Lovald v. Commissioner

Richard H. Lovald, Petitioner, v. Commissioner of Internal Revenue, Respondent Lovald v. Commissioner Docket No. 26582 United States Tax Court 16 T.C. 909; 1951 U.S. Tax Ct. LEXIS 213; April 26, 1951, Promulgated *213 Decision will be entered for the respondent. 1. Petitioner, a citizen of the United States, worked in China for UNRRA from March 1946 to September 1947. He had worked in Honduras from 1942 to September 1945 for The Institute of Inter-American Affairs and received terminal pay from that organization until March 1946, but his work in Honduras had ceased in September 1945 and he had returned to the United States with his family, had found employment with UNRRA and was on its payroll from November 1945. Held that he was not a resident of Honduras in 1946, therefore was not a resident of a foreign country or countries during the entire year 1946, under section 116 (a) of the Internal Revenue Code. 2. After termination of his assignment in China, petitioner left that country sometime in the latter part of 1947, and arrived in San Francisco on December 31, 1947. His intent when he went to China was to finish his assignment there and find employment elsewhere. When he left China he had no particular plan in China, and he intended to find other foreign employment if he could. He had had some idea of employment in Afghanistan. The record does not show when his family went to Honolulu. *214 Held, assuming petitioner's residence in China, it is not shown to have lasted until the end of 1947. F. Trowbridge vom Baur, Esq., and Ralph E. Becker, Esq., for the petitioner. James C. Maddox, Esq., for the respondent. Disney, Judge. DISNEY *910 This case involves income taxes for the calendar years 1946 and 1947. Deficiencies were determined in the respective amounts of $ 1,076.89 and $ 1,199.36. The only question involved is whether the petitioner, a citizen of the United States, was a bona fide resident of a foreign country or countries during the 2 years, so that his income from sources without the United States was exempt from taxation under section 116 (a) (1) and (2) of the Internal Revenue Code. FINDINGS OF FACT. Petitioner is a citizen of the United States. He filed individual income tax returns for the years 1946 and 1947, about March 1, 1948, with the collector for the district of Maryland. Petitioner graduated with a degree in geology from the University of Nebraska in 1932. From 1933 to about September 1942 he was with the Soil Conservation Service of the United States Department of Agriculture. In 1940 he was living with his family in*215 an apartment at 720 West Marble Street in Albuquerque, New Mexico, but later bought a home at 5 Chacon Place, Albuquerque, New Mexico, and was living there when about September 1942 he joined the Food Supply Mission of The Institute of Inter-American Affairs and went to Tegucigalpa, the capital of Honduras to work, as agriculturist. He knew some Spanish from study in high school. The Institute of Inter-American Affairs, hereinafter called the "Institute," was an agency of the United States. Petitioner sold his home at Albuquerque, his furniture, and his car for cash, part of which was transferred to Honduras, and the rest placed in a checking account in a bank in Albuquerque. That checking account was continued for five or six years until transferred to Minot, North Dakota, where petitioner has been located since 1949. Petitioner's salary checks from the Institute were mailed by the Institute to the bank at Albuquerque at his direction. *911 He opened a bank account in Honduras where he deposited his expense accounts, and to which he transferred his salary checks as he needed them, whenever he needed to enlarge his bank account. During the period petitioner was in Honduras*216 he paid income taxes to the United States on his salary from the Institute and such taxes are not involved in this proceeding. While there he paid a "head" tax to the Government of Honduras. It was not an income tax based upon a percentage, and was only a nominal sum. Petitioner worked for the Institute in Honduras about three years, from September 1942 to September 1945, at which time the agreement between the United States Government and the Government of Honduras was terminated as to food supply. Petitioner was called in by the office in Washington, ordered to come to Washington to report. The ending of the mission in Honduras closed the office there. When petitioner left Honduras about September 1945 he was not considering or interested in employment there. He did not intend to return to Honduras. When he came to Washington late in 1945, he stayed at various hotels. He discussed with the vice-president of the Institute, who was head of the Food Mission, possible reassignment to another country. He had been considering Haiti and was offered a position as chief of the Food Supply Mission there. He also interviewed various agencies, including UNRRA to which he submitted*217 his application about October 1945 and, as a result, accepted a position with UNRRA in lieu of the Haitian job. In November 1945 he was placed on the UNRRA payroll. In the meantime, though his actual employment by the Institute terminated in November, he had accumulated leave so that he continued to be paid until March 1946 by the Institute. His family by this time had arrived in Albuquerque and he went to Albuquerque to visit them and to explain to his wife what he was going to do. While in Albuquerque he and his family stayed at hotels, and later at a tourist camp. Finally, an acquaintance rented to his wife and daughter a furnished apartment on a temporary basis at 720 West Marble Street, where they had lived before buying a home at 5 Chacon Place. About the latter part of November 1945, he returned to Washington and started training for work with UNRRA in China. He lived at various hotels until a dormitory was set up for assignees to foreign countries. On January 27, 