Docket No. 474-69.

59 T.C. 264 (1972)


United States Tax Court.

Filed November 20, 1972.

Attorney(s) appearing for the Case

Donald F. Dawson, pro se.

Stephen W. Simpson, for the respondent.

The Commissioner determined a deficiency in petitioners' income tax for 1966 in the amount of $3,815.18. The sole issue to be decided is whether petitioner Donald Dawson was a "bona fide resident" of Australia for a period which included an "entire taxable year," so that earnings attributable to services performed by him while in Australia during 1966 are to be excluded from his gross income pursuant to section 911(a)(1), I.R.C. 1954.


The parties have filed a stipulation of facts which, together with an accompanying exhibit, is incorporated herein by this reference.

Donald F. and Eleanore A. Dawson are husband and wife. They timely filed a joint Federal income tax return for the calendar year 1966 with the district director of internal revenue at Los Angeles, Calif. At the time their petition herein was filed they resided in Pasadena, Calif.

Petitioner Donald F. Dawson (petitioner or Dawson) graduated in 1947 from the University of Southern California with a bachelor of science degree in mechanical engineering. Upon graduating he accepted employment with C. F. Braun & Co. (Braun), a company engaged in the engineering and construction of oil refineries and chemical plants throughout the world. Through a foreign subsidiary, Braun Transworld Corp. (Transworld), Braun has been doing business in Australia intermittently since 1955.

During the latter part of 1965 Braun notified Dawson that he was to be transferred to Australia to assist in the construction of an ethylene plant for the Imperial Chemical Industry of Australia and New Zealand (ICIANZ). It was Braun's custom to ask employees in petitioner's circumstances (i.e., "foreign resident engineers") to carry out further foreign assignments when the first project was completed. Based both upon this fact and upon the experiences of the other "foreign resident engineers" and the Australian office manager, all of whom had remained abroad for extended periods (4 years or more), petitioner's possibilities for a long stay in Australia appeared favorable at that time.

In preparation for his departure for Australia, Dawson leased his family home for a 15-month period. In addition he sold the family automobiles and arranged to have his household furniture stored. He continued to maintain a checking account in the United States, into which money was to be occasionally deposited for use in paying United States bills. Petitioner never intended to remain permanently away from the United States, or to become an Australian citizen. The length of his stay in Australia was to be measured by the needs of his employer. However, he anticipated being away for at least 15 months, and for some indefinite period beyond that.

Petitioner filed with the Australian government an "Application For Entry For Residence," which contained the following information:

  Proposed address in Australia:                    Sydney
  Proposed employment:                              C. F. Braun & Co.
  Funds and other assets to be transferred to
   Australia:                                       Living expenses
  Proposed length of stay:                          15 months

Three types of visas are issued by the Australian government, to wit: (a) Visitor, for stays of up to 6 months, (b) temporary residence, for stays in excess of 6 months and up to 2 years, and (c) migrant, for permanent residence. On November 18, 1965, petitioner and his family were issued temporary residence visas, valid for an 18-month stay. His visa was later extended, on August 25, 1966, for an additional 2¼ years, until the expiration date of his passport, November 5, 1968.

Braun continued to treat petitioner on its records as its employee until December 30, 1965. On that date he was transferred, and was carried as an employee of Transworld. This date is important for two reasons. First, when petitioner reported for his foreign assignment he became entitled to a 20-percent salary increase to compensate him for disruption of his family and possible increased costs of living abroad; this increase became effective on December 30, 1965, the first day he was on the Transworld payroll. Second, petitioner was allowed one working day traveltime from the time he was placed on the Transworld payroll until he had to report for work. Thus, his travel day was Thursday, December 30, 1965, and he was required to report for work on the next working day. Normally the next working day would have been Friday; however, in Australia, as in the United States, when January 1 falls on a Saturday, Friday, December 31, is celebrated as a holiday. Transworld's office, was, therefore, closed on Friday, December 31. The office was also closed that weekend (Saturday, January 1, and Sunday, January 2, 1966) as was the usual practice. Thus, the first working day after petitioner's travel day (December 30) was Monday, January 3, 1966, and it was on that day that he was required to report to work.

Together with his wife and two children, petitioner left the United States on December 27, 1965, from Honolulu, Hawaii, bound for Tahiti. They arrived in Tahiti on that same day. Knowing that he did not have to report to work until Monday, January 3, 1966, he and his family left Tahiti on December 31, 1965, destined for Fiji. They arrived in Fiji on January 1, 1966, and remained there until January 3, 1966, on which date they departed for Sydney, Australia. They arrived in Sydney on the same day, and petitioner immediately reported to work for Transworld (i.e., on Monday, January 3, 1966).

