J. H. Marsman v. Commissioner

J. H. Marsman v. Commissioner. Mary A. Marsman v. Commissioner. J. H. Marsman v. Commissioner Docket Nos. 18590, 18591. United States Tax Court 1950 Tax Ct. Memo LEXIS 270; 9 T.C.M. (CCH) 108; T.C.M. (RIA) 50038; February 21, 1950 *270 J. H. and Mary A. Marsman are husband and wife and citizens of the Commonwealth of the Philippines. J. H. Marsman visited the United States in connection with his business activities at various times in the taxable period of April 28, 1939 to December 31, 1941. After several previous visits in 1939 and 1940 in connection with her daughter's schooling, May A. Marsman arrived in the United States on September 22, 1940, with the intent to remain until such time as the danger of war in the Orient subsided. The respondent contends that the petitioners became alien residents of the United States when they first visited the United States on April 28, 1939. On joint motion of the parties an order was granted severing for preliminary determination the question of residence vel non. Held: 1. That J. H. Marsman was not a resident alien during any part of the taxable years. 2. That Mary A. Marsman was a resident alien during the period September 22, 1940 through December 31, 1941. Herbert W. Clark, Leon De Fremery, C. E. Musto, Crocker Bldg., San Francisco, Calif., and Boice Gross, Esqs., for the petitioners. W. J. McFarland, Esq., for the respondent. VAN FOSSAN Memorandum Findings of Fact and Opinion The respondent determined deficiencies in the petitioners' income tax liabilities and imposed penalties as follows: 25% Delinquency Tax Docket No. Petitioner Years Penalty Deficiency 18590 J. H. Marsman [1939] $32,727.86 $130,911.42 [1940] 11,118.73 44,474.93 [1941] 10,547.38 42,189.53 18591 Mary A. Marsman [1939] 70,452.93 281,811.72 [1940] 142,298.90 [1941] 152,224.16 On joint motion of the parties, an order was granted by this Court severing for preliminary determination the question of residence vel non. The sole issue, therefore, is whether or not the petitioners were resident aliens of the United States during any part of the taxable years. The case was submitted upon a stipulation*272 of facts, exhibits, oral testimony and depositions. Findings of Fact The facts stipulated are so found. Other facts are found from the evidence. J. H. Marsman was born in Holland in 1892. He became a sugar technologist. In 1918 he arrived in the Philippine Islands and in that year he became vice president and general manager of the Malabon Company, a sugar company. He remained in that position until 1925 when he left the Malabon Company to devote his full time to the development of mines and other business interests in the Philippine Islands and the Orient. J. H. Marsman and Mary A. Marsman were married in the Philippine Islands on September 8, 1920. Prior to her marriage to Marsman in 1920, Mary A. Marsman was a resident of the Philippines and from her deceased husband had inherited mining interests, mining claims and other property located in the Philippine Islands. J. H. Marsman and Mary A. Marsman became naturalized citizens of the Philippines in 1934 and remained citizens thereof until the inauguration of the "Commonwealth of the Philippines" on November 15, 1935, whereupon they became citizens of that Commonwealth. They remained citizens of the said Commonwealth until*273 at least a time subsequent to January 1, 1942. In 1929 J. H. Marsman formed Marsman & Co., Inc., in and under the laws of the Philippines. This corporation then became, and since has remained, the principal operating company for Marsman interests and business activities in the Philippine Islands and the Orient. The activities developed and managed by and through Marsman & Co., Inc., included five mines in the Philippines, a mine drainage company, a smelting company, a saw mill, a general insurance business, an importing and merchandising business and the Insular Drug Company. All of those business activities were in operation during the years 1939, 1940 and through 1941. In addition, J. H. Marsman sent engineers to Burma in 1938 and the years following, and to China and the Dutch East Indies in 1936 and following, to explore mining possibilities in those countries. Marsman Hong Kong China, Ltd., was formed to conduct mining operations, construction and other activities in China. This company operated continuously from 1937 through 1941. In 1937 Marsman formed a company to conduct gold and silver mining operations in the Dutch East Indies. In 1935 Marsman Investments, Ltd. *274 , was organized in London under the laws of England. A part of the stock of this company was sold to the public. In the taxable years, Marsman