## Facts

- Andrew O. Miller, Jr. and Jeanne W. Miller filed joint U.S. income tax returns for 1960–1962.
- Andrew Miller was a partner in the law firm White & Case and was entitled to a distributive share of partnership profits.
- White & Case opened a Paris office in 1960 and appointed Miller as its managing partner.
- For his managing-partner services in Paris, Miller received a fixed $20,000 annual amount described as a “guaranteed payment” under I.R.C. § 707(c), in addition to his distributive share of partnership profits.
- Miller claimed the foreign earned income exclusion under I.R.C. § 911(a) for (1) the full $20,000 annual payment and (2) the portion of his partnership income he treated as attributable to foreign operations.
- The Commissioner issued deficiency notices, disputing the exclusions and treating the excludable amount as limited to the foreign-source portion of the relevant partnership income under the source rules.

## Issues

1. Whether a partner’s $20,000 “guaranteed payment” under I.R.C. § 707(c) was fully excludable under I.R.C. § 911 as foreign earned income solely because it was fixed compensation for services performed abroad.
2. To what extent Miller could exclude, under I.R.C. § 911, his distributive share of White & Case partnership income given the firm’s domestic and foreign operations and the statutory source-of-income rules.
3. Whether § 707(c)’s “as if to a nonpartner” treatment controls sourcing and § 911 analysis, or is limited to the specific Code purposes identified in § 707(c).

## Decision

- The Tax Court held that § 707(c) did not make the $20,000 payment automatically and fully excludable as foreign earned income under § 911.
- The court determined that both the $20,000 guaranteed payment and Miller’s distributive share were subject to § 911’s requirement that income be from sources without the United States, as determined under the statutory source rules.
- The court sustained the Commissioner’s deficiency determinations in substantial part, allowing a § 911 exclusion only for the portion of the relevant partnership income properly treated as foreign-source.

## Legal Principles

- I.R.C. § 707(c) treats guaranteed payments to partners as made to a nonpartner only for limited purposes stated in the statute (including § 61 gross-income inclusion mechanics), and does not generally recharacterize the underlying nature or source of partnership income for other Code provisions.
- I.R.C. § 911 excludes only “earned income from sources without the United States”; physical presence or residence abroad does not make all compensation excludable.
- Source of income for § 911 purposes is determined under the statutory sourcing framework (including §§ 861–863) applied to the underlying income; formal labels such as “salary” or “guaranteed payment” do not override those rules.
- A partner cannot convert worldwide partnership earnings into wholly foreign-source compensation for § 911 purposes merely by structuring a fixed payment as a § 707(c) guaranteed payment.

## Conclusion

The Tax Court limited the Millers’ § 911 foreign earned income exclusion to the foreign-source portion of the relevant White & Case partnership income and rejected the argument that a § 707(c) guaranteed payment for services abroad is fully excludable without applying the statutory source-of-income rules.


Miller v. Commissioner, 52 T.C. 752 (1969)