T.C. Summary Opinion 2007-115

UNITED STATES TAX COURT

DAVID A. POPPER AND CLAUDETTE B. STULZ, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 23407-05S. Filed July 3, 2007.

David A. Popper and Claudette B. Stulz, pro sese.

Carrie L. Kleinjan, for respondent.

DEAN, Special Trial Judge: This case was heard pursuant to 

the provisions of section 7463 of the Internal Revenue Code. 

Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the year at issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure. Pursuant to section 7463(b), the decision to be

entered is not reviewable by any other court, and this opinion

shall not be treated as precedent for any other case. 
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1Petitioners agree that additional pension and annuity

income of $108 must be included in income for 2003.

Respondent determined for 2003 a deficiency in petitioners’

Federal income tax of $4,271. After a concession by

petitioners,1 the sole issue for decision is whether certain

payments received by Claudette B. Stulz (petitioner) are military

allowances excludable from petitioners’ gross income.

Background

The stipulation of facts and the exhibits received into

evidence are incorporated herein by reference. At the time the

petition in this case was filed, petitioners resided in

Jacobstown, New Jersey.

During 2003 petitioner was retired from the U.S. military

and was not on active duty. She was, however, employed as a

Junior Reserve Officers’ Training Corps (JROTC) instructor for

the Township of Winslow Board of Education (Township). She

performed her JROTC instruction at Winslow Township High School

located at 10 Coopers Folly Road, Atco, New Jersey.

The Township issued to petitioner a Form W-2, Wage and Tax

Statement, reporting wages of $43,466.24. Petitioners failed to

report on their joint Federal income tax return $16,965 of

petitioner’s Township wages under the belief that a portion of

the JROTC instructor wages is nontaxable. The statutory notice

of deficiency issued by respondent determined that all of the
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wages reported by the Township are includable in petitioners’

gross income for the year.

Discussion

Petitioners dispute not the receipt of the contested income,

but rather its characterization as taxable compensation. The

issue for consideration, therefore, is whether the pay that

petitioner received as a JROTC instructor should be treated as

including nontaxable military allowances or whether such pay, as

argued by respondent, was entirely taxable compensation for

services rendered.

The Commissioner’s deficiency determinations are presumed

correct, and taxpayers generally have the burden of proving these

determinations are incorrect. Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933). Under certain circumstances, however,

section 7491(a) may shift the burden to the Commissioner with

respect to a factual issue affecting liability for tax. The

material facts in this case, however, are not in dispute. The

case is decided by applying the law to the undisputed facts, and

section 7491(a) is inapplicable. 

Gross income means all income from whatever source derived.

Sec. 61(a). Military pay received by members of the Armed Forces

is within the scope of section 61(a). See sec. 1.61-2(a)(1),

Income Tax Regs. Congress may, if it chooses, specifically

exempt certain items from gross income. See Commissioner v.
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Glenshaw Glass Co., 348 U.S. 426, 430 (1955). For example,

certain military compensation, such as that received by members

of the Armed Forces serving in combat zones, is excluded from

gross income. Sec. 112. Military subsistence, uniform

allowances, and other amounts received as commutation of quarters

are excludable from gross income. See sec. 1.61-2(b), Income Tax

Regs.

Petitioners contend that the unreported portion of the JROTC

instructor’s pay represents “qualified military benefits” that

are excludable from gross income pursuant to section 134 and 10

U.S.C. section 2031(d) (2000). Petitioners rely on the statutes

and copies of ARMY JROTC Instructor Monthly Statements. The

latter documents calculate petitioner’s pay reimbursed to the

school “on your behalf”. Petitioner argues that the statements

clearly show pay and allowances directly from U.S. Army funds. 

Department of Defense (DOD) Directive No. 1205.13 (Dec. 26,

1995), provides that the total compensation received by a

retiree-instructor is to be equal to the difference between

retired pay and active duty pay plus “allowances” that the

retiree-instructor would receive if ordered to active duty. DOD

Instruction 1205.13, reissued and updated February 6, 2006,

states that for calculating instructor pay, active duty pay is

limited to basic pay and allowances “which the individual would

receive if called to active duty.” DOD Instruction 1205.13,
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E.1.1.2. 

Petitioners propose that 10 U.S.C. sec. 2031(d) establishes

equitable parity in the compensation of retired and active duty

instructors. Petitioners argue for an exclusion from income

equal to the sum of the allowances received by active duty

members of the same rank. Otherwise, the disposable income that

petitioner would receive as a JROTC instructor would be less than

that of an active duty officer performing identical services. 

