Commissioner of Internal Revenue v. Swent

• Citation: 155 F.2d 513
• Decision Date: 08 May 1946
• Docket Number: No. 5449.,5449.
• Parties: COMMISSIONER OF INTERNAL REVENUE v. SWENT et ux.
• Court: U.S. Court of Appeals — Fourth Circuit

155 F.2d 513 (1946)

COMMISSIONER OF INTERNAL REVENUE v. SWENT et ux.

No. 5449.

Circuit Court of Appeals, Fourth Circuit.

May 8, 1946.

S. Walter Shine, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key and Robert N. Anderson, Sp. Assts. to Atty. Gen., on the brief), for petitioner.

Nathan Moran, of San Francisco, Cal. (George E. Haw, of Richmond, Va., on the brief), for respondents.

Before GRONER, Chief Justice of the U. S. Court of Appeals for the District of Columbia, and SOPER and DOBIE, Circuit Judges.

DOBIE, Circuit Judge.

This is an appeal from a decision of the Tax Court of the United States allowing the taxpayers James Swent and Ursula Swent (husband and wife) an exemption from United States income taxes on $25,000 earned during the year 1940 by James Swent in Mexico. There is no dispute as to the facts.

The applicable statute is Section 116(a) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 116, prior to the 1942 amendments, which reads:

"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 United States. In the case of an individual citizen of the United States, a bona fide non-resident of the United States for more than six months during the 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; but such individual shall not be allowed as a deduction from his gross income any deductions properly allocable to or chargeable against amounts excluded from gross income under this subsection. * * *"

The only question presented to us for decision is whether, under the facts of this case, each of the Swents was "a bona fide non-resident of the United States for more than six months during the taxable year" (1940).

The answer to this question depends upon the interpretation or construction of the words just quoted above. That, we think, is a question of law, so that we are not bound to follow the decision of the Tax Court under Dobson v. Commissioner, 320 U.S. 489, 64 S.Ct. 239, 88 L.Ed. 248. Said Mr. Justice Jackson in that case (320 U.S. at page 501, 64 S.Ct. at page 246):

"It is difficult to lay down rules as to what should or should not be reviewed in tax cases except in terms so general that their effectiveness in a particular case will depend largely upon the attitude with which the case is approached. However, all that we have said of the finality of administrative determination in other fields is applicable to determinations of the Tax Court. Its decision, of course, must have `warrant in the record' and a reasonable basis in the law. But `the judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body.'"

See, also, John Kelley Co. v. Commissioner, 66 S.Ct. 299, decided by the United States Supreme Court January 7, 1946. Since we think the decision of the Tax Court lacks "warrant in the record" and is without "a reasonable basis in the law", we feel compelled to reverse that decision.

James Swent first went to Mexico in 1915 and taxpayers were married there that year. In 1918 he was employed by the San Luis Mining Company at Tayoltita, Mexico, of which he became manager in 1920, a position which he has held ever since. The taxpayers and their family lived in Tayoltita in a house belonging to the company. When Swent was absent from Mexico (an occurrence far from unusual), the mine was operated and managed by an assistant manager and a rather large staff of Mexicans and Americans. During these absences he was occasionally consulted by telegraph on questions of policy arising in connection with the management of the mine.

In registering, which is required by the Mexican Government as a prerequisite to entering a gainful occupation in that country, Swent declared that he was a resident of Tayoltita. In his passports, too, that village was given as his place of residence.

During the tax year 1940, the taxpayers spent 241 days (approximately two-thirds of the year) in the United States, on four different visits. And in each of the years 1939, 1942, 1943, taxpayers spent more than six months in this country. They rented an apartment in San Francisco during 1940, on a month to month basis and this apartment was used by their sons who attended school in California. And, while he was in the United States during 1940, Swent served as consultant in mining litigation in Idaho over a period of several months, for which he received in that year the sum of $10,000. For similar services in New Mexico he received during that year $4,000. Neither of these employments had any connection whatever with the San Luis Mining Company.

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. When these words, "domicile" and "residence", are technically used by persons skilled in legal semantics, their meanings are quite different. This distinction is clearly set out in Matter of Newcomb's Estate, 192 N.Y. 238, 250, 84 N.E. 950, 954:

"As `domicile' and `residence' are usually in the same place, they are frequently used, even in our statutes, as if they had the same meaning, but they are not identical terms, for a person may have two places of `residence,' as in the city and country, but only one `domicile.' `Residence' means living in a particular locality, but `domicile' means living in that locality with intent to make it a fixed and permanent home. `Residence' simply requires bodily presence as an inhabitant in a given place, while `domicile' requires bodily presence in that place and also an intention to make it one's domicile."

We think the error into which the Tax Court fell was partially caused by a confusion of these terms in lending to the word "residence" some attributes which really belong only to the word "domicile", and by laying too great stress, as to "residence", on the animus revertendi.

The Commissioner here contends (we think, properly) that the exemption statute requires actual physical absence from the United States for six months during the taxable year. If that criterion be applied here, clearly the taxpayers fall outside the exemption. The taxpayers, however, strenuously and picturesquely maintain:

"The Swents established their residence in Mexico in 1915, and their trips to the United States have never been for anything but temporary and transitory purposes. Their Mexican residence is not something they pack up in their suitcases and bring with them every time they cross the international border, nor is it a question of counting the days spent north of the line to determine whether they have become residents here, like a couple of school children exposed to the measles, to find out whether the disease has taken."

The Bureau of Internal Revenue has consistently interpreted the statute before us as applying only to persons physically absent from the United States for six months. Thus S.M. 5446 — V-1 Cum.Bull. 49 (1926) states "the exemption was intended to be accorded to all citizens of the United States who are actually out of the United States for more than six months during the year." To like effect is G. C. M. 9848, X-2 Cum. Bull. 178, 179 (1931): "the Bureau has held that it applies to any American citizen who is actually outside the United States for more than six months during the taxable year."

And this view, we think, finds further support in the legislative history of the statute. The House Bill used the much...