Teskey v. Comm'r of Internal Revenue, Docket No. 63852.

• Citation: 30 T.C. 456
• Decision Date: 29 May 1958
• Docket Number: Docket No. 63852.
• Parties: ROBERT W. TESKEY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: United States Tax Court

30 T.C. 456

ROBERT W. TESKEY, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 63852.

Tax Court of the United States.

Filed May 29, 1958.

Thomas J. Beddow, Esq., for the petitioner.

Neil J. O'Brien, Esq., for the respondent.

A citizen of the United States, employed as a radio operator on a vessel owned by an agency of the United States and operated by the United States under a contract with a private shipping firm as agent, in shuttle service between Korea and Japan during the Korean War emergency, was paid by a private shipping line as agent of the United States. Held, such compensation constitutes an amount paid by the United States or any agency thereof within the meaning of section 116(a) I.R.C. 1939, and section 911(a) I.R.C. 1954, and is not excludible from gross income even through the employee may be physically present in a foreign country or countries for 510 full days or more of an 18-month period to which such wages are attributable. The Commissioner is sustained in his determination of the deficiencies.

The Commissioner has determined deficiencies in petitioner's income tax for the years 1953 and 1954 in the respective amounts of $2,366.91 and $1,278.04. The explanation in the deficiency notice of the deficiency for 1953 is as follows:

You have failed to show that for the year 1953 you qualified as a bona fide resident of a foreign country, within the meaning of Section 116(a) of the Internal Revenue Code, for an uninterrupted period which includes an entire taxable year. You have also failed to show that your foreign employment was part of a period of 18 consecutive months during which you were present in a foreign country or countries for at least 510 full days in such period. ‘Therefore, your wages of $10,049.76 constitute taxable income.’

The deficiency for 1954 is also due to the same kind of adjustment, except in smaller amount, and it is explained in the deficiency notice in a similar manner.

The petitioner assigns error as to the determination of the Commissioner for each of the taxable years and contends his compensation was exempt from taxation.

At the hearing, respondent's counsel stated that the Commissioner no longer contended that petitioner did not reside in a foreign country for the length of time required by the statute but that he does contend that petitioner received his compensation from the United States or one of its agencies and that hence the income of petitioner is not exempt under the statutes relied upon. That is the only issue presented for our decision.

There is no dispute as to the amount of compensation which petitioner received in each of the taxable years.

FINDINGS OF FACT.

Most of the facts have been stipulated and the stipulated facts are incorporated herein by this reference.

Petitioner Robert W. Teskey resides at Bethesda, Maryland, and his income tax returns for the years 1953 and 1954 were filed with the district director of internal revenue at Baltimore, Maryland.

Between January 16, 1952, and February 2, 1954, petitioner was a seaman in the Merchant Marine Service of the United States serving as radio operator aboard the motor vessel Rose Knot. Rose Knot was owned by the United States of America, represented by the Maritime Administration, Department of Commerce. The United States of America (acting by and through the Director, National Shipping Authority of the Maritime Administration) on March 19, 1951, entered into General Agency Agreement MA-56-GAA with Pacific-Atlantic S.S. Co., sometimes hereinafter referred to as Pacific-Atlantic.

Under MA-56-GAA the United States appointed Pacific-Atlantic as its agent, and not as an independent contractor, to manage and conduct the business of the vessels assigned to it for the business and account of the United States and in accordance with the directions, orders, supervision, and inspection as the United States might from time to time prescribe.

The Director, National Shipping Authority of the Maritime Administration, authorized assignment of Rose Knot to Pacific-Atlantic. The itinerary of Rose Knot was directed by the United States (acting through the Military Sea Transportation Service). Rose Knot was used in the shuttle service between ports in Japan and ports in Korea during the Korean War emergency. Rose Knot was use d to transport dry commodities such as tanks, vehicles, and ammunition between Japan and Korea.

By the terms of the General Agency Agreement, Pacific-Atlantic was required to procure for Rose Knot a master, who was to be an agent and employee of The united States and who was to exercise full control with respect to the manning, navigation, and management of the vessel. Pacific-Atlantic was further required to procure through the usual channels, and make available to the master for engagement, officers and men required by the master to fill the complement of the vessel. The agreement did not carry any provision which said that the officers and crew required to fill the complement of the vessel would be employees of the United States. The officers and crew were subject only to the orders of the master.

On or about January 16, 1952, petitioner was procured out of union hiring hall by Pacific-Atlantic, signed shipping articles of agreement, and was thereupon engaged by the mast of Rose Knot for service as its radio operator. The terms, pay provisions, and conditions of petitioner's employment were fixed by and according to the union agreement with Pacific-Atlantic.

Petitioner signed subsequent shipping articles of agreement for service aboard Rose Knot as its radio operator on October 23, 1952, and July 18, 1953, which articles extended his employment to approximately February 2, 1954.

Rose Knot sailed from Portland, Oregon, on January 22, 1952, and arrived at Yokohama, Japan, on February 18, 1952. Rose Knot sailed from Yokohama, Japan, on January 15, 1954, and arrived at Portland, Oregon, on February 1, 1954. Between February 18, 1952, and January 15, 1954, Rose Knot was in shuttle service between ports in Japan and ports in Korea, except for a trip from Yokohama, Japan, to Naha, Okinawa, and return, covering the period December 11, 1953, to December 20, 1953.

While engaged as radio operator aboard Rose Knot, petitioner was paid for his services either by check of Pacific-Atlantic or in cash from funds provided therefor by the United States. The service agreement provided that the United States would advance funds to Pacific-Atlantic to provide for the expenses incurred by it in operating the vessel, and that Pacific-Atlantic would be paid fair and reasonable compensation for its services, including in such compensation administration and general expense, advertising expense, taxes, and other indirect expenses.

From payments made to petitioner, Pacific-Atlantic withheld Federal unemployment, social security, and Federal income taxes. Nothing was withheld from such compensation in respect of Federal retirement benefits. Pacific-Atlantic paid unemployment taxes on petitioner's compensation, as well as any pension or welfare fund contributions required by Pacific-Atlantic's collective bargaining agreements. From a revolving fund established by Pub. L. No. 45, 82d Cong., 1st Sess., the United States provided the funds which it placed in a special and joint bank account from which Pacific-Atlantic could make withdrawals for the purposes designated in the General Agency Agreement. The General Agency Agreement required the agent, Pacific-Atlantic, to account for all moneys disbursed. The agreement required the agent to keep books and records (which were to be the property of the United States) and to file financial statements according to the directions of the United States.

The shipping articles stated that the United States or one of its agencies was the owner of Rose Knot.

The moneys used to pay the wages earned by the petitioner while engaged as radio operator aboard the Rose Knot belonged to and were the funds of the United States or an agency thereof immediately prior to payment to petitioner. The wages earned by petitioner while engaged as radio operator aboard the Rose Knot were amounts paid by the United States or an agency thereof.

OPINION.

BLACK, Judge:

For the taxable year 1953, petitioner claims that wages received from Pacific-Atlantic in the amount of $10,049.76 are excludible from gross income under section 116(a)(2), I.R.C. 1939. For the taxable year 1954, petitioner claims that wages received from Pacific-Atlantic in the amount of $6,307.29 are excludible from gross...