Fiske v. Commissioner

ESTATE OF W. M. L. FISKE, DECEASED, CENTRAL HANOVER BANK AND TRUST COMPANY, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Fiske v. Commissioner Docket No. 102055. United States Board of Tax Appeals 44 B.T.A. 227; 1941 BTA LEXIS 1356; April 23, 1941, Promulgated *1356 1. NONRESIDENT - SEC. 116(a), REVENUE ACT OF 1936 - EXCLUSION FROM INCOME. - An American citizen, who for many years had resided in France and had conducted a business there, remained a nonresident of the United States during the taxable year even though he spent all of that year in this country to which he had returned for a short visit and from which illness prevented his leaving until after the close of the year. 2. COMPENSATION FOR PERSONAL SERVICES ACTUALLY RENDERED. - Salary received by the above described person for the taxable year was compensation for personal services actually rendered outside of the United States. Charles C. Parlin, Esq., and John A. Reed, Esq., for the petitioner. Gerald W. Brooks, Esq., for the respondent. MURDOCK *228 The Commissioner determined a deficiency of $23,308.76 in the income tax of the decedent for the calendar year 1936. The question for decision is whether or not the sum of $37,400 paid to him during that year by Dillon, Read & Co., may be excluded from his gross income under section 116(a) of the Revenue Act of 1936 as earned income of a bona fide nonresident citizen of the United States. *1357 FINDINGS OF FACT. The decedent was at all times a citizen of the United States. He was born in 1879. He died on October 5, 1940, in New York City. His will was probated in New York County as that of a resident of that county and letters testamentary were granted to the Central Hanover Bank & Trust Co. The decedent resided in Chicago from the time of his marriage in 1906 until 1924. He was a vice president of Dillon, Read & Co. from 1922 until the time of his death. Dillon, Read & Co. was a joint stock association engaged in the investment banking business, with its principal office in New York City. The petitioner was not a stockholder after 1935. He was manager of the Chicago office at the time he left Chicago in 1924. He then went to Paris, France, to take charge of the office of the company in that city. His wife and two children also went to Paris. The decedent continued as manager of the Paris office from 1924 until the time of his death. The decedent and his wife have resided in an apartment in Paris since about 1926. The decedent leased the apartment for terms of three or more years. He also rented a country place about twenty-five miles from Paris, which*1358 he and his family occupied during the summer months and during occasional week ends at other seasons of the year. Both the apartment and the country house were furnished by the decedent, who, after 1926, owned no household furnishings in the United States. The son and daughter of the decedent attended schools abroad and resided with their parents. The daughter returned to the United States shortly after her marriage in Paris in 1929. The decedent's son, after graduating from college in England in 1930, worked in the New York and London offices of Dillon, Read & Co. He was not residing with his father and mother in 1936. The decedent made four trips to the United States while he resided in France. On the first three he arrived in this country for the Christmas season and returned to Paris in either January or February of the following year. His wife made annual trips to the United States for the purpose of visiting her mother, until the mother died in 1929. The decedent and his wife came to the United States in the early part of December 1935 for the purpose of visiting and spending *229 a short vacation with their daughter and grandchildren at San Mateo, California. *1359 The daughter leased a small furnished house for them in San Mateo for a term of three months. They intended to return to Paris at the end of that period and to continue to reside in Paris. The decedent, shortly after his arrival in California, in January 1936, became seriously ill from an acute heart condition and high blood pressure. He was forced to go to a hospital for treatment. He remained in the hospital for several weeks and thereafter, until October 1936, was cared for in the house at San Mateo. His doctor did not allow him to do work of any kind. He and his wife left California in October 1936 for New York, where they intended to sail for Paris. He had a recurrence of the illness when he reached New York and was not able to return to Paris until March 1937. He was continuously under the care of doctors and was completely incapacitated from working during his entire stay in the United States. He was within the territorial boundaries of the United States at all times during the year 1936 and performed no service of any kind for Dillon, Read & Co. during that year. The apartment in Paris was occupied by servants during the absence of the petitioner and his wife. *1360 The same is true of the country place. Both places were ready for occupancy by the decedent and his wife whenever they should return. Dillon, Read & Co., paid the decedent $37,400 during the year 1936 as salary for that year. He received substantially that same amount as salary in years prior and subsequent to 1936. The decedent resumed his duties as manager of the Paris office when he returned to Paris in 1937 and continued those duties until May 1940, at which time he left Paris and returned to the United States because Paris was about to be occupied by the German Army. The decedent received news in August 1940 that his son, a member of the British Royal Air Force, had been killed in combat on August 17, 1940. The decedent then decided to reside permanently in the United States and made plans to have his household furnishings moved from France to this country. The decedent, while away from the United States, always used a United States passport. He had his passports renewed from time to time. He applied for a passport in November 1936 and on that application, after the printed words "I am domiciled in the United States, my permanent residence being at", he inserted*1361 the following: "134 So. La Salle St., Chicago, Illinois", and underneath that "Waldorf-Astoria Hotel, N.Y.C." He also stated on that application that he intended to leave the United States on November 18, 1936, to visit Europe for the purpose of business and pleasure, and intended to return to the United States within an indefinite number of years. *230 His last previous application for a passport was made in September, 1932. The printed form of that passport contained the words "My legal residence is at" and there was inserted after those words on the application "134 South La Salle St., Chicago, Ill." Several of the applications contain a statement that the decedent had been residing in France since 1924 and that he was engaged in business there. The decedent owned a number of securities which were kept for him by custodians in the United States. The income from these securities was received in his behalf by his former secretary in Chicago. She did not have custody of the securities. She had partial use of an office at 134 South La Salle Street, Chicago, where she carried on the activities intrusted to her by the decedent and kept records pertaining to his securities. *1362 She prepared an annual income tax return for him and gave that office as his address. The returns were audited by a firm of accountants and sent to the decedent for execution. The returns for the years up to and including 1936 were filed with the collector of internal revenue at Chicago. Thereafter, they were filed with the collector at Baltimore. The Commissioner, in determining the deficiency, included the $37,400 received from Dillon, Read & Co. in income and explained that it was not exempt from taxation under section 116(a) of the Revenue Act of 1936. The petitioner was a bona fide nonresident of the United States during all of the calendar year 1936. OPINION. MURDOCK: Section 116(a) of the Revenue Act of 1936 exempts from taxation, in the case of an individual citizen of the United States who is "a bona fide nonresident of the United States for more than six months during the taxable year", amounts received from sources without the United States which would constitute earned income, as defined in section 25(a), if received from sources within the United States. Earned income is defined in section 25(a) to include "compensation for personal services actually rendered. *1363 " The petitioner contends that the decedent was a bona fide nonresident during all of the year 1936 and received the $37,400 as compensation for personal services actually rendered abroad. The Commissioner contends that the facts in the present case fail to bring it within the provision of section 116(a) in two respects - first, the decedent was not a bona fide nonresident of the United States for more than six months during the taxable year, and, second, the $37,400 which he received was not "compensation for personal services actually rendered." He argues that the only person who can qualify as "a bona fide nonresident of the United States for more *231 than six months during the taxable year" is one who has been physically absent from the United States for more than six months of the taxable year. He says, in this connection, that the establishment of an actual residence is unimportant, since one who has been physically absent from the United States for more than six months of the year would receive the benefit of the exemption whether or not he had a residence outside of the United States, and one who was physically present in the United States for six months of the year*1364 would not receive the benefits of the exemption even though he had an actual residence outside of the United States. He attempts to support this narrow construction of the statute by its legislative history and by Bureau rulings. The words "residence" and "domicile" have never been satisfactorily defined for legal purposes. See generally on this subject Kennan on Residence and Domicile. Where the word "nonresident" is defined in dictionaries, the definitions given are not sufficiently discriminative for present purposes. Although residence and domicile are sometimes regarded as synonymous, there would seem to be a difference. Domicile is the broader term, since a man may have his domicile at one place and actually reside for the time being in another. Bowring v. Bowers, 24 Fed.(2d) 918; Carstairs v.United States (Dist. Ct., E. Dist. Pa., 1936, not officially reported); J. P. Schumacher,32 B.T.A. 1242. The basic concept involved in the term "residence" is that of being seated or abiding in a place, while the predominant element in domicile is the intention of remaining. Thus, the distinction between residence and domicile seems*1365 to lie in the difference in degree of permanency contemplated. Residence is a variable and elastic term. Its meaning generally depends upon the context and the purpose of the statute in which it is used. The addition of the words "bona fide" to the term resident or nonresident would seem to imply that the intent of the person is of considerable importance. It might also prevent a person who has more than one residence from shifting importance to one or the other, as may suit his own interests. Looking to the context and the