income under this subsection.↩
2. SEC. 119. INCOME FROM SOURCES WITHIN UNITED STATES.
* * * *
(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;
* * * *
(3) Compensation for labor or personal services performed without the United States;↩