Article 14 of the Treaty provides:

1. Income derived by an individual who is a resident of a Contracting State from the performance of personal services in an independent capacity shall be taxable only in that State, unless such services are performed in the other Contracting State and the income is attributable to a fixed base regularly available to the individual in that other State for the purpose of performing his activities.

2. The term “personal services in an independent capacity” includes but is not limited to independent scientific, literary, artistic, educational, or teaching activities as well as the independent activities of physicians, lawyers, engineers, economists, architects, dentists, and accountants.

Applying Article 14 in the partnership context requires a determination of whether an individual partner in a service partnership who derives income attributable to the fixed base of the service partnership in the other Contracting State is taxable on that income even though the partner does not perform any services in the other Contracting State. Consistent with section 875 and the case law

discussed above, the fixed base of a partnership is attributed to its partners for purposes of applying Article 14 of the Treaty. Accordingly, A is treated as having a fixed base regularly available to him in the United States. A is subject to U.S. net income taxation on his allocable share of income from P to the extent that such income is attributable to the fixed base in the United States without regard to whether A performs services in the United States.

HOLDING

A is treated as having a fixed base regularly available to him in the United States and is subject to U.S. net income taxation on his allocable share of income from P to the extent that such income is attributable to P’s fixed base in the United States, without regard to whether A performs services in the United States. This holding also is applicable in interpreting other U.S. income tax treaties that contain provisions that are the same or similar to Article 14 of the Treaty.

DRAFTING INFORMATION

The principal author of this revenue ruling is Nina Chowdhry of the Office of Associate Chief Counsel (International). For further information regarding this revenue ruling, contact Nina Chowdhry at (202) 622–3880 (not a toll-free call).

Section 1361.—S Corporation Defined

If the requirements of this revenue procedure are satisfied, the Service will accept the position that a corporation’s S election is not affected when an ESOP distributes stock of that corporation to a participant’s IRA in a direct rollover. See Rev. Proc. 2004-14, page 489.

Section 1362.—Election; Revocation; Termination

26 CFR 1.1362–1: Election to be an S Corporation.

If the requirements of this revenue procedure are satisfied, the Service will accept the position that a corporation’s S election is not affected when an ESOP distributes stock of that corporation to a participant’s IRA in a direct rollover. See Rev. Proc. 2004-14, page 489.

2004-7 I.R.B. 487 February 17, 2004

Section 1366.—Pass-Thru of Items to Shareholders

If the requirements of this revenue procedure are satisfied, the Service will accept the position that a corporation’s S election is not affected when an ESOP distributes stock of that corporation to a participant’s IRA in a direct rollover. See Rev. Proc. 2004-14, page 489.

Section 4975.—Tax on Prohibited Transactions

26 CFR 54.4975–7(b)(10): Put option.

If the requirements of this revenue procedure are satisfied, the Service will accept the position that a corporation’s S election is not affected when an ESOP distributes stock of that corporation to a participant’s

IRA in a direct rollover. See Rev. Proc. 2004-14, page 489.

February 17, 2004 488 2004-7 I.R.B.