Docket No. 18731.

12 T.C. 1059 (1949)


United States Tax Court.

Promulgated June 14, 1949.

Attorney(s) appearing for the Case

Arnold C. Stream, Esq., and Samuel I. Potter, C. P. A., for the petitioner.

Charles R. Johnston, Esq., and John E. Mahoney, Esq., for the respondent.

Respondent determined a deficiency in the income tax of the petitioner for the calendar year 1943 in the amount of $387.15. The sole issue is whether income received by petitioner as an employee of the American National Red Cross is exempt from income tax.


The petitioner is an individual, residing in Lambertville, New Jersey. He is and always has been a single person, whose nearest living relatives are his two sisters and his mother.

Immediately prior to June 1942, the petitioner boarded at the home of Charles P. Brady, in Passaic, New Jersey, and paid a weekly sum for room and board. From 1937 to 1942 he had been employed as vice principal of the Memorial Junior High School at Passaic. He had no other business interests, and owned no real estate or stocks and bonds, except for some Government bonds which he kept in a safety deposit box at the Passaic National Bank & Trust Co. He maintained a savings account and checking account in this bank, and also maintained a savings account in the Fourth Ward Building & Loan Association at Passaic.

In June 1942 petitioner was contacted by the American National Red Cross (hereinafter referred to as the Red Cross). For a number of years he had been the director of a camp for recreational leaders and workers in physical education, headed by New York University, and petitioner was told that the Red Cross needed men of his experience in foreign fields to direct and head centers where men would be on leave during the war period. He was also advised that, if he could be released by his draft board, the Red Cross would accept him for such a position. He made arrangements with his draft board for his release, and he was granted a leave of absence for the duration of the war by the Board of Education of Passaic, New Jersey.

In September 1942 petitioner traveled to Washington, D. C., where final terms were reached for his employment by the Red Cross. Although no formal contract was executed by the parties, a letter was delivered to the petitioner by the Red Cross which generally spelled out the character of the activities in which he was expected to engage. This letter was dated September 29, 1942, and read in part as follows:

You have been appointed as a Club Director and in this capacity you will serve under the direction of the Executive Officer in charge of services to the armed forces in the area to which you are being assigned. Upon debarkation you are to report to the nearest American Red Cross office through which you will be able to contact the above-mentioned Executive Officer. It should be noted that in the present emergency it is neither feasible nor possible to define the nature of the service or assignment which American Red Cross personnel going abroad may be asked to undertake by then superior officers, and it is imperative that we maintain the utmost flexibility in the use of our resources of personnel in Foreign Service.

The period of your assignment is indefinite and will be contingent upon conditions and developments, but is presumably for the duration of the present emergency.

* * * Your salary rate is $275.00 per month, and you will be carried on the National Headquarters payroll with arrangements to have your salary paid in accordance with your written authorization. * * *

Before leaving for foreign service, the petitioner applied for and secured an indefinite leave of absence, renewable on an annual basis, from the Board of Education of Passaic. He told his sister she could have his automobile as long as she wanted it, but did not make any formal transfer of registration through the New Jersey Bureau of Motor Vehicles. He made an outright gift to Charles P. Brady of his account at the Fourth Ward Building & Loan Association, and converted the proceeds of his bank account at the Passaic National Bank into Government bonds. He gave his brother-in-law a power of attorney over the contents of his safety deposit box, and he prepared, executed, and placed in his safety deposit box a last will and testament.

In October 1942 the petitioner left New York City on an Army transport, landed at Grennoch, Scotland, and proceeded from there to his ultimate destination in London, England. En route he was one of a group of eight Red Cross employees traveling to Europe on parallel assignments, the group being in charge of a Red Cross leader. He did not travel under military orders, and did not receive any notification from the War Department or from any other military branch of the Government instructing him or directing him to proceed to any specific point. He wore a uniform similar to that of the United States Army, which was issued by the Quartermaster of the United States Army. An identification card was issued to him by the War Department. He was not issued an American passport.

When petitioner arrived in London he was greeted by the Commissioner in charge of club operations for the Red Cross, and on November 7, 1942, he was appointed club director of the Mostyn Club on Portmand Square, London. This club was used as sleeping quarters for military personnel of the Allied Forces on leave and for feeding and recreational facilities for said personnel. Petitioner had sole charge of the club's facilities, which could house approximately 1,000 persons. The paid personnel totaled 200, and all, with the exception of petitioner and three American Red Cross girls, were British civilians. In addition, there were approximately 150 British volunteer workers.

The petitioner was directly responsible to the supervisor of club operations of the Red Cross. At no time was he answerable to any member of the military services, except to the extent that his club was open to inspection by military police for the purpose of determining the propriety of the conduct therein of military personnel enjoying the club's facilities. Although the petitioner was not compelled to live at the club, he preferred to live there in order to be close to the scene of his operations.

In June 1944 petitioner's club operations were transferred to Edgeware Road, London, England, at the site of the former Mayflower Club, so that the organization could operate with a larger capacity.

