Commissioner of Internal Revenue v. Fiske's Estate , 128 F.2d 487 ( 1942 )

KERNER, Circuit Judge.

W. M. L. Fiske, a citizen of the United States, was vice-president of Dillon, Read & Company, investment bankers, from 1922 until his death in New York City on October S, 1940. He resided in Chicago, Illinois, from 1906 until 1924, when he went to Paris, France, to take charge as manager of the Company’s Paris office. His wife, son, and daughter accompanied him and there they resided in an apartment which he furnished under leases for terms of three or more years. The daughter returned to the United States after her marriage in 1929. The son, after graduating from college in 1930, worked in the New York and London offices of Dillon, Read & Company.

Fiske made four trips to the United States while residing in France. On the first three he arrived for the Christmas season, and returned in January or February. Early in December, 1935, he and his wife came to visit their daughter at San Mateo, California, where the daughter had leased for them, for three months, a furnished house. They intended to return to Paris at the end of that period. In January, 1936, Fiske became ill, and was forced to go to a hospital for treatment for several weeks. Thereafter, until October, 1936, he was cared for in the house at San Mateo, when he left for New York intending to sail for France. Upon his arrival in New York he had a recurrence of the illness and was not able to return to Paris until March, 1937. Upon his return to Paris, he resumed and continued his duties as manager until May, 1940, when he was forced to leave because of the German invasion.

While away from the United States Fiske used a United States passport. In his application for a passport in November, 1936, he stated that he was domiciled in the United States and that his permanent residence was 134 South LaSalle Street, Chicago, Illinois.

While sojourning in California, the apartment in Paris was ready for occupancy, his servants living therein. In August, 1940, he decided to reside permanently in the United States and made plans to have his household furnishings removed from France.

During his stay in the United States from December, 1935, to March, 1937, he was completely incapacitated, continually under the care of physicians, and performed no service for Dillon, Read & Company, but was paid $37,400 as salary for the year 1936.

Fiske, in his income tax return for the year 1936, did not include the $37,400 received as salary. The petitioner, as Commissioner of Internal Revenue, determined that this income was taxable to Fiske and found a deficiency in taxes against him. Respondent, as executor of the last will and testament of W. M. L. Fiske, deceased, filed a petition to review the Commissioner’s determination. The Board of Tax Appeals held that Fiske was a bona fide nonresident of the United States during all of the year of 1936, and that the amount in question was paid to him as compensation for personal services actually rendered outside of the United States and was exempt from taxation.

The question is whether Fiske’s salary for 1936 was subject to the payment of an income tax.

Before discussing the cases claimed to he applicable, it is well that we dispose of respondent’s contention that the conclusion of the Board that Fiske was a bona fide nonresident of the United States during 1936 is not reviewable here, since that represents a finding of fact.

In- our case, the facts are not in dispute, and the problem is one of construction. In such situations, the courts have repeatedly held that where the ultimate finding is a conclusion of law or at least a determination of a mixed question of law and fact, it is subject to judicial review. Bogardus v. Commissioner, 302 U.S. 34, 39, 58 S.Ct. 61, 82 L.Ed. 32, and Deputy v. Du Pont, 308 U.S. 488, 499, 60 S.Ct. 363, 84 L.Ed. 416.

By § 116(a) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Code § 116(a), Congress granted an exemption from gross income to an individual citizen of the United States who is a bona fide nonresident of this country for more than six months during the taxable year, for amounts received from sources without the United States (except amounts paid by the United States or any agency thereof) if such amounts would constitute earned income as defined in § 25(a).

Deductions from gross income are allowed as a matter of legislative grace, White v. United States, 305 U.S. 281, 292, 59 S.Ct. 179, 83 L.Ed. 172, and are strictly and narrowly construed, Pacific Co. v. Johnson, 285 U.S. 480, 491, 52 S.Ct. 424, 76 L.Ed. 893; Helvering v. Northwest Steel Mills, 311 U.S. 46, 49, 61 S.Ct. 109, 85 L.Ed. 29; and United States v. Stewart, 311 U.S. 60, 71, 61 S.Ct. 102, 85 L.Ed. 40. In construing a claimed exemption, we must consider the objects and purposes of the statute and give it such a construction as will carry out the true intent and meaning of Congress, Helvering v. New York, etc., Co., 292 U.S. 455, 54 S.Ct. 806, 78 L.Ed. 1361, and in so doing the legislative history and the - administrative practice are factors to be considered. United States v. Dakota-Montana Oil Co., 288 U.S. 459, 53 S.Ct. 435, 77 L.Ed. 893.