purpose of the statute to discover the meaning of the phrase " bona fide nonresident of the United States for more than six months during the taxable year", we do not discover much that is helpful. This phrase appeared for the first time in section 213(b)(14) of the Revenue Act of 1926. Paragraph 14 was one of a number of exclusions from income, but it bore no further relation to contiguous provisions. The purpose of the provision is not entirely clear. A statement was made during the hearings of the Ways and Means Committee urging the adoption of a provision which would "relieve American citizens resident in foreign countries and engaged there in the*1366 promotion of American foreign trade from *232 tax upon the income which they earn in the country of residence." See hearings before the Committee on Ways and Means on Revenue Revision, 1925, beginning p. 176. The House inserted language exempting salaries and commissions arising from the sale abroad of tangible personal property produced in the United States for export. This was said to be for the purpose of encouraging foreign trade. See Ways and Means Committee Report, 69th Cong., 1st sess., H.R. 1, p. 7. The Senate struck out this provision as unnecessary in view of the credit which a citizen would receive for income tax paid to a foreign country. See Senate Finance Committee Report, 69th Cong., 1st sess., S. R. 52, p. 20. Senator Smoot, in introducing a Senate amendment, later rejected, made some comments which are not helpful for present purposes. See Cong. Rec., vol. 67, beginning p. 3781. Quite different language from that originally used by the House was finally adopted in conference without comment, and that was the same language which has continued and which now forms section 116(a) of the Revenue Act of 1936. Conference Report, 69th Cong., 1st sess., H.R. *1367 356, p. 2. Comments in regard to this provision in later acts are no more helpful. Cf. 72d Cong., 1st sess., S.R. 665, p. 31; Cong. Rec., vol. 75, pp. 10410-11. Does this legislative history indicate anything in regard to the purpose of the provision other than would appear from the words used in the provision itself? It indicates that Congress did not intend to limit the exemption to persons domiciled in foreign countries. See also S.M. 5446, C.B. V-1, p. 49. If the purpose of the provision was correctly stated in the hearings before the Ways and Means Committee, that is, to relieve American citizens residing and engaged in business in foreign countries from tax upon the income which they earned in the country of residence, then the salary in question would come within the purpose of the legislation, since the decedent was a citizen residing and engaged in business in a foreign country and the income was earned in the country of residence. The use of the words "bona fide nonresident" instead of a straightforward statement that mere physical presence in or absence from the United States would be determinative, is indication enough that Congress did not mean the exemption to*1368 depend upon mere physical presence in or absence from the United States during six months of the year. The Bureau rulings are neither clear nor controlling on the question of what was meant by "bona fide nonresident." The exemption has been held applicable in the rulings, provided that the citizen was merely absent from the United States for more than six months during a taxable year, but it is quite another thing to say that it does not apply unless the person has been absent from the United States for more than six months during a taxable year. Physical absence *233 from the United States for the prescribed time would be a prerequisite in the case of a person who had no actual residence outside of the United States. However, a citizen who had an actual bona fide residence outside of the United States and no residence within the United States, has been held entetled to the exemption even though he was not physically absent from the United States for more than six months during the taxable year. Carstairs v. United States, supra.While decisions relating to the words "residence" and "nonresidence", as used in other statutes, are not particularly helpful, they do*1369 indicate that the test of mere physical presence or absence is not determinative. Cf. Hall v. Godchaux,149 La. 733; 90 So. 145. In re Conis, 35 Fed.(2d) 960; United States v. Dick,291 Fed. 420; United States v. Rockteschell,208 Fed. 530; United States v. Jorgenson,241 Fed. 412. The above cases, as well as many others, are authority for the proposition that a person may be an actual bona fide resident of a place and yet be absent from that place for one reason or another. Regulations 94, article 211-2 defines a nonresident alien as a person who is not a citizen and whose residence is not within the United States. It holds that one who is a mere transient or sojourner is not a resident, and whether he is a transient is determined by his intentions with regard to the length and nature of his stay. One who comes to the United States for a purpose which will require an extended stay and to that end makes his home temporarily in the United States is a resident, although he may have the intention at all times to return to his domicile abroad when the purpose for which*1370 he came has been consummated or abandoned. This regulation was originally promulgated in substantially the same language under the Revenue Act of 1921, and the court in Bowring v. Bowers, supra, said that congressional approval of it made it binding on the courts. Aliens have been held to be residents of the United States for income tax purposes even though they have been absent from this country for all or a part of the taxable year. Federico Stallforth,30 B.T.A. 546; affd., 77 Fed.