Henningsen v. Comm'r of Internal Revenue, Docket Nos. 52544

• Decision Date: 13 June 1956
• Docket Number: 52545.,Docket Nos. 52544
• Citation: 26 T.C. 528
• Parties: ROBERT A. HENNINGSEN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.R. A. AND MARGARET HENNINGSEN, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

26 T.C. 528

ROBERT A. HENNINGSEN, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.R. A. AND MARGARET HENNINGSEN, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 52544

52545.

Tax Court of the United States.

Filed June 13, 1956.

Carl E. Davidson, Esq., for the petitioners.

Wendell M. Basye, Esq., for the respondent.

1. Held, petitioner, a citizen of the United States, who claims to have been a bona fide resident of China, became a resident of the United States sometime between November 1941 and February 1946, during all of which period he was in the United States.

2. Held, petitioner was not a bona fide resident of a foreign country or countries for the entire year 1946 or 1947, or for a period of at least 2 years before the date in 1947 on which he reestablished his residence in the United States.

3. Respondent's imposition of an addition to tax for failure to file a return in 1946, sustained.

4. Held, a $100,000 bonus paid petitioner by the Henningsen Produce Company did not become unqualifiedly subject to the demands of petitioner at any time prior to January 15, 1947, and is properly taxable in 1947; held, further, respondent, by amended pleadings timely filed, has made proper claim for an increased deficiency in 1947.

The respondent determined a deficiency in income tax of petitioner in Docket No. 52544, for the year 1946, in the amount of $73,677.25 and an addition to the tax for failure to file a return for such year. Respondent also determined a deficiency in income tax of petitioners in Docket No. 52545, for the year 1947, in the amount of $18,694.44. At the trial, respondent was granted leave to amend his answer to claim, in the alternative, an increased deficiency for the year 1947 should it be determined herein that a certain bonus paid Robert A. Henningsen was received by him in the year 1947 instead of in the year 1946, as originally determined by respondent.

The questions presented for our consideration and disposition are: (1) Whether Robert A. Henningsen was a bona fide resident of China during the years 1946 and 1947; and (2) if not for the entire year 1947, then whether he had been a bona fide resident of China ‘for a period of at least two years before the date on which he * * * (changed) his residence from such country to the United States,‘ within the scope and intendment of section 116(a)(2) of the Internal Revenue Code of 1939. A collateral issue is whether respondent properly imposed the addition to tax for 1946 for the failure of Robert A. Henningsen to file a return in that year or whether such failure was due to reasonable cause and not to willful neglect.

FINDINGS OF FACT.

These proceedings came on to be heard on a stipulation of facts. The facts as stipulated and as supplemented by additional facts adduced at the hearing are hereby found, as follows:

The petitioner in Docket No. 52544 is Robert A. Henningsen, at present a resident of Portland, Oregon. Henningsen, who will hereinafter be referred to as petitioner, is also a co-petitioner with his wife, Margaret, in Docket No. 52545. Petitioner filed no income tax return for the year 1946. Petitioner filed a joint return with Margaret for the year 1947 with the then collector of internal revenue for the district of Maryland, at Baltimore.

During the years 1946 and 1947, and prior thereto, Henningsen Produce Company (hereinafter sometimes referred to as Produce Company) was a China Trade Act corporation, with its principal office and all of its operations at or in the vicinity of Shanghai, China. The income tax returns of the Produce Company for 1946 and 1947 were filed with the then collector of internal revenue for the district of Maryland, at Baltimore.

The Henningsen Produce Company was organized by petitioner's father and other members of petitioner's family sometime prior to the year 1929. In the year 1941, and for some time prior thereto, and until the year 1947, there were 15,000 shares of issued and outstanding stock of the Produce Company, which was owned 3,750 shares thereof by Victor Henningsen, an uncle of petitioner, who was a resident of the United States, 317 shares thereof by the petitioner, 8,143 shares thereof by U. S. Harkson, the husband of petitioner's sister, 1,400 shares thereof by Anker B. Henningsen, a brother of the petitioner, and the remainder by other persons.

