## Facts

- Jan Casimir Eric Emil Lewenhaupt was a Swedish citizen and resident during 1946 and a nonresident alien for U.S. tax purposes.
- He was physically present in the United States only from November 20 to December 20, 1946, and performed no personal services in the United States before November 1948.
- He owned several parcels of California real estate (including parcels in Modesto, San Francisco, and San Mateo) and other U.S. assets received through family transfers.
- He appointed Clinton LaMontagne as his U.S. agent under a broad power of attorney to manage the properties.
- During 1946, the agent executed leases, rented the properties, collected rents, kept accounts, supervised repairs, paid taxes, maintained insurance, and negotiated and completed the sale of the Modesto properties.
- The Modesto sale generated a long-term capital gain of $152,555.87.
- Lewenhaupt filed a 1946 return treating himself as a nonresident alien not engaged in a U.S. trade or business.
- The Commissioner determined a 1946 deficiency of $33,820.30, primarily from including the capital gain in U.S. taxable income; Lewenhaupt contested the deficiency and claimed an overpayment.

## Issues

1. Whether the U.S.–Sweden income tax convention taxed the 1946 gain from selling U.S. real property under the treaty’s capital-gains provision (Article IX), or instead under its real-property provision (Article V).
2. If the treaty did not exempt the gain, whether Lewenhaupt was engaged in a trade or business within the United States in 1946, making the gain taxable under I.R.C. § 211(b).

## Decision

- The Tax Court held that gains from the sale of U.S. real property were governed by the treaty’s real-property article (Article V), not the capital-gains article (Article IX).
- The Tax Court held that Lewenhaupt, through his agent’s continuous rental, management, and sales activities, was engaged in a trade or business within the United States during 1946.
- The capital gain was taxable to Lewenhaupt under I.R.C. § 211(b), and the Commissioner’s deficiency determination was sustained (subject to stipulated adjustments computed under the court’s procedures).

## Legal Principles

- Under an income tax treaty, a specific article addressing income from real property controls over a more general article addressing capital gains, so the situs state may tax gains from sales of real property located there.
- A nonresident alien may be treated as engaged in a U.S. trade or business based on substantial, continuous U.S. real-estate rental and management activities conducted through an authorized agent.
- Physical presence of the nonresident owner in the United States is not required where the owner’s agent conducts business activities in the United States on the owner’s behalf.
- For the relevant period, I.R.C. § 211(b) taxed nonresident aliens engaged in a U.S. trade or business on U.S.-source income effectively connected with that business, including gains from sales connected to the business.

## Conclusion

The Tax Court ruled that the U.S.–Sweden treaty permitted the United States to tax a Swedish resident’s gain from selling U.S. real estate and that extensive, profit-oriented property management and sale activities carried out by a U.S. agent constituted a U.S. trade or business attributable to the nonresident owner, making the gain taxable under I.R.C. § 211(b).


Lewenhaupt v. Commissioner, 20 T.C. 151 (T.C. 1953)