Wallace v. Commissioner , 17 B.T.A. 406 ( 1929 )

HUGH C. WALLACE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

MILDRED F. WALLACE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Wallace v. Commissioner

Docket No. 36281, 36282.

United States Board of Tax Appeals

17 B.T.A. 406; 1929 BTA LEXIS 2301;

September 23, 1929, Promulgated

---

Resident citizens of the United States, owners of a residence in France, but receiving no income therefrom, nor any income from any business or profession situated or carried on in France or any other foreign country - their income being received exclusively from sources within the United States - are not entitled to have allowed as credits against income taxes dur the United States, the amount of income taxes computed upon an estimated income of seven times the rental value of said residence and paid to the Republic of France.

Hugh C. Wallace and Mildred F. Wallace pro sese.

Arthur H. Murray, Esq., for the respondent.

---

LITTLETON

The taxes in controversy are income taxes for the calendar years 1923, 1924, 1925, and 1926. The deficiencies for the respective years are as follows:

Year	Hugh C. Wallace	Mildred F. Wallace
1923	$4,138.59	$4,567.36
1924	148.46	170.70
1925	1,228.45	1,306.78
1926	3,460.98	3,427.54

The deficiencies are due to the refusal of the Commissioner to allow as credits against income taxes due the United States from petitioners, the amount of taxes paid by them to the Republic of France, on a residence, from which nor from any other foreign source, was any income received by petitioners. The cases are consolidated for hearing and decision. The facts are stipulated.

FINDINGS OF FACTS.

The petitioners are husband and wife, citizens of the United States and residents of the State of Washington.

During the years involved, 1923 to 1926, inclusive, they were owners of a residence in Paris, France. It was their community property.

They received no income from any property, business or professions situated or carried on, in France or any other foreign country, during any of the years in question. The income received in each of the taxable years was exclusively from sources within the United States.

Article 11 of the Act of July 15, 1914, of the Republic of France and Article 80 of the Official Journal of the French Republic of October 26, 1926 (which articles are identical in terms), read as follows:

With respect to persons not domiciled in France but having there one or more residences, the taxable income is fixed at a sum equal to seven times the rental value of that or of those residences unless the income received by the taxpayer from property, business or professions situated or carried on in France attains a higher figure, in which event this last mentioned amount shall be the basis of the tax.

Pursuant to the foregoing provisions of the French laws, and in addition to other taxes, the petitioners paid the French Government within the taxable years in question amounts of taxes as follow:

	Hugh C. Wallace	Mildred F. Wallace
1923	$674.45	$674.44
1924	4,565.32	4,565.32
1625	3,240.52	3,240.52
1926	4,807.74	4,807.73

The foregoing amounts of taxes paid by petitioners to France were allowed by the Commissioner as deductions from gross income in determining petitioner's deficiencies in tax.

It is agreed by petitioners and the Commissioner that if this Board should decide that the aforesaid amounts should be credited against the taxes due by the petitioners to the United States, then and in that event the taxable income of each of said petitioners for the respective years should be increased by the amounts of the said deductions from gross income and that any additional deficiencies resulting from said increases may be redetermined by the Board without further claim therefor on the part of the Commissioner.

OPINION.

LITTLETON: The petitioners, for the taxable years in question, paid taxes to the Republic of France as indicated in our findings of fact, and contend that the taxes so paid are income taxes and should be allowed as credits against income taxes due the United States for the same respective years, and not simply allowed as deductions from gross income in determining petitioners' taxable net income.

The Commissioner insists that the taxes so paid France are not income taxes and for that reason may not be deducted as a credit against the taxes paid by petitioners to the United States during the taxable years in question. The Commissioner further insists that petitioners having derived no income from sources without the United States during the taxable years, are not entitled to credit the taxes then paid by them to the French Government, against the taxes due the United States, even though the taxes so paid the French Government are, in fact, income taxes.

We are of the opinion, and so hold, that taxes paid to the Republic of France for the years in question are income taxes as that term is used in section 222 of the revenue acts.