Petitioner was born in Butte, Montana, on February 5, 1905, and moved to Portland, Oregon, in 1914. In October 1929, petitioner left the United States, with his wife and his then only child, who was 9 months old, for full-time employment by the Produce Company at Shanghai, China. It was then his intention to remain in China permanently. Petitioner remained in Shanghai in such full-time employment until November 1941, except for customary and occasional leave on vacation trips to the United States. At all times from October 1929 until November 1941, petitioner was a bona fide resident of China, during which period he occupied a residence building in Shanghai with his wife and family. In about July 1940, Margaret and their three children were advised to leave China because of the war situation. Pursuant to such advice, they thereupon came to the United States, where they remained until January 1947. Petitioner came to the United States in about August 1940.

In the year 1941, and for sometime prior thereto, U. S. Harkson was the president of the Produce Company, Anker B. Henningsen (hereinafter called Anker) was vice president of the company and manager of its operations, and petitioner was secretary and treasurer of the corporation and assistant manager of its operations. It was agreed between these persons in about August 1940, that it would be advisable, in view of the threatened war situation in China, that only one of them should remain in Shanghai as manager of the operations, and that they should rotate terms of duty as manager, until the situation with respect to the threat of war was clarified. It was further agreed that petitioner should take the first tour of duty upon his return from the United States in the latter part of 1940. Pursuant to that agreement, Anker and Harkson remained in the United States while petitioner went to Shanghai and returned to the United States in November 1941, at which time Anker relieved petitioner as manager of the operations of the Produce Company. Anker was in Shanghai on December 7, 1941, was taken prisoner by the Japanese, and was interned for about 11 months.

In the year 1936, petitioner purchased residence property in Portland, Oregon, at a cost of approximately $4,500, which residence property was thereafter occupied by Margaret's parents. Upon the return of Margaret and the children in 1940, they occupied the residence property with her parents, until about September 1940, when such residence property was sold, and at which time other residence property located in Milwaukie, Oregon, a suburb of Portland, Oregon, was purchased. Petitioner and Margaret, their children, and their parents lived in such residence property until about April 1944. The Milwaukie property was sold in June 1944.

In about April 1942, at the request of Harkson, petitioner went to Brazil to get a dried egg plant into operation for U. S. Harkson do Brazil, a corporation, in which the Produce Company owned a controlling stock interest. Petitioner had experience in the dried egg business during his employment by the Produce Company in Shanghai, China. Margaret and the Henningsen children remained in the Milwaukie residence property while petitioner was in Brazil. Petitioner returned from Brazil to Portland in November 1942.

In February 1943, petitioner entered the service of the Office of Strategic Services (hereinafter called O.S.S.) in the Far Eastern Section of that organization. Petitioner's post of duty, in connection with the O.S.S., was Washington, D.C., for about 10 months, after which his post was transferred to San Francisco. Petitioner left the O.S.S. in February 1944. During the time petitioner was connected with the O.S.S., Margaret and the Henningsen children, as well as her parents, occupied the Milwaukie, Oregon, residence property.

In March 1944, petitioner, at the request of his uncle, went to Lamesa, Texas, to manage a dried egg factory. Margaret and the Henningsen children, except the oldest son who was then attending Shattuck Military School in Minnesota, joined petitioner. The Henningsen family occupied a rented residence at Lamesa, Texas, until about April 1945, at which time Margaret and the children, except the aforementioned oldest son, returned to Portland, and from April 1945 to July 1945 occupied, with Margaret's parents, a residence in Portland which was owned by the parents. Petitioner left Lamesa and went to Portland in June 1945, and for a few weeks occupied with Margaret and their children such residence in Portland. In July 1945, petitioner purchased residence property in Portland, into which he, Margaret, and their children moved. This property was sold December 17, 1946.

In August 1945, immediately following termination of hostilities, petitioner went to San Francisco, where the Produce Company maintained a temporary office, for the purpose of assisting in preparations for the company's return to Shanghai as soon as possible. Petitioner worked at this location until February 1946. After going to San Francisco, petitioner made constant efforts to obtain passage to China, but was unable to do so until February 2, 1946, on which date he left Los Angeles for Shanghai. He arrived there in due course and took up his duties with the Produce Company.

Margaret and the Henningsen children remained in the Portland residence, purchased by petitioner in July 1945, until August 1946, when petitioner purchased residence property at Gearhart, Oregon, then owned by his mother. Margaret and the children then moved to Gearhart, where they resided until ...