1946, petitioner left by ship for China, arriving there in March 1946. His intention was to remain there for the duration of the UNRRA and, if possible, to find employment elsewhere. He acquired some knowledge*218 of Chinese. The agreement on which petitioner went to China to work for UNRRA was that he must stay at least a year, but if before a year *912 was terminated or before the termination of the assignment he should accept employment elsewhere in China, UNRRA would have no further obligation for transportation; otherwise would return him to the United States. Shortly before he left for China he received a letter from the Government of Afghanistan asking him whether he would be interested in considering an offer from the Public Works Ministry as a soil expert. He replied that he had the assignment (to China) and felt obligated to complete the year at least to which he had agreed, or whatever additional time was necessary, and that he would write them again to see whether the position had been filled. Later letters from him received no answer. His family went to China at his expense as soon as he was able to arrange living facilities. They bought some furniture and were able to rent some and set up their living facilities at Tsingtao. They remained there until petitioner was, in the latter part of 1947, returned to Shanghai. In September 1946 he rented a home in Tsingtao. It *219 was poorly furnished and it was necessary to buy and borrow cots and buy rugs and dishes. When later, because of lack of heat, they had to vacate the house, some of the choice pieces purchased were sent back to the United States. Later they found a satisfactory apartment with adequate heat. His daughter was enrolled in a Catholic school at first and later transferred to a non-Chinese school for foreigners, supported by local contributions in part and in part by the United States Navy. There were no civic clubs in Tsingtao. Though there was an international club he did not belong to it. Petitioner's work in China lasted until about September 15, 1947, when the work of UNRRA was terminated, and he went to Shanghai. After about three months in Shanghai he was returned to the United States. UNRRA paid his transportation and directed him to come to Washington, where he had his termination conference, discussing his work in China and possible other employment. He arrived in San Francisco on December 31, 1947, and in Washington on January 1, 1948. The family did not return with him but went to Honolulu where they stayed about six months, until he learned where he was to be located, *220 after which they came to the United States. The petitioner has been in the United States ever since his return from China. Until about March 1, 1948, he was unemployed, attempting to find other employment. In 1948 he received an inquiry as to whether he would go to Guam. He indicated that he would but the job did not materialize. He then obtained employment with the Bureau of Reclamation, United States Government. At the time of trial he was negotiating with the Food and Agriculture Subdivision *913 of the United Nations for possible assignment to India, though he had filed no application. Petitioner never voted in the United States from September 1942 until 1948. Attached to each of petitioner's income tax returns for 1946 and 1947 is a withholding statement showing his address as "720 W. Marble, Albuquerque, New Mexico." He gave that address when he left for China when UNRRA made a request to him for an address in the United States. The petitioner was not a bona fide resident of a foreign country or countries for the entire year 1946, or for the entire year 1947. OPINION. Though the record here contains evidence of employment of the petitioner by The Institute of Inter-American*221 Affairs from September 1942, income as salary received from that organization is not here involved. Since it is an agency of the United States, within section 116 (a) (1) of the Internal Revenue Code, salary received from it is not exempt, and though during the taxable year 1946 petitioner because of "terminal" pay received income from the Institute until March 1, 1946, it is not claimed as exempt. Only salary received during 1946 and 1947 from UNRRA, an international organization not an agency of the United States, is herein involved. The evidence as to employment by the Institute was obviously adduced only to prove bona fide residence in a foreign country extending, as to Honduras, until March 1, 1946, when the petitioner arrived in China. Thus, it is sought (as to 1946) to satisfy not only the provisions of section 116 (a) (1) that foreign residence must be for the entire taxable year, but (as to 1947) the provisions of section 116 (a) (2)1 providing for exemption of income earned in the year when residence is changed back to the United States, if the party has been *914 a bona fide resident of a foreign country or countries for at least two years before that date. *222 The respondent contends that the petitioner was not a resident of a foreign country or countries, but if such resident, he was not such for the full year, either as to 1946 or 1947, because he was not a resident of Honduras after leaving there in 1945, therefore was, as to 1946 a resident of China, if at all, only after about March 1, 1946, and because, as to 1947, he left China before the end of the year, and, not having been at the date of his departure a foreign resident for two years, can not get the exemption because of a part-year foreign residence. *223 It is necessary, therefore, to consider the problem as to each year separately. As to 1946: In order to secure exemption, petitioner must establish a full year of foreign residence. He so attempts by contending that having since 1942 been resident in Honduras his residence there continued to March 1, 1946. Because he received, until that date, "terminal" pay from the Institute, petitioner says that until then he was "on vacation" from