DOUGLAS H. CUTTING, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 15370-17.
UNITED STATES TAX COURT
Filed November 19, 2020.
T.C. Memo. 2020-158
PUGH, Judge
Daniel J. Bryant, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
PUGH, Judge: Respondent determined the following income tax deficiencies and penalties in a notice of deficiency issued to petitioner on May 18, 2017:1
| Year | Deficiency | Penalty |
|---|---|---|
| 2012 | $20,838 | $4,168 |
| 2013 | 22,105 | 4,421 |
| 2014 | 25,567 | 5,113 |
After respondent‘s concession that petitioner is not liable for any of the penalties, the remaining issues for decision are whether petitioner (1) was entitled to the
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulated facts are incorporated in our findings by this reference.
Petitioner resided in Nongprue Banglamung, Chonburi 20150, Thailand, when he timely filed his petition. He was a U.S. citizen at all relevant times.
Beginning in 2005 and continuing through the years in issue petitioner worked as a pilot for Omni Air International (OAI), a domestic company
During the same year petitioner began working for OAI he married a woman who resided in Thailand. While working for OAI during the years in issue he spent most of his days off in Thailand with his wife and stepdaughter. Petitioner did not become a Thai citizen or obtain a permanent visa to reside in Thailand. He visited Thailand on a temporary transit and nonimmigrant visa that was granted automatically each time he entered Thailand and expired after 30 days. He was able to renew his temporary transit and nonimmigrant visas simply by leaving Thailand to work as a pilot on a regular basis, giving him a fresh 30-day period each time he returned. On at least two occasions during the years in issue petitioner requested that his temporary transit and nonimmigrant visas be extended. But on each occasion his request was denied by the Thai Government.
Because he held only temporary transit and nonimmigrant visas, petitioner could not lawfully own or lease any real property or work in Thailand. Therefore, while he signed his wife‘s lease as a witness, he was not listed on it as a tenant. Petitioner did not pay any taxes to Thailand.
Petitioner‘s employment with OAI was governed by a collective bargaining agreement (CBA) between OAI and the International Brotherhood of Teamsters. While OAI did not require that petitioner live in the United States, the CBA required him to have a “home base” (a “primary residence as listed on Company personnel and benefit records“) and to designate a gateway travel airport in the contiguous United States. Petitioner chose San Jose, California, to be his home base, and designated San Jose Airport (SJC) as his gateway travel airport. Petitioner chose San Jose because his parents and brother lived in the area. Petitioner listed his father‘s address in Campbell, California, as his mailing address. He did not own or lease a residence in the United States during the years in issue. Petitioner‘s credit card statements show that, during the years in issue, he shopped for groceries several times in Campbell, paid for haircuts several times in nearby Los Gatos, California, and went to the eye doctor and purchased corrective lenses in San Jose.
The CBA required petitioner to have a certain amount of training per year. All of the training was done in the United States. Petitioner also spent time each year on “reserve” for work. During “short call reserve” he had two hours to report for duty if called. During “long call reserve” petitioner had at least 12 hours to report for duty.
Petitioner‘s primary duty was as a pilot, and his primary income was earned during flights which he was piloting. He also was paid (at a lower rate) for time spent on short call reserve, training, deadhead travel, vacation days, and sick days. In addition he was paid an hourly per diem while between flights and still on duty. Petitioner was not paid while off duty or during long call reserve.
2012
In 2012 petitioner spent 153 days in Thailand. He spent 44 days in training in the United States. He worked as a pilot for 48 flights: 42 international and 6 domestic. Petitioner had 60 deadhead flights: 26 international flights and 34 domestic flights. He had 17 international per diem days.
2013
In 2013 petitioner spent 171 days in Thailand. He spent 15 days in training in the United States. He worked as a pilot for 60 flights: 59 international and 1 domestic. Petitioner had 76 deadhead flights: 39 international and 37 domestic. He had 15 international per diem days.