Shortly after his arrival in Sydney petitioner leased a house for 1 year. He also purchased a Holden, an Australian-made automobile, and he and his wife obtained Australian drivers licenses. He opened an Australian bank account. He also joined a local tennis club and, along with his wife, a local wine-tasting club. Both children were enrolled in school, the daughter in the public school in Sydney, and the son in Cranbrook, a private school. A supply of school uniforms was purchased that should have lasted for approximately 2 years. Mrs. Dawson became quite active in school affairs; among other things she served in the school snack shop once a week.

Prior to petitioner's arrival in Australia, Transworld had accepted a contract to build a solvents refinery for the Shell Chemical Co. in Clyde, which is very close to Sydney. Work was to begin on this plant late in 1966. Moreover, ICIANZ was very pleased with the work Transworld had done for them and asked Transworld to bid on an ammonia plant which was to be built near Brisbane in 1967-68. However, Shell canceled its plans for the solvents plant, and, since Braun had just taken on a very heavy workload in the United States, it declined to bid on the ammonia plant. Consequently, the Australian office was closed, and petitioner was required to return home. On January 27, 1967, his wife and children returned to the United States; he followed shortly thereafter, on February 10, 1967. Petitioner had enjoyed working in a foreign country, and he accepted another foreign assignment, at the end of 1969, to work in Germany. He and his family lived in that country from the end of 1969 until early in 1972, at which point they decided to return to the United States to help their daughter enter college. They were residing in the United States at the time of the trial herein.

Petitioner did not pay Australian income taxes on salary earned during his stay in that country. Braun1 withheld amounts from his salary for United States Federal income and social security taxes during 1966. His total salary during 1966 was $20,059.88, $332 of which was earned while he was in the United States. The record does not disclose the nature of his stay in the United States or the dates of his arrival and departure in connection therewith. In their 1966 Federal income tax return petitioners included only $332 of Dawson's salary in their gross income. They excluded the remainder of his salary, claiming that he had been a "bona fide resident" of Australia for the "entire taxable year" of 1966, within the meaning of section 911(a)(1), I.R.C. 1954. Petitioners also claimed a refund of the income taxes withheld in the amount of $2,886. The Commissioner determined a deficiency against petitioners by reason of their exclusion from gross income of the major portion of Dawson's salary. He also made several other adjustments that are not in controversy.


RAUM, Judge:

In order for petitioner to qualify for the exclusion provided in section 911(a)(1), I.R.C. 1954,2 he must establish not only that he was a bona fide resident of Australia, but also that his period of bona fide residence included "an entire taxable year." The Government contends that petitioner is not entitled to the exclusion on both grounds. We hold that he has satisfactorily carried his burden on the first point, but that he cannot prevail on the second.

1. Bona fide residence is primarily a question of fact, and it is, therefore, difficult to reconcile the many cases in the area. See Joseph A. McCurnin, 30 T.C. 143, 148; Donald H. Nelson, 30 T.C. 1151, 1153; Leonard Larsen, 23 T.C. 599, 604; Sochurek v. Commissioner, 300 F.2d 34, 37-38 (C.A. 7). The principles to be applied are the same as those which govern the determination of what constitutes residence in the United States for an alien individual. See sec. 1.911-1(a)(2) and 1.871-2(b),3 Income Tax Regs. The intention of the taxpayer is of prime importance. A listing of the factors which have been considered in determining whether a person is a "bona fide resident" is found in Sochurek v. Commissioner, supra at 38.4

An examination of the facts in the instant case, in the light of these various criteria, leads us to the conclusion that petitioner became a bona fide resident of Australia.5 When he originally went to that country it was his intention to remain there for at least 15 months and for some indefinite period beyond that. This belief was clearly justified, since it was his company's practice to provide followup foreign assignments after the first project was completed. Indeed, Transworld had accepted another contract in the area to build a solvents refinery for the Shell Chemical Co., and it was asked to bid on another project for ICIANZ. Only an unusual series of events prevented both of these projects from coming to fruition, thus necessitating petitioners' early return to the United States.

In accordance with his original intention, petitioner's family accompanied him to Australia. They leased a house for 1 year, and participated in the social activities of the community. Both of the children attended local schools, and petitioner's wife took an active role in school affairs. While it is true that petitioner did not pay income taxes to the Australian government, this is not dispositive but is only one factor to be considered. David E. Rose, 16 T.C. 232, 238; White v. Hofferbert, 88 F.Supp. 457, 461-462 (D. Md.); Meals v. United States, 110 F.Supp. 658, 662 (N.D. Cal.); Carpenter v. United States, 348 F.Supp. 179 (N.D. Tex.). Cf. Joseph A. McCurin, 30 T.C. at 149. Clearly there was no motive of tax avoidance in petitioner's living in Australia. His entire pattern of behavior supports his claim of status as a resident, rather than a transient or sojourner.

