Nielsen v. Comm'r , 2007 Tax Ct. Summary LEXIS 53 ( 2007 )

T.C. Summary Opinion 2007-53
UNITED STATES TAX COURT
JAMES A. NIELSEN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18883-04S. Filed April 2, 2007.
James A. Nielsen, pro se.
Michael W. Bitner, for respondent.
ARMEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time that the petition was filed.1 Pursuant to
section 7463(b), the decision to be entered is not reviewable by
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 2000
and 2001, the taxable years in issue, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
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any other court, and this opinion shall not be treated as
precedent for any other case.
This matter is before the Court on respondent’s Motion For
Summary Judgment, filed December 15, 2006, pursuant to Rule 121.
In his motion, respondent moves for a summary adjudication in his
favor on the substantive issue presented by this case; namely,
whether petitioner is entitled under section 119 to exclude from
gross income the value of lodging provided to him by his employer
during 2000 and 2001. On February 27, 2007, petitioner filed an
Objection to respondent’s motion.
For the reasons discussed below, we shall grant respondent’s
motion.
Background
Petitioner’s Employment
At all times relevant to this case, petitioner was employed
by Raytheon E-Systems, Inc. (Raytheon), an institutional
contractor with U.S. Department of Defense (DOD) agencies.
Raytheon assigned its employees, including petitioner, to work on
specific projects associated with DOD agencies.
During 2000 and 2001, the taxable years in issue, petitioner
was assigned by Raytheon to a position at the Joint Defense
Facility at Pine Gap/Joint Defense Facility at Nurrungar located
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at the United States-Australian Joint Defense Facility at Pine
Gap Air Force Base in Australia (Pine Gap or the base).2
As a condition of his employment with Raytheon at Pine Gap,
petitioner was obliged to accept assigned housing as was required
by the U.S. Department of the Air Force (Air Force) for personnel
working at the base.
Assigned Housing in Alice Springs
The only housing available to petitioner, as a condition of
his employment with Raytheon at Pine Gap, was in Alice Springs,
Australia. Alice Springs, a town of approximately 25,000 people,
is located in the middle of the Northern Territory of Australia
and is surrounded by three deserts. Alice Springs is not within
the physical boundaries of the base but is about 22 miles away.
Apart from a prison located 15 miles from Pine Gap, Alice
Springs is the closest residential area to the base. Similar to
other towns near military installations, the residents of Alice
Springs include both individuals who worked at the base and
individuals who had no employment affiliation with the base. For
those who worked at Pine Gap, transport between Alice Springs and
the base was by public bus or privately owned vehicle.
2
“The defense facility was authorized under a treaty
between the United States and Australia that became effective on
Dec. 9, 1966.” Hargrove v. Commissioner, T.C. Memo. 2006-159
n.9.
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The assigned housing units in Alice Springs were located in
six different sections throughout the town and consisted of
condominiums (generally for people without family members) and
single-family homes (generally for people with family members).
The assigned housing units were not available for private
ownership, and they were made available only to individuals
working at Pine Gap.
The assigned housing units were not in any separately gated
community, and they were located adjacent to housing that was
available to the general public. Services such as trash
collection, sewage, and utilities were provided by Alice Springs,
and the town’s police department provided law enforcement
services. A private company was responsible for maintenance of
the assigned housing units.
The assigned housing unit in which petitioner resided was a
condominium. It was located on a street running through a
residential neighborhood that was accessible by the general
public.
Petitioner did not pay any rent for the assigned housing
unit in which he resided.