2014
In 2014 petitioner spent 114 days in Thailand. He spent 14 days in training in the United States. He worked as a pilot for 84 flights: 74 international and 10 domestic. Petitioner had 106 deadhead flights: 71 international and 35 domestic. He had 24 international per diem days and 6 domestic per diem days.
Petitioner timely filed Forms 1040, U.S. Individual Income Tax Return, for 2012, 2013, and 2014 listing his filing status as “single” for each year and listing his father‘s Campbell, California, address. OAI withheld Federal and California State income, Social Security, and Medicare taxes from petitioner‘s wages for the years in issue. He reported wages of $109,850, $113,872, and $136,194 for 2012, 2013, and 2014, respectively. He deducted State tax of $7,053, $7,355, and $8,720 for 2012, 2013, and 2014, respectively. Petitioner received but failed to report California State tax refunds of $7,585, $6,056, and $6,382 for 2012, 2013, and 2014, respectively.
In the notice of deficiency respondent disallowed petitioner‘s foreign earned income exclusion in its entirety for each year in issue on account of his failure to establish either bona fide residence or physical presence in a foreign country for the relevant period.
The taxpayer generally has the burden of proving that the Commissioner‘s determinations in a notice of deficiency are incorrect.
I. Foreign Earned Income Exclusion
We first address respondent‘s determinations that petitioner did not qualify for the foreign earned income exclusion for 2012, 2013, or 2014 under
A. Tax Home
We first turn to whether petitioner had a tax home in Thailand. An individual‘s tax home means the individual‘s tax home for purposes of
Petitioner argues that because he was a pilot flying international routes all over the world, he had no regular or principal place of business, and hence, his tax home should be determined by reference to his regular place of abode, which he argues is in Thailand. We have rejected this argument in the past, holding that the principal place of business for a pilot or similar professional is his duty station. See, e.g., Wojciechowski v. Commissioner, T.C. Memo. 1991-239 (holding that a
Petitioner selected San Jose to be his home base and designated SJC as his gateway travel airport. Those selections came with substantive rights and obligations under the terms of the CBA. Specifically, OAI was obligated to provide petitioner transport to and from SJC at the beginning or end of a duty assignment.
Petitioner‘s employment arrangement with OAI was similar to the employment arrangements in Sislik and Swicegood. In each case a United States citizen pilot flew international routes, designated his home base at a domestic
Likewise, we hold that petitioner‘s principal place of business, and thus his tax home, was in San Jose, his home base and the location of his gateway travel airport, SJC. See
B. Bona Fide Resident
Having determined that petitioner‘s tax home was not in a foreign country, we need not apply the bona fide residence or physical presence test to determine that petitioner was not a qualified individual. See
Bona fide residence is “primarily a question of fact, and it is, therefore, difficult to reconcile the many cases in the area.” Linde v. Commissioner, T.C. Memo. 2017-180, at *20 (quoting Dawson v. Commissioner, 59 T.C. 264, 268 (1972)); cf., e.g., Commissioner v. Estate of Sanders, 834 F.3d 1269, 1279 (11th Cir. 2016) (“Bona fide residency for tax purposes is a question of law, or at least a mixed question of fact and law[.]“), vacating and remanding 144 T.C. 63 (2015); Sochurek v. Commissioner, 300 F.2d 34, 37 (7th Cir. 1962) (holding that a conclusion regarding bona fide residency is a conclusion of law or at least a determination of a mixed question of fact and law), rev‘g and remanding 36 T.C. 131 (1961); Weible v. United States, 244 F.2d 158, 161 (9th Cir. 1957) (holding that the question of whether a taxpayer was a bona fide resident was “a mixed question of law and fact“).