The issues petitioners raise already have been addressed by

this Court. See Lyle v. Commissioner, 76 T.C. 668 (1981), affd.

without published opinion 673 F.2d 1326 (5th Cir. 1982); Bynam v.

Commissioner, T.C. Memo. 2001-142; Tucker v. Commissioner, T.C.

Memo. 1999-373. 

In Lyle v. Commissioner, supra, the Court held that retired

military personnel may not rely on 10 U.S.C. section 2031(d) to

exclude from income wages received as a JROTC instructor. The

Court found: (1) The plain language of 10 U.S.C. section 2031(d)

does not authorize an exclusion from gross income for amounts

paid to JROTC instructors not on active duty; and (2) JROTC

instructors are employed by the local school district and are

paid for services, partly funded by the Federal Government,

rendered to that school district. 

Petitioner received in 2003 her regular retired pay to which

she was entitled whether or not she performed any services. She
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received no other compensation or allowances from the Federal

Government. Although it is true that the Federal Government

reimburses school districts for one-half of the “additional

amount” paid to retired members, the ultimate burden of

disbursing funds and establishing compensation scales lies with

the employing school. See 10 U.S.C. sec. 2031(d)(1); Lyle v.

Commissioner, supra at 674; Tucker v. Commissioner, supra. The

employing institution is responsible for issuing compensation

checks and Forms W-2 to all of its employees. 

Because the Federal Government does not assume any kind of

employer status, no portion of the compensation that petitioner

received as a JROTC instructor could be classified as a

subsistence, quarters, or variable housing allowance from the

Armed Forces. Lyle v. Commissioner, supra at 674. The statutory

provision, in conjunction with the implementing directives issued

by DOD, establishes a formula for computing the minimum

“additional amount” of compensation retired military instructors

are entitled to receive from the employing school and the maximum

portion of such “additional amount” that will be reimbursed by

the Federal Government. Id. at 675. The “additional amount” is,

in effect, an inducement offered to persuade retired personnel to

accept employment as JROTC instructors. Id. at 676. Active duty

pay is merely a guideline in determining the level at which JROTC

instructors are to be compensated. 
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In Lyle v. Commissioner, supra at 674-675, the Court

explained why retired members serving as JROTC instructors do not

receive nontaxable “allowances”. Only members of the military

who are entitled to receive “basic pay” are entitled to an

allowance for subsistence, in lieu of meals in kind, and a basic

allowance for quarters, unless quarters provided by the military

are occupied by the member. See 37 U.S.C. secs. 402 and 403

(2000). Petitioner did not qualify for these allowances because

she did not receive “basic pay”. She did not receive “basic pay”

because she was not on “active duty”. See 37 U.S.C. sec. 204

(2000). Petitioner was not on “active duty” because, as a

retired military JROTC instructor, she “is not, while so

employed, considered to be on active duty or inactive duty

training for any purpose.” 10 U.S.C. sec. 2031(d)(2).

Petitioners object to the Court’s “reliance” on the language

of 10 U.S.C. section 2031(d)(2). They argue that the provision

is in contravention of other Federal rules. Petitioners produced

a memorandum dated September 9, 1993, from the Department of the

Army serving notice that retired military are allowed to use

“government housing”. They contend that this proves petitioner

is on “active duty” and entitled to allowances. 

In Army Regulation (AR) 210-50 (revision effective March 26,
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2AR 210-50 was revised as of October 3, 2005. The substance

of the revised regulation is the same. See AR 210-50, 3-3

(Eligibility for family housing), 3-33 (Assignment of housing to

civilian employees), 3-34 (Assignment of housing to foreign

military personnel).

1999)2, par. 3-40, Authority to Occupy Army Lodging Facilities,

“When space is available,” however, it states that paid retirees

may occupy UPH(TDY) (unaccompanied personnel housing, temporary

duty) or GH (guest housing) facilities. On equal footing with

paid retirees for such housing on a space available basis are

certain employees of the U.S. Public Health Service, National

Oceanographic and Atmospheric Administration, and foreign

military personnel. Surely, petitioners would not argue that the

provision means that those Federal employees and foreign military

personnel are on active duty with and are entitled to allowances

from the U.S. Army. There is no connection between the

availability of housing and the operation of 10 U.S.C. sec.

2031(d)(2).

Petitioners have failed to take note of a more relevant

provision. Army Regulation (AR) 145-2, Junior Reserve Officers'

Training Corps Program, Organization, Administration, Operation,

and Support (revision effective March 24, 2000), par. 4-20,

states that “Although an instructor may receive an amount ‘equal’

to the military pay and allowances he or she would receive if on

active duty, the payments he or she receives are not, in fact,

military pay and allowances paid by the Army.”
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In their oral and written presentations to the Court,

petