The Commissioner has determined a deficiency of $5,352.41 in petitioner's income tax for the year 1943. This deficiency is due to the inclusion in petitioner's income of $16,790.08 which he earned for personal services rendered in 1943 while employed in the Dominion of Canada in the construction of the Canol oil project. In a statement attached to the deficiency notice, the Commissioner said in part:
It has been held since the previous ruling on which you filed your 1943 return and based your claim for exclusion of the income, that employees of war contractors in Canada are not bona fide residents of Canada within the meaning of the Internal Revenue Code, Section 116 (a), and are not entitled to exclude from gross income the compensation received for services rendered In 1943, even though the taxpayers were physically present in Canada during that entire year. Accordingly, the salary of $16,790.08 received by you in 1943, is fully taxable and a tax liability of $5,352.41 has been computed on that income, * * *.
The petitioner by an appropriate assignment of error contests this determination of the Commissioner.
FINDINGS OF FACT.
Petitioner is an individual and a natural born citizen of the United States.
During the calendar year 1943 petitioner rendered personal services entirely in Canada and received as compensation for such services the sum of $16,790.08. Petitioner timely filed his income tax return for the calendar year 1943 with the collector of internal revenue for the district of Maryland, showing no gross income and no net income. In a rider attached to his return, the following statement was made:
NON-TAXABLE INCOME:
U.S. Veteran's Administration Emergency Officers Retired Pay ............................... (a) $1,980.00 J. Gordon Turnbull and Sverdrup Parcel .... (b) 16,790.08 --------- TOTAL INCOME ....................... $18,770.08
(a) Exempt from tax under Act of August 12, 1935, 74th Congress, 1st Session, (H. R. 3979).
(b) Exempt from tax under Section 116(a) Internal Revenue Code, defined under Regulation 111, Supplement H, Sec. 29.211-2.
A ruling from the office of the Commissioner of Internal Revenue, Washington, D.C., states that evidence of bona fide residency in a foreign country is to be based on the definition of a nonresident alien as outlined in Regulation 111, Supplement H, Section 29.211-2.
In consideration of my term of residence in Canada, which dates from June 8, 1942, and that the continuation of my residing in Canada is not to be determined by a term of service with my employer, it is my contention that I am a bona fide resident of Canada for the entire year of 1943 and as such am entitled to the exemption from income tax for 1943 as provided under Section 116(a) of the Internal Revenue Code.
Petitioner entered the United States Army on November 11, 1913, as a private in the Coast Artillery, later transferred to the Hospital Corps, spent four years in the Philippine Islands, went to France in June 1918 as a master sergeant in the Medical Corps, was commissioned a first lieutenant in the Sanitary Corps in June 1918, and on September 20, 1920, then a captain, was given a medical discharge because of a hearing impairment of approximately 80 per cent and other physical impairments. Because of these disabilities petitioner has been since 1928, and still is, receiving retirement pay of $165 per month.
Petitioner met his first wife in France during the first world war. They were married in Europe in 1921, after Mrs. Bouldin had had a serious illness which her physicians diagnosed an incipient tuberculosis. Upon advice of the physicians, the Bouldins moved to Southern California, where they lived for approximately 20 years and Bouldin engaged in the advertising business. During this time Mrs. Bouldin was constantly ill with her pulmonary complaint, which later resulted in her death. For reasons of his wife's health, petitioner remained in California in spite of the fact that he was continually bothered with chronic sinus trouble which had developed in France during the war in 1918. Mrs. Bouldin died in September 1941, and thereafter petitioner sent his 17-year-old daughter to her grandparents in Indiana, sold his home and furnishings in Glendale, California, and went back East to see if there was any way he could get into some type of war work, it then being apparent that the United States would probably be involved in international difficulties.
In December 1941, after Pearl Harbor, petitioner sent a telegram to the Adjutant General of the United States Army, requesting that his services be utilized in any capacity and rank in the Army, but he received a mimeographed letter stating that due to his age (then approximately 50) and physical disability his services could not be used. Wanting to get into war work of some type, petitioner got in touch with J. Gordon Turnbull, of Cleveland, Ohio, whom he had previously known when they both had been associated with the Diesel division of General Motors Corporation. Turnbull secured for petitioner a position in Dallas, Texas, with the James Stewart Co. in May 1942, as an expediter for materials on the North American Bomber Plant in Dallas, which Turnbull designed. In the climate of Dallas petitioner was bothered as much by his sinus trouble as he was in Los Angeles.