To qualify for the foreign earned income exclusion as a bona fide resident of a foreign country, a taxpayer must offer “strong proof” of bona fide residency in the foreign country. Schoneberger v. Commissioner, 74 T.C. 1016, 1024 (1980). Courts consider a number of factors when determining whether a taxpayer was a
- the intention of the taxpayer;
- establishment of his home temporarily in the foreign country for an indefinite period;
- 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;
- physical presence in the foreign country consistent with his employment;
- nature, extent and reasons for temporary absences from his temporary foreign home;
- assumption of economic burdens and payment of taxes to the foreign country;
- status as resident contrasted to that of transient or sojourner;
- treatment accorded his income tax status by his employer;
- marital status and residence of his family;
- nature and duration of his employment; whether his assignment abroad could be promptly accomplished within a definite or specified time;
- good faith in making trip abroad; whether for purpose of tax evasion.
Id. While all of these factors may not be present in every case, the applicable factors should be considered and weighed. Id. Below we consider the Sochurek factors.
The Court of Appeals in Jones v. Commissioner, 927 F.2d 849, 854 (5th Cir. 1991), rev‘g T.C. Memo. 1989-616, noted that “intent plays perhaps the most important part in determining the establishment and maintenance of a foreign residence.” Testimony from the taxpayer that he intended to be a bona fide resident of a foreign country is not sufficient. See, e.g., Acone v. Commissioner, T.C. Memo. 2017-162, at *16. Rather, we look for objective indicia of an intention to establish residence in the foreign country. Id. (holding that this factor weighed against the taxpayer when the taxpayer‘s testimony that he intended to be a bona fide resident was not accompanied by any objective, concrete fact that persuasively demonstrated that intent). In Jones v. Commissioner, 927 F.2d at 854, the taxpayer‘s voluntarily declining to take a payment from the State of Alaska to its residents was a concrete, objective, consequential disclaimer of United States residency that made much more credible the taxpayer‘s claim of foreign residency.
By contrast, here, as in Acone v. Commissioner, at *16, no objective fact demonstrates that petitioner intended to be a bona fide resident of Thailand. He entered the country on temporary transit and nonimmigrant visas that expired after 30 days. On the few occasions that he sought extensions, they were denied. He
2. The Establishment of a Temporary Foreign Home for an Indefinite Period
It is difficult to conclude on this record that petitioner established a home in Thailand for an indefinite period. His temporary transit and nonimmigrant visas required him to leave Thailand after 30 days and did not permit him to lease or own property. Nor was he listed as a tenant on his wife‘s lease. There is no indication that petitioner had or could have any legal right to reside at his wife‘s apartment in Thailand. Therefore, this factor weighs against petitioner.
3. Assimilation Into the Foreign Environment
Petitioner married in Thailand the same year he began working for OAI. Petitioner did not present any other evidence on his cultural immersion in Thailand. And the credit card statements show that he still got his haircuts, went to the eye doctor, and bought corrective lenses in the San Jose area. We conclude that his marital status is offset by the lack of any evidence of assimilation into the Thai community. Therefore, this factor is neutral.
OAI did not request or require that petitioner reside or spend any of his time in Thailand. However, he spent most of his nonworking days in Thailand during each year in issue. Therefore, this factor weighs in favor of petitioner.
5. The Nature, Extent, and Reasons for Temporary Absences From His Temporary Foreign Home
When petitioner was not working—flying or in training—he spent most of his time in Thailand, as noted above. Specifically, he spent 153 days in Thailand in 2012, 171 days in 2013, and 114 days in 2014. Therefore, this factor weighs in favor of petitioner. See Vento v. Dir. of V.I. Bureau of Internal Revenue, 715 F.3d 455, 467 (3d Cir. 2013) (“[E]xtensive absences will negate a finding of bona fide residency, unless those absences are justified by good-faith reasons, such as the travel requirements of the taxpayer‘s profession.“).
