Opinion
Docket No. 9445.
1947-02-24
RALPH LOVE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
John Moore Robinson, Esq., for the petitioner. A. J. Hurley, Esq., for the respondent.
Petitioner, a citizen of the United States, went to the British Isles in 1942 as an employee of Lockheed Overseas Corporation to do work important and essential to the war effort. He landed in the British Isles in July 1942 and remained there until July 1944, when he returned to the United States. Petitioner, while in Ireland, married an Irish girl in 1944. Three months after petitioner returned to the United States his wife followed him and was admitted to the United States as a quota immigrant and joined him in California. At the time of the hearing of this proceeding petitioner was still employed by Lockheed and he and his wife and children were residing in California. Held, that petitioner was not during 1943 a ‘bona fide resident of a foreign country or countries‘ within the meaning of section 116, I.R.C., as amended by section 148(a) of the Revenue Act of 1942, and the salary which he received from Lockheed is not exempt from taxation. Michael Downs, 7 T.C. 1053, followed. John Moore Robinson, Esq., for the petitioner. A. J. Hurley, Esq., for the respondent.
The Commissioner has determined a deficiency of $986.23 in petitioner's income tax for the year 1943. The deficiency is due to the action of the Commissioner in taxing petitioner with $5,125 which he received as compensation in 1943 from the Lockheed Overseas Corporation. The Commissioner explained his determination in the deficiency notice as follows:
The above amount represents income received from the Lockheed Overseas Corporation which the taxpayer has excluded from Gross Income under Section 116(a) of the Internal Revenue Code. This amount has been restored to income for the reason that the taxpayer did not establish proof that he was a bona-fide resident of a foreign country during the entire taxable year as required by Section 116(a) of the Internal Revenue Code.
Petitioner by an appropriate assignment of error contests the correctness of the Commissioner's determination.
FINDINGS OF FACT.
Petitioner is a married individual and a citizen of the United States, residing in Huntington Park, California. Petitioner timely filed his income tax return for the taxable year 1943 with the collector of internal revenue for the sixth district of California at Los Angeles.
Early in 1942 Lockheed Aircraft Corporation entered into a contract with the United States Government in which the corporation agreed to organize, equip, and operate an aircraft depot in Northern Ireland in connection with the war effort. Prior to July 1, 1942, petitioner entered into a contract in writing with Lockheed Overseas Corporation, sometimes hereinafter referred to as Lockheed, in which he agreed to perform services for the corporation at an aircraft depot to be operated by it in the British Isles. This contract provided, inter alia, as follows:
ARTICLE 1. TIME AND DURATION OF EMPLOYMENT
Contractor employs Employee to render services in connection with said aircraft depot with such duties as reasonably may be assigned to him, and Employee accepts such employment with knowledge of the conditions recited above. Subject to the terms and conditions hereinafter set forth, Employee's employment hereunder shall commence when he reports for duty at a point within the United States to be designated by Contractor, at the time and place designated by Contractor, and shall continue until November 1, 1942, or such later date as may be agreed upon and thereafter until sixty (60) days after return transportation to the United States is made available by Contractor, it being understood that such return transportation shall be made available on November 1, 1942, or the later date agreed upon or as soon thereafter as is practicable under the circumstances then existing.
ARTICLE 7. HOUSING, SUBSISTENCE AND MEDICAL SERVICES
During the time that Employee is employed hereunder and remains at the place or places of his duty outside of the United States, Contractor shall furnish or cause to be furnished, without cost to Employee, such adequate food, lodging, special clothing and equipment, medical, nursing, and hospital services and treatment and recreational facilities as circumstances may reasonably permit.
On May 14, 1942, Lockheed applied to petitioner's selective service board for permission of the petitioner to leave the continental limits of the United States. In accordance with this request an exist permit was granted on May 18, 1942, authorizing the petitioner to depart from the United States and to remain absent therefrom for a period of six months.
