72 T.C. 958 (1979), 4723-77, Hills v. C.I.R.

Docket Nº:4723-77, 4724-77.
Citation:72 T.C. 958
Opinion Judge:Wilbur, Judge:
Attorney:H. Stewart Dunn, Jr., and Nora A. Bailey, for the petitioners. Carol K. Scott, for the respondent.
Case Date:August 29, 1979
Court:United States Tax Court

Page 958

72 T.C. 958 (1979)







Nos. 4723-77, 4724-77.

United States Tax Court

August 29, 1979

Petitioners excluded from income reimbursements they received for moving expenses incurred when they retired in 1973 from employment with Aramco in Saudi Arabia and returned to the United States. Held, the reimbursements were properly excluded from income under sec. 911, I.R.C. 1954, pursuant to the " grandfather clause" thereto, sec. 1.911-1(c)(2), Income Tax Regs., because they were amounts to which petitioners had a " right" as of Mar. 12, 1962, based on the Aramco employment contract in force at that time, and they constitute " determinable" amounts, as required by sec. 911 and the implementing regulations. petitioners.

H. Stewart Dunn, Jr., and Nora A. Bailey, for the petitioners.

Carol K. Scott, for the respondent.


Wilbur, Judge:

In these consolidated cases, respondent determined deficiencies in petitioners' Federal income tax for the calendar year 1973 in the following amounts:

Docket No. 4723-77 $6,919.45
Docket No. 4724-77 8,362.15
These deficiencies were based on exclusions from income of reimbursements for moving expenses under section 911[1] in the amounts of $13,507.05 for petitioners Liston F. and Catherine F. Page 959 Hills and $13,147.35 for petitioners Edward G. and Dorothy T. Voss. The issue herein is whether petitioners may exclude from gross income reimbursements paid to them for moving expenses, pursuant to section 911. Section 1.911-1(c)(1), Income Tax Regs., provides, in pertinent part, that amounts received as compensation during the taxable years ending after September 4, 1962, may be excluded from gross income if such amounts are attributed to services performed on or before December 31, 1962, and are received after December 31, 1962, provided that on March 12, 1962, the taxpayer had a " right" to receive such amounts. These cases were fully stipulated pursuant to Rule 122, Tax Court Rules of Practice and Procedure. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference. Petitioners Liston F. Hills and Catherine F. Hills, at the time of the filing of their petition herein, were legal residents of Vida, Oreg. For the calendar year 1973, they filed a joint Federal income tax return with the Director of International Operations, Washington, D. C.[2] Petitioners Edward G. Voss and Dorothy T. Voss, at the time of the filing of their petition herein, were legal residents of Owls Head, Maine. They filed their joint Federal income tax return for the calendar year 1973 with the Director of International Operations, Washington, D. C.[3] Petitioners claimed exclusions from gross income on their 1973 Federal income tax returns in the amount of $13,507.05 by Hills and $13,147.35 by Voss, which represented reimbursements to them or payments made by the Arabian American Oil Co. (Aramco) for their moving expenses to the United States from Saudi Arabia. Respondent disallowed the exclusions, stating only that reimbursements for moving expenses are not excludable under section 911. Aramco is engaged in exploration for and recovery of oil in Saudi Arabia. Aramco's headquarters are in Saudi Arabia, which Page 960 is where substantially all of its operations are located and where its principal officers reside. Petitioner Hills was an employee of Aramco from 1938 until his retirement in 1973, except for a period of military service from 1941 to 1946. At the time of his retirement, he was chairman of the board of directors. Petitioner Hills, while employed by Aramco these 35 years, resided in Saudi Arabia from 1941 to 1955, and from 1964 to 1973. From 1955 to 1964, petitioner was assigned by Aramco to positions with a wholly owned subsidiary of Aramco in the Netherlands and with a shareholder affiliate of Aramco in Canada, and resided there while being trained for future executive positions with Aramco, which were likely to be in Saudi Arabia. In 1973, petitioner Hills retired from Aramco, and returned to the United States, as did petitioner Voss. Petitioner Voss had been employed by Aramco since 1948. At the time of his retirement, petitioner Voss was treasurer of Aramco, and had resided in Saudi Arabia since 1961. When the petitioners retired and subsequently returned to the United States, Aramco reimbursed them for, or paid directly on their behalf, their moving expenses. These expenses were as follows:
Hills Voss
Transportation of household and personal property $11,330.50 $11,678.80
Travel, meals, and lodging expenses in moving 2,176.55 1,468.55
Total 13,507.05 13,147.35
Aramco's Industrial Relations Manual which was in effect on March 12, 1962, provides in part: 1. GENERAL REGULATIONS. The Company will ship at Company expense from a point not more distant than the employee's point of origin those personal and household effects desired for living in Saudi Arabia, but limited to personal requirements of employee and his family members, subject to the limitations and conditions outlined in the following paragraphs. (Emphasis in original.) 1.1 Shipment Charges. The Company will absorb fees for packing, shipping, insurance and customs only if shipments are made through approved Company facilities and established ER/ERF procedures. Articles listed in Paragraph 4 will not be processed at Company expense. 1.2 Items of High Value or Requiring Special Handling. Items of high value, unusual nature, requiring special type storage (chill, Freeze) or special handling, must be approved for shipment in advance if the Company is Page 961 expected to absorb shipping and customs charges. Approval will be granted by the District Head of Residential Services or the New York Personnel Department. 1.3 Air Freight or Air Parcel Post Shipments. The Company will not absorb packing, shipping, customs and insurance charges on such shipments forwarded via commercial airlines except when the shipment is specifically so authorized by the Company, or so routed at the discretion of the Traffic Division.* * * 3. WEIGHT ALLOWANCE-UNACCOMPANIED EFFECTS. No specific weight limitation will apply, except as stated in Paragraph 3.2.3. It is the intent to allow the shipment of a reasonable quantity of personal and household effects for normal living requirements. (Emphasis added.) 3.1 Allowance-Accompanied Effects. Refer to Chapter XXXI, International Travel. 3.2 Shipments from Saudi Arabia. A reasonable quantity of personal/household effects (exclusive of exempt items and articles for resale) may be packed and shipped at Company expense to employee's point of origin, or to a point to which shipping expense does not exceed the expense of shipping to the point of origin. (Emphasis added.) 3.2.1 Upon Separation from Company Service for any Reason Retirees. Shipments, not to exceed two, may be made for a retiree to any location within the United States. If the retiree establishes a home outside the United States which is more distant than his point of origin, one unlimited shipment of a reasonable quantity of effects may be made at Company expense. Employee Remaining in Saudi Arabia upon Separation. If an employee plans to remain in Saudi Arabia following separation from the Company, shipment may be made to his point of origin or to a location within Saudi Arabia. Shipments should be made within one month after separation, and no subsequent shipments will be permitted. Storage Fees. The Company will absorb storage fees up to 30 days, which will include any time required for goods to clear customs. This period may be extended to 90 days for annuitants. Storage other than herein specified will be at personal expense. * * * 4. EXEMPT ITEMS. The Company will not absorb...

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