Vazquez v. Commissioner
| Decision Date | 19 August 1993 |
| Docket Number | Docket No. 7103-90. |
| Citation | 66 T.C.M. 406 |
| Parties | Leoncio A. Vazquez v. Commissioner. |
| Court | U.S. Tax Court |
Leoncio A. Vazquez, pro se.1 Donna C. Hansberry and Karen P. Wright, for the respondent.
In a notice of deficiency dated January 19, 1990 respondent determined deficiencies in petitioner's Federal income tax and additions to the tax as follows:
Additions to Tax
-----------------------
Year Deficiency Sec.6653(b) Sec.6654
1975 ........ $58,518.81 $29,259.41 $2,533.79
1976 ........ $53,809.01 $26,904.50 $2,004.04
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years before the Court, and all Rule references are to the Tax Court Rules of Practice and Procedure.
The issues remaining for decision are:
1. Whether petitioner was a bona fide resident of Puerto Rico during 1975 and 1976 and therefore entitled to exclude from gross income earnings derived from sources within Puerto Rico under section 933(1); 2. Whether petitioner received gross income in the amounts of $109,575.58 in 1975 and $102,245.58 in 1976, which amounts petitioner failed to report in such years;
3. Whether petitioner is entitled to elect joint filing status under section 6013(a);
4. Whether respondent has established fraud by clear and convincing evidence; and
5. Whether petitioner is liable for additions to tax for failure to pay estimated income tax pursuant to section 6654.
For convenience, our findings of fact and opinion on each issue will be combined, but each issue will be discussed under a separate heading.
Some of the facts have been stipulated and are so found. The stipulation of facts and accompanying exhibits are incorporated herein by this reference.
Leoncio A. Vazquez (petitioner) resided in Chicago, Illinois, at the time he filed his petition. Petitioner was born in San Lorenzo, Puerto Rico and attended school in Puerto Rico until the ninth grade. He lived in Puerto Rico until August of 1953 when he came to the United States. He settled in Chicago, Illinois, and made trips once a year to Puerto Rico to visit his family.
Petitioner has been married twice. Petitioner's first wife was Enoes Ortis (Enoes). Petitioner and Enoes have three children born of that marriage, Semiramis, Edmundo, and Alberto. After obtaining a divorce from Enoes, petitioner married Josephine Zapata (Josephine) in 1971, and they have two children born of that marriage, David and Hector. Petitioner and Josephine were married during the taxable years at issue. They were divorced in 1989.
Petitioner argues that he was a resident of Puerto Rico, not of the United States, during 1975 and 1976. Thus, petitioner claims the exclusions from gross income provided by section 933.
Section 933(1) provides that, in the case of an individual who is a bona fide resident of Puerto Rico "during the entire taxable year", income derived from sources within Puerto Rico shall not be included in gross income and shall be exempt from United States income tax.2 An individual who takes up residence in Puerto Rico during the course of the taxable year is not entitled to the exclusion for that year. Sec. 1.933-1(a), Income Tax Regs. In Motion v. Commissioner [Dec. 33,059(M)], T.C. Memo. 1975-43, this Court held that the taxpayer, who resided in Puerto Rico from March through December of 1970, was not a resident of Puerto Rico for the entire 1970 taxable year. Thus, the taxpayer was not entitled to exclude from his gross income his earnings in Puerto Rico from March through December of 1970.
Section 933 does not contain a definition of the term "bona fide resident" of Puerto Rico. However, the regulations under section 933 direct us to section 871 and the regulations thereto. Sec. 1.933-1(a), Income Tax Regs. Thus, this Court determines whether an individual is a bona fide resident of Puerto Rico by analyzing the facts and circumstances in each case and applying the principles of section 1.871-2, 1.871-3, 1.871-4, and 1.871-5, Income Tax Regs. Sec. 1.933-1(a), Income Tax Regs.; cf. Preece v. Commissioner [Dec. 47,009], 95 T.C. 594 (1990) ().