The Commissioner's reliance on Ernest Rudolf Hertig, 19 T.C. 109, is misplaced. The petitioner in that case showed very little participation in the activities of the community. As the Court there stated (p. 114):

We have made our finding because within that explicit legislative purpose we view petitioner as being no more than a "transient or sojourner"1 for a specific purpose and definite period in Afghanistan, without a home there or its "obligations," living in the company barracks, eating at the company mess, and who, on this record, was a "technician" merely temporarily away from home. * * * [Fn. omitted. Emphasis supplied.]

The opposite is true in the instant case. Moreover, we note that it is not necessary for petitioner to intend to make his home permanently in Australia or to give up his United States citizenship; it is possible to be a bona fide resident of one country while retaining one's domicile in another. Swenson v. Thomas, 164 F.2d 783, 784-785 (C.A. 5). Indeed, the statute is specifically designed for use by United States citizens.

2. Although we have concluded that petitioner became a bona fide resident of Australia, the statute calls for something more. He must show that "he has been a bona fide resident * * * for an uninterrupted period which includes an entire taxable year." Sec. 911(a)(1), fn. 2 supra. Petitioner was a calendar year taxpayer, and since he departed from Australia in early 1967, the "entire taxable year" referred to in section 911(a)(1) must be the year 1966. But the record is clear that he arrived in Australia on January 3, 1966, and his residence in that country could not have commenced before that time.

The case is a hard one, and our sympathies are with petitioner. The statutory exemption relates only to earned income, and January 1 and 2, 1966, were holidays in Australia, when petitioner could not have performed any services for his employer. We referred to these circumstances at the conclusion of the trial, and raised the question whether in the context of this section the term "entire taxable year" had sufficient elasticity to include the present situation. We invited the parties, in connection with preparation of their briefs, to explore the legislative history of the provision with that thought in mind. However, the only legislative materials to which our attention has been called appear to point in the direction of supporting the Government's position.

Prior to 1951, the statute provided for the exclusion of foreign earnings from gross income only in the case of a taxpayer who was "a bona fide resident of a foreign country * * * during the entire taxable year." Sec. 116(a)(1) of the 1939 Code, as amended by sec. 148(a) of the Revenue Act of 1942, ch. 619, 56 Stat. 798. In 1951, Congress amended these provisions (sec. 321 of the Revenue Act of 1951, ch. 521, 65 Stat. 452) to cover the situation of a taxpayer who becomes a bona fide resident of a foreign country after the beginning of the taxable year and maintains such residence for an uninterrupted period which includes an entire taxable year — the very provisions that were incorporated in section 911(a)(1) of the 1954 Code, involved herein. It was thought that in such circumstances the exemption should extend to that portion of the taxpayer's first year abroad which includes his foreign residence. Thus, the report of the Senate Finance Committee, which proposed that amendment, stated (S. Rept. No. 781, 82d Cong., 1st Sess., p. 53):6

[Under existing law] exemption is denied an individual in his first year abroad unless he becomes a bona fide resident of the foreign country as of January 1. Section 321 of your committee's bill corrects this defect of present law by granting the exclusion with respect to "an uninterrupted period which includes an entire taxable year" with respect to which an individual was a bona fide resident of a foreign country.

Obviously, the committee regarded January 1 as the beginning of the year, but nevertheless provided for the exemption starting with the commencement of foreign residence if the taxpayer's period of uninterrupted residence included an "entire taxable year." Thus, if petitioner's foreign residence herein had persisted throughout 1967, the statute would relieve him of tax on his 1966 foreign earnings, even though he was not a resident of Australia for the full year. But petitioner gave up his Australian residence during the early part of 1967, and therefore cannot qualify for exemption in 1966, notwithstanding that he missed it by only 2 days.7

A further, and perhaps decisive impediment to petitioner's position is section 7701(a)(23) of the 1954 Code which defines "taxable year" to mean "calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A." Thus, as the Government correctly points out, the Code defines "taxable year" for a calendar year taxpayer as the "calendar year," not just those days within a calendar year during which income was earned. And when Congress speaks in section 911(a)(1) of the "entire taxable year," it would seem that we have no latitude within which we can give these words a more hospitable construction.

