Dowd v. Comm'r of Internal Revenue

• Decision Date: 04 December 1961
• Docket Number: Docket No. 84485.
• Citation: 37 T.C. 399
• Parties: LAURENCE P. DOWD AND JULIET R. DOWD, PETITIONERS, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

37 T.C. 399

LAURENCE P. DOWD AND JULIET R. DOWD, PETITIONERS, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 84485.

Tax Court of the United States.

Filed December 4, 1961.

Laurence P. Dowd, for the petitioners.

Cyrus A. Johnson, Esq., for the respondent.

Petitioner was in Japan from October of 1955 until July of 1957 as a Fulbright lecturer at Kobe University. He was paid in inconvertible Japanese currency by the United States Educational Commission in Japan. Held:

1. Amounts paid to petitioner in 1956 and 1957 as a Fulbright lecturer were ‘paid by the United States or an agency thereof’ within the meaning of section 911(a)(2) of the 1954 Code and thus were not excludible from gross income.

2. Petitioner's tax residence remained in the United States during 1956 and 1957. As a Fulbright lecturer in Japan, petitioner was temporarily ‘away from home’ in the pursuit of his trade or profession of teaching and was entitled to deduct his traveling expenses under section 162(a)(2) of the 1954 Code. Amount of such expenses in 1956 and 1957 determined.

Respondent determined deficiencies in petitioners' income tax in the amounts of $863.11 in 1956 and $801.86 in 1957.

The principal issue is whether payments made to petitioner Laurence P. Dowd as a Fulbright lecturer in 1956 and 1957 by the United States Educational Commission in Japan were ‘amounts paid by the United States or an agency thereof’ and therefore not excludible from gross income under section 911(a)(2) of the 1954 Code. If such payments are includible in gross income, an alternative question is whether petitioner while a Fulbright lecturer in Japan was ‘away from home’ within the meaning of section 162(a)(2) of the 1954 Code and thereby entitled to deduct his ‘traveling expenses' while in Japan.

FINDINGS OF FACT.

The facts stipulated by the parties are incorporated herein by this reference.

Petitioners, husband and wife, filed joint income tax returns for the taxable year 1956 with the district director of internal revenue at Tacoma, Washington, and for the taxable year 1957 with the district director of internal revenue at Detroit, Michigan. Juliet R. Dowd is a petitioner herein only because joint returns were filed. Laurence P. Dowd will hereinafter be referred to as petitioner.

Prior to September 1955 petitioner was employed by the University of Washington at Seattle, Washington, as an assistant professor of Marketing, Transportation and Foreign Trade. In September 1955 petitioner was promoted to the rank of associate professor. He was granted a sabbatical leave from the university for the academic year 1955-1956.

On March 5, 1955, petitioner was awarded a Fulbright grant for the purpose of lecturing in economics at Kobe University, Kobe, Japan, for a 10-month period beginning in October 1955. The notice which officially informed petitioner of the award was a Department of State form entitled a ‘United States Government Grant Authorization’ with attached ‘Terms and Conditions of U.S. Government Grant.’ The grant authorization named the United States Educational Commission in Japan as the ‘administering U.S. educational foundation or commission’ of the award. It provided a ‘maintenance allowance’ for petitioner and four accompanying dependents amounting to 3,096,000 yen. During 1956 and 1957 the rate of exchange was 360 Japanese yen for 1 United States dollar.

Among the ‘Terms and Conditions of U.S. Government Grant’ which petitioner agreed to in accepting the award were the following:

2. MEDIUM OF PAYMENT: * * * Since all funds available under Public Law 584, 79th Congress (the Fulbright Act) are in foreign currencies, this grant and all payments thereunder are made only in the currency of the host country. These funds are to be used to meet the grantee's expenses abroad in carrying out his project. The foreign currency available under the program is not convertible into United States dollars.

5. DURATION OF GRANT: * * *

The Foundation may in its discretion at the request of the grantee extend the grant for a period not to exceed three months at the pro rata monthly rate of the allowance in order to permit the grantee to complete his activity.

