Fifth Circuit Affirms in Container

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May 3, 2011

The Fifth Circuit yesterday issued a short, unpublished opinion affirming the Tax Court’s decision in Container.  As discussed in more detail in our earlier post, the issue is the sourcing of guarantee fees charged by a Mexican parent to guarantee notes issued by its U.S. subsidiary.   The Fifth Circuit ruled that the issue turned to a considerable extent on the Tax Court’s factual findings concluding that the fees were payments for services, which it found were not clearly erroneous.  The Fifth Circuit concluded that the Tax Court’s ultimate characterization of the fees as foreign-source income was correct because … Read More

Oral Argument Scheduled in Container

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January 20, 2011

The Fifth Circuit has scheduled the oral argument in Container for Thursday March 3, 2011, in New Orleans.  The identity of the three-judge panel will be announced at a future time.… Read More

Briefing Completed in Container

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November 22, 2010

The government has filed its reply brief in Container, and the parties will now await an order assigning a date for oral argument.  The parties’ respective arguments were well delineated in the opening briefs, and the reply brief does not shed much additional light on the issue.  The government emphasizes that it has never argued that guarantee fees are interest; instead it argues that they are more analogous to interest than to a payment for services.  And, disputing the taxpayer’s argument, the government reiterates that this analogy is supported by the two most relevant cases, Bank of America and … Read More

Taxpayer’s Brief Filed in Container

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October 28, 2010

The taxpayer has filed its answering brief in Container (attached below), arguing that guarantee fees paid to its Mexican parent were properly analogized to a payment for services and therefore sourced to Mexico.  The taxpayer reasons that the government’s analogy to interest on a loan is misdirected because the guarantor does not advance any funds.  All it does is “stand[ ] by to pay,” which is in the nature of a service, and it is the Mexican parent’s assets – located in Mexico – that give it the ability to serve as a guarantor.  The taxpayer also maintains that the … Read More

Government’s Opening Brief Filed in Container

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September 20, 2010

The government has filed its opening brief (attached below) in the Fifth Circuit in Container, challenging the Tax Court’s decision to treat loan guarantee fees as foreign-source income.  As discussed in our previous post, the Tax Court concluded that such guarantee fees are best analogized to compensation for services. 

The brief is unusually concise, using barely half of the maximum available pages.  As it argued in the Tax Court, the government maintains on appeal that the fees are better analogized to interest, which would result in treating them as U.S.-source income.  It emphasizes three elements of the fees … Read More

Fifth Circuit to Consider Sourcing of Guarantee Fees

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August 6, 2010

The parties are poised to brief the appeal of Tax Court’s decision in Container Corp. v. Commissioner, 134 T.C. No. 5 (Feb. 17, 2010), in the Fifth Circuit.  The issue concerns the “sourcing” of income earned by a Mexican corporation from loan guarantee fees paid by its U.S. subsidiary.  Code sections 861-63 identify certain items of income and specify whether they should be treated as U.S-source or foreign-source income.  But there are items of income not specified in those sections, like loan guarantee fees, and it falls to the courts to determine how to source them, using analogies to … Read More