6. Assumption of Economic Burdens and Payment of Taxes to the Foreign Country
Petitioner did not pay any taxes to Thailand during any of the years in issue but indicated on his Forms 2555 that he was required to pay income tax to Thailand. Setting aside this inconsistency, the nonpayment of taxes to Thailand weighs against petitioner. And while he broadly asserts that he contributed
7. Status as Resident Contrasted to That of Transient or Sojourner
Petitioner‘s temporary transit and nonimmigrant visas allowed him to stay in Thailand for only 30 days at a time. Petitioner testified that these temporary transit and nonimmigrant visas “worked very well” because he would typically leave once per month for about 18 days at a time for work and, when he returned he would have a fresh 30 days to stay in Thailand “without applying for anything, or doing any extra work, or paying any money“. Petitioner stated that applying for a residential visa “was a whole other ball of wax entirely“, and he “didn‘t try to chase anything else down.” His failure to pursue a more permanent option had real consequences as he could not lawfully work or hold any interests in real property in Thailand. Additionally, petitioner stated on his Forms 2555 that he submitted a statement to the Thailand Government that he was “not a resident of that country.” His status thus was more akin to that of a transient or sojourner in Thailand, and therefore, this factor weighs heavily against him.
Petitioner‘s employer, OAI, was based in the United States. OAI withheld Federal and California State income tax from petitioner‘s wages for each year in issue. Therefore, this factor weighs against petitioner.
9. Marital Status and Residence of Family
Petitioner testified that he was married in Thailand and lived there with his wife and his stepdaughter, and we accepted his testimony. Yet we cannot overlook his failure to explain why he filed his Form 1040 as “single” for each year in issue or why he stated on his Form 2555 that he did not live with any family members abroad. This unexplained conflict between his marriage status and his election renders this factor neutral at best.
10. Nature and Duration of His Employment
Because his employment is not what brought petitioner to Thailand, this factor is not applicable in this case. See Sochurek v. Commissioner, 300 F.2d at 38-39 (distinguishing situations where a taxpayer‘s employment abroad is limited to a specific timeframe from situations where a taxpayer‘s employment abroad was not but also explaining that not all factors may be present in every case).
We noted above several conflicts in petitioner‘s argument that give us reason to question whether he acted in good faith. First, petitioner stated on his Forms 2555 that he was subject to taxes to Thailand but stipulated that he did not pay any taxes to Thailand during any of the years in issue. Form 2555 explicitly states that a taxpayer does “not qualify as a bona fide resident” of a foreign country if the taxpayer checks “Yes” that he submitted a statement to foreign authorities that he is not a resident of that country (line 13a) and “No” that he is not subject to tax in the foreign country (line 13b). See
Therefore, petitioner is not a qualified individual as defined by
We now turn to whether petitioner failed to report California State income tax refunds he received during the years in issue. Generally, under
Petitioner received but failed to report California State income tax refunds of $7,585, $6,056, and $6,382 for 2012, 2013, and 2014, respectively. He claimed deductions for California State income tax of $7,053 on his 2012 tax return and $7,355 on his 2013 return. He did not introduce evidence with respect to his 2011 tax return other than his own testimony that he took a deduction for California State income tax in 2011 just as he did for 2012, 2013, and 2014.
Petitioner did not dispute that he received the California State income tax refunds. Instead, he argued that the refunds would result in a tax benefit to him only if, computationally, his itemized deductions for each year he deducted the
With respect to the refund he received in 2012, we hold that petitioner failed to introduce evidence of his 2011 itemized deductions and, therefore, he failed to carry his burden on this issue. See Brobst v. Commissioner, T.C. Memo. 1988-456, 1988 Tax Ct. Memo LEXIS 500, at *11-*12; see also Charleston Nat‘l Bank v. Commissioner, 20 T.C. 253, 263 (1953) (holding that a taxpayer had “wholly failed to carry its burden of showing that prior deductions * * * were without tax benefit“), aff‘d, 213 F.2d 45 (4th Cir. 1954). Accordingly, the refund of
Any contentions we have not addressed we deem irrelevant, moot, or meritless.
To reflect the foregoing,
An appropriate decision will be entered.