## Facts

- Lanman & Kemp-Barclay & Co. of Colombia (a Delaware corporation wholly owned by a U.S. corporation) manufactured proprietary pharmaceutical preparations in Colombia and earned all income from Colombian operations.
- For 1947, the Commissioner determined a U.S. income tax deficiency of $3,313.90; the taxpayer petitioned the Tax Court, also asserting an overpayment claim, and later paid the asserted deficiency plus interest.
- In 1947, Colombian law imposed separate corporate taxes including an income tax (on net income) and a “patrimony” tax (on patrimony/net worth as of December 31 of the preceding year), plus a 35% surcharge on certain taxes.
- The Colombian patrimony tax applied to persons subject to Colombian income tax and could be owed even when the taxpayer had no taxable income, so long as it possessed taxable patrimony.
- The taxpayer paid the Colombian patrimony tax and the 35% surcharge in 1947 and claimed a U.S. foreign tax credit for those payments under § 131 of the Internal Revenue Code of 1939.

## Issues

1. Whether the Colombian patrimony tax and its 35% surcharge qualified as an “income tax” for purposes of the foreign tax credit under § 131 of the Internal Revenue Code of 1939.
2. Whether the patrimony tax and surcharge qualified as a “tax in lieu of a tax upon income” under § 131.

## Decision

- The Tax Court upheld the Commissioner’s disallowance of the claimed foreign tax credit.
- The court held that the Colombian patrimony tax (and the related 35% surcharge) was not an “income tax” under § 131.
- The court further held that the patrimony tax (and surcharge) was not a “tax in lieu of a tax upon income” under § 131.

## Legal Principles

- Creditability of a foreign levy under § 131 is determined under U.S. tax law criteria; foreign labels and internal characterizations are not controlling.
- A levy measured by net worth/patrimony (a stock of wealth) and imposed without regard to whether income was realized is a capital or property-type tax, not an income tax in the U.S. sense.
- A “tax in lieu of a tax upon income” requires a substitute for an income tax; a supplemental tax that coexists with a separate operating income tax is not “in lieu of” an income tax.
- When evaluating a foreign tax credit claim, the inquiry focuses on the substantive base and operation of the foreign levy rather than formal integration with other taxes in the foreign system.

## Conclusion

Because the Colombian patrimony tax was computed on net worth and could be imposed even in the absence of taxable income, and because it supplemented rather than replaced Colombia’s separate income tax, it did not qualify for the U.S. foreign tax credit as either an income tax or a tax in lieu of an income tax under § 131 of the 1939 Code.


Lanman & Kemp-Barclay & Co. of Colombia v. Commissioner, 26 T.C. 582 (1956)