Mooneyhan v. Comm'r of Internal Revenue

• Decision Date: 29 March 1967
• Docket Number: 2700-64.,Docket Nos. 2699-64
• Citation: 47 T.C. 693
• Parties: LOUIS H. MOONEYHAN, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

47 T.C. 693

LOUIS H. MOONEYHAN, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket Nos. 2699-64

2700-64.

Tax Court of the United States.

Filed March 29, 1967.

Lowe Watkins, for the petitioner.

Charles G. Barnett, for the respondent.

Petitioner was in Iran from Sept. 29, 1957, to Sept. 29, 1959, and from June 19, 1960, to June 24, 1962, working as an employee of the Bureau of Public Roads of the Department of Commerce pursuant to an agreement between that Bureau and the Iranian Government that his compensation would be paid or reimbursed from a Dollar Working Fund deposited by Iran with the U.S. tReasury. Held, petitioner was not paid by the United States or an agency thereof while working in Iran and since he also otherwise meets the requirements of sec. 911(a)(2), I.R.C. 1954, is entitled to exclude from his gross income for each of the years 1959, 1960, 1961, and 1962 the compensation he received for his work in Iran.

SCOTT, Judge

Respondent determined deficiencies in petitioner's income tax for the calendar years 1959, 1960, 1961, and 1962 in the amounts of $1,952.15, $863.26, $2,634.22, and $2,063.32, respectively.

The issues for decision are:

(1) Whether petitioner is entitled to exclude from his gross income in each of the years here involved, under the provisions of section 911(a)(2) of the Internal Revenue Code of 1954,¹ the salaries he received while working in Iran as an employee of the Bureau of Public Roads, Department of Commerce, assigned to the Iran Division.

(2) If not otherwise entitled to such an exclusion, does the fact that respondent did not question an exclusion taken by petitioner purportedly under section 911(a)(2) for years he was employed in Ethiopia entitle petitioner to such exclusion?

(3) Was respondent prohibited from issuing a valid notice of deficiency to petitioner for the year 1960 because of previously having refunded to petitioner all amounts of tax withheld from his wages for that year?

(4) If petitioner is not entitled to exclude the salaries he received while working in Iran, is he entitled to a deduction as an ordinary and necessary business expense for the cost of his meals while he was working in Iran during the year 1959?

(5) If petitioner is not entitled to exclude in full the salaries he received while he was working in Iran, is he entitled to exclude from his gross income under section 912(1), the portion of the compensation he received which constitutes foreign differential allowances?

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly.

Petitioner is and at all times pertinent hereto was a citizen of the United States. He resided at the date of the filing of the petitions in these cases in Nashville, Tenn. He filed his individual Federal income tax returns for the calendar years 1959, 1960, and 1961 with the district director of internal revenue, Nashville, Tenn., and he filed his individual Federal income tax return for the calendar year 1962 with the dIrector of International Operations, Washington, D.C.

Prior to 1954, petitioner was engaged in construction work and road building for private contractors and as an employee of State governments. From some time in 1952 to some time in 1954 and again from some later date in 1954 to some time in 1956 petitioner was employed by the Bureau of Public Roads of the Department of Commerce (hereinafter referred to as the Bureau) in Ethiopia, Africa.

On September 22, 1957, the Bureau offered, and petitioner accepted, an ‘Excepted Appointment— Indefinite’ under section 527(c)(1), Mutual Security Act of 1954 (now sec. 625(d), Foreign Assistance Act of 1961), and was assigned to the Iran Division as an equipment specialist, grade ICA-7. Petitioner arrived in Iran on September 29, 1957, and served in Iran pursuant to his appointment by the Bureau until September 29, 1959. On October 19, 1958, petitioner was promoted to equipment specialist, grade ICA-6. On September 29, 1959, petitioner left Iran and arrived in the continental United States on September 30, 1959. On November 3, 1959, he was separated from his employment by the Bureau in accordance with his voluntary resignation.

On June 13, 1960, the Bureau offered, and petitioner accepted, an excepted appointment under the same provisions of law as his prior appointment and was assigned to the Iran Division of the Bureau as an equipment specialist, grade ICA-6. Petitioner arrived in Iran on June 19, 1960, and served in that country until June 24, 1962, when he departed from Iran for the continental United States where he arrived on July 18, 1962. On August 17, 1962, pursuant to his voluntary resignation, petitioner was separated from his employment by the Bureau.

