McComish v. Comm'r of Internal Revenue

• Decision Date: 19 August 1975
• Docket Number: Docket No. 4751-71.
• Citation: 64 T.C. 909
• Parties: JOHN D. MCCOMISH AND GENEVIEVE A. MCCOMISH, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

64 T.C. 909

JOHN D. MCCOMISH AND GENEVIEVE A. MCCOMISH, PETITIONERS

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 4751-71.

United States Tax Court

Filed August 19, 1975.

John D. McComish, pro se.

Alan R. Herson, for the respondent.

T, a United States citizen, was employed by the government of the Trust Territory of the Pacific Islands where he lived during such employment. Held, the government of the Trust Territory of the Pacific Islands is an ‘agency’ of the United States as intended by sec. 911(a)(2), I.R.C. 1954, and the amounts which it paid to T are therefore not excludable from T's gross income under that Code section.

OPINION

RAUM, Judge:

The Commissioner determined a deficiency of $2,810.45 in petitioners' Federal income tax for the calendar year 1968. The single issue to be resolved is whether amounts received by petitioner¹ from the government of the Trust Territory of the Pacific Islands for services rendered there by petitioner are exempt from Federal income taxation by reason of section 911(a)(2), I.R.C. 1954. The facts have been stipulated by the parties.

At the time of filing their petition herein, petitioners John D. McComish and Genevieve A. McComish, husband and wife, were legal residents of Honolulu, Hawaii.

Throughout the 2-year period commencing April 14, 1967, petitioner was employed as district attorney by the government of the Trust Territory of the Pacific Islands (Trust Territory). During that time he lived on Saipan, an island of the government of the Trust Territory. In 1968 he received paychecks drawn by the government of the Trust Territory amounting to $15,144. Genevieve McComish also lived on Saipan and in 1968 received payment of $282 from a Hawaii corporation for services rendered in the Trust Territory. Both petitioners were present in the Trust Territory at least 510 full days in the space of 18 consecutive months during 1967 and 1968.

The Trust Territory of the Pacific Islands is a group of more than 2,000 islands and islets situated in the Western Pacific Ocean, scattered over an oceanic area of about 3 million square miles. Their total land area is only 687 square miles, and only 64 of them are regularly inhabited. Popularly referred to as Micronesia, these islands include the Northern Mariana Islands, the Eastern and Western Caroline Islands, and the Marshall Islands. The history of these islands for the last 400 years has been marked by the presence of a succession of foreign interests. Late in the 19th century, after several centuries of Spanish rule, the islands fell under German control which, with the advent of World War I, was followed by Japanese occupation. In the aftermath of that war, the continued Japanese presence was formally recognized by the League of Nations which mandated the islands to Japan in 1920. The United States later endorsed this arrangement by virtue of a treaty with Japan signed at the Washington Conference in 1922. Convention with Japan regarding rights in former German islands, Feb. 11, 1922, 42 Stat. 2149, T.S. No. 664.

World War II brought an end to Japanese dominion in the area. During the latter part of the hostilities, the United States and allied forces captured several of the islands, the remainder of which were occupied after the formal surrender of Japan on September 2, 1945. As a result, all of the islands became subject to United States authority in accordance with the international law of belligerent occupation, and the United States thereupon established military government.

Following the creation of the United Nations, its Trusteeship Council assumed jurisdiction of the Trust Territories. The United Nations Security Council thereupon entered into a trusteeship agreement with the United States by which the United States, as ‘administering authority,‘ accepted administrative authority for the people of the Trust Territory. On July 18, 1947, the United States Congress, by joint resolution, authorized the President to approve the agreement, which he did on the same day. Joint Resolution of July 18, 1947, ch. 271, 61 Stat. 397; Trusteeship Agreement for the Former Japanese Mandated Islands, July 18, 1947, 61 Stat. 3301, T.I.A.S. No. 1665. By reason of the trusteeship agreement, the United States was vested with broad administrative authority. In particular, article 3 provided that:

The administering authority shall have full powers of administration, legislation, and jurisdiction over the territory subject to the provisions of this agreement, and may apply to the trust territory, subject to any modifications which the administering authority may consider desirable, such of the laws of the United States as it may deem appropriate to local conditions and requirements.