Petitioner’s Income Tax Returns
For the taxable year 2000, petitioner received from Raytheon
a Form W-2, Wage and Tax Statement, reporting his wages. Also
for 2000, petitioner received from the Air Force a Form 1099-
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MISC, Miscellaneous Income, reporting nonemployee compensation of
$6,292. The $6,292 represented the value of the lodging
furnished to petitioner.3
Petitioner filed a Form 1040, U.S. Individual Income Tax
Return, for 2000. On his return, petitioner listed his
occupation as “computer operator”, and he reported his wages as
disclosed on his Form W-2 from Raytheon. Petitioner did not,
however, include in gross income the value of the lodging
furnished to him; rather, he attached to his return the following
statement:
The U.S. Airforce issued a form 1099-Misc to me
which is exempt under section 119 of the Internal
Revenue Code. The reason that this income is exempt is
because the housing has been provided for the
convenience of Raytheon and is a condition of
employment for me. I am not including the housing
1099-Misc in the amount of $6,292 for this reason.
For the taxable year 2001, petitioner received from Raytheon
a Form W-2 reporting his wages. Also for 2001, petitioner
received from the Air Force a Form 1099-MISC reporting
3
We note that utilities furnished by an employer to make a
lodging habitable for an employee constitute lodging for purposes
of sec. 119. Turner v. Commissioner, 68 T.C. 48, 50 (1977);
accord Rev. Rul. 68-579, 1968-2 C.B. 61. In the instant case,
the record is not perfectly clear whether the $6,292 included
utilities. Suffice it to say that respondent does not contend
that any amount greater than $6,292 should be included in
petitioner’s gross income.
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nonemployee compensation of $6,380. The $6,380 represented the
value of the lodging furnished to petitioner.4
Petitioner filed a Form 1040 for 2001. On his return,
petitioner listed his occupation as “computer operator”, and he
reported his wages as disclosed on his Form W-2 from Raytheon.
Petitioner did not, however, include in gross income the value of
the lodging furnished to him; rather, he attached to his return a
statement that was substantively identical to the statement that
he attached to his 2000 return.5
Notice of Deficiency
In the notice of deficiency, respondent determined that
petitioner was not entitled to an exclusion under section 119 for
the value of the lodging furnished to him and that petitioner
4
See supra note 3.
5
As previously stated, supra note 2, Pine Gap was
authorized under a treaty between the United States and Australia
that “generally provides for establishing and operating a
facility for general defense research”. Hargrove v.
Commissioner, supra at n.10.
[U]nder the treaty, contractors’ income shall be deemed
not to have been derived in Australia for Australian
tax purposes as long as it is not exempt from and is
subject to tax in the United States. * * * If the
lodging income were exempt from U.S. tax, this
provision would entitle Australia to tax it instead.
Id. In the instant case, there is no suggestion whatsoever in
the record that petitioner filed Australian tax returns or paid
Australian tax on the value of his lodging in Alice Springs. See
Rule 121(d).
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must therefore include in his gross income $6,292 and $6,360 for
2000 and 2001, respectively.6
Petitioner timely filed a petition with the Court disputing
respondent’s deficiency determinations. In the petition,
petitioner contends that he “does not feel the 1099 income
represents taxable income since the housing was for the
convenience of his employer and the U.S. govt.”
Petitioner listed his mailing address as being in
Washington, Missouri, at the time he filed his petition.
Petitioner’s Amended Returns
At about the same time that petitioner filed his petition
for redetermination with the Court, he submitted to respondent a
Form 1040X, Amended U.S. Individual Income Tax Return, for each
of the 2 taxable years in issue.
The Form 1040X for 2000 incorporates a Schedule C, Profit or
Loss From Business. The Schedule C does not identify any
business or profession or any product or service, nor does it
list a business name or address. Rather, it simply reports gross
income of $6,292; i.e., the value of the lodging furnished to
petitioner in 2000 as reported on the Form 1099-MISC issued by
6
The $20 discrepancy between the amount reported by the
Air Force on the Form 1099-MISC, Miscellaneous Income, for 2001
($6,380) and the adjustment in the notice of deficiency for that
year ($6,360) appears to be attributable to a typographical
error. In view of the fact that the discrepancy is both de
minimis and in petitioner’s favor, we shall ignore it in ruling
on respondent’s motion.
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the Air Force for that year, and claims as deductions a total of
$6,650, consisting of (1) $650 for “utilities” and (2) $6,000 for
“operating expenses”. The consequent “net loss” of $358; i.e.,
$6,292 - $6,650, is then set off against petitioner’s previously
reported income, resulting in a claim for refund of $98.
The Form 1040X for 2001 also incorporates a Schedule C.
Again, it does not identify any business or profession or any
product or service, nor does it list a business name or address.
Rather, it reports gross income of $6,360; i.e., virtually the
same value of the lodging furnished to petitioner in 2001 as
reported on the Form 1099-MISC issued by the Air Force,7 and
claims as deductions a total of $7,117, consisting of (1) $817
for “utilities” and (2) $6,300 for “operating expenses”. The
consequent “net loss” of $757; i.e., $6,360 - $7,117, is then set
off against petitioner’s previously reported income, resulting in
a claim for refund of $228.
Discussion
Summary judgment is intended to expedite litigation and
avoid unnecessary and expensive trials. Fla. Peach Corp. v.
Commissioner, 90 T.C. 678, 681 (1988). Summary judgment may be
granted with respect to all or any part of the legal issues in
7
Again, there is a $20 discrepancy between the amount
reported on the 2001 Form 1099-MISC by the Air Force ($6,380) and
the amount reported by petitioner on the Schedule C ($6,360).
See supra note 6.
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controversy “if the pleadings, answers to interrogatories,
depositions, admissions, and any other acceptable materials,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that a decision may be
rendered as a matter of law.” Rule 121(a) and (b); Sundstrand
Corp. v. Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965
(7th Cir. 1994).
After reviewing the record, we are satisfied that there is
no genuine issue as to any material fact, and a decision may be
rendered as a matter of law. Accordingly, we shall grant
respondent’s Motion For Summary Judgment.
A. Section 119 Exclusion
Unless otherwise specifically excluded, gross income
includes all income from whatever source derived, including
compensation for services. Sec. 61(a)(1). Compensation for
services includes income realized in any form, including money,
property, or services. Sec. 1.61-2(d)(3), Income Tax Regs.
Thus, the value of lodging furnished to an employee by his or her
employer is, as a general rule, includable in the employee’s
gross income. Id.
However, under an exception to the general rule, the value
of lodging furnished to an employee by his or her employer may be
excluded from gross income if certain conditions are satisfied.
Sec. 119(a). Thus, to exclude the value of lodging, (1) the
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employee must accept the lodging as a condition of employment,
(2) the lodging must be furnished for the convenience of the
employer, and (3) the lodging must be on the business premises of
the employer. Sec. 1.119-1(b), Income Tax Regs. The exception
to the general rule will not apply, and the value of the lodging
will be included in gross income if the employee fails to satisfy
any of these three conditions. Dole v. Commissioner, 43 T.C.
697, 705 (1965), affd. per curiam 351 F.2d 308 (1st Cir. 1965);
see Commissioner v. Schleier, 515 U.S. 323, 328 (1995) (holding
that exclusions from gross income are construed narrowly).
There is no dispute in this case that a condition of
petitioner’s employment with Raytheon at Pine Gap was
petitioner’s acceptance of assigned housing. There is likewise
no dispute that such lodging was furnished for the convenience of
the employer. At issue is whether the lodging furnished to
petitioner in Alice Springs was on the business premises of the
employer.
Section 1.119-1(c)(1), Income Tax Regs., defines the term
“business premises of the employer” as the place of employment of
the employee. The Court has construed the phrase “on the
business premises” to mean either: (1) Living quarters that
constitute an integral part of the business property, or (2)
premises on which the employer carries on some of its business
activities. See Dole v. Commissioner, supra at 707 (holding that
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employees living in company-owned housing 1 mile from where they
worked did not constitute living on the business premises of
their employer).
In Hargrove v. Commissioner, T.C. Memo. 2006-159, the Court
held that taxpayers who were employed by an American defense
contractor at Pine Gap and who were required, as a condition of
their employment, to reside in assigned housing in Alice Springs
were not entitled to exclude the value of their lodging because
such lodging was not on the business premises of the employer.