Petitioner was not serving in a competitive civil service status when he accepted the excepted position in 1957 or when he reentered the excepted service in 1960 and did not have any statutory or regulatory rights to reemployment in the competitive civil service. Petitioner while employed by the Bureau in the Iran Division was entitled as a Government employee to the benefits of the Federal laws governing performance ratings, incentive awards, Federal Employees Pay Act, annual and sick leave, unemployment compensation, and Federal Employees Group Life Insurance. He was not entitled to the benefits of the Federal Employees Health Insurance Act or to the Federal Employees Retirement Act.

Petitioner's assignment by the Bureau to Iran was in accordance with the terms of an agreement dated December 18, 1956, between the Imperial Government of Iran (hereinafter sometimes referred to as the Iranian Government) and the Bureau entitled, ‘General V. Ansari, Credit Assignment.’ This agreement was in the form of a letter addressed to General Valid Ansari, Minister of Roads and Communications, Imperial Government of Iran, by the Commissioner of Public Roads of the Bureau and was amended by a similar letter addressed to General V. Ansari, on behalf of the Bureau, dated August 2, 1960, which letter confirmed that except as amended the original agreement remained in effect. Both the original and amended agreements were confirmed on behalf of the Iranian Government. The agreement as amended will hereinafter be referred to as the letter agreement. The letter agreement referred to a credit agreement.

The credit agreement of December 7, 1956, referred to in the original letter agreement, provided for a loan by the Export-Import Bank of Washington to the Imperial Government of Iran in the sum of $5 million to assist Iran in financing the acquisition in the United States and exportation to Iran of highway equipment and a program of highway maintenance and training in Iran, together with the services of United States highway engineers and technicians in connection therewith, with the understanding that Iran would make arrangements with the Bureau whereby the Bureau would provide the services of United States engineers and technicians to assist in developing and carrying out the program of highway maintenance and training. Further similar credit agreements were entered into between the Export-Import Bank of Washington and the Iranian Government and the International Bank for Reconstruction and Development and the Iranian Government.

From September 22, 1957, until November 3, 1959, and from June 3, 1960, to December 25, 1960, petitioner worked on construction projects financed from the proceeds of the credit agreements between the Export-Import Bank of Washington and the Iranian Government, and from December 25, 1960, until August 17, 1962, petitioner worked on road construction projects financed from the proceeds from credit agreements between the International Bank for Reconstruction and Development and the Iranian Government.

The letter agreement of December 18, 1956, provided that the objectives of the program were to achieve the maximum highway maintenance with the resources at the disposal of the Iranian Government while laying the foundations for a modern highway organization of well-trained personnel, properly equipped to carry out a continuing program of highway construction and maintenance in Iran. The agreement provided that in furtherance of these objectives the Bureau ‘is prepared to put its experience at your disposal, to assign the requisite personnel,‘ and specifically to assist in preparing the general plan of highway maintenance, in developing and carrying out the program of highway maintenance, in selecting highway maintenance equipment, in procuring such items of equipment, and in recommending steps to reorganize the Highway Division of Iran. The letter agreement further provided that, ‘To perform the foregoing services, the Bureau will assign the following personnel,‘ which included a division engineer and other engineers and technical specialists. The agreement provided that the division engineer would be in charge of all personnel of the Bureau assigned to Iran under the agreement and would provide direct liaison with the Minister of Roads of Iran. The letter agreement provided with respect to compensation of personnel assigned to Iran that the ‘compensation of all personnel of the Bureau assigned to Iran from the date of assignment to the date of separation from the program will be paid or reimbursed out of the Dollar Working Fund to be established by your Government as provided in Paragraph VII.’ Paragraph VII provided with respect to the Dollar Working Fund as follows:

To carry out the conditions of the $5,000,000 loan from the Export-Import Bank signed on December 7, 1956 your Ministry will establish a Dollar Working Fund in the maximum amount of $500,000 with the Bureau to be at the disposal of the Bureau for the payments as set out in this Agreement.

The Dollar Working Fund shall be established in the amount of $200,000 and shall be replenished by your Government from time to time upon the request of the Bureau accompanied by an itemized...