Rose v. Commissioner

David E. Rose, Petitioner, v. Commissioner of Internal Revenue, Respondent Rose v. Commissioner Docket No. 22605 United States Tax Court 16 T.C. 232; 1951 U.S. Tax Ct. LEXIS 294; January 29, 1951, Promulgated *294 Decision will be entered for the petitioner. Petitioner left the United States in 1938 in order to take a position as the managing director of all the subsidiaries of Paramount Pictures, Inc., in the United Kingdom. This was a permanent and continuing position, and one of the conditions of petitioner's employment was that he move to and reside in England. This he did, taking his family, personal effects, and furniture with him, and renting an apartment in London under a 5-year lease. During the years 1943, 1944, 1945, and 1946, petitioner made a number of trips to the United States in order to visit his family who had returned to the United States upon the fall of the Low Countries in 1940. Upon the end of the war in Europe, petitioner's family returned to England. Held: Petitioner was a bona fide resident of Great Britain during the entire taxable year in 1943, 1944, and 1945, and during 1946 until September 30 of that year. Courtland Kelsey, Esq., and Marshall A. Jacobs, Esq., for the petitioner. William F. Evans, Esq., for the respondent. Harron, Judge. HARRON *232 The Commissioner has determined deficiencies in the income tax liability of the petitioner as follows: Year Amount [1943] $ 84,662.76 [1944] 52,832.72 [1945] 41,876.07 [1946] 43,425.41 The year 1942 is also involved because of the forgiveness feature of the Current Tax Payment Act of 1943. The only issue in this proceeding is whether the petitioner was a bona fide resident of a foreign country and was, therefore, entitled under section 116 (a) of the Internal Revenue Code as amended by section 148 (a) of the Revenue Act of 1942 to exclude from his gross income sums paid to him during the years 1942 through 1946 for services which he rendered*296 in Great Britain. The petitioner filed returns for the years 1943 through 1946 with the collector for the second district of New York. FINDINGS OF FACT. Petitioner is a United States citizen who prior to July 1938 had made his permanent residence in California. He had been employed for many years in an administrative and executive capacity in the motion picture business in California. In the summer of 1938 petitioner entered into an oral contract of employment with Paramount *233 Pictures, Inc., which is referred to hereinafter as Paramount. Under this agreement, the petitioner was employed to take charge of Paramount's motion picture production in Great Britain for an indefinite period. One of the conditions of petitioner's employment was that he move to and reside in England. After accepting employment with Paramount, petitioner relinquished his apartment in California and resigned from the clubs of which he was a member. Before leaving for England, petitioner conferred with Paramount's tax counsel in respect to his liability for income taxes in Great Britain. The attorney advised petitioner that, under British tax law, since his contract of employment was entered into*297 in the United States, if his salary was deposited in a bank in the United States and not remitted to him in Great Britain, then he would not be subject to British income tax on it. Accordingly, petitioner made arrangements for his weekly salary checks and any bonus which might be due him to be deposited in an account which petitioner opened with the Chase National Bank in New York City. Under the employment agreement, Paramount agreed that the living expenses of petitioner and his family in England would be paid by either Paramount or one of its British subsidiaries. On August 1, 1938, petitioner left the United States for England. On his arrival in England he obtained living quarters at the Claridge Hotel in London. In September 1938, petitioner's family, consisting of his wife and infant child, arrived in England. Sometime before the end of the year 1938, petitioner and his family moved from the Claridge Hotel to a flat at 37 Grosvenor Square where they remained for 6 months. Petitioner then rented an apartment at 3 Grosvenor Square under a 5-year lease for himself and his family. This apartment was furnished with petitioner's personal effects and furnishings which had been*298 brought from the United States. Petitioner also joined several English clubs and opened charge accounts with a number of stores in London. When the petitioner moved to England in 1938, he intended to make his residence there for an indefinite period of time. In December 1938, petitioner was appointed chairman and managing director of all Paramount subsidiaries in the United Kingdom. Under his direction were the sale and distribution in the United Kingdom of the motion pictures produced by Paramount, the management of the theatres owned by Paramount in the United Kingdom, and general supervision of the motion pictures produced by Paramount in the United Kingdom. Petitioner carried on these duties continuously from December 1938 until September 30, 1946. Because of the outbreak of war, petitioner's wife and infant child returned to the United States in October 1939. In March 1940, petitioner's wife and child returned to Great Britain and were allowed *234 to enter that country as "returning residents." Petitioner and his family resided in their apartment at 3 Grosvenor Square after the return of his wife and child. In June 1940, after the fall of the Low Countries and France, *299 petitioner's wife and child were evacuated to the United States. Petitioner remained in England to carry on his duties as managing director of the Paramount enterprises there. In October 1940, petitioner canceled the lease on the Grosvenor Square apartment, placed his furniture in storage, and moved back to the Claridge Hotel where he maintained apartment 229-230 continuously until October 1946. Petitioner's family remained in the United States for the remainder of the war in Europe. During