     Case: 10-60515 Document: 00511462906 Page: 1 Date Filed: 05/02/2011




            IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                 FILED
                                                                               May 2, 2011
                                          No. 10-60515
                                                               Lyle W. Cayce
                                                                    Clerk
CONTAINER CORPORATION, Successor in Interest of Container Holdings
Corporation, Successor to Interest of Vitro International Corporation,

                        Petitioner - Appellee

v.

COMMISSIONER OF INTERNAL REVENUE,

                        Respondent - Appellant


                                  Appeal from the Decision
                               of the United States Tax Court
                                      USTC No. 3607-05


Before JONES, Chief Judge, BENAVIDES, Circuit Judge, and AYCOCK * ,
District Judge.
PER CURIAM:**
       The Commissioner appeals following the United States Tax Court’s
decision in favor of the taxpayer corporation. The Tax Court held that guaranty
fees paid by a United States subsidiary to a foreign corporation are analogous
to payments for services, and that the fees were not generated by a source within



       *
            District Judge of the Northern District of Mississippi, sitting by designation.
       **
           Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
     Case: 10-60515 Document: 00511462906 Page: 2 Date Filed: 05/02/2011

                                   No. 10-60515

the United States. Thus, those fees were not subject to withholding taxes under
26 U.S.C. § 881(a).
         This Court “appl[ies] the same standard of review to decisions of the Tax
Court that [it] appl[ies] to district court decisions.” Green v. Comm’r, 507 F.3d
857, 866 (5th Cir. 2007) (citing Arevalo v. Comm’r, 469 F.3d 436, 438 (5th Cir.
2006)). “Findings of fact are reviewed for clear error and issues of law are
reviewed de novo.” Id. (citing Arevalo, 469 F.3d at 438). “Clear error exists when
this [C]ourt is left with the definite and firm conviction that a mistake has been
made.” Id. (citing Streber v. Comm’r, 138 F.3d 216, 219 (5th Cir. 1998)). Factual
findings must be affirmed if they are “plausible in light of the record viewed in
its entirety.” Estate of Lisle v. Comm’r, 541 F.3d 595, 601 (5th Cir. 2008).
         To determine what class of income guaranty fees fall within or may be
analogized to, the court must look to the “substance of the transaction.” Bank
of America v. United States, 680 F.2d 142, 147 (Ct. Cl. 1982). The Commissioner
contends the guaranty fees are more closely analogized to interest, while
Container Corporation argues that the fees are more closely analogous to
payment for services. See Howkins v. Comm’r, 49 T.C. 689 (1968) (applying by
analogy the sourcing rule for the income type that is most similar to the income
in question where that income is not covered under a specific statutory sourcing
rule).
         Looking to the substance of the transaction, the Tax Court found that the
guaranty fees were more closely analogous to payments for services. Container
Corp. v. Comm’r, 134 T.C. 122 (2010). International, the domestic corporation,
paid Vitro, its Mexican parent corporation, fees to guarantee notes issued by
International. Id. at 129. The guaranty here was not a loan transaction as no
money was exchanged. Vitro’s obligations under the guaranty were contingent
on International’s default.     Thus, the guaranty was issued as a secondary
obligation. The factual basis of the guaranty and guaranty fee payments relied
on by the Tax Court evidence that Vitro was being compensated for its promise

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                                  No. 10-60515

to stand by in the event a future obligation materialized and not for putting its
money at risk at the time of signing the guaranty. Accordingly, the Tax Court’s
factual findings are not clearly erroneous, nor is its ultimate characterization
incorrect.
      It is clear that the source of payments for services is where the services are
performed, not where the benefit is inured. See Comm’r v. Piedras Negras
Broadcasting Co., 127 F.2d 260, 261 (5th Cir. 1942). The Tax Court held that
Vitro’s promise to pay in the event of default produced the guaranty fees. Vitro’s
guaranty was the service. Thus, the services were performed in Mexico, and
International did not have to withhold thirty percent of the guaranty fees paid.
Container Corp., 134 T.C. at 140.
      Under these factual circumstances, the guaranty fees are more analogous
to payments for services, and the income was properly sourced outside the
United States. As we find no reversible error of fact or law, the judgment of the
Tax Court is AFFIRMED.




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