United States v. Balanovski

Israel Balanovski (defendant), an Argentine citizen, and Samuel Horenstein (defendant) were partners in an Argentine partnership, the Compania Argentina de Intercambio Comercial (CADIC). Balanovski’s interest in the CADIC was 80 percent. For a period of time, Balanovski was in the United States to buy and sell trucks on the CADIC’s behalf, earning about $7.8 million in profits. Over 20 transactions occurred in which Balanovski and Horenstein arranged for the sale of equipment from a United States supplier to the Instituto Argentino de Promocion del Intercambio (IAPI), an Argentine government agency. For these transactions, the IAPI had a New York bank open a letter of credit for Balanovski, which he partially assigned to the supplier. The supplier submitted a sight draft for the price along with documents such as an invoice billing Balanovski, a warehouse receipt in the New York bank’s name, and an insurance policy covering delivery F.O.B. New York City. If the CADIC received a quantity discount, the supplier paid the same amount to Balanovski. Balanovski drew on the remainder of the letter of credit by sight draft, submitting documentation such as an invoice billing the IAPI and an insurance policy covering delivery F.A.S. to a United States seaport. The New York bank gave Balanovski the warehouse receipt, and Balanovski delivered the documentation to the IAPI’s Argentine agent. Balanovski received any remainder due under the letter of credit. Balanovski arranged shipment to Argentina, but the IAPI paid shipping and marine-insurance expenses. Each time, Balanovski was paid United States dollars in New York, which he deposited in his name in New York banks. Balanovski also hired a secretary in New York. Upon leaving the United States, Balanovski filed a departing-alien income tax return, declaring no income. The commissioner of Internal Revenue (plaintiff) levied a tax of about $2 million on the CADIC’s United States earnings, some of which was attributed to Horenstein’s 20 percent partnership share. Internal Revenue Code § 861(a)(6) provided that a nonresident alien doing business in the United States earned income from sales of personal property in the country where the goods were sold. A district-court judge ruled that the CADIC was not doing business in the United States because Balanovski was a mere purchasing agent.