It is agreed that § 116(a) was intended to stimulate foreign trade, and to relieve our citizens resident in foreign countries, engaged there in the promotion of American foreign trade for more than six months of the taxable year, from tax upon the income which they earned in the foreign country. In construing the phrase “bona fide nonresident of the United States for more than six months during the taxable year,” the Bureau of Internal Revenue¹ has interpreted it as applying to any American citizen actually outside the United States for more than six months during the taxable year, and this construction finds support in the legislative history of the act.²

Respondent claims that Paris was Fiske’s bona fide residence and that when he came to the United States in 1935 he had an intention to return to Paris, which intention remained with him until his return to Paris in March, 1937.

Residence is the place of abode, whether permanent or temporary, Penfield v. Chesapeake, etc., Co., 134 U.S. 351, 356, 357, 10 S.Ct. 566, 33 L.Ed. 940, a physical fact, Matter of Newcomb’s Estate, 192 N.Y. 238, 84 N.E. 950, 954, and means where a man abides or lives, Hunter v. Bremer, 256 Pa. 257, 100 A. 809, 811, Ann. Cas. 1918A, 152, and so applying the tests enumerated in the cases cited, we believe that Congress was not concerned with the question where a taxpayer had his permanent residence, but rather intended the act to apply to any American citizen actually outside of the United States for more than six months during the taxable year, engaged in the promotion of American foreign trade, and it is no answer to say that it was at all times Fiske’s intention to return to Paris and that he was prevented from carrying out this intention because of illness, cf. District of Columbia v. Murphy, 314 U.S. 441, 62 S.Ct. 303, 86 L.Ed. -. See also State of Texas v. State of Florida, 306 U.S. 398, 424, 425, 59 S.Ct. 563, 83 L.Ed. 817, 121 A.L.R. 1179.

We now consider respondent’s contention that the salary paid to Fiske was exempt because it was a payment for services rendered without the United States.

The Board found that Fiske was paid his salary for the year 1936. It also found that Fiske “performed no service of any kind for Dillon, Read & Co. during that year.” The Board, however, made no finding as to where the compensation was received. Of course, we have not the power to make a finding on that question, even if it is apparent from the general findings that the salary was received in the United States from an American firm resident in New York, Helvering v. Rankin, 295 U.S. 123, 131, 55 S.Ct. 732, 79 L.Ed. 1343 and Helvering v. National Grocery Co., 304 U.S. 282, 294, 58 S.Ct. 932, 82 L.Ed. 1346.

Section 119(c) (3) of the Revenue Act of 1936, c. 690, 49 Stat. 1648, 1693, 26 U.S. C.A. Int.Rev.Code, § 119(c) (3), defines income from sources without the United States as compensation for personal services performed without the United States. Therefore, as we view the case, the question is whether Fiske received the salary as compensation for personal services performed without the United States.

In support of its contention respondent cites Muhleman v. Hoey, 2 Cir., 124 F.2d 414, holding that the amount received was under the statute, income from sources without the United States. That case is no support to respondent’s contention, since the amount paid to the taxpayer in-that case was paid to him while he resided in London, England, and for services performed while a resident of London. It is clear before the respondent may claim as exempt the amount received by Fiske, the income must be “for personal services performed without the United States during the taxable period,” and the burden of proving that fact devolved upon the respondent, Helvering v. Taylor, 293 U.S. 507, 514, 55 S.Ct. 287, 79 L.Ed. 623. This it failed to prove.

The order of the Board of Tax Appeals is reversed and the proceeding remanded, with instructions to compute the income taxable to the taxpayer and determine the deficiency in accordance with the views expressed in this opinion.

1 Gr.C.M. 9848, X-2 Cum.Bull. 178, 179 (1931).

2 House Rep. No. 1. 69th Cong. 1st Sess. p. 7. Sen.Rep. No. 32, 69th Cong. 1st Sess. pp. 20-21. House Conf.Rep. No. 356, 69th Cong. 1st Sess, p. 33.