Chang Hsiao Liang v. Comm'r of Internal Revenue, DOCKET No. 43978.
| Decision Date | 18 March 1955 |
| Docket Number | DOCKET No. 43978. |
| Parties | CHANG HSIAO LIANG, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
23 T.C. 1040
CHANG HSIAO LIANG, PETITIONER,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
DOCKET No. 43978.
Tax Court of the United States.
Filed March 18, 1955.
[23 T.C. 1040]
D. Nelson Adams, Esq., and Frank H. Medinger, Esq., for the petitioner.
Arthur L. Nims, Esq., for the respondent.
Petitioner, a nonresident alien whose securities were managed primarily for investment purposes by a resident commission agent, held, on facts, not subject to tax on capital gains as not being engaged in a trade or business within the United States under section 211(b), Internal Revenue Code of 1939.
Respondent determined a deficiency in petitioner's income taxes in the amount of $41,267.73 for the year 1946. In an amended answer, respondent asserted an increased deficiency for that year in the amount of $4,024.17. The issue is whether petitioner, a nonresident alien, was engaged in a trade or business within the United States during the year in controversy as a result of his security transactions through a resident agent so as to permit taxation of his income therefrom under section 211(b) of the Internal Revenue Code of 1939.
If that question is answered affirmatively, it will follow that petitioner omitted from his gross income for the year 1946 a properly includible amount in excess of 25 per cent of the gross income reported on his return for that year so as to permit the application of the 5-year statute of limitations under section 275(c) of the 1939 Code.
[23 T.C. 1041]
Some of the facts have been stipulated and are found accordingly.
Petitioner is a nonresident alien individual. He was not present in the United States at any time during the year in controversy. He filed his nonresident-alien income tax return for that year with the collector of internal revenue for the district of Maryland on or about June 15, 1947. The deficiency notice herein was mailed to petitioner on June 13, 1952.
Sometime in 1928, petitioner became acquainted with Lamont M. Cochran, a United States citizen, who was manager of the Mukden, Manchuria, branch of the National City Bank of New York, hereinafter sometimes called National City. At that time, petitioner was military governor of the three eastern provinces of Manchuria. He devoted his full time to military activities and had no other occupation from 1928 through 1946. Cochran was trying to get new business for the bank in 1928 and he approached petitioner with a view to obtaining a securities account from him. As a result of Cochran's efforts petitioner opened a securities account with the main office of National City.
When the Japanese began their military action against the Chinese in Manchuria in 1931, Cochran believed that the Far East was no longer a desirable place in which to live. He then tried to make an arrangement with petitioner whereby Cochran would return to the United States and supervise petitioner's securities.
On February 1, 1932, petitioner and Cochran entered into the following agreement as drafted by Cochran:
This agreement is made this first day of February 1932 between Chang Hsiao Liang of Peiping, China and L. M. Cochran of Mukden, Manchuria.
L. M. Cochran undertakes to supervise and care for the investments of Chang Hsiao Liang in the United States of America or elsewhere.
In consideration Chang Hsiao Liang binds himself to pay L. M. Cochran U.S. dollars fifteen hundred (say U.S. $15-0.00) per month as salary and allowance for his services, together with a commission amounting to one percent of the profit, to be calculated at two year intervals.
This agreement to remain in force for a period of ten years after which it may be cancelled on six months notice from either party.
Cochran returned to the United States in April 1932 and commenced the task of managing petitioner's investments in this country. He continued to function in this...
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