In September 1945 the petitioner's physical condition was such that he decided to return to the United States. He arrived in the United States in November 1945 and went to the home of his mother in Lambertville, where he stayed for three months. He then went on two lecture tours for the Red Cross, which consumed three of the following four months.

No British income tax was paid by petitioner during the time he was in England.

In his income tax returns for the years 1942 and 1943, the petitioner did not include in his gross income the salary he received from the Red Cross. He explained this omission in a rider attached to his 1943 return, as follows:

In addition to the amount shown on this Report I received a salary from the American Red Cross in the amount of $3,300.00. This remuneration was for services performed outside of the United States and is, therefore, non-taxable income. I was employed from September 1942 to November 1945.

The respondent determined that the salary petitioner received as an employee of the Red Cross was taxable in full.

Petitioner was not a bona fide resident of a foreign country during the period of his employment by the Red Cross in London, England.


HARLAN, Judge:

The petitioner contends that the salary he received from the Red Cross is exempt from income tax under the provisions of section 116 (a) of the Internal Revenue Code, as amended by section 148 (a) of the Revenue Act of 1942.1 In support of his contention he urges that he intended to and did establish a bona fide foreign residence in England; that his activities in England were not under the aegis of the United States Government, and were not analogous to the employment of American mechanics at defense projects; and that he was at no time subject to military control or direction and therefore can not be said to have been enjoying the equivalent of extra-territorial privileges which defeat bona fide foreign residence.

When questioned with respect to his intentions, the petitioner testified as follows:

Q. Mr. Cruise, did you intend, in or about September, 1942, before your departure for England, to remain in England should your employment with the Red Cross terminate? A. I was single and free, and if I found something for the betterment, I would be willing to stay there. MR. JOHNSTON: I object to that as not responsive, Your Honor. THE COURT: That question can be answered, Mr. Cruise, yes or no. Mr. Reporter, read the question to him again. (Read.) THE WITNESS: Yes, I would have stayed there.

His sister, who also appeared as a witness, testified as follows:

Q. Did he [petitioner] make any expressions to you as to his intentions in the event he terminated his services in England with the American National Red Cross? A. Not that I recall.

Petitioner's testimony with respect to his intention to remain in England after the termination of his employment with the Red Cross is not convincing. This self-serving declaration made in 1949 appears to be an afterthought, for as far as the record discloses he never gave expression to such an intention either before he sailed or while he was in England. Something more is required than a mere statement that a taxpayer intended to remain in a foreign country and therefore became a resident of that country. Otherwise, income taxes properly due from many taxpayers could be easily avoided. In the instant proceeding, there is nothing in the record to show that petitioner ever took any action that a person would normally take who intended to stay in England after the termination of Red Cross employment. He had no passport, and he never applied for one. He had employment for the duration of the war with the Red Cross, and, as far as the record discloses, he never made any inquiry about any other employment, either before or after hostilities ceased in May of 1945. While the record does not show the exact nature of the illness which prompted him to leave for the United States in November 1945, the testimony of his sister that he looked tired and thin and the fact that he went on a lecture tour of long duration three months after his arrival in the United States would seem to indicate that his condition was caused by overwork and that all he needed was a period of rest to recover. Apparently, however, he never gave any consideration to taking that rest in England, or to returning to England after he recuperated. His actions from the time he received his Red Cross appointment clearly indicate that he belongs in the same category as other civilian workers who contributed to the war effort by accepting employment in a foreign country for the duration of the war or a shorter period, and after its termination returned to the United States.

In Downs v. Commissioner, 166 Fed. (2d) 504; certiorari denied, 334 U.S. 832; Arthur J. H. Johnson, 7 T.C. 1040; Ralph Love, 8 T.C. 400; and Dudley A. Chapin, 9 T.C. 142, this and other courts held that technicians and other employees of corporations having contracts with the Government, who traveled to foreign countries and performed work required in connection with the war effort for these corporations, were not bona fide residents of the country in which they lived and were not exempt from income tax under the provisions of section 116 of the Internal Revenue Code as amended by section 148 (a) of the Revenue Act of 1942. We do not think that the nature of petitioner's employment as a Red Cross worker requires a different conclusion in the instant proceeding. We have, therefore, found as a fact that he was not a bona fide resident of a foreign country during the period of his employment by the Red Cross in England. It follows that under the provisions of section 116, supra, the salary he received from the Red Cross during that period is not exempt from income tax.

The instant case, we think, is clearly distinguishable on its facts from Swenson v. Thomas, 164 Fed. (2d) 783; Audio G. Harvey, 10 T.C. 183; John H. Chapman, 9 T.C. 619; and Yaross v. Kraemer, U. S. Dist. Ct., Dist. Conn., Feb. 23, 1949, cited and relied upon by petitioner.

Decision will be entered for the respondent.


1. The legislative history of this section and applicable regulations were fully discussed in Arthur J. H. Johnson, 7 T.C. 1040.


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