this period, they resided in homes in California and in Bronxville, New York, which were rented furnished. While his family was in the United States, petitioner returned to the United States twice yearly, in June or July and in December, in order to visit them and in order to report to his employer, receive instructions, and familiarize himself with new developments. Most of petitioner's time in the United States was spent with his family. The conferences between petitioner and his employer consumed very little of petitioner's time. Discussions at the conferences included such subjects as the trend in the production of motion pictures and newsreels and the exploitation of them in Great Britain, *300 the general business carried on in Great Britain, and the selection of actors and actresses best suited for the production of motion pictures in England. On a few occasions, there was some difficulty in getting return passage to England and the petitioner was obliged to wait for sailings. During a summer visit to the United States in 1944, the petitioner was recuperating from a general run-down condition. During the visit to the United States in June of 1945 the petitioner made arrangements for the return of his family to England. In August 1945, petitioner's family returned to England. They were considered by the United States State Department and the British Passport Control Office to be returning residents of England. Upon the arrival of his family, petitioner rented a home in Sunningdale, a suburb of London, which he occupied with his family until the end of March 1946. He also retained his suite in the Claridge Hotel. Petitioner's child was entered in an English school, which he attended during the remainder of 1945 and during 1946. At the end of January 1946, petitioner made a trip to the United States and remained in this country until the end of February. During this*301 time he conferred with officials of Paramount for three or four days, and he had an extensive medical examination at the Harkness Pavilion in New York City which also took three or four days. *235 Petitioner spent the remainder of his time on vacation. His wife was also in the United States during part of this time. On March 28, 1946, petitioner rented another home in Sunningdale under a 6-month lease. Petitioner was given an option to purchase the home during the term of the lease. In May, petitioner had an appraisal made of the house and entered into a contract for its purchase. Petitioner subsequently changed his mind about purchasing the house, and the contract was canceled. On June 5, 1946, petitioner entered into an agreement with James Mason for the production and distribution of motion pictures. It was contemplated that an American company would be set up to produce two motion pictures a year, in either the United States or Great Britain, with Mason as their star. Several weeks later, petitioner made a trip to the United States in order to sever his connections with Paramount. While in the United States, he resigned his position with Paramount, effective September*302 30, 1946. Petitioner then returned to England. At the end of August 1946, petitioner again came to the United States in connection with his contemplated venture with James Mason. While he was in the United States, petitioner hired an attorney and incorporated a motion picture company under the laws of California. He remained in the United States about 30 days and then returned to England where disputes arose between Mason and petitioner in respect to their contemplated motion picture venture. On September 30, 1946, petitioner ceased active work for Paramount. However, Paramount continued to pay him until the end of the year in consideration of the services which he had rendered in England prior and to September 30, 1946. Toward the end of September 1946, petitioner's family returned to the United States where they took up residence in Beverly Hills, California. About this time, Mason decided not to carry out his part of the agreement with petitioner, and petitioner decided to return to the United States to live. On November 11, 1946, petitioner returned to the United States and took up his residence with his family in Beverly Hills. During the years 1943 through 1946, petitioner*303 carried on buying and selling transactions in stocks and bonds within the United States through the Chase National Bank. During his visits to the United States, petitioner gave instructions to the bank as to the securities to be bought and sold. Petitioner registered for the draft in New York in January 1942. Each time that petitioner thereafter left the United States he first secured the permission of his draft board. Petitioner filed no income tax returns and paid no income taxes in Great Britain for the years 1943, 1944, 1945, and 1946. *236 Petitioner's compensation from Paramount during the years in question was earned income from sources without the United States. The petitioner was a bona fide resident of Great Britain during the entire taxable year in 1943, 1944, and 1945, and during 1946 until September 30, 1946. OPINION. The issue in this proceeding is whether petitioner is entitled under section 116 (a) to exclude from his gross income sums paid to him during the years 1943, 1944, 1945, and 1946 for personal services which he rendered in Great Britain. Petitioner contends that the compensation which he received during 1943, 1944, and 1945 for personal services rendered*304 without the United States is not includible in his gross income for those years under section 116 (a) (1) because he was a bona fide resident of Great Britain during the entire period of each of those years. Petitioner also contends that the compensation which he received during 1946 for personal services rendered without the United States is not includible in his gross income for that year under section 116 (a) (2) because he had been a bona fide resident of Great Britain for at least two years prior to the date on which he changed his