(2d) 548; certiorari denied, 296 U.S. 606; J. P. Schumacher, supra;L. E. L. Thomas,33 B.T.A. 725; John Ernest Goldring,36 B.T.A 779. An alien may be a nonresident of the United States even though he resides in this country a substantial part of the year. Ingram v. Bowers, 47 Fed.(2d) 925: affd., 57 Fed.(2d) 65. Congress probably intended the word "nonresident" to have the same meaning in section 116(a) as it has in Supplement H, to which the above article applies. S. M. 5446, supra. Thus, it seems proper to conclude that the question of whether*1371 the decedent was a nonresident depends not merely upon the period of time he spent in the United States, but depends also upon the *234 purpose of his visit, his intentions, and surrounding facts and circumstances. Carstairs v. United States, supra. The principal reasons for our conclusion that he was a resident of France, and, consequently, was a nonresident of the United States during all of the taxable year are briefly stated in this paragraph. He was not a mere visitor, transient, or temporary sojourner in France. He went there to live and to conduct the business of Dillon, Read & Co. for a long period of time. He had been there for more than ten years when he left in the latter part of 1935 for a short visit to the United States. He had an established place of abode or residence in France for a number of years before, during, and after 1936. Apparently he had an intention to return permanently to the United States eventually, but his departure in 1935 was not to carry out any such intention. On the contrary, his intention at that time was to continue to reside in France for a lengthy, if indefinite, period of years. He came to the United States in December*1372 1935 purely as a visitor and temporary sojourner. He did not intend to take up residence in this country or to discontinue his residence in France. He left all of his personal belongings and household furnishings in France, with the exception of those personal belongings which he needed for the period of his visit. He had no household furnishings in this country and he acquired none. He intended to go back to France and use the household furnishings in his French residence. He had no permanent place of abode in this country and he did not intend to acquire any at any time during his visit. The furnished house in San Mateo was rented for a few months only to accommodate him during his visit. He was prevented by illness from returning to his residence in France, but he retained his intention to return there just as soon as his health would permit. Eventually, he did return and he continued to reside in France for several years. His business was in France, not here. The income was earned as a result of services performed outside the United States. The fact that he was actually physically present in the United States during the entire calendar year 1936 loses its importance*1373 in the face of his French connections, his intention to return to France, his lack of intent to establish any residence in the United States, the absence of any residence here, and the circumstances which prevented him from carrying out his intention to return to France. The respondent argues further that the decedent was not a resident of France since the best evidence of his intention is contained in the statements which he made in applications for passports and in income tax returns to the effect that his residence, permanent residence, or legal residence, was in Chicago or in New York. The decedent never concealed the fact that he had been living for years in *235 Paris, but, on the contrary, disclosed that fact in the applications for passports. He was required in those applications to give an address in the United States which, for the purposes of the passport, would represent his permanent or legal residence. The address which he usually gave, which seemed to be satisfactory for the purpose, was an office building in Chicago. Clearly, he never resided there and had no intention to reside there. Even if such evidence be regarded as tending to show residence in*1374 the United States, still it is not as persuasive as that discussed in the preceding paragraph. The respondent contends that the amount received by the decedent was not compensation for personal services actually rendered or performed because the decedent rendered no services during 1936. He says the amount was not a gift and he suggests that it might have been a distribution of profits. The amount was not a distribution of profits since the decedent held no stock in the company. Although the decedent was away from his place of business and was too ill to perform his duties during 1936, nevertheless, he had rendered services in the past, he was expected to continue to render services in the future, and his employer continued his salary during his illness. Cf. Lucas v. Ox Fibre Brush Co.,281 U.S. 115. His place of employment was in France. He served the company only by rendering personal services. Apparently, the decedent had developed an office organization and a clientele for his employer so that the business could go on even in his absence. His employer wanted to hold him as an employee. It is difficult to draw any other conclusion from the fact that*1375 the employer paid him the $37,400 in 1936. The Commissioner has held that retired pay and pensions are earned income. Mim. 3283, C. B. IV-1 p. 14. We conclude that the amount in question was paid to the decedent as compensation for personal services actually rendered outside of the United States. Reviewed by the Board. Decision will be entered under Rule 50. SMITH dissents.