Although the taxpayers in the Hargrove case were employees
of TRW Overseas, Inc. and not Raytheon, we regard that
distinction as one without a difference. However, because the
“camp” provisions of section 119(c) were not expressly discussed
in that case, we shall consider that section.8
Section 119(c)(1) provides that if “an individual * * * is
furnished lodging in a camp located in a foreign country by or on
behalf of his employer, such camp shall be considered to be part
8
We are aware of no case discussing the “camp” provisions
of sec. 119(c) other than Johnson v. Commissioner, T.C. Memo.
1983-479 n.3, which case involved taxable years preceding the
effective date of sec. 119(c), and Abeyta v. Commissioner, T.C.
Summary Opinion 2005-44. In the latter case, the Court held that
a software engineer who was employed by an American defense
contractor at Pine Gap and who was required, as a condition of
his employment, to reside in assigned housing in Alice Springs
was not entitled to exclude the value of his lodging because,
inter alia, such lodging was not in a camp. But see sec.
7463(b), restricting the treatment of a small tax case as a
precedent for any other case.
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of the business premises of the employer.” In turn, section
119(c)(2) provides that a “camp” constitutes lodging that is:
(A) provided by or on behalf of the employer for
the convenience of the employer because the place at
which such individual renders services is in a remote
area where satisfactory housing is not available on the
open market,
(B) located, as near as practicable, in the
vicinity of the place at which such individual renders
services, and
(C) furnished in a common area (or enclave) which
is not available to the public and which normally
accommodates 10 or more employees.
Respondent does not dispute that the requirements of section
119(c)(2)(A) and (B) are satisfied in the instant case. However,
respondent contends that petitioner’s lodging did not constitute
a “camp” within the meaning of section 119(c) because
petitioner’s lodging did not satisfy the third requirement of
section 119(c)(2); i.e., that the lodging be “furnished in a
common area (or enclave) which is not available to the public and
which normally accommodates 10 or more employees.” Sec.
119(c)(2)(C). We agree.
Granted, petitioner’s lodging was not available to the
public in that petitioner’s specific housing unit was not
available for private ownership and its occupancy was restricted
to personnel who worked at Pine Gap. However, the lodging was
furnished in a common area that was accessible to the public, as
demonstrated by the fact that the lodging was located within the
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same community as housing available to the public. The assigned
housing units were interspersed throughout Alice Springs and were
not separated into gated communities.
Section 1.119-1(d)(5), Income Tax Regs., provides that a
cluster of housing units does not satisfy section 119(c)(2)(C) if
it is adjacent to or surrounded by substantially similar housing
available to the general public. Indeed, a public road
accessible to the general public ran through petitioner’s
neighborhood. Moreover, we do not regard living in a residential
suburb as fitting into the common parlance of the term “camp”.
In short, petitioner’s lodging was not in a camp within the
meaning of section 119(c).
B. Deduction of Value of Lodging
Petitioner’s attempt to deduct the value of lodging
furnished to him is unavailing. First, petitioner did not incur
any lodging expense. Second, even if he did, section 262(a)
generally prohibits the deduction of personal, living, or family
expenses. To the extent that section 162(a)(2) may provide a
limited exception to this general prohibition, petitioner was not
traveling while away from his tax home within the meaning of that
section. See generally United States v. Correll, 389 U.S. 299
(1967); Peurifoy v. Commissioner, 358 U.S. 59 (1958);
Commissioner v. Flowers, 326 U.S. 465 (1946).
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C. Conclusion
For the reasons discussed above, we hold that the value of
the lodging furnished to petitioner in 2000 and 2001 is not
excludable from gross income.
Additional arguments advanced by petitioner have been
considered but are without merit and warrant no further
discussion.
To give effect to the foregoing,
An order granting respondent’s
motion and decision sustaining the
deficiencies will be entered.