The difficulties presented by the statute are too great for an interpretation in petitioner's favor, notwithstanding his appealing equities.8 He did not in fact become a resident of Australia until January 3, 1966; the report of the Senate Finance Committee explicitly indicates that it regarded January 1 as the start of the taxable calendar year; the statute affords relief to persons in petitioner's situation provided that he continued to remain a bona fide resident throughout the next full calendar year — a condition that was not satisfied herein; and, finally, the definition of "taxable year" in section 7701(a) (23) appears to rule out the interpretation of "entire taxable year" for which petitioner contends. We find that these considerations, in the aggregate, are incompatible with a holding that petitioner was a bona fide resident of Australia for the "entire taxable year" 1966.9 Accordingly,

Decision will be entered for the respondent.


1. This finding is made in accordance with the stipulation of the parties as well as the W-2 form attached to petitioners' return, in evidence. However, the stipulation shows that Dawson was on Transworld's payroll in 1966, and the record does not explain why the withholding was attributed to Braun.

(a) GENERAL RULE. — The following items shall not be included in gross income and shall be exempt from taxation under this subtitle:

(1) BONA FIDE RESIDENT OF FOREIGN COUNTRY. — In the case of an individual citizen of the United States who establishes to the satisfaction of the Secretary or his delegate that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, amounts received from sources without the United States (except amounts paid by the United States or any agency thereof) which constitute earned income attributable to services performed during such uninterrupted period. The amount excluded under this paragraph for any taxable years shall be computed by applying the special rules contained in subsection (c).

Respondent has conceded that the amounts received which are at issue here were attributable to services rendered outside of the United States, were received within the time limit designated under sec. 911(c)(4), and were not paid by the U.S. Government or any of its agencies.

3. Sec. 1.871-2 Determining residence of alien individuals.

(b) Residence defined. An alien actually present in the United States who is not a mere transient or sojourner is a resident of the United States for purposes of the income tax. Whether he is a transient is determined by his intentions with regard to the length and nature of his stay. A mere floating intention, indefinite as to time, to return to another country is not sufficient to constitute him a transient. If he lives in the United States and has no definite intention as to his stay, he is a resident. One who comes to the United States for a definite purpose which in its nature may be promptly accomplished is a transient; but, if his purpose is of such a nature that an extended stay may be necessary for its accomplishment, and to that end the alien makes his home temporarily in the United States, he becomes a resident, though it may be his intention at all times to return to his domicile abroad when the purpose for which he came has been consummated or abandoned. An alien whose stay in the United States is limited to a definite period by the immigration laws is not a resident of the United States within the meaning of this section in the absence of exceptional circumstances.

4. The court in Sochurek v. Commissioner, 300 F. 2d at 38, stated in part as follows: Among the factors considered by the courts in determining whether a citizen of the United States has discharged his burden of satisfactorily establishing his claim of bona fide residence in a foreign country during an entire taxable year are the following:

(1) intention of the taxpayer;

(2) establishment of his home temporarily in the foreign country for an indefinite period;

(3) participation in the activities of his chosen community on social and cultural levels, identification with the daily lives of the people and, in general, assimilation into the foreign environment;

(4) physical presence in the foreign country consistent with his employment;

(5) nature, extent and reasons for temporary absences from his temporary foreign home;

(6) assumption of economic burdens and payment of taxes to the foreign country;

(7) status of resident contrasted to that of transient or sojourner;

(8) treatment accorded his income tax status by his employer;

(9) marital status and residence of his family;

(10) nature and duration of his employment; whether his assignment abroad could be promptly accomplished within a definite or specified time;

(11) good faith in making his trip abroad; whether for purpose of tax evasion.

While all such factors may not be present in every situation, those appropriate should be properly considered and weighed.

5. We reach this result without giving any weight to O.D. 127, 1 C.B. 165, which was relied on by petitioner, but which was declared obsolete in Rev. Rul. 68-560, 1968-2 C.B. 601. We note that although O.D. 127 was not formally declared obsolete until 1968, this does not mean that it "represent[ed] the controlling view of authority until that time." See Maurice A. Enright, 56 T.C. 1261, 1268-1269.
6. See also S. Rept. No. 781, 82d Cong., 1st Sess., pt. 2, pp. 38-39.
7. Cf. Hoofnel v. Commissioner, reported together with Downs v. Commissioner, 166 F.2d 504, 509 (C.A. 9), affirming 7 T.C. 1136, where a gap of 1 day occasioned by failure of a ship to depart on schedule by reason of the threat of enemy submarines was regarded as sufficient to block an exemption under the law as it stood in 1942.
8. However, it should be noted that the equities are not entirely one-sided. For one thing, petitioner paid no income taxes to Australia. Furthermore, the predicament in which he finds himself is entirely of his own making, since the evidence establishes that he deliberately chose to visit the Fiji Islands for a short vacation before traveling to Australia.
9. Cf. A. E. Adams, 22 T.C.M. 1215.


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