DITMAN v. HOFFERBERT, (D.Md. 1955)

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Docket Number

Civ. No. 6918.

Attorney(S)

Harry M. Sachs, Jr., Baltimore, Md., and L. Awalt Weller, Westminster, Md., for plaintiff. George C. Doub, U.S. Atty., Walter E. Black, Jr., Asst. U.S. Atty., Baltimore, Md., H. Brian Holland, Asst. Atty. Gen., Ethan B. Stroud and Andrew D. Sharpe, Attys., Dept. of Justice, Washington, D.C., for defendant.

Judges

Roszel Cathcart Thomsen

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Smart Summary

Factual and Procedural Background

This case concerns a suit by George E. Ditman seeking recovery of income taxes paid. The central factual question is whether Ditman was a bona fide resident of Saudi Arabia during the entire taxable year 1949, qualifying him for an exemption from federal taxation on foreign earned income under Section 116(a) of the Internal Revenue Code of 1939, as amended by the Revenue Act of 1942.

Ditman, originally from Maryland, entered into an 18-month employment contract with Bechtel International Corporation in July 1948 to work as a carpenter in Saudi Arabia. He lived there throughout 1949 and until May 1950, residing in company barracks and using company facilities, but did not assimilate into the local culture, speak Arabic, pay local taxes, or seek citizenship. He maintained U.S. bank accounts and his family remained in Maryland. After terminating his contract in 1950, he returned to Maryland and resumed work there.

Legal Issues Presented

Whether the plaintiff taxpayer was a "bona fide resident" of Saudi Arabia for the entire taxable year 1949 within the meaning of Section 116(a), I.R.C., as amended, thus entitling him to an exemption from federal income taxation on earned income from foreign sources.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner of Internal Revenue v. Swent, 155 F.2d 513 (4th Cir.)	Interpretation of "resident" under pre-1942 amendment to Section 116(a)	Illustrates that "resident" does not necessarily mean domicile; relevant to statutory interpretation in this case.
Myers v. Commissioner, 180 F.2d 969 (4th Cir.)	Interpretation of "resident" under Section 116(a) after 1942 amendment	Supports the distinction between transients/sojourners and bona fide residents; court relied on this to classify plaintiff as a resident.
White v. Hofferbert, 88 F. Supp. 457 (D.C.D. Md.)	Legislative history and interpretation of Section 116(a)	Discussed legislative intent behind amendment; adopted by this court to guide interpretation.
Meals v. U.S., 110 F. Supp. 658 (D.C.N.D. Cal.)	Requirement of assimilation into foreign life to claim exemption	Referenced as a suggested standard, but court declined to apply it strictly here.
Downs v. Commissioner, 166 F.2d 504 (9th Cir.)	Similar to Meals, regarding assimilation and residency	Supported the concept of assimilation but was not determinative here.
Johnson v. Commissioner, 7 T.C. 1040	Tax Court precedent on residency and assimilation	Also cited for assimilation principle; court acknowledged but relied primarily on Fourth Circuit precedents.

Court's Reasoning and Analysis

The court analyzed whether Ditman qualified as a bona fide resident of Saudi Arabia under the statutory exemption in Section 116(a). It recognized that the term "resident" can have varied meanings and that the 1942 amendment intended to exempt citizens who establish a home and assume corresponding obligations in a foreign country, excluding those temporarily away from home.

While Ditman did not assimilate into the foreign culture or pay local taxes, the court found that his contract extending beyond the taxable year distinguished him from mere transients or sojourners. The court acknowledged precedents requiring some assimilation but deferred to the Fourth Circuit's approach distinguishing bona fide residents from transients based on contractual and factual circumstances rather than assimilation alone.

Accordingly, the court concluded that Ditman’s extended contractual employment and physical presence qualified him as a bona fide resident, entitling him to the claimed tax exemption.

Holding and Implications

Holding: The court ruled that George E. Ditman was a bona fide resident of Saudi Arabia during the entire taxable year 1949 within the meaning of Section 116(a), and therefore entitled to the exemption from federal income taxation on earned income from foreign sources.

Implications: This decision directly benefits the plaintiff by granting the tax exemption claimed. The court followed existing Fourth Circuit precedent and did not establish new legal standards or broader precedent beyond applying the established distinction between bona fide residents and transients.

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George E. DITMAN v. George HOFFERBERT, Collector of Internal Re

THOMSEN, Chief Judge.

The only issue in this suit for the recovery of income taxes is whether plaintiff taxpayer was a bona fide resident of Saudi Arabia during the entire taxable year 1949 within the meaning of Section 116(a), I.R.C. of 1939, as amended by the Revenue Act of 1942, c. 619, 56 Stat. 798, Sec. 148(a), 26 U.S.C.A. § 116, which granted an exemption from federal taxation of earned income received from sources without the United States to "an individual citizen * * * who establishes * * * that he is a bona fide resident of a foreign country * * * during the entire taxable year".

Taxpayer, a native of Carroll County, Maryland, entered into an employment contract with the Bechtel International Corporation in July, 1948, agreeing to work for that company as a carpenter in Saudi Arabia for 18 months. He had recently divorced his wife in Spokane, Washington, where he had been living and working since the war, and his primary interest was to get as far from Spokane as he could for the time being. He did not intend to establish a domicile in Saudi Arabia or in any other place outside the United States. Taxpayer remained in Saudi Arabia during the entire year 1949 and until May, 1950, living in company barracks and eating at company mess halls. Company doctors and medical facilities were available to him. Taxpayer did not speak Arabic, and did not enter into the social life of the community nor become assimilated into the foreign environment. He did not pay any Arabian income taxes, nor apply for Arabian citizenship. He had two bank accounts in the United States, one in Westminster, Maryland, and the other in Spokane, Washington. His family lived in Carroll County, Maryland.

In April, 1950, taxpayer gave notice of termination of his contract and at company expense was transported back to the United States around the first of May, 1950. When he left Saudi Arabia he sold or gave away everything he could not carry with him. He wanted to get away from Saudi Arabia before summer, when it is extremely hot, but he thought he might return there before the next winter or might get a new job in South America or elsewhere. The day after he arrived in Carroll County, he met an old friend who suggested that he go to work for him building houses. Taxpayer accepted this suggestion and, except for a short trip west, has lived and worked in Maryland since his return.

Was taxpayer a "bona fide resident" of Saudi Arabia during the year 1949? "The word `resident' (and its antonym `nonresident') are very slippery words, which have many and varied meanings. Sometimes, in statutes, residence means domicile; sometimes, as in the instant case, it clearly does not." Commissioner of Internal Revenue v. Swent, 4 Cir., 155 F.2d 513, 515, which applied the law before the 1942 amendment to Sec. 116(a), and Myers v. Commissioner, 4 Cir., 180 F.2d 969, which applied the law after the amendment.

The legislative history of sec. 116(a) was discussed at length by Judge Chesnut in White v. Hofferbert, D.C.D.Md., 88 F. Supp. 457, and need not be repeated here. The purpose of the 1942 amendment, as explained by Senator George, Chairman of the Senate Committee on Finance, was that "a non-resident American citizen who establishes a home, maintains his establishment and is taking on corresponding obligations of a home in a foreign country, may enjoy the exemption and * * * so that technicians, American citizens who are merely temporarily away from home could be properly reached * * * for taxation purposes."

It would appear, therefore, that something more than mere physical presence in the foreign country should be required before the taxpayer is entitled to the exemption. How much more, is the question.

If this were a case of first impression in this circuit and district, I would be inclined to give the amendment the construction suggested by Senator George, and to hold that technicians who are merely temporarily away from home are not entitled to the exemption unless their "assimilation into the foreign life [is] sufficient to expose them to the burdens of adjusting to the foreign environment". Meals v. U.S., D.C.N.D.Cal., 110 F. Supp. 658, 661. See also Downs v. Commissioner, 9 Cir., 166 F.2d 504, and Johnson v. Commissioner, 7 T.C. 1040.

But Judge Chesnut in White v. Hofferbert and the Fourth Circuit in Myers v. Commissioner independently and simultaneously concluded that the proper distinction is between transients and sojourners on the one hand, and residents on the other. Although the assimilation into the foreign life in those cases was greater than in the case at bar, the fact that Ditman had contracted to work in Saudi Arabia for a period extending beyond the end of the tax year in question, takes him out of the class of transients and sojourners. On the authority of those cases, I am constrained to rule that Ditman is entitled to the exemption claimed.

Counsel will prepare a judgment order in accordance with this opinion.