It was further agreed that the United States' authority was to be exercised in the furtherance of certain enumerated political, economic, social, and educational objectives, among which was the following:

ARTICLE 6

In discharging its obligations under Article 76(b) of the Charter, the administering authority shall:

1. foster the development of such political institutions as are suited to the trust territory and shall promote the development of the inhabitants of the trust territory toward self-government or independence, as may be appropriate to the particular circumstances of the trust territory and its peoples and the freely expressed wishes of the peoples concerned; and to this end shall give to the inhabitants of the trust territory a progressively increasing share in the administrative services in the territory; shall develop their participation in government; shall give due recognition to the customs of the inhabitants in providing a system of law for the territory; and shall take other appropriate measures toward these ends * * *

Although authorized by article 12 of the trusteeship agreement to enact such legislation as might be necessary to implement its terms, the United States Congress did not act in this respect until 1954, when it merely stated that all governmental authority in the Trust Territory rested with the President. Act of June 30, 1954, ch. 423, sec. 1, 68 Stat. 330, as amended, 48 U.S.C.A.sec. 1681(a). Prior to that time administrative responsibility for the islands had, by Executive order, been given first to the Department of the Navy, then to the Department of the Interior, with responsibility for parts of the Trust Territory redelegated to the Navy. Responsibility for the administration of the islands remained divided in this fashion until 1962, when the President redelegated the exclusive responsibility for the administration of civil government in all of the Trust Territory, ‘and all executive, legislative, and judicial authority necessary for that administration, ‘ to the Secretary of the Interior. Exec. Order No. 11021, 27 Fed.Reg. 4409 (1962), 48 U.S.C.A.sec. 1681 note. The Secretary of the Interior was thereby authorized to:

take such actions as may be necessary and appropriate to carry out the obligations assumed by the United States as the administering authority of the trust territory under the terms of the trusteeship agreement and under the Charter of the United Nations.

And it was expressly stated in that Executive order that:

The executive, legislative, and judicial authority provided for in section 1 of this order may be exercised through such officers or employees of the Department of the Interior, or through such other persons under the jurisdiction of the Secretary of the Interior, as the Secretary may designate, and shall be exercised in such manner as the Secretary, or any person or persons acting under the authority of the Secretary, may direct or authorize.

Under the authority thus delegated to him by this order, the Secretary of the Interior established a Trust Territory government, comprised of an executive, a legislative, and a judicial branch, similar in form to that of our Federal Government. Department of the Interior, Order No. 2876, 29 Fed.Reg. 1855 (1964); Department of the Interior, Order No. 2882, 29 Fed.Reg. 13613 (1964); Department of the Interior, Order No. 2918, 34 Fed.Reg. 157 (1968). Executive authority in the government is vested in the High Commissioner who is appointed by the President² and who has ‘the responsibility for carrying out the international obligations undertaken by the United States with respect to the Trust Territory.’ The authority of the Congress of Micronesia, the legislative organ of the government extends only so far as permitted by the Secretary and may be exercised only in accordance with the detailed procedures prescribed by the Secretary. Among the matters so regulated by the Secretary are membership of the Congress, qualifications of legislators, compensation of legislators, the franchise, legislative sessions, adjournment of the Congress, and the form in which legislation is to be enacted. All legislation is subject to veto first by the High Commissioner, and in the event his veto is overridden, then by the Secretary. Furthermore, the High Commissioner may, with the secretary's approval, promulgate ‘urgent’ legislation in the event the Congress fails to act. The High Commissioner must submit the annual budget of the Trust Territory to the Secretary for approval, and any subsequent deviations therefrom require the Secretary's prior approval. Communications of the government with foreign governments and international bodies are cleared through the Department of the Interior for transmittal by the Department of State. Judicial authority in the Trust Territory is vested in a chief justice and an associate justice,³ both of whom are appointed by the Secretary. Thus, although this arrangement affords the citizens of the Trust Territory a limited degree of self-rule, it occurs only by reason of the Secretary of the Interior's order and is fully subject to his continuing supervision and direction. The Secretary could disband the government at any...