Commissioner v. Piedras Negras Broadcasting Co.

Piedras Negras Broadcasting Co. (Piedras Negras) (defendant) was a Mexican corporation with principal places of business and offices in Piedras Negras, Mexico. Piedras Negras operated a radio station across the Rio Grande from the United States. Most of Piedras Negras’s business came from the sale of radio advertising time. The contracts for such sales were executed in Mexico, and all services were rendered in Mexico. These contracts went through an American advertising agent who was an independent contractor. Most listeners of the station were in America (although the signal was broadcast equally in all directions), and 95 percent of the station’s income came from American advertisers. Piedras Negras had a mailing address in Texas and kept a hotel room in Texas where, each day, the advertising funds were counted and allocated. The issue in this case was whether Piedras Negras derived any income from sources within the United States. As a foreign corporation, Piedras Negras was subject to United States income tax only if the company had income from sources within the United States. The Commissioner of Internal Revenue (the commissioner) (plaintiff) believed that Piedras Negras had income from sources within the United States, but after Piedras Negras filed suit, the Board of Tax Appeals found for Piedras Negras. The commissioner then appealed.