and his wife Mary, through Philippine corporations wholly and separately owned by each, owned a total of about 40 per cent of the shares of Marsman Investments, Ltd. The Philippine corporations wholly and separately owned by Marsman and his wife were "El Emprendedor" owned by Marsman and "La Trafagona" owned by Mary A. Marsman. These corporations were owned by Marsman and his wife in the taxable years. El Emprendedor in 1939 and 1940 owned 14,667 shares of the common stock of Marsman & Co., Inc., and 14,670 shares of the preferred stock of that company. In 1941 El Emprendedor owned 11,417 shares of the common stock of Marsman & Co., Inc., and 11,420 shares of the preferred stock of that company. During 1939, 1940 and 1941 El Emprendedor owned 395,251 shares of the stock of Marsman Investments, Ltd. In 1939, 1940 and 1941 La Trafagona, the Philippine corporation wholly and separately owned by Mary A. Marsman owned 38,650 shares each of the common and preferred stock of the Marsman & Co., Inc. During 1939, 1940 and 1941 Marsman owned 26,350*275 shares of the stock of Marsman Investments, Ltd. During the years 1939, 1940 and 1941 J. H. Marsman individually owned 11,417 shares of the common stock and 11,420 shares of the preferred stock of Marsman & Co., Inc. During the years 1939, 1940 and 1941 Marsman Investments, Ltd., owned 1,436,200 shares of the common and 1,374,900 shares of the preferred stock of Marsman & Co., Inc. On June 30, 1941, Marsman & Co., Inc. had outstanding 1,880,600 shares each of common and preferred stock. Marsman Investments, Ltd., thus owned 76,369 per cent of the common and 73,109 per cent of the preferred stock of Marsman & Co., Inc. The principal offices of Marsman interests were located in the Marsman Building at Manila, Philippine Islands. In 1939, 1940 and 1941 J. H. Marsman was chairman of the Board of Directors of Marsman Investments, Ltd.; president and director of Marsman & Co., Inc.; and a director or an officer in 13 other companies in which he had an interest. In the years 1939, 1940 and 1941 J. H. Marsman was a member of 21 various clubs and associations in the Philippine Islands. During 1939, 1940 and 1941 Mary A. Marsman owned an estate in England called "Sanguilo Manor". She*276 sold this property in 1946 or 1947. The Marsmans maintained two homes in the Philippines, one in Manila and another in Baguio, the summer capital, about 180 miles from Manila. The Manila house had spacious living quarters, a garage, bowling alley, barber shop, and a swimming pool. The house at Baguio was known as the "Showplace of the Orient." The houses were staffed by eight to ten servants each and always kept open, ready for occupancy during the years of 1939, 1940 and 1941. In 1939 and 1940 the Marsmans made extensive alterations and improvements in the Manila house. In 1940 Mary A. Marsman redecorated the first floor of the Manila home and put new curtains in the Baguio house. She had a supply of linens sent from Shanghai to the Manila house. At about the same time she had porcelains sent from Japan to her in Manila. Marsman's plans for expansion of his business activities included the establishment of a local office in California of Marsman & Co., Inc., obtaining in the United States the agencies for distribution of certain products in the Orient and the listing of certain mining shares on the New York and the San Francisco curb exchanges. Marsman also was planning the organization*277 of a new company in England to operate gold dredges in Burma. It was in connection with those activities that Marsman decided to visit the United States in April, 1939, and then to continue on to England. For some time the Marsmans had planned on educating their daughter Anne in England or on the Continent. Marsman and his wife decided to combine Marsman's business trip to the United States and Europe with a vacation in Europe, leaving their daughter in school in England. Marsman, his wife, and their daughter Anne booked passage in April, 1939, on the S. S. President Coolidge for San Francisco, California, arriving on April 28, 1939. J. H. and Mary A. Marsman opened a joint account with a stock broker in San Francisco in September, 1939. Mary A. Marsman also opened an account in her own name. Entries in these accounts indicated transactions for Mary A. Marsman with a Manila brokerage firm where she maintained an account from prior to 1939 through 1941. During the same period, J. H. Marsman maintained brokerage accounts with two firms in Manila. When they arrived in California, Marsman's knowledge of current events in Europe was such that he deemed it advisable not to take his*278 family to Europe at that time in view