his work in Honduras, therefore comes within those cases which do not permit foreign residence to be interrupted by temporary vacation in the United States. The contention, under the facts here, is not sound. Assuming (but not finding, since the years 1942-1945 are not before us) that petitioner was a bona fide resident of Honduras, such residence terminated in September 1945. He testified that he had been instructed to return to Washington to prepare the "necessary reports of termination," that when he had finished such reports he did not intend to return to Honduras, because there was no employment there. Asked: "When the office was closed you were through with Honduras; is that correct?" he replied: "Yes, there was no other opportunity there." *224 The office was closed in September 1945, and he returned immediately to Washington. His family returned to the United States. He did not return to Honduras. Before the end of the year he had not only accepted employment with UNRRA but was training for that work and from November 1945 was on that payroll. Those cases with reference to temporary vacations away from continued work in foreign service have no logical application. Terminal pay received until March 1, 1946, does not prove temporary vacation, but a mere contractual right. That the petitioner, prior to going to China and after returning from Honduras, considered going to Haiti or Afghanistan does not extend residence in Honduras. He had terminated any such residence, returned to the United States and settled his family in Albuquerque, New Mexico, his former home, and had not yet taken up residence or alleged residence in China. We conclude that, assuming residence in Honduras, it terminated about September 1945. He did not establish an alleged residence in China until about March 1, 1946. From this it follows, *915 and we hold, that, assuming residence in China, he was not such resident the entire year 1946, *225 and was not a resident of Honduras during the earlier part of 1946, therefore is not entitled to exemption from taxation of his salary from UNRRA for that year. The question of exemption for 1947 is next considered. An exemption statute is involved, as is shown by "exempt" in the first sentence of section 116. The petitioner must clearly bring his situation within it. He contends that he was a bona fide resident of China for the entire year. Respondent argues that even assuming residence it was not for the whole year, since petitioner, respondent says, left China about December 15, 1947, and arrived in San Francisco December 31, 1947. The petitioner, to this contention, though contending for foreign residence for all of 1947, in effect replies that under section 116(a) (2) he need not establish such residence for the whole year, for if there was change of residence to the United States in December 1947, he had been a bona fide resident of foreign countries -- China and Honduras -- for two years before any alleged change back to the United States. We having concluded above that he was not a resident of Honduras after September 1945, it follows that petitioner was not, for two*226 years before the date of alleged change of residence from China, a resident of a foreign country or countries, and that petitioner cannot prevail, as to 1947, on that ground. There remains, however, the question as to whether there was residence in China, bona fide and continuous throughout 1947. Again assuming such residence, on all of the facts, we think it is not shown to have covered the entire year. He arrived in San Francisco on December 31, 1947, and in Washington on January 1, 1948. The record does not show when he left China, except that it was after about three months in Shanghai, to which city he went sometime in September 1947. The evidence does not show whether his family left China with him. It does not show when they arrived in Honolulu, or when he arrived in Honolulu, or how long he stayed there. Asked whether he intended to return to China after completing his report in Washington, the petitioner replied that he "had no particular plan in China," at the time and had hoped to get employment in Afghanistan. His plans when he returned were to find other foreign employment if he could. When he arrived in China in 1946, his intent was "to remain there for the *227 duration of the UNRRA assignment and if possible to find employment elsewhere" (emphasis added). It is apparent, we think from the record before us, that residence in China is not shown to have lasted throughout the year 1947. If anything, it tends to indicate termination of any such residence prior to the end of 1947, with intention on the part of the petitioner to seek some new field of activity, with Afghanistan in his mind. This leaves no reason to support the theory of residence in China after departure from that country. We, therefore, conclude and hold that *916 assuming a bona fide residence in China it is not shown to have been for the entire year 1947 and that as to that year the Commissioner did not err in denying exemption from taxation of petitioner's salary from sources without the United States. Decision will be entered for the respondent. Footnotes 1. SEC. 116. EXCLUSIONS FROM GROSS INCOME. * * * 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 constitute earned income as defined in paragraph (3); * * *. (2) Taxable year of change of residence to united states. -- In the case of an individual citizen of the United States who has been a bona fide resident of a foreign country or countries for a period of at least two years before the date on which he changes his residence from such country to the United States, amounts received from sources without the United States (except amounts paid by the United States or any agency thereof), which are attributable to that part of such period of foreign residence before such date, if such amounts constitute earned income as defined in paragraph (3); * * *. * * * *↩