Boyer v. Commissioner

S. E. Boyer, Petitioner, v. Commissioner of Internal Revenue, Respondent

Boyer v. Commissioner

Docket Nos. 12479, 12480, 12481

United States Tax Court

9 T.C. 1168; 1947 U.S. Tax Ct. LEXIS 8;

December 19, 1947, Promulgated

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Decisions will be entered for the respondent.

Petitioner not entitled to a deduction for a claimed loss.

Edward V. Dunklee, Esq., for the petitioner.

Harlow B. King, Esq., for the respondent.

Tyson, Judge.

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TYSON

The respondent determined income tax deficiencies against the petitioner in the amounts of $ 129.29, $ 213.48, and $ 297 for the calendar years 1943, 1944, and 1945, respectively. The proceedings have been consolidated.

The sole issue is whether the respondent erred in failing to allow a loss claimed by petitioner to have been sustained by him in each year while he was serving as an officer of the United States Army in the European theatre of operations by reason of his receiving a portion of his compensation in that capacity while overseas in foreign currency at "controlled" rates of exchange, instead of at "free" rates of exchange.

FINDINGS OF FACT.

Petitioner, an individual, who resides in Casper, Wyoming, filed his income tax returns for the years involved with the collector of internal revenue for the district of Wyoming. The returns were prepared and filed on the cash basis.

From June 1942 to October 31, 1945, petitioner served as an officer in the United States Army. Prior to August 25, 1943, he was a captain; from that date to August 31, 1944, he was a major; and from September 1, 1944, to October 31, 1945, he was a lieutenant colonel. From August 17, 1942, to December 5, 1944, he was stationed and served in England and from the latter date of October 31, 1945, he was stationed and served in France.

As an officer, petitioner received a salary which varied, depending on his rank, and he also received certain amounts for subsistence and quarters, varying with his rank. From the total amounts received by petitioner he made allotments to his wife, who was living in the United States, and he withdrew the balance himself while overseas. The amounts of petitioner's salary, allowances for subsistence and quarters, allotments, and withdrawals while overseas were as follows:

		Allowance		Allotments
Year	Salary	for subsistence	Total	paid	Withdrawals
		and		petitioner's	overseas
		quarters		wife
1943	$ 2,769.05	$ 1,728.00	$ 4,497.05	$ 2,900.40	$ 1,696.65
1944	3,520.00	2,076.00	5,596.00	2,900.40	2,695.60
1945	3,375.00	1,830.00	5,205.00	2,553.00	2,652.00

The "allowance for subsistence and quarters" was paid petitioner in addition to his compensation and in lieu of meals, quarters, and uniforms at Government expense.

All payments reflected in the above schedule were made in United States currency, except the amounts petitioner withdrew overseas. Those withdrawals were actually made through payments by the United States Government in British pounds or French francs, depending upon the country in which petitioner was stationed at the time those payments were made. The payments in foreign currency were made at the official, or controlled, rate of exchange which existed in England and France at such times and petitioner was compelled to accept such payments. The official, or controlled, rate in England at those times of the pound sterling was one pound for $ 4.035 United States currency, and the official, or controlled, rate in France was one franc for $ 0.02 United States currency. The official, or controlled, rates of exchange in England and France were higher during the years petitioner was in those countries than the free, or open market, rates. The free rates in both England and France were subject to constant fluctuations, but they were approximately one pound for $ 2.75 of United States currency during the time petitioner was stationed in England and approximately one franc for $ 0.0085 of United States currency while petitioner was stationed in France. Petitioner used all the moneys which he withdrew while overseas as shown by the above tabulation to pay for his meals, quarters, uniforms, and "quite a bit" for entertainment of British and French.

In petitioner's income tax returns for 1943, 1944, and 1945 he reported his income on the basis of including in gross income the respective amounts of $ 4,497.05, $ 5,596, and $ 5,205 shown by the tabulation in our findings to be the total compensation received by him in the respective years from the United States Government, and he claimed deductions for "loss on foreign exchange" in the respective amounts of $ 540.32, $ 928.08, and $ 1,134.17. The deductions were disallowed by the respondent and the deficiencies involved were determined as a result thereof.

OPINION.

Because petitioner was compelled to make his "withdrawals overseas" at the "controlled" rates of exchange instead of being allowed to make those withdrawals at the "free" rates of exchange obtaining in England and France, as the case might be, he claims that he has sustained losses at a rate represented by the difference between those rates of exchange -- the free rates requiring lesser amounts in United States currency to purchase British or French currency than did the controlled rates.

Throughout his service in England, and by reason of the controlled rate of exchange between British currency and that of the United States, petitioner was paid by the United States one British pound for every $ 4.035 in United States currency which he would have been paid had he been stationed in the United States or in any other country, if there were such, where no rate of exchange as to United States currency obtained.

Throughout his service in France and by reason of the controlled rate of exchange between the currency of that country and that of the United States, petitioner was paid by the United States Government one franc for every $ 0.02 in United States currency which he would have been paid had he been stationed in the United States or in any other country, if there were such, where no rate of exchange as to United States currency obtained.

There has been no suggestion by petitioner that payments to him in British pounds and in French francs at the respective controlled rates of exchange were beyond the right of the United States to make. His contention is merely that, the United States having so made such payments, a statutory loss was occasioned him, apparently basing his contention solely upon the application of section 23 (e) (3) of the Internal Revenue Code. ¹

In view of the recited facts, we conclude that the respondent did not err in failing to allow deductions of the losses claimed. The mere fact that petitioner was paid for his services in part in foreign currency does not mean that he sustained statutory losses. It is not a transaction which in itself gives rise to such a loss.

The real problem in such a case as this, it seems to us, is one of gross income rather than of deductions from gross income. The principle is established that, where one has received a part of his income in foreign currency, it must be reported for taxation in terms of United States money. Frank W. Ross, 44 B.T.A. 1, 18. Thus, the question is what measure is to be used to express the foreign currency in terms of United States dollars.

In his returns the petitioner used the official or controlled rates of exchange to report, in dollars, that part of his compensation which he actually received in British pounds and French francs, and on this record we are unable to say that he erred in so doing. The petitioner has not proved that he could realize no more than $ 2.75 for each pound he received and no more than $ 0.0085 for each franc he received. On the contrary, the evidence would indicate that upon leaving Britain he could redeem or exchange his pounds at the full official rate of $ 4.035, and upon leaving France he could exchange his francs at the official rate of $ 0.02. Therefore, regardless of whether the "official" rate of exchange must in every case be used to express in dollars the amount of taxable income received in a foreign currency (see Mim. 5297, 1942-1 C. B. 84), the respondent should in this case be sustained.

Decisions will be entered for the respondent.

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Footnotes

• 1. SEC. 23. DEDUCTIONS FROM GROSS INCOME.

  In computing net income there shall be allowed as deductions:

  * * * *

  (e) Losses by Individuals. -- In the case of an individual, losses sustained during the taxable year and not compensated for by insurance or otherwise --

  * * * *

  (3) of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from theft. No loss shall be allowed as a deduction under this paragraph if at the time of the filing of the return such loss has been claimed as a deduction for estate tax purposes in the estate tax return.↩