of the threat of war there. Accordingly, Mary A. Marsman and their daughter Anne remained in San Francisco and Marsman flew to Europe to handle his business affairs. In view of the war, he was unable to obtain in Europe the desired financial backing that he had anticipated. Marsman then returned to the United States by plane, arriving in San Francisco on September 12, 1939. On September 20, 1939, Marsman left San Francisco for Manila by air, arriving there on September 26, 1939. Marsman then flew on to the Dutch East Indies. He returned to the United States by way of Manila on December 6, 1939. He then occupied himself with the completion of negotiations for the purchase of dredges to be used in operations in the Dutch East Indies. Pursuant to earlier plans, Marsman formed a corporation in California, which corporation was to act as a local office for the purchase of supplies, procurement of personnel for the Orient, and the furtherance of other Marsman interests in California. Marsman at this time was president of the Philippine Chamber of Mines and in that capacity he had been requested to assist in the arranging of an exhibit in the San Francisco*279 Fair, promoting the publicity for the Philippine government as it concerned products exported from that country. While Marsman was in the United States during the summer of 1939 he accepted the honorary degree of Doctor of Engineering from the Colorado School of Mines. Marsman and his wife purchased a yacht while they were in Calofirnia at an original cost of $75,000. Marsman and his wife shared the original cost of the yacht. They hired a crew for the boat who sailed it to the Philippines in April, 1940, and it was subsequently listed under Philippine registry. The Marsmans spent approximately $75,000 in addition to the initial cost in refitting the boat and sending it to the Philippines. Marsman's intention originally was that he would use the yacht for his personal ocean trips in the Orient and also in the event of war he could possibly escape to safe harbor on the yacht. After arriving in San Francisco in April, 1939, Marsman, his wife, their daughter and several servants lived in a hotel at a rental cost of approximately $600 per month until about the 7th of July, 1939. Sometime in June, 1939, Marsman bought a house in San Francisco at a cost of approximately $30,000. Title*280 of this house was taken in the name of an employee of the Marsman interests. The Marsmans' plan was to have their daughter live in this house while she was in school and her mother was away. In furtherance of this plan they engaged a relative of theirs, or various housekeepers, to care for the child and to take care of the home. In about 1943 this home was sold and another home purchased in Los Altos, California. The furnishings in the California homes were bought in California and of a nature considered by Mary A. Marsman to be somewhat temporary and inferior in quality to those contained in their Philippine homes. On September 11, 1939, the Marsmans' daughter Anne was enrolled in a private school in California, application for her admission having been made on August 14, 1939. In January, 1940, Marsman was accepted for "nonresident" membership in the Olympic Club of San Francisco, California. In 1940, Marsman was admitted to a "nonresident" membership in the St. Francis Yacht Club in San Francisco, California. On May 15, 1939, Marsman opened a checking account in San Francisco. This account was designated "Office Account" but was in fact a personal account of J. H. Marsman. On*281 the date that the account was opened, he named two employees of the Marsman interests as his agents with respect to this so-called "Office Account." On May 15, 1939, J. H. Marsman opened a personal checking account with the same bank. In March, 1941, with respect to this account he named an employee of the Marsman interests as his agent. Marsman remained in the United States from the time he arrived from Manila on December 6, 1939, until April 12, 1940, when he and his wife Mary returned to Manila on the S. S. President Coolidge. Their daughter Anne completed the then current school year in San Francisco and left there for Manila by air on July 11, 1940. Marsman, his wife, and his daughter remained in the Philippines until early September, 1940. At that time, Mary A. Marsman and their daughter Anne came by air to San Francisco in order to enroll their daughter again in school. They arrived in San Francisco on September 22, 1940. J. H. Marsman remained in Manila, except for short visits to other cities and business properties in the Orient, from the date of his arrival in Manila in April, 1940 until June 17, 1941, when