HARVEY v. COMMISSIONER

This case involves income tax liability for the calendar year 1943, in the amount of $941.88. The simple question presented is whether the petitioner was, during the taxable year, a bona fide resident of a foreign country, within the meaning of section 116 of the Internal Revenue Code. A part of the evidence was stipulated, and we adopt as our findings the facts so stipulated. So far as considered material, they are incorporated with other evidence in our findings of fact.

FINDINGS OF FACT.

The petitioner is a citizen of the United States and of the State of Louisiana. He filed his income tax return for the taxable year with the collector at Dallas, Texas.

The petitioner was at the date of trial and has, since February 20, 1936, been continuously in the employ of Geophysical Service, Inc., a corporation having its principal office in Dallas, Texas, and engaged in exploration for oil and gas in the United States and foreign countries. He worked in the United States from February 20, 1936, until November 15, 1938, in Saudi Arabia until September 1, 1939; at Bahrein Island, in the Persian Gulf, until July 7, 1940; in Sumatra until January 31, 1941; in the United States from March 13, 1941, until September 12, 1941; and in Colombia, South America, from September 12, 1941, to February 5, 1945; and thereafter in the United States. Throughout the entire year 1943 he was performing services for Geophysical Service, Inc., outside the United States, and did not during that year at any time return to the United States. His entire income for 1943 was $4,504, consisting of $246.50 dividends, $20 interest on bank deposits, $127.50 interest on United States series E savings bonds, and $4,110 salary for services performed in Colombia. Petitioner had registered under the Selective Service Act and his file was in the local board in New Orleans. He secured from the Selective Service Board permission to leave the United States, permission to remain abroad being contingent upon deferment from induction. While in Colombia, he had to have deferment by the Selective Service Board, and he received several temporary deferments, for six months each, being reclassified 1-A at the end of each. Geophysical Service, Inc., each time made application for petitioner's deferment, based upon the work in which the petitioner was engaged, and successive deferments were accordingly granted. Petitioner, after speaking with the Selective Service officials, thought the matter of deferment was a company obligation. He realized that the Selective Service Board might refuse to grant the deferment. On August 7, 1944, petitioner by letter informed his employer of his desire to return to the United States at the end of his contract, and he returned on February 5, 1945.

The contract under which the petitioner went to Colombia was entitled "Foreign Service Agreement." It provided for foreign service in one or more foreign countries by the petitioner for three years, at a salary of $235 a month (the domestic service salary then being received by the petitioner), plus $75 a month bonus, the bonus to be withheld, however (but not more than $500), until credits had accumulated sufficient to pay petitioner's transportation to his foreign position and return to Dallas. The withheld funds were to be paid to petitioner upon satisfactory completion of his contract, but in case of petitioner's resignation before completing his contract or discharge for cause, the funds were to be used by the employer to defray cost of his transportation. Resignation or discharge for cause before unpaid credits amounted to $500 gave the employer the right to withhold and use salary up to $500. Petitioner was furnished transportation, including return to Dallas, unless he was discharged for cause or resigned. Living expenses were furnished by the employer. In case of disability or death, the employer was to pay compensation measured by the Texas Workmen's Compensation Act. Petitioner agreed to comply with regulations set by the company with which his employer was under contract, and to take no part, direct or indirect, in local politics in the country, state, or city in which he should perform his duties. "Home leave vacation" with pay at the domestic pay rate was provided for, to begin at satisfactory completion of the contract, or at employer's convenience.

The employer had a right to extend the contract time two months if necessary to complete the contract or send replacements.

Either petitioner or employer could terminate the contract at any time by giving 30 days notice of intention so to do, and termination by petitioner deprived him of further right to withheld funds, salary, bonus, expense or transportation money or other benefit. If employer terminated the employment, it must furnish expenses and transportation to Dallas.