On June 1, 1942, petitioner executed an application for passport to visit the United Kingdom. On the application petitioner stated that his legal residence was 321 Carroll Park West, Long Beach, California, and that he intended to return to the United States within six months.
Pursuant to the terms of his contract petitioner, on June 30, 1942, boarded the H.M.S. Maloja, a vessel of British registry, berthed in New York Harbor. The Maloja, with the petitioner aboard, sailed from New York Harbor early on the morning of July 1, 1942, bound for the British Isles. Petitioner landed in Liverpool, England, and was admitted to the British Isles on a limited visa as an employee of Lockheed Overseas Corporation. Following petitioner's arrival in Ireland, he continually from and after that time to the date of his return to the United States on July 12, 1944, was employed by Lockheed.
On or about November 1, 1942, the expiration date of petitioner's contract with Lockheed was extended by agreement of the parties to May 1, 1943, at which time he entered into a new contract with the corporation. This new contract provided, inter alia, as follows:
ARTICLE 1. TIME AND DURATION OF EMPLOYMENT
Contractor employs Employee to render services in connection with said aircraft depot with such duties as reasonably may be assigned to him, and Employee accepts such employment with knowledge of the conditions recited above. The term of Employee's employment hereunder shall * * *
* * * continue, subject to the terms and conditions hereinafter set forth, for (i) the duration of the contract between the Government and Lockheed as from time to time extended and for such period after the termination or completion of said contract as Contractor may, in respect of such Employee, deem necessary for the winding up of the operations carried on under said contract after such termination or completion; and (ii) thereafter until return transportation to the United States for such Employee is made available by Contractor or by the Government to Contractor which transportation Contractor shall use its best efforts to obtain as promptly after the end of the period described in the foregoing clause (i) as is practicable under the circumstances then existing; * * *
During petitioner's stay in North Ireland in the taxable year 1943 he lived in Army huts at the British base at Langford Lodge, North Ireland. His meals were chiefly furnished by his employer, Lockheed Overseas Corporation, and were eaten at the employees' mess on the base.
During the latter part of 1942 petitioner met an Irish girl who is his present wife, Frances Love. Soon after he met her he proposed marriage and she accepted on the condition that after they married they would buy a place and live in Ireland and that petitioner would go in business there. A tentative date was set for their marriage, but on account of petitioner's illness from pneumonia in 1943 they were not married until 1944. They were married in Belfast, Ireland, April 19, 1944, and they now have two children. One of them was born just prior to the hearing of this proceeding June 20, 1946. The family of petitioner's wife still lives in Ireland.
While in Ireland during the taxable year 1943 petitioner gave some consideration to going into business eventually in Ireland, either in the wholesale liquor business or in the manufacture of ice cream. Petitioner has had some experience in the latter kind of business. He definitely formed the intention of going into one or the other of these type businesses in Ireland at some future time and of residing there permanently with his family at some future time. He still has that intention.
Throughout the period petitioner remained overseas he was deferred from military service in the armed forces of the United States on occupational grounds by reason of his employment by Lockheed, and on request his permit to remain outside the United States was renewed by his selective service board at six-month intervals. During petitioner's stay in North Ireland he realized that as long as the war lasted or the Selective Service Act remained in effect he was not free to accept other employment or remain in Ireland beyond the duration of his Lockheed employment. On June 19, 1944, while he was still in Ireland, petitioner, on his application for renewal of passport, stated that his legal residence was 321 Carroll Park West, Long Beach, California. Petitioner remained in the employ of Lockheed, stationed in Northern Ireland, until the summer of 1944, when Lockheed operations in Northern Ireland terminated. Petitioner returned to the United States on July 12, 1944. Petitioner, as a civilian worker in a theater of war operation, was under the jurisdiction of the Army. Petitioner returned to the United States because under the Army jurisdiction he could not seek employment in Ireland.
Petitioner received the sum of $5,125 as compensation for personal services rendered to Lockheed in the British Isles and Northern Ireland during the year 1943, of which 90 per cent was deposited by the corporation to the account of the petitioner with the California Trust Co. of Los Angeles, pursuant to article 2 of his employment contract.
Three months following petitioner's return to the United States his wife left Ireland and came to the United States to live with him. Before leaving Ireland petitioner's wife applied to the American Consulate General at Belfast, Ireland, for an immigration visa to the United States as a ‘quota immigrant‘ and stated in her application that her purpose in going to the United States was to reside and that she intended to remain in the United States permanently.
Some time less than a year after his return to the United States, petitioner was inducted into the armed forces of the United States, where he served for a period of six months.
Petitioner paid no income tax to any foreign government for the taxable year 1943.
At date of the hearing petitioner was employed by Lockheed Aircraft Corporation in the United States at an hourly wage of $1.50, aggregating approximately $3,600 per year.
Petitioner's income tax return for the year 1943 was filed October 6, 1944, and did not report as taxable income any part of the $5,125 which he received as compensation from Lockheed during the year 1943. On his return petitioner stated his reasons for not returning such income for taxation, in part, as follows:
During the entirety of the period from the date the taxpayer departed from the United States to the present time, taxpayer was a bona fide resident of Ireland and intends to continue to be a bona fide resident of Ireland, and is only temporarily residing in the United States. Taxpayer's wife, at the present time, is in Ireland.
Taxpayer contends that all of the aforementioned earned income, as defined by Section 116(a)(3), is exempt from taxation under the Internal Revenue Code.
Petitioner was not a bona fide resident of a foreign country during the taxable year 1943.
Any facts embodied in the stipulation which are not included in the above findings are incorporated herein by reference.
OPINION.
BLACK, Judge:
There is but one issue in this proceeding and that is whether the $5,125 which the petitioner earned and received in 1943 while an employee of Lockheed is exempt from taxation under the provisions of section 116 of the Internal Revenue Code.
Both parties seem to agree that the applicable regulations are those printed in the margin.
SEC. 116. EXCLUSIONS FROM GROSS INCOME.In addition to the items specified in section 22(b), the following items shall not be included in gross income and shall be exempt from taxation under this chapter:(a) EARNED INCOME FROM SOURCES WITHOUT THE UNITED STATES.—(1) FOREIGN RESIDENT FOR ENTIRE TAXABLE YEAR.— In the case of an individual citizen of the United States, who establishes to the satisfaction of the Commissioner that he is a bona fide resident of a foreign country or countries during the entire taxable year, amounts received from sources without the United States (except amounts paid by the United States or any agency thereof) if such amounts would constitute earned income as defined in section 25(a) if received from sources within the United States; but such individuals shall not be allowed as a deduction from his gross income any deduction properly allocable to or chargeable against amounts excluded from gross income under this subsection.
SEC. 29.116-1 (Regulations 111). EARNED INCOME FROM SOURCES WITHOUT THE UNITED STATES.— For taxable years beginning after December 31, 1942, there is excluded from gross income earned income in the case of an individual citizen of the United States provided the following conditions are met by the taxpayer claiming such exclusion from his gross income: (a) It is established to the satisfaction of the Commissioner that the taxpayer has been a bona fide resident of a foreign country or countries throughout the entire taxable years; (b) such income is from sources without the United States; (c) the income constitutes earned income as defined in section 25(a) if received from sources within the United States; and (d) such income does not represent amounts paid by the United States or any agency or instrumentality thereof. * * * Whether the individual citizen of the United States is a bona fide resident of a foreign country shall be determined in general by the application of the principles of sections 29.211-2, 29.211-3, 29.211-4, and 29.211-5 relating to what constitutes residence or nonresidence, as the case may be, in the United States in the case of an alien individual.SEC. 29.211-2. DEFINITION.— * * *An alien actually present in the United States who is not a mere transient or sojourner is a resident of the United States for purposes of the income tax. Whether he is a transient is determined by his intentions with regard to the length and nature of his stay. A mere floating intention, indefinite as to time, to return to another country is not sufficient to constitute him a transient. If he lives in the United States and has no definite intention as to his stay, he is a resident. One who comes to the United States for a definite purpose which in its nature may be promptly accomplished is a transient; but if his purpose is of such a nature that an extended stay may be necessary for its accomplishment, and to that end the alien makes his home temporarily in the United States, he becomes a resident, though it may be his intention at all times to his domicile abroad when the purpose for which he came has been consummated or abandoned. An alien whose stay in the United States is limited to a definite period by the immigration laws is not a resident of the United States within the meaning of this section, in the absence of exceptional circumstances.