he arrived in San Francisco. The purpose of Marsman's visit*282 to the United States in June, 1941, was to secure financial aid for his plan to acquire the controlling stock in an exporting firm then operating in the Orient. His efforts in this respect were unsuccessful and he returned to Manila in early September, 1941. On December 2, 1941, Marsman went to Hong Kong, China, by plane in connection with the annual meeting of Marsman Company in Hong Kong. That company had just completed the construction of air raid shelters there. He had been advised not to stay in Hong Kong "too long" and he expected to return to Manila by plane on December 7, 1941. While he was on his way to the airport, the Japanese attacked Hong Kong and his return trip to the Philippines was cancelled. After taking part in the defense of Hong Kong he was interned by the Japanese but subsequently made his escape and through China and India made his way to the United States in March, 1942. The Marsmans were aware in 1940 of the threat of war in the Orient. They were well informed people. Their circle of friends and acquaintances included people from many parts of the world. Marsmans close friends in the Philippines included General MacArthur, Manuel Quezon, the Philippine*283 High Commissioner, and many others. His contacts in Europe included international bankers and other men of affairs. Through their contacts with such people, the Marsmans in 1940 reached the conclusion that there was a present danger of war which would involve the Orient. On October 11, 1940, the United States Department of State imposed restrictions on travel outside the western hemisphere, although passports were not required previously for travel to the Philippine Islands. Mary A. Marsman returned with her daughter Anne to San Francisco arriving on September 22, 1940. On September 23, 1940, Marsman wrote to his wife from Manila saying, "Too bad that we have to live this way, but under the present day uncertainties I feel better having you both in a save spot. * * *" Two weeks later, on October 5, 1940, Marsman wrote again as follows: "Conditions here in the east are not getting any better and I heard a few days ago that some firms have bought thousands of sandbags and sand in case of any trouble with the Japs. * * *" Marsman wrote again on October 12, 1940, stating: "You will of course know from the papers how things in the Orient are going * * * I am glad that you*284 both are in a safe place. It is fortunate that the U.S.A. has taken a strong stand, as this is the only way a war in the Orient can be avoided. "There are a lot of warships in the bay now which gives one always a feeling of safety. * * *" On October 17, 1940, Mary A. Marsman sent a telegram to a relative in Canada stating: "After reading letter just received from Honk [J. H. Marsman] think best that you do not take Betty and children to Manila. Things have grown worse since my leaving. Advise me what you do." On November 13, 1940, Marsman wrote to his wife from Manila as follows: "The U.S. government has sent out quite a few ships to bring the wifes [wives] and children of American citizens back to the States. So far most of those came from China, but just last week one boat took 200 Army and Navy women back and next week there are some more boats coming to pick up the rest, including the families of Standard Oil employees. "Our people seem to be quite calm and I think the [that] will all stay here. However I am glad that you and Anne are safely on the other side, and in a comfortable house and a nice climate. * * * "For the time being we have enough men, but*285 quite a number of our engineers at the mines have applied for duty, so we don't know how short we may be." * * * On their first visit to the United States in April, 1939, Mary A. Marsman and their daughter Anne were admitted for a "temporary period of six months." In October, 1939, Mary A. Marsman made application to extend for six months the time of her "temporary stay" giving as reason therefor, "I have placed my daughter in school." Mary A. Marsman returned to Manila with her husband in April, 1940. Anne remained in San Francisco until July, 1940, when she returned to Manila. On September 22, 1940, Mary A. Marsman and her daughter returned to San Francisco and were admitted for a "temporary period of ten months." On July 1, 1941, an extension for one year was requested for the reason given that "Conditions abroad still in unsettled state." In August, 1942, an extension of stay was requested with the reason that she was "Unable to return to Manila because of the war." Additional extensions were requested in 1943 and 1944 for Mary A. Marsman and her