The passport under which petitioner went to Arabia in 1938 stated that he went on business, intending to return to the United States within two years. His application for renewal of passport, made October 11, 1940, gave his "legal residence" as 1537 Fern Street, New Orleans, Louisiana. His passport was renewed for two years. Petitioner's request for passport to go to Colombia, dated August 11, 1941, stated that he was going to Colombia to engage in geophysical exploration for not to exceed three years, that his stay in Colombia was indefinite, due to expiration in six months of his deferment from Selective Service, and necessity for renewal every six months, and that if no change was made in his classification, he expected to stay the full period of his contract in Colombia.

The law of Colombia in 1943 provided, so far as here pertinent, that income tax be paid by every person, national or foreign, whether or not domiciled in the country, that voluntary and continuous residence in Colombia for six months of the year (or without time limit, if together with engaging in commerce or industry, or exercise of employment at any time in the year) should constitute domicile; also that a natural person not domiciled in the country should be subject to income tax only on income originating within the country, including salaries paid in Colombia, or paid outside Colombia for services performed therein.

Petitioner is not a married man. His mother and sister live in New Orleans, Louisiana. He is a graduate of Tulane University in mechanical and electrical engineering. The work which he has done for Geophysical Service, Inc., since February 1936, involves petroleum exploration and the making of subsurface surveys by seismograph instruments. He started as a rod man, later became junior observer, and still later observer. The work involves the interpretation of the record made by the seismographs. The petitioner was trained in that work before he was allowed to go into the field. He was an observer in Arabia, but also had the responsibility of handling native personnel, who were ignorant of mechanical or scientific matters. He studied Arabic continually and became proficient enough for normal conversation. The work was much the same in Sumatra. After his return to the United States about March 1941, he was for a while on vacation he had earned, and then was put to work in order to fill the time lapse until his next foreign contract. He had given his consent to return to foreign service within about a week after he returned.

Petitioner's work in Colombia was partly in the plains country and partly in the jungles. He had studied Spanish in high school, but realized after a short time in Colombia that it was insufficient. After about a year in Colombia he spent several hours daily studying the language, and later spoke the language fairly well. Without it, it would have been impossible to do his work and explain the mechanical operations of his work to the natives employed. While the petitioner and his associates were working in the plains they lived in tents; later, in the jungles, the living accommodations consisted of a tarpaulin stretched over poles, and army cots. The house boat from which petitioner worked a part of the time in Colombia was tied up for periods of from six months to a year, and from it the petitioner and his associates worked the surrounding country for 40 or 50 miles. None of the men had their wives with them. They would not know from one week to another where they were going to be. In going through the jungles, their equipment had to be portable, as the work proceeded from one place to the other. Recreational equipment in the jungle was almost nil. He took a vacation at times, going to Bogota and later to Barranquilla. He had no relatives in South America. He joined no clubs or churches, though he was a guest at a country club several times. He was in the same geophysical party as was Paul E. Swenson.

When petitioner entered Colombia in 1941 he considered himself a member of the foreign personnel of his company, and intended to fulfill his contract, either there or elsewhere. When he went to Colombia he understood that he might stay more than three years, expected so to do, and actually stayed beyond the term of the contract. He considered himself a permanent foreign service employee of Geophysical Service, Inc. After returning to the United States in 1945 he worked first as a computer and, since January 1946, as party chief in charge of a party, doing work similar to that he did in Colombia. He came out of Colombia because an inflationary period had set in, which made it financially unprofitable to continue; also because of family reasons. He was asked upon his return whether he would consider returning to Colombia, and said he would if conditions were changed enough to make it worth while.

Petitioner took no steps to become a citizen of Colombia. He had no investment in any Colombian securities and owned no property in Colombia. His money was on deposit in a bank in New Orleans, his banking business being carried on by his mother there. He never maintained a bank account in Colombia. United States bonds upon which he reported interest were in a safe in the Dallas office. In 1943 he owned a share of his father's estate in Louisiana, subject to his mother's life interest. The petitioner, although a member of a church in the United States, does not attend regularly and belongs to no social clubs in the United States.

While in Colombia, petitioner was notified by Richmond Petroleum Co. (which had a contract with Geophysical Service, Inc., as hereinbelow set forth) that he was liable for income taxes and would be expected to fill out the forms and pay the tax. He filled out the forms, which were filed for him by the company, which paid the tax and deducted the amounts from his account for the years 1942, 1943, and 1944 and for the part of 1945 which he spent in Colombia. He has paid taxes in every country he has been in, except Arabia, where there is no income tax. His salary was paid in the United States and deposited in a bank in the United States.

Geophysical Service, Inc., trains its men for foreign service. It tries to keep a man employed in the United States for a year or two, both for educational and seasoning purposes, before sending him abroad. At the end of that time it can make a pretty intelligent estimate as to whether he will be a desirable foreign employee. A very careful selection of men is carried out. The company has sought to develop a permanent group of foreign service employees. It makes more money in foreign contracts, for they are of longer duration and therefore the operations are stabilized. Geophysical Service, Inc., emphasized its foreign service work, making an effort during "the middle 30's" to convert to an organization operating largely abroad, and it succeeded in getting its operations well above the 50 per cent level when that plan was disrupted by the oncoming war. At least 85 or 90 per cent of its foreign service employees fulfill their contracts, and they generally renew them. The company often transfers the men from one country to another.

Geophysical Service, Inc., prefers to hire men of Harvey's calibre for as many years as it can keep them, and it has numerous men who have been with it for 16 years, the life of the company. Though there had been no direct statement, it was understood between petitioner and the company that he was going to remain 15 or 20 years.

A part of the inducement to men to go into foreign service is the advantage of being able to have income tax free by reason of such foreign service. Geophysical Service, Inc., lost to the draft only 2 or 3 men out of about 100 or 125 men of the petitioner's class and experience. The Petroleum Administration assisted the company in getting its men deferred and was particularly interested in development of petroleum reserves in South America. After the Petroleum Administration took part in the matter, it was less difficult to explain to draft boards the need of the company.

The profit-sharing plan of Geophysical Service, Inc., is intended to enable its employees to retire at about 45 years of age to some less strenuous occupation. It has no retirement system, but has investing provisions tied into the number of years of service. An employee participates only after a year's service, may not withdraw his interest until after 2 years as a participant in the plan, and thereafter may draw 25 per cent per year.

Geophysical Service, Inc., had a 3-year contract with Richmond Petroleum Co. for conducting geophysical surveys in Colombia. The petitioner worked under that contract. Work, however, might be carried on for the Richmond Petroleum Co. for 25 years. Geophysical Service, Inc., had had previous contracts with Richmond Petroleum Co., and the contract in effect in 1943 has been extended.

OPINION.

DISNEY, Judge:

The question presented to us here is whether the petitioner was a bona fide resident of a foreign country, who is granted exemption from tax by section 116 (a) (1), Internal Revenue Code, as amended by section 148 (a) of the Revenue Act of 1942.1 Prior thereto six months physical absence from the United States complied with the law, which referred only to a bona fide nonresident of the United States. It is apparent that the amendment not only extended the necessary time to a full year, but changed the character of the status required to provide affirmatively for residence in the foreign country, a stricter requirement than mere nonresidence as to the United States.

We have dealt with this general question several times since the 1942 amendment. Obviously, however, in the absence of any categoric statutory definition of residence, the facts in each case affect the result in that regard. In no other case before this Court do we find facts or circumstances easily comparable with those here presented. Epitomizing those here involved, they are that the petitioner has been employed for about ten years by a company which makes geophysical exploration in various parts of the world; that the company trains its employees for foreign service; that he has worked for it in Arabia, Persian Gulf, Sumatra, and Colombia, as well as in the United States; that he went to Colombia under a three-year contract in 1941, and stayed somewhat longer than that period, returning in 1945; that income taxes were paid to Colombia, with his knowledge, and charged to his account; that he was subject to the Selective Service Draft at all times, but that the company procured deferment for him, six months at a time, on the ground of essential oil development work being done by him; that his work in Colombia involved moving from place to place in jungle or on plains; that he took no part in Colombian politics, and was forbidden by his contract to do so; that he was and is unmarried; that he learned to speak Arabian and Spanish, the native tongues being essential to his work; that he is still in the employ of the company and considers further foreign work. Was he a bona fide resident of Colombia?

After much examination of the facts here involved and of previous pronouncements on the general subject, we have come to the conclusion that the petitioner should be regarded as a resident of Colombia in the taxable years. Though in other cases, such as Arthur J. H. Johnson, 7 T.C. 1040, we have held that there was no foreign residence, such cases seem to us distinguishable in this: They involved temporary absence from the United States (though for considerable lengths of time) by parties whose earlier and later residence and work was in the United States, the foreign service being in effect merely incidental in their life work; whereas here we consider a man whose career is that of foreign service with a company by which he has been employed since February 1936, actually abroad from November 1938 until February 1945 (except six months in 1941). He was unmarried and was accustomed to working in foreign lands, and, in effect, to use a colloquial expression, "his home was where he hung his hat." Plainly, his position is broadly different from one who had a home, a wife, and children residing in the United States. He filled out forms for payment of taxes in Colombia, and the company paid the tax and charged him with it. We regard this one of the facts properly to be considered in examination of the question. We considered it in the Johnson case, supra. Amici curiae have favored us with a thorough though somewhat repetitive brief directed in part against the idea that payment or nonpayment of taxes abroad is evidential as to foreign residence, yet the brief discloses that the Senate committee report pointed out the subjection of foreign residents to income taxes. That deduction or credit against tax is granted United States citizens for income taxes (and war profits taxes and excess profits taxes) paid foreign countries, under section 131 (a) (1), Internal Revenue Code, by no means eliminates tax payments to foreign countries from consideration, on the question of foreign residence. Other foreign taxes, direct or indirect, not the subject of credit or deduction, were considered on this subject by Congress in 1942, evidence of payment of taxes being introduced. Congressional Hearings, Senate Finance Committee, Revenue Act of 1942, pp. 744-746. Though of course not conclusive, we regard the point of taxes paid one to be weighed in determining foreign residence. They were paid by the petitioner. Though it is true that the basis of tax by Colombia was not necessarily residence, the payment, in view of Congress in passage of the act, had significance, and we so consider. It was not the act of a transient, and it is consistent with residence.

Again, the intent of the petitioner, beyond argument an element for consideration, was to remain at work in Colombia three years, as in fact he did. True, he recognized that he might be called to military service and was deferred for only six months at a time, yet it is easily seen that his attitude was that of permanence in Colombia for three years, subject to the possibility of induction into military service. He considered that a company matter and it is plain that the company was interested in securing his deferment; also, that the nature of his work could be expected to call for deferment, as in fact transpired. Indefiniteness of stay, dependent upon such circumstances, does not in our view carry much weight toward proving nonresidence. That the petitioner took no part in local politics, or church or club life is explained both by the contractual restrictions and the nature of his work, in general removed from centers of population and, obviously, even from much contact with others than the members of his work group. We see here a man engaged for years, and expecting to be further engaged, in an occupation necessitating work abroad, for long periods of time, and to such a degree as to be inconsistent with the idea of his having a real home in the United States. We think he became a resident of Colombia while so engaged.

It will be noted that petitioner was in the same work group with Paul E. Swenson. Recently, in Swenson v. Thomas, 164 Fed. (2d) 783, it was held that Swenson was a resident of Colombia in 1943 and 1944. Although the record there does not indicate any temporary deferment from military service, as appears here, the facts are otherwise very much the same as here—the case of one engaged for a period of years in foreign geophysical work for the same company employing the petitioner. Indeed, Swenson referred to himself as a "transient," as noted by the District Court, which was reversed, so the situation here is in that respect stronger for the petitioner.

In the light of all of the evidence, we are of the view that this petitioner was during the taxable year a bona fide resident of Colombia, within the intendment of section 116 (a) of the Internal Revenue Code, after its amendment in 1942.

Reviewed by the Court.

Decision of no deficiency will be entered for the petitioner.