We are of the opinion, however, that the petitioners are not entitled to credits against income taxes due the United States as claimed by them, because petitioners received, during the taxable years involved, no income from sources without the United States. Their stipulation of facts states:

* * * They received no income from property, business or professions situated or carried on in France or in any other foreign country during any of said years and that their entire incomes were received in each of said years exclusively from sources within the United States.

To entitle them to credits as claimed, they must show that they have, for the taxable years, income from sources without the United States, and the proportion which such income bears to their entire net income, and they must further show that the credit for the taxes paid to the Republic of France is not in excess of that same proportion of the tax due the United States.

In reaching this conclusion, it is only necessary to consider sections of revenue acts as follow:

Section 214 of the Revenue Act of 1921 provides:

(a) That in computing net income there shall be allowed as deductions:

* * *

(3) Taxes paid or accrued within the taxable year except (a) income, warprofits, and excess-profits taxes imposed by the authority of the United States, (b) so much of the income, war-profits and excess-profits taxes, imposed by the authority of any foreign country or possession of the United States, as is allowed as a credit under section 222 * * *.

Section 214(a)(3) of the Revenue Acts of 1924 and 1926 is identical with the foregoing provision of the Revenue Act of 1921.

Section 222(a)(1) of the Revenue Act of 1921 provides:

That the tax computed under Part II of this title shall be credited with:

(1) In the case of a citizen of the United States the amount of any income, war-profits and excess-profits taxes paid during the taxable year to any foreign country or to any possession of the United States.

Section 222(a)(1) of the Revenue Act of 1924 provides:

In the case of a citizen of the United States the amount of any income, warprofits and excess-profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States.

Section 222(a)(1) of the Revenue Act of 1926 is identical with the foregoing provision of the 1924 Act.

Section 222(a)(5) of the Revenue Act of 1921 provides:

The above credits shall not be allowed in the case of a citizen entitled to the benefits of section 262; and in no other case shall the amount of credit taken under this subdivision exceed the same proportion of the tax, against which such credit is taken, which the taxpayer's net income (computed without deduction for any income, war-profits and excess-profits taxes imposed by any foreign country or possession of the United States) from sources without the United States bears to his entire net income (computed without such deduction) for the same taxable year.

Section 222(a)(5) of the Revenue Act of 1924 provides that:

The above credits shall not be allowed in the case of a citizen entitled to the benefits of section 262 and in no other case shall the amount of credit taken under this subdivision exceed the same proportion of the tax (computed on the basis of the taxpayer's net income without the deduction of any income, war-profits, or excess-profits tax any part of which may be allowed to him as a credit by this section), against which such credit is taken, which the taxpayer's net income (computed without the deduction of any such income, warprofits, or excess-profits tax) from sources without the United States bears to his entire net income (computed without such deduction) for the same taxable year.

Section 222(a)(5) of the Revenue Act of 1926 is identical with the foregoing provision of the Revenue Act of 1924.

As petitioners received no income from sources without the United States during the taxable years 1923 to 1926, inclusive, their cases do not come within the scope of the provisions of the laws quoted, entitling them to claim the amount of the taxes paid to the Republic of France, during the years 1923 to 1926, inclusive, as a credit against the tax due the United States.

The language of section 222(a)(5) of the Revenue Act of 1921, limits the credit, if any, to which petitioners are entitled to an amount not in excess of the same proportion of the tax against which such credit is taken which the taxpayer's net income (computed without deduction for any income, war-profits and excessprofits taxes imposed by any foreign country or possession of the United States) from sources without the United States bears to his entire net income (computed without such deduction for the same taxable year).

The petitioner's net income from sources without the United States becomes the numerator and their entire net income becomes the denominator of the fraction used in determining the proportion set forth in that section, and in the absence of any numerator to be used in determining the proportion referred to in section 222(a)(5), namely, income from sources without the United States (and as none in the instant case) there is, obviously, no credit that can be allowed by virtue of such provision of said section, and as there is no other provision of the law which authorizes the credit claimed, no credit for the taxes paid by the petitioners to the Republic of France for the taxable years can be allowed as a credit against the income taxes paid the United States during such years, 1923 to 1926, inclusive.

Reviewed by the Board.

Judgment will be entered for the respondent.