## Facts

- Bank of America, an Edge Act corporation engaged in international trade finance, earned commissions from foreign banks between 1958 and 1960 in export letter-of-credit transactions involving U.S. exporters and foreign purchasers.
- Foreign purchasers obtained commercial letters of credit from foreign banks in favor of American exporters; Bank of America participated in the transactions and charged fees.
- The commissions fell into three categories:
  - Confirmation commissions for confirming foreign banks’ letters of credit by adding the bank’s own obligation to pay upon compliant presentation.
  - Acceptance commissions for accepting time drafts (banker’s acceptances) drawn under letters of credit, making the bank primarily liable on the drafts.
  - Negotiation commissions for examining export documents for compliance and purchasing or paying drafts presented by exporters.
- The IRS treated some commissions as U.S.-source income, partially disallowing the bank’s refund claim and affecting the foreign tax credit limitation.
- The dispute required sourcing the commissions under IRC §§ 861–862 (and the effect on § 904 calculations).
- The trial judge classified all three commission types as foreign-source; the United States filed exceptions.

## Issues

1. Whether confirmation commissions were U.S.-source or foreign-source income under IRC §§ 861–862.
2. Whether acceptance commissions were U.S.-source or foreign-source income under IRC §§ 861–862.
3. Whether negotiation commissions were U.S.-source or foreign-source income under IRC §§ 861–862.

## Decision

- The Court of Claims partly affirmed and partly reversed the trial judge.
- Confirmation commissions were foreign-source income.
- Acceptance commissions were foreign-source income.
- Negotiation commissions were U.S.-source income.

## Legal Principles

- When the Code does not expressly source a particular item of income, courts may determine source by analogy to income categories specified in IRC §§ 861–862.
- Fees that primarily compensate for extending credit and assuming payment risk may be treated as interest-like for sourcing purposes and sourced by reference to the obligor’s residence.
- Fees that primarily compensate for personal services are sourced where the services are performed under the personal-services sourcing rules in IRC §§ 861(a)(3) and 862(a)(3).
- Each category of commission must be analyzed separately based on its predominant economic function, rather than treated as a generic “commission” class.

## Conclusion

The Court of Claims applied a functional, transaction-specific sourcing analysis: confirmation and acceptance commissions were foreign-source because they chiefly reflected credit substitution and risk bearing for foreign obligors, while negotiation commissions were U.S.-source because they principally compensated document-review services performed in the United States.


Bank of Am. v. United States, 680 F.2d 142 (Ct. Cl. 1982)