Section 871 and the regulations under that section provide rules for determining whether an alien individual is a resident of the United States. Generally, resident aliens are taxable the same as U.S. citizens, whereas nonresident aliens are taxable only on certain income from sources within the United States. A nonresident alien is an individual whose residence is not within the United States and who is not a citizen of the United States. Sec. 1.871-2(a), Income Tax Regs. An alien individual is a resident of the United States if he is actually present in the United States and is not a mere transient or sojourner, which depends upon his intentions as to the length and nature of his stay. Sec. 1.871-2(b), Income Tax Regs. The fundamental issue in determining residency is whether the alien intends to make the United States his home. See Jones v. Commissioner [91-1 USTC ¶ 50,174], 927 F.2d 849, 854 (5th Cir. 1991), revg. [Dec. 46,157(M)] T.C. Memo. 1989-616; Dawson v. Commissioner [Dec. 31,606], 59 T.C. 264, 268 (1972).3
The Court of Appeals for the Seventh Circuit, to which any appeal in this case will lie, has held that the determination of whether a citizen of the United States had established that he was a bona fide resident of a foreign country is a "conclusion of law or at least a determination of a mixed question of law and fact". Sochurek v. Commissioner [62-1 USTC ¶ 9293], 300 F.2d 34, 37 (7th Cir. 1962) (quoting Bogardus v. Commissioner [37-2 USTC ¶ 9534], 302 U.S. 34, 39 (1937)), revg. and remanding [Dec. 24,793] 36 T.C. 131 (1961). There, the Seventh Circuit held that an unmarried taxpayer who was a full time news correspondent and who had established a temporary home in Singapore (and maintained it throughout the entire taxable year) was not a transient or sojourner but was a bona fide resident of a foreign country. The taxpayer was entitled to exclude from gross income the compensation he received from his employer during the taxable year. In determining whether the taxpayer had satisfactorily established his claim of bona fide residence in a foreign country, the Seventh Circuit enumerated various factors to be considered:
(1) intention of the taxpayer;
(2) establishment of his home temporarily in the foreign country for an indefinite period;
(3) participation in the activities of his chosen community on social and cultural levels, identification with the daily lives of the people and, in general, assimilation into the foreign environment;
(4) physical presence in the foreign country consistent with his employment;
(5) nature, extent and reasons for temporary absences from his temporary foreign home;
(6) assumption of economic burdens and payment of taxes to the foreign country;
(7) status of resident contrasted to that of transient or sojourner;
(8) treatment accorded his income tax status by his employer;
(9) marital status and residence of his family;
(10) nature and duration of his employment; whether his assignment abroad could be promptly accomplished within a definite or specified time;
(11) good faith in making his trip abroad; whether for purpose of tax evasion.
Sochurek v. Commissioner [62-1 USTC ¶ 9293], 300 F.2d at 38. The Seventh Circuit further stated that "While all such factors may not be present in every situation, those appropriate should be properly considered and weighed." Id. Application of these various factors is essentially tantamount to the facts and circumstances test mandated by the regulations applicable to section 933(1).
The documentary and testimonial evidence in the record of this case supports a finding that petitioner was not a bona fide resident of Puerto Rico for the full taxable year, within the meaning of section 933(1), for 1975 but was such a resident for 1976.
After petitioner married Josephine, they lived in Chicago, Illinois, in a house owned by petitioner located at 3259 W. Wabansia. However, petitioner talked constantly about his desire to move to Puerto Rico. During this time, petitioner continued to make trips to Puerto Rico once a year or so to visit his parents, his former wife, and his children by his first marriage, all of whom were living in Puerto Rico.
In 1974, petitioner discussed with Josephine his dream of returning to live in his home town of San Lorenzo, Puerto Rico. He wanted to return to Puerto Rico in order to be closer to his family and to raise his five children together. Sometime between 1974 and 1975, Josephine agreed that she and petitioner should move to Puerto Rico.
After petitioner and Josephine decided to relocate their family to Puerto Rico, petitioner began to make frequent trips between Chicago and Puerto Rico in 1975. Petitioner took clothing, shoes, and personal items, but no furniture or large items with him to Puerto Rico and stayed with his parents in San Lorenzo for extended periods. He rented a car during these stays. Josephine did not accompany petitioner at this time because she did not want to live with petitioner's parents.
During the summer of 1975, petitioner went to visit his three children of his first marriage who were living in Santa Isabel, Puerto Rico. While in Santa Isabel, petitioner saw a house with which he was quite taken and that he wanted his children to have. He arranged for himself and Josephine to purchase this house (the Santa Isabel house) and donate it to Semiramis Edmundo, and Alberto, the children of his first marriage.
Also, in the summer of 1975, petitioner began to...
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