10. ITEMS NOT INCLUDED: * * * Persons who participate as grantees under this program are not entitled to receive certain services which may be available to officers and employees of the United States Government (for instance, PX privileges). It is the intention of the program that recipients of awards will utilize the economy of the countries in which they are temporary residents to meet their local living requirements.

13. CONTINGENCIES: Neither the Department of State, the Board of Foreign Scholarships, nor the Foundation assumes responsibility for any injury, accident, illness, loss of personal property, or any other contingency which may befall the grantee or his dependents during or in connection with his stay abroad under this grant. It is recommended that the grantee personally obtain adequate health, accident, and personal property insurance. The Department of State, the Board of Foreign Scholarships, and the Foundation shall not be liable for any claim or claims which may arise from the grantee's failure to enter upon or to complete his project as contemplated by this award, even where such failure is due to circumstances beyond the grantee's control.

18. TERMINATION OF GRANT: The Board of Foreign Scholarships and the Department of State reserve the right to revoke or terminate this grant, to their discretion, and to withhold payment of such allowances as have not been paid on the date of termination, as well as return transportation to the United States should non-compliance with the provisions of the award warrant such action. Grounds upon which the Board of Foreign Scholarships and the Department of State may revoke this grant include, but are not limited to, the following: violation of the laws of the United States or of the host country, including currency exchange regulations; misconduct; failure to maintain satisfactory scholastic standing; failure to complete the grant because of voluntary termination, including premature departure from the institution of affiliation or the host country; physical or mental incapacitation; engaging in political or unauthorized income-producing activities.

19. RESPONSIBILITIES: An American citizen who accepts a grant under the United States Educational Exchange Program is not by virtue of such an official of the Department of State, or any other agency of the U.S. Government or of a foreign government agency. As far as the Department of State and the U.S. government are concerned, the grantee's status is that of a private citizen with the same professional freedom he enjoys as a representative of his profession in the United States. Nevertheless, the grantee should remember that his home institution and his country may be judged by his actions and utterances whether public or private. He should also be aware that critical or idle comments regarding foreign governments, institutions or customs may offend the people whose guest he is. He should avoid giving the impression that he is an official spokesman of the United States Government.

The so-called Fulbright Act (Pub. L. 584, 79th Cong., 2d Sess., 60 Stat. 754) is an amendment to the Surplus Property Act of 1944 and provides in part that in carrying out the provisions of the latter statute the Secretary of State is authorized to enter into executive agreements with any foreign government ‘for the use of currencies, or credits for currencies, of such government acquired as a result of such surplus property disposals,‘ for the purpose of providing, by the formation of foundations or otherwise, for financing studies, research, instruction, and other education activities of or for American citizens in schools or institutions of higher learning located in such foreign country or of citizens in such foreign country in American schools and institutions of higher learning.

Pursuant to the provisions of the foregoing legislation, the United States Educational Commission in Japan was established by an agreement between the United States and Japan on August 28, 1951. This agreement provided in part as follows:

SECTION 1

There shall be established a Commission to be known as the United States Educational Commission in Japan (hereinafter designated ‘the Commission’), which shall be recognized by the Government of the United States of America and the Government of Japan as an organization created and established to facilitate the administration of an educational program financed by funds to be made available by the Government of Japan for surplus property sold to it by the Government of the United States of America. Except as provided herein the Commission shall be exempt from the domestic and local laws of the United States of America as they relate to the use and expenditure of currencies and credits for currencies for the purpose set forth herein. The funds and property shall be regarded in Japan as property of a foreign government.

SECTION 2

In furtherance of the aforementioned purposes, the Commission may, subject to the provisions of the present memorandum exercise all powers necessary to the carrying out of the purpose of this memorandum including the following:

(4) Authorize the Treasurer of the Commission or such other person as the Commission may designate to receive funds to be deposited in bank accounts in the name of the Treasurer of the Commission or such other person as may be designated. The appointment of the Treasurer or such designee shall be approved by the Secretary of State and he shall deposit funds received in a depository or depositories designated by the Secretary of State of the United States of America.

(6) Provide for periodic audits of the accounts of the Treasurer of the Commission as directed by auditors selected by the Secretary of State of the United States of...