Sometime prior to June 1942 Turnbull had entered into a joint venture with a partnership known as Sverdrup Parcel. This joint venture had a contract with the United States Army Corps of Engineers to furnish engineering and advisory services in connection with the Canol pipe line project, a 550-mile pipe line between Norman Wells, Northwest Territory, Canada, and White Horse, Yukon Territory, Canada. Turnbull asked petitioner if he would consider going to Canada on this Canol project as chief expediter, Turnbull's idea being that petitioner's army experience might be of value in working with Army officers on the project. Petitioner took the job and went to Canada, arriving there on June 8, 1942. At that time the joint venturers' contract for the Canol project required the work to be finished by October 31, 1942, and petitioner thought he would be in Canada for only 4 or 5 months, after which he would be back somewhere in the United States. However, almost immediately it was discovered that it would be impossible to complete the work in the time estimated by the Corps of Engineers, and the contract was extended for an additional year. Because of this delay in completing the originally planned pipe line, the Army substituted as an immediate means of getting gasoline into Alaska a gasoline pipe line from Skagway, Alaska, to White Horse, Yukon.
Immediately upon arriving in Edmonton, Canada, on June 8, 1942, petitioner noticed that the exceptionally dry climate had a very beneficial effect on his sinus trouble. Around the first of July 1942, when it was determined to construct the Skagway-White Horse pipe line, petitioner was sent by his employers to the port of Skagway to purchase property incident to that construction. The rainy climate of Skagway brought petitioner's sinus trouble back, but upon his return to Edmonton it cleared up again. As a result of this experience, petitioner made up his mind at that time that the climate in Edmonton, Alberta, was what he had been seeking for a long time. He analyzed his financial situation and concluded that he could live there without impairment of capital on the $165 per month he was receiving as Army retired pay (then equivalent to $181 in Canada) and that he certainly could not lose from a financial standpoint and undoubtedly would gain from a physical standpoint. He had a very comfortable room and bath in the MacDonald Hotel in Edmonton for $60 a month, Canadian money, or approximately $55 a month American money. Meals at the MacDonald Hotel were also moderately priced.
Petitioner owned no real or personal property in the United States, his wife had died after a long illness, and his daughter was with her grandparents in Indiana. Petitioner decided in July 1942, after his return from his trip to Skagway, that, regardless of what happened to the pipe line project or how long the work on it lasted, he would live permanently in Edmonton. His decision to do so was in no way contingent upon obtaining other employment when the Canol project ended. He had no intention of seeking employment in Edmonton, intending simply to live on his retired pay until such time as he might be able to buy into or purchase some moderately priced business to occupy a part of his time and perhaps augment his income.
Petitioner was employed in Canada by the joint venture from June 8, 1942, to January 15, 1945. Continuously during this period petitioner resided at the MacDonald Hotel. If petitioner had not lived at the hotel he would have been forced to take a room with a private family or rent a house. Other residents of Edmonton also lived at the MacDonald Hotel. There were no apartment houses in Edmonton such as we have in the United States.
Upon many occasions, starting a month or two after his arrival in Edmonton, petitioner stated to numerous friends in Edmonton that he intended to reside in Edmonton permanently because the climate left him entirely free of his chronic sinus trouble, because he had made very many good friends there, and because it was much more economical to live there than in the United States. One who heard him make these statements several times was Mary Ruth Willis of Edmonton, who testified as a witness at the hearing. She and her husband lived at the MacDonald Hotel.
In September 1942 petitioner (who had been in the advertising business in Los Angeles for 20 years) attempted to purchase a working interest in Hook Signs, Ltd., an advertising concern in Edmonton and Calgary. His offer was declined, however, as that company needed no additional capital. On another occasion petitioner offered $12,000 for Dee's Coffee Shop on Jasper Avenue in Edmonton if the owner could obtain an extension of the lease on the premises; however, the extension was not obtained. Later, petitioner made an offer for a business known as Greer's Hardware Co., to be conducted as a partnership by petitioner and another individual, who was experienced in the retail hardware business, but this other individual withdrew, so petitioner, who knew nothing of the hardware business himself, also withdrew his offer.
