Commissioner of Internal Revenue v. Nubar

• Decision Date: 08 November 1950
• Docket Number: No. 6145.,6145.
• Citation: 185 F.2d 584
• Parties: COMMISSIONER OF INTERNAL REVENUE v. NUBAR.
• Court: U.S. Court of Appeals — Fourth Circuit

185 F.2d 584 (1950)

COMMISSIONER OF INTERNAL REVENUE v. NUBAR.

No. 6145.

United States Court of Appeals Fourth Circuit.

Argued October 13, 1950.

Decided November 8, 1950.

Rehearing Denied December 20, 1950.

Irving I. Axelrad, Sp. Asst. to Atty. Gen. (Theron Lamar Caudle, Asst. Atty. Gen., Ellis N. Slack and Helen Goodner, Sp. Assts. to Atty. Gen., on the brief), for petitioner.

Henry Mannix and Charles K. Rice, New York City, for respondent.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

PARKER, Chief Judge.

This is an appeal from a decision of the Tax Court involving deficiencies of $318,220.26 in income taxes assessed for the years 1941, 1943 and 1944 against a citizen of Egypt who had been in this country from 1939 to 1945 and who had made profits of exceeding $600,000 during the years in question by trading on the exchanges of the country in stocks and commodities. Taxpayer contended that he was a non-resident alien not engaged in a trade or business within the United States and that, by reason of the provisions of 26 U.S. C.A. § 211(a) and (b), he was not taxable on the capital gains which he had realized. The Tax Court so held, 13 T.C. 566, and the Commissioner has appealed.

The evidentiary facts are fully set forth in the findings of the Tax Court and need not be repeated here. They may be briefly summarized as follows: Taxpayer is a wealthy Egyptian who prior to the late world war lived with his family in France and Switzerland, maintaining an apartment in Paris and a summer home in Geneva. He came to the United States on August 1, 1939, and was here continuously thereafter until August 15, 1945. His purpose in coming was to visit the New York World's Fair and to travel in this country and later in Central and South America. He was admitted on a three months visitor's visa; but after the war in Europe had begun, he applied for and obtained a number of extensions which expired December 31, 1940. In January 1941 he was arrested on a charge of being in the country in violation of the immigration laws, but was released on bond and applied for and obtained a number of delays in the proceedings. It was finally ordered by the Board of Immigration Appeals in 1944 that an order of deportation should not be entered at that time but that taxpayer would be required to leave the United States at his own expense within ninety days after the termination of hostilities in Europe.

During 1940 and 1941 petitioner made application for visas to visit Mexico, but these were denied. He inquired of the French consulate in 1940 about returning to France, but was told that he could not return to that country. In 1941 he obtained a Swiss visa but had not been able to obtain visas from French, Spanish or Portugese consulates. He abandoned the plan to return to Switzerland at that time because of "the delays in getting other visas, plus the dangers of wartime travel and poor health". Thereafter, for four years he made no further effort to leave the country, but settled down to wait out the war, and this he did very profitably. In making applications for extensions of visas he asked, as early as 1939, that he be allowed to stay "for a year or until the end of the war"; and he made no real effort to leave the country for Europe until after the war was over.

Prior to coming to this country, taxpayer had engaged in trading on stock and commodity exchanges in a large way. In 1930 he opened accounts in New York with brokerage firms having Paris connections. In 1938 he transferred $165,000 to his account with one of these firms; and this was used to purchase on margin securities which were sold shortly thereafter. When he arrived here in 1939 he had a credit balance of $202,709 with this firm, $32,000 with another firm, and securities valued at around $100,000 deposited with a New York bank. When he left the country in 1945 he had $2,496,952 in securities and owed $721,423.53 for borrowed money.

During 1939 and 1940 taxpayer's accounts with his brokers remained relatively inactive; but this was not true of the succeeding years. In 1941 there were 77 purchases of stocks and bonds and 60 sales; in 1942, 243 purchases and 60 sales; in 1943, 185 purchases and 111 sales; and in 1944, 125 purchases and 97 sales. The net capital gain on these transactions was $62,795, $62,281, $229,244 and $202,823 respectively. They involved the purchase of 217,423 shares of stock and the sale of 113,001 shares and purchase and sale of securities of a total value of $6,525,858.92. During the same years, taxpayer was dealing in commodities futures, buying and selling "practically all" commodities, including cotton, wheat, sugar, pepper, silk and lard, and realized gains thereon of $62,795 in 1941, $2,775 in 1943 and $1,660 in 1944, and sustained a loss of $4,162 in 1942. All of this trading was effected through brokers on exchanges but was done on margin and required the attention of taxpayer while he was living in this country awaiting the end of the war.

Upon these facts, we think that the conclusion of the Tax Court that taxpayer was an alien non-resident and was not engaged in business in the United States was clearly erroneous, whether regarded as a conclusion of fact or as a conclusion of law. We find nothing in the law or in the facts to justify the exemption of this alien, who had lived in our country during the war years because of the difficulties and dangers of departure, and who had availed himself of his presence here to make a fortune by trading on our exchanges, from taxes required of others by the country whose protection he had enjoyed and whose economic organization he had utilized for his profit. On the contrary, we think it clear that he was not a non-resident alien within the meaning of the statutory exemption¹ and that he was engaged in business within the United States so as to take him without the exemption even if he were properly considered a non-resident alien.

Whether taxpayer was a non-resident within the meaning of the statute is to be determined not in vacuo, but with reference to the purpose for which the statute was passed, which was to exempt from taxation, except as to taxes which could be collected at the source, aliens over whom no effective jurisdiction in enforcement of the tax laws could be exercised. It was never intended that persons who were present within the country for long periods of time and had taken advantage of its facilities for the purpose of carrying on business, should be exempted from taxation on income derived from sources within the country merely because they were aliens. The Tax Court in applying the statute has confused "residence" with "domicile" and has given too little weight to the long period that taxpayer was living and doing business in the country and to the fact that he had the intention of staying here until the war in Europe had ended and he could safely depart. What was said by Judge Dobie, speaking for this court in C.I.R. v. Swent, 4 Cir. 155 F.2d 513, 515, quoted with approval in the recent case of Myers v. C.I.R., 4 Cir. 180 F.2d 969, is appropriate here, viz.:

"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 the matter of Newcomb's Estate, 192 N.Y. 238, 250, 84 N.E. 950, 951, 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.' (Italics supplied).

"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."

What was intended by the statute was well set forth, we think, by Treasury Regulation 111 (Regulation 29.211-2) which provides: "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." (Italics supplied).

It is well settled that a regulation of long standing, such as this, promulgated by the department charged with the...