daughter for the same reason. In October, 1945, an extension of one year was requested for the reason given that "Owing to present*286 living conditions in Manila and Army restrictions it is impossible for me to return at the present time." This requested extension was denied by the immigration authorities. However, Mary A. Marsman was later granted another extension in order that she might reenter the United States through Canada as a permanent British immigrant which she did on February 7, 1948. The record does not clearly show the length of stay authorized J. H. Marsman on first visit to the United States in April, 1939. On his return to the United States in April, 1940, Marsman was traveling on a visa as a "temporary visitor" permitting a three months visit. On his return to the United States in 1942 after his escape from the Japanese in Hong Kong, Marsman was admitted for a "temporary period of one and one-half months." Various extensions of this stay were granted due to his inability to return to the Philippines because of the war. On June 17, 1946, a further extension was denied Marsman and he was ordered by the immigration authorities to depart on or before July 31, 1946. Marsman returned to the Philippines but subsequently came back to the United States in order to appear at the trial in this case. In*287 November, 1947, J. H. Marsman filed nonresident alien income tax return for the years 1939, 1940 and 1941 with the collector of internal revenue at San Francisco. Mary A. Marsman filed nonresident alien income tax returns for 1940 and 1941 but not 1939. The record does not show affirmatively where or when Mary A. Marsman filed these returns. The respondent disallowed the nonresidence status claimed by the petitioners and determined that for income tax purposes during all the period from April 28, 1939 to December 31, 1941, both petitioners were residents of the United States, and accordingly taxed to them for that period their income from all sources. The respondent also asserted a 25 per cent delinquency penalty against J. H. Marsman in each of the taxable years and against Mary A. Marsman in 1939. J. H. Marsman was a nonresident alien during all of the period from April 28, 1939, through December 31, 1941. His intent during this period was to remain in the United States only for such a definite and ascertainable length of time as was necessary for him to accomplish his business, the purpose of which in each instance was the impelling reason for the visit. Mary A. Marsman was*288 a nonresident alien during all the period April 28, 1939 to September 22, 1940. On September 22, 1940, when she returned to the United States from Manila, Mary A. Marsman had a definite intent to remain in the United States until such times as the dauger of war in the Orient subsided. On that date Mary A. Marsman became a resident alien. Opinion VAN FOSSAN, Judge: On joint motions of the parties an order was granted by this Court severing for preliminary determination the sole issue of whether or not the petitioners were non-resident aliens in any part of the taxable years within the meaning of section 212(a) of the I.R.C.1 J. H. and Mary A. Marsman, the petitioners in this case, are husband and wife. They became naturalized citizens of the Commonwealth of the Philippines after having resided there for many years and retained that citizenship during the taxable period of April 28, 1939 through 1941. J. H. and Mary A. Marsman individually and through Philippine holding companies, *289 separately and wholly owned by each, owned extensive interests in various mining and commercial ventures in the Orient. The center of their business and social activities was the Philippine Islands. In connection with his business activities, J. H. Marsman visited the United States during 1939, 1940 and 1941. Mary L. Marsman accompanied her husband on his first visit to the United States on April 28, 1939 with the intention of continuing on to England with him and placing her daughter in school there. The threat of war in Europe caused Mary A. Marsman to remain in the United States and enter her daughter in school in San Francisco. J. H. Marsman returned to the United States from England and continued on to the Orient but returned to the United States at various times in 1939, 1940 and 1941. He was captured by the Japanese at Hon Kong, China, in December, 1941, but subsequently escaped and made his way to the United States in 1942. Mary A. Marsman returned to Manila in April 1940, leaving the daughter in school in San Francisco. The daughter joined her parents in Manila at the end of the school term in July. On September 22, 1940, Mary A. Marsman returned