The legislative history of section 116 of the code was fully discussed in Arthur J. H. Johnson, 7 T.C. 1040. Also, sections 29.116-1 and 29.211-2 of Treasury Regulations 111 were analyzed and discussed in that case. We shall not repeat that legislative history and discussion here.
The facts in the instant case are in many respects the same as in Michael Downs, 7 T.C. 1053, now on review by the Ninth Circuit. In that case we held that Michael Downs was not during 1943 a ‘bona fide resident of a foreign country or countries‘ within the meaning of section 116 of the Internal Revenue Code as amended by section 148(a) of the Revenue Act of 1942 and that the salary which he received from Lockheed Overseas Corporation in 1943 was not exempt from taxation. Our decision in the Downs case is controlling here unless there are facts present in the instant case which would serve to distinguish it from the Downs case.
The petitioner lays much stress in his brief on the fact that in 1942 he met an Irish girl and became engaged to marry her and that one condition which she made in accepting him as her future husband was that he would go into business in Ireland and reside there permanently. We have carefully considered all the facts in the record with respect to petitioner's engagement and subsequent marriage in Ireland and we think that the most that these facts add up to when they are considered in their entirety is that at some future time petitioner and his wife intend to take up their residence in Ireland. That, of course, is not enough to make him a ‘bona fide resident‘ of Ireland in 1943, within the meaning of the statute.
In the first place, it must be borne in mind that petitioner was a citizen of the United States and was registered for the draft with his local board in California and was only able to go abroad in a civilian capacity by permission of his draft board, and this permission had to be renewed every six months. It seems to us that under these circumstances petitioner could not have changed his residence to Ireland, even if he had so desired.
With reference to the nature of petitioner's stay in Ireland under his contract with Lockheed, the following questions and answers occurred on cross-examination at the hearing:
Q You could hardly have intended to stay in Ireland longer than six months, or at least until your permit to remain outside the country expired, could you?
A Well, that depended on the draft board— requesting a renewal, you mean?
Q Yes.
A That was taken care of by Lockheed and certainly if the renewal was refused, I could see no other way but the Army would order us home.
Q The renewal was based on your occupational deferment?
A Correct.
Q You couldn't go into business and remain in Ireland?
A Not during time of war, no. I found that out when I reached Ireland.
Q You were under Army jurisdiction? You were not free to determine whether or not you would stay or not, were you
A Any civilian in a theatre of operation is under jurisdiction of the Army during time of war.
Just as soon as Lockheed finished its work in Ireland petitioner, along with other employees of Lockheed, returned to the United States. He reached the United States July 12, 1944. Three months later his wife came to the United States. Before coming she applied to the United States vice consul in Belfast, Ireland, for an immigration visa to the United States. She requested a visa not as a temporary visitor, but as a ‘quota immigrant.‘ The document contains the following statement: ‘That my purpose in going to the United States is to reside and I intend to remain permanently.‘
At the time of the hearing of this proceeding, petitioner and his wife and two children, the last one being born just prior to the hearing, were still in the United States and petitioner was still employed by Lockheed in California, near Los Angeles. We have no disposition to question the fact that petitioner and his wife have a bona fide intention to take up their permanent residence in Ireland at some time in the future and that petitioner intends to go in business there. But we are unable to find from the facts in the record that they have yet taken up their residence in Ireland.
On the facts we have found that petitioner was not a bona fide resident of a foreign country during the taxable year 1943. This being so, following Michael Downs, supra, we sustain the determination of the respondent.
Decision will be entered for the respondent.