residence to the United States in that year. Respondent, however, contends that the income in question is not excludible from petitioner's gross income because petitioner was not a bona fide resident of Great Britain for the entire taxable year during any of the years involved. The question of whether petitioner was a bona fide resident of Great Britain during the years involved is one of fact, Audio Gray Harvey, 10 T. C. 183; Charles F. Bouldin, 8 T. C. 959, and the criteria to be used in determining the question are the same as those which are applicable in determining whether an alien*305 is a resident of the United States. Arthur J. H. Johnson, 7 T. C. 1040; Herman Frederick Baehre, 15 T. C. 236; Seeley v. Commissioner (CA-2), 186 Fed. (2d) 541, affirming in part and reversing in part 14 T. C. 175; Regulations 111, section 29.116-1. These criteria are listed in Regulations 111, section 29.211-2, reprinted in the margin, 1 and are precisely applicable to the instant proceeding. They all point conclusively to the conclusion *237 that petitioner established a bona fide residence in Great Britain several years prior to the years in question and that he maintained it during the years before us. *306 Petitioner left the United States in 1938 in order to take a position as the managing director of all Paramount subsidiaries in the United Kingdom. This was a permanent and continuing position. Its objectives could not be promptly accomplished, and residence in Great Britain was necessary for their fulfillment. One of the conditions of petitioner's employment was that he move to and reside in England. This he did, taking his family, personal effects, and furniture with him, and renting an apartment in London under a 5-year lease. Petitioner was not a mere transient or sojourner in Great Britain; he intended to stay in England as long as he retained his position with Paramount. It is significant that before leaving the United States petitioner relinquished his apartment in California and resigned from the clubs of which he was a member. Once in England, he joined several English clubs and opened charge accounts with a number of stores in London. The chief reason for the respondent's contention that the petitioner was not a bona fide resident of Great Britain during the taxable years is that in each year the petitioner made visits to the United States. Upon a careful consideration*307 of all of the evidence, we are unable to conclude that these visits deprive the petitioner of the status for which he contends, i. e., the status of being a bona fide resident of England during the taxable years. The petitioner's only employment was in Great Britain, and the income in question was received for services which he rendered while he was there. The war in Europe had necessitated the petitioner's sending his family back to the United States for safety. He, however, remained in England at his job which he continued to carry on. With his family in the United States, it was only natural that the petitioner should desire to spend with his family as much of the vacation periods allowed to him by his employer as was possible. In addition, petitioner conferred with his employer while in the United States in respect to the business being done by Paramount in Great Britain. The report of the Senate Finance Committee on the proposed amendments of section 116 (a), as amended by section 148 (a) of the Revenue Act of 1942, states that "vacation or business trips to the United States during the taxable year will not necessarily deprive a taxpayer, otherwise qualified, of the exemption*308 provided by this section." Sen. Rept. No. 1631, 77th Cong., 2d Sess. (1942), p. 116. This language has been adopted by the respondent in section 29.116-1 of Regulations 111. *238 Upon all of the evidence, it is concluded that the time which was spent by the petitioner in the United States during each of the taxable years was not sufficient to deprive him of having the status of a bona fide resident of Great Britain during the taxable years. See Seeley v. Commissioner, supra;Myers v. Commissioner, 180 Fed. (2d) 969; Chidester v. United States, 82 Fed. Supp. 322; Yaross v. Kraemer, 83 Fed. Supp. 411; White v. Hofferbert, 88 Fed. Supp. 457, in all of which cases the taxpayer spent varying times within the United States and yet was held to be a bona fide resident of a foreign country during the entire taxable year. The respondent also makes a point of the fact that the petitioner paid no income taxes to Great Britain for the years involved. He urges that the exemption granted by section 116 (a) is somehow contingent*309 upon the payment of income taxes to the foreign country claimed as a residence. However, although the avoidance of double taxation may have been one of the motives for the original enactment of section 116 (a), payment of taxes to a foreign government nowhere was made a condition precedent to the permitted exclusion. In addition, under applicable English law, "residence" does not appear to have been a factor in exempting the petitioner from English taxes, and the fact that the petitioner did not pay any income taxes to Great Britain is not determinative in this proceeding of the question of whether or not the petitioner was a bona fide resident of Great Britain. It is held, upon the evidence, that the petitioner was a bona fide resident of Great Britain during all of 1943, 1944, and 1945, and during 1946 until September 30th. The income which he earned from personal services performed without the United States during 1943, 1944, and 1945 is properly excludible from his gross income under section 116 (a) (1), as amended; and the income which he so earned during the period in 1946 prior to September 30th is excludible from his gross income under section 116 (a) (2). Decision will*310 be entered for the petitioner. Footnotes 1. 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 return to his domicile abroad when the purpose for which he came has been consummated or abandoned. * * *↩