to the United States bringing*290 her daughter who was again placed in school in San Francisco. Mary A. Marsman has since remained in the United States except for short visits to Canada. The respondent contends that the petitioners J.H. and Mary A. Marsman became resident aliens, for purposes of income tax, when they first arrived in the United States on April 28, 1939. The record supports the view that although in 1939 there was apprehension concerning war in the Orient and although the Marsmans, as well informed people, were aware of this, they had formulated no definite intent concerning residence in the event of war until September 1940, when the danger became more acute and Mary A. Marsman and her daughter returned to the United States. We are of the opinion that Mary A. Marsman deliberately sought the haven of these shores and the protection of our government when she came to San Francisco from Manila in September 1940. Her intent at that time was to remain here until such time as she believed it propitious to return to her home in Manila. We hold, therefore, that Mary A. Marsman became a resident alien on September 22, 1940, and continued to be such during the remainder of the taxable years within the*291 meaning of the Internal Revenue Code as it pertains to her status as a resident alien. We are of the further opinion that J. H. Marsman did not acquire the status of a resident alien during any part of the taxable years. Our findings of fact amply support the view that each visit he made to the United States in the taxable years was for a clearly ascertainable purpose related to his business affairs; that his visits with his family here during these times were incidental to the main reason for his coming and that in each instance the termination of his visits to this country reasonably coincided with the accomplishment of the business purpose of his visit. The question of residence or nonresidence is one of fact and law and largely turns upon the intent of the party as disclosed by the record. Rolf and Ruth M. Jamvold, 11 T.C. 122. In Cristina DeBourbon Patino, 13 T.C. 816 (November 29, 1949), the petitioner came to this country as a war refugee from Europe remaining here in her own choice of residence. It was held in that case that the petitioner was a resident alien. In Zareh Nubar, 13 T.C. 566, the petitioner, an alien, was present*292 in the United States continually from August 1939 until August 1945. He was admitted under a visitor's visa which allowed him to stay three months but the time was extended because of difficulties of returning to Europe and he was allowed to remain until cessation of hostilities in Europe. It was held that the petitioner was a nonresident alien in the years 1941 through 1945. It is significant that in the Nubar case the petitioner made many unsuccessful attempts to get a visa which would enable him to leave the United States. The Court in that case said, at page 570, that the petitioner had the "intention then not to return to the United States if he received admission to Mexico but to continue his travels to South America." In other words, the petitioner in that case had the intention to leave the United States but was prevented by restrictions on travel. The intent of Mary A. Marsman, however, was just the opposite. We are convinced that on September 22, 1940, she came to the United States to get out of the danger area in the Orient and with a determination to stay until that danger passed. She deliberately sought a place free of such danger. Whether she was in complete accord with*293 her husband's estimate of the situation is immaterial. The facts show that at that time she was under no compulsion to come, that she could have remained in Manila, but that she did not choose to do so. Instead she came to the United States and advised a relative, less than a month later, not to send his family to Manila because of the threat of war. We cannot escape the conclusion that Mary A. Marsman in coming to the United States on September 22, 1940, under such circumstances, should be considered a resident alien regardless of the fact that her entry and her stay were formally limited to definite periods by the immigration laws. Regulations 103, section 19.211-2. Certainly she was not a transient nor a sojourner. In accordance with the stipulation of the parties, Decision in Docket No. 18590 will be entered under Rule 50. In Docket No. 18591, the case will be restored to the calendar for further proceedings. Footnotes 1. SEC. 212. GROSS INCOME. (a) General Rule. - In the case of a nonresident alien individual gross income includes only the gross income from sources within the United States.↩