Linde v. Commissioner of Internal Revenue, 091817 FEDTAX, 1532-15

Docket Nº:1532-15
Opinion Judge:VASQUEZ, Judge:
Attorney:George David Johnston and Paul F. Turner, Jr., for petitioners. Edwin B. Cleverdon and Horace Crump, for respondent.
Case Date:September 18, 2017
Court:United States Tax Court

T.C.Memo. 2017-180




No. 1532-15

United States Tax Court

September 18, 2017

George David Johnston and Paul F. Turner, Jr., for petitioners.

Edwin B. Cleverdon and Horace Crump, for respondent.



Respondent determined deficiencies and section 6662(a)[1] accuracy-related penalties against petitioners in the following amounts:

Year Deficiency Penalty sec. 6662(a)
2010 $10, 092 $2, 018
2011 16, 499 3, 300
2012 16, 477 3, 295
The issues for decision are: (1) whether petitioner Jesse Linde is a "qualified individual" who is entitled to exclude portions of the wages that he earned overseas during the taxable years 2010, 2011, and 2012 (years in issue) under the foreign earned income exclusion provisions of section 911(a); (2) whether petitioners are entitled to deductions for unreimbursed employee business expenses claimed on Schedules A, Itemized Deductions, for the years in issue; and (3) whether petitioners are liable for accuracy-related penalties under section 6662(a). FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated by this reference. Petitioners reported Daleville, Alabama, as their mailing address on their petition. I. Mr. Linde's Background Jesse and Dawn Linde are U.S. citizens. Mr. Linde grew up in Louisville, Kentucky, and joined the U.S. Army (Army) in 1972. In 1982 Mr. Linde was stationed in Fort Rucker, Alabama, where he trained to become a helicopter pilot. After retiring from the Army in 1992, Mr. Linde briefly worked for a car dealership and the Daleville, Alabama, police department. In 1995 Mr. Linde resumed his piloting career in the private sector. From 1995 to 1997 he lived and worked in Saudi Arabia, where he trained helicopter pilots. He then obtained a similar job in Bosnia and worked there until 2000. Mr. Linde rejoined the Army after the September 11, 2001, terrorist attacks; he served initially as an instructor pilot at Fort Rucker in Alabama but was later deployed to the Sinai Peninsula. In 2005 Mr. Linde retired from the Army for a second time. In 2009 Mr. Linde was offered a helicopter pilot job with Government contractor Blackwater Security Consulting (Blackwater) in Iraq. In his midfifties at the time, Mr. Linde was concerned about his employment prospects in the United States, which had an abundance of younger helicopter pilots. With each passing year Mr. Linde was becoming less marketable as a helicopter pilot in the United States. In Iraq Mr. Linde's age was not as great an obstacle so long as he could pass a physical. Petitioners discussed Mr. Linde's concerns and agreed that he would accept the job offer and work in Iraq until he was willing and able to permanently retire. Mrs. Linde would remain in Alabama. II. Employment at DynCorp Mr. Linde began working for Blackwater in April 2009. In November 2009 Blackwater lost its Government contract, and Mr. Linde became an employee of Blackwater's successor under the contract, DynCorp International, LLC (DynCorp). In connection therewith, Mr. Linde signed a one-year employment agreement with DynCorp. Thereafter the Iraqi Government issued Mr. Linde a residency visa. Throughout the years in issue and continuing through the date of trial Mr. Linde worked in Iraq as an employee of DynCorp pursuant to yearly employment agreements.2 Mr. Linde resided in Iraq for 248 days in 2010, 240 days in 2011, and 249 days in 2012. During these years Mr. Linde's primary responsibility was to fly "[a]ll over Iraq", transporting Government officials to various locations in direct support of the U.S. Ambassador to Iraq. In furtherance of this duty Mr. Linde communicated regularly with Iraqi intelligence personnel and several Iraqi civilians. Because Mr. Linde was often subject to hostile fire, the U.S. Department of State issued him a firearm. Mr. Linde carried the firearm pursuant to a letter of authorization from the Iraqi Government. In 2012 Mr. Linde received a promotion and became responsible for overseeing the schedules of 36 other pilots in Iraq. Mr. Linde's work schedule generally consisted of 60 straight days of 12hour shifts followed by break periods of 30 days. Because DynCorp could not keep all of its employees in Iraq at one time, it required its helicopter pilots to leave Iraq every 60 days. Accordingly, DynCorp provided Mr. Linde a round-trip ticket to Kuwait at the conclusion of each 60-day period.3 From there Mr. Linde flew to the United States at his own expense.4 Because Mr. Linde's trips to and from the United States involved multiple flights, each round trip usually required three days of travel time. On some occasions Mr. Linde spent time in Europe before flying to the United States. Mr. Linde spent the remainder of his break periods at his and Mrs. Linde's marital home in Daleville, Alabama.5 While there, Mr. Linde spent time with Mrs. Linde and their two adult children, who also reside in Daleville. The special healthcare needs of petitioners' son-in-law, an Army veteran who was seriously injured while on active duty in Iraq, make overseas travel extremely difficult for Mrs. Linde and petitioners' children. Were it not for his son-in-law's disability, Mr. Linde would have arranged for Mrs. Linde and their children to join him in Europe for some of his break periods. In Iraq Mr. Linde lived in a DynCorp-provided container housing unit (CHU), a large metal container comprising two bedrooms and a shared bathroom. No one else resided in Mr. Linde's bedroom when it was unoccupied, and he kept his personal belongings there while he was out of the country. For the first few months of 2010 Mr. Linde's CHU was in the Green Zone, an area of Baghdad with secured points of entry. Thereafter he moved to a CHU near the Baghdad airport, which was not in the Green Zone or an area otherwise declared secure. When he was not working, Mr. Linde went on group excursions to local markets to purchase food and building materials, which he used for small construction projects to improve the conditions of his CHU.6 Mr. Linde also spent time dining in restaurants and socializing with several Iraqi interpreters whom he had befriended at work. Since joining the Army in 1972, Mr. Linde has maintained an account at the Armed Forces Bank that he can use anywhere (including Iraq).7 From February 2010 through May 2011 he also maintained an Iraqi bank account at the U.S. Embassy; he closed the account when the Iraqi bank stopped operating its branch there. Meanwhile, Mr. Linde kept his vehicles in Alabama, where he was registered to vote and licensed to drive. Mr. Linde did not pay taxes to the Iraqi Government during the years in issue. However, in May 2013 DynCorp began withholding Iraqi income taxes from Mr. Linde's compensation. That year DynCorp changed Mr. Linde's work shifts from a 60-30 alternating schedule to a 90-30 one (i.e., 90 straight days of 12-hour shifts, with break periods of 30 days). III. Tax Return Preparation Petitioners' returns for the years in issue were prepared by their longtime accountant, Bob Wills. Mr. Wills is an experienced accountant and tax return preparer in Dale County, Alabama, with a large number of clients who are helicopter pilots. For each year in issue petitioners provided Mr. Wills extensive information about Mr. Linde's work in Iraq and the expenses they sought to deduct. Mr. Wills advised petitioners that Mr. Linde was eligible for the foreign earned income exclusion for the years in issue. Mr. Wills also advised petitioners that certain expenses, including Mr. Linde's travel expenses, were deductible. Petitioners, who have no training in accounting or tax return preparation, believed that Mr. Wills' advice was...

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