On January 15, 1945, when petitioner completed his work for his employer on the Canol project, he left Edmonton and went first to Cleveland (where Turnbull had his headquarters) and then to St. Louis (the partnership headquarters of Sverdrup Parcel, the other member of the joint venture) to make a final report and turn in the remaining joint venture funds in his possession. He did not give up his room at the MacDonald Hotel. He completed his business in St. Louis about January 21, 1945, and then was completely a free agent so far as any employment was concerned. From St. Louis he went to San Bernardino, California, to visit his parents. After completion of his visit to his parents, petitioner returned to Edmonton and to his room at the MacDonald Hotel.
On March 2, 1945, petitioner received a telegram at the MacDonald Hotel from Cleveland, signed "J. Gordon Turnbull." The telegram stated:
I URGENTLY NEED YOUR SERVICES FOR AN EMERGENCY ASSIGNMENT IN HOUSTON OR NOT MORE THAN THREE MONTHS DURATION TRANSPORTATION FROM EDMONTON TO HOUSTON BY WAY OF CLEVELAND AND RETURN WILL BE ALLOWED YOUR RATE WILL BE $550.00 PER MONTH PLUS LIVING EXPENSES PLEASE REPORT CLEVELAND EARLIEST POSSIBLE MOMENT.
Petitioner immediately telephoned Turnbull's office in Cleveland and was advised that Turnbull was ill at his home. The call was transferred to his home where petitioner talked to Mrs. Turnbull who stated that Turnbull had been stricken with pneumonia early in February and had been confined to home and hospital since that time. She also stated that a serious personnel problem had developed on a job Turnbull was doing for the Government on the emergency tire program at Houston, Texas, and Turnbull wanted someone who knew his method of operations to go to Houston and straighten out the problem. Petitioner accepted the offer of three months employment contained in Turnbull's telegram.
Petitioner, before leaving Edmonton for Houston, paid his room rent at the MacDonald Hotel for three months in advance in order not to lose his accommodations there, paid three months advance storage on his car, took sufficient clothing for a temporary trip, locked the door of his hotel room, and went to Cleveland for a talk with Turnbull, and then to the job in Houston. He arrived in Houston about the middle of March 1945 and stayed there until his job was finished, about May 20, 1945, when he went to Cleveland to report to Turnbull. He left Cleveland very shortly thereafter and arrived back in Edmonton between May 20 and May 25, 1945.
Following the death of his first wife in September 1941 petitioner remained single until June 1, 1945, when he married his second wife in Vancouver, British Columbia. The second Mrs. Bouldin is an American citizen, and had been petitioner's secretary for two years while he was working on the Canol project. Prior to their marriage in June 1945, as well as prior to any understanding about marriage, petitioner on numerous occasions stated to his present wife his intention of living in Edmonton. It was agreeable to her to live in Edmonton with petitioner after their marriage, and, following the wedding in Vancouver, petitioner and his wife went back to Edmonton to live at the MacDonald Hotel.
Around June 10, 1945, petitioner received a call at his home in the MacDonald Hotel in Edmonton from Turnbull in Cleveland. Turnbull stated that his physician told him that he must devote considerably less time to his business then being conducted from offices in Cleveland, St. Louis, Kansas City, and Dallas, and that he himself would not be permitted to handle the large amount of administrative and executive work involved. Turnbull asked petitioner if he would consider going to Cleveland to act as Turnbull's assistant, taking over the administrative work of the Cleveland office and the coordination of the branch office work. Petitioner agreed to go to Cleveland with the understanding that it would be purely temporary, that he would not sign a contract, as most of Turnbull's key employees were obliged to do, and with the further understanding that there be made available to petitioner time to go back to Edmonton to investigate any business possibilities that might develop while petitioner was in Cleveland. Petitioner also told Turnbull that he was not too optimistic about Cleveland weather, and that if his sinus trouble returned he would leave Cleveland and go back home again to Edmonton.
Before going from Edmonton to Cleveland on June 15, 1945, petitioner left instructions with an Edmonton attorney and with an Edmonton business broker named Carl Orthman, who operated a firm known as the Globe Investments, that if they could locate a business prospect in Edmonton they should so notify petitioner in Cleveland. In September 1945 petitioner was advised by a wire from Orthman that there was for sale a coffee shop and ice cream parlor, known as the Jones Coffee Shop, located in a theater building in Edmonton. Petitioner knew of this business and its location and immediately flew from Cleveland to Edmonton to make a personal investigation. Petitioner was away from Cleveland on this trip for approximately 10 days, Turnbull making the time available to him in accordance with their understanding. After staying approximately a week in Edmonton and thoroughly investigating the situation, petitioner made the owner a firm offer of $15,000 for the business, but, since the owner wanted $20,000 and petitioner's consultants in Edmonton advised him not to buy at the asked price, but to wait until things leveled off, petitioner did not make the purchase.
Following the completion of his trip to Edmonton in September 1945, petitioner was in Cleveland until he left there for Los Angeles to attend the trial of this case on June 17, 1946. In Cleveland petitioner and Mrs. Bouldin occupied a small one-room efficiency apartment, which was rented on a month-to-month basis. Petitioner always considered himself to be only temporarily located in Cleveland.
In his numerous attempts to buy into a business venture in Edmonton, petitioner was faced with no financial urgency, since his primary intention was to acquire a business simply to occupy a part of his time and perhaps augment his income. He was looking for a business which could be purchased within his means and which would not be too complicated for him to operate. He wanted what money he had to work for him, and did not want to lose it in a venture solely because he did not know enough about the business to operate it himself.
Petitioner paid no income tax to the Canadian Government upon his earnings in Canada during the taxable year 1943.
Petitioner was a bona fide resident of Canada during the entire taxable year 1943.
Amounts received by petitioner in 1943 as compensation for personal services rendered in Canada were not paid to him by the United States or any agency thereof. Such amounts were received from sources without the United States and would have constituted earned income as defined in section 25 (a) of the Internal Revenue Code (as in effect for the year 1943) had they been received from sources within the United States.
The stipulation of facts is incorporated herein by reference.
OPINION.
BLACK, Judge:
In this proceeding there is no dispute but that petitioner was physically present in Canada during the entire year of 1943, that the $16,790.08 paid to him by his employers was earned income under section 25 (a) of the Internal Revenue Code, and that the amounts were not paid by the United States or any agency thereof. Thus we have only one issue to determine, and that is whether petitioner was a bona fide resident of Canada during the entire taxable year 1943. The applicable statute is section 116 (a) (1) of the Internal Revenue Code.
SEC. 116. EXCLUSIONS FROM GROSS INCOME.
In addition to the items specified in section 22 (b), the following items shall not be included in gross income and shall be exempt from taxation under this chapter:
(a) EARNED INCOME FROM SOURCES WITHOUT THE UNITED STATES. —
(1) FOREIGN RESIDENT FOR ENTIRE TAXABLE YEAR. — In the case of an individual citizen of the United States, who establishes to the satisfaction of the Commissioner that he is a bona fide resident of a foreign country or countries during the entire taxable year, amounts received from sources without the United States (except amounts paid by the United States or any agency thereof) if such amounts would constitute earned income as defined in section 25 (a) if received from sources within the United States; * * *
Section 29.116-1, Regulations 111, provides in material part:
* * * Whether the individual citizen of the United States is a bona fide resident of a foreign country shall be determined in general by the application of the principles of sections 29.211-2, 29.211-3, 29.211-4 and 29.211-5 relating to what constitutes residence or nonresidence, as the case may be, in the United States in the case of an alien individual.
Section 29.211-2, referred to in the above is printed in part in the margin.
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.
The legislative history of the applicable statute was fully discussed in Arthur J. H. Johnson, 7 T.C. 1040. Likewise the Treasury regulations which are pertinent to the interpretation of the statute were analyzed and discussed in that case. We shall not repeat that discussion here.
Residence is, of course, mainly a question of fact and each case naturally must be determined upon its own facts. In determining the issue which we have here to decide, it should be kept in mind that we do not have to determine where petitioner was domiciled in 1943. Our task is to determine whether petitioner was "a bona fide resident of a foreign country during the entire taxable year." As was said by this Court in Walter J. Baer, 6 T.C. 1195:
It must be kept in mind that "resident" and "domicile" have different meanings in the law. In Mertens Law of Federal Income Taxation, vol. 3, sec. 19.31, it is said:
"The words 'residence' and 'domicile' are often confused; a person may have several places of residence but only one domicile. Any temporary place of abode may be a residence, but a domicile is a place of abode fixed and permanent or, at least, of indefinite duration. * * *"
So our question is: Was petitioner a bona fide resident of Canada during the entire year 1943 within the meaning of section 116 (a) (1) of the Internal Revenue Code? As we have already stated, the Treasury, in providing regulations for the interpretation of this section of the statute, has provided that in determining residence the same regulations shall be used as are used in determining whether an alien is a resident of the United States. Section 29.211-4 of Regulations 111 prescribes the manner of "Proof of Residence of Alien." Among other things, this regulation says:
* * * An alien, by reason of his alienage, is presumed to be a nonresident alien. Such presumption may be overcome —
(1) In the case of an alien who presents himself for determination of tax liability prior to the departure for his native country, by * * * (c) proof of acts and statements of the alien showing a definite intention to acquire residence in the United States or showing that his stay in the United States has been of such an extended nature as to constitute him a resident.
Inasmuch as the foregoing regulation is to be used also in determining whether there is proper proof that a United States citizen was a "bona fide resident of a foreign country during the entire taxable year" within the meaning of section 116 (a), it, of course, must be paraphrased. A correct paraphrase of the foregoing language in such a case as we have here would seem to be as follows:
A United States citizen, by reason of his citizenship, is presumed to be a United States resident. Such a presumption may be overcome —
(1) In the case of a United States citizen who presents himself for determination of tax liability prior to departure from Canada to the United States, by * * * (c) proof of acts and statements of the United States citizen showing a definite intention to acquire residence in Canada or showing that his stay in Canada has been of such an extended nature as to constitute him a Canadian resident.
Tested by the foregoing requirements of proof and also by section 29.211-2, printed in the margin supra, we think petitioner has met his burden of proof of showing that during the entire year of 1943 he was a bona fide resident of Canada. We shall not undertake here to repeat the facts which have led us to this conclusion. They are fully stated in our findings of fact and it is unnecessary to repeat them here. It is sufficient to say that in our judgment the facts constitute proof of acts and statements of the taxpayer showing a definite intention to acquire residence in Canada within the meaning of the applicable statute and regulations. This residence we think was acquired sometime in 1942 and certainly persisted throughout the year 1943. Beyond that date we do not have to decide, because we have only the year 1943 before us.
The only unfavorable circumstance so far as we can see bearing upon petitioner's contention that he was a resident of Canada during the entire year 1943 is the fact that he did not pay any income tax to Canada for that year. When interrogated on this subject by respondent's counsel on cross-examination, petitioner answered as follows:
Q. Was it your idea that the Canadian Government did not impose any income tax on nonresidents during the year 1943?
A. I knew that the tax would not be imposed because there was a treaty on taxes on these particular projects, and I was operating under an employment contract that if these taxes were levied, they would be refunded.
Petitioner then went on to state that paragraph 13 of his contract with his employers provided that they would reimburse him for any income tax which he might have to pay Canada on his salary. The so-called treaty with Canada to which petitioner referred in his testimony quoted above was evidently the agreement between the United States and Canada respecting the Canol project, effected by exchange of notes signed at Ottawa June 27 and June 29, 1942, effective June 29, 1942. See vol. 57, part 2, p. 1413, U.S. Stat. L. We take judicial notice of this agreement. For its part in this agreement, the United States Government asked the Canadian Government, among other things, to agree: "* * * (c) to remit during the war royalties on oil production and income tax on the income of persons (including corporations) resident in the United States, who are employed on the construction or maintenance of the project." The foregoing proposal was accepted by the Canadian Government. It will be noted that in such agreement the Canadian Government only waived income taxes of those who were employed on the project and who were residents of the United States.
Therefore, if petitioner's contention is correct, and we think it is, that during the entire year of 1943 he was a bona fide resident of Canada, then it seems he was not affected by the foregoing provision and should have paid income tax to the Canadian Government on the $16,790.08 here in question. However, we do not have that question before us and we do not think that his failure to do so is a sufficient circumstance to outweigh what seems to us to be the preponderance of the evidence to the effect that petitioner was a bona fide resident of Canada in 1943. We so hold.
The instant case, we think, is clearly distinguishable on its facts from Arthur J. H. Johnson, supra; Michael Downs, 7 T.C. 1053; J. Gerber Hoefnel, 7 T.C. 1136; and Ralph Love, 8 T.C. 400. We think the instant case falls more within the ambit of John Ernest Goldring, 36 B. T. A. 779.
Reviewed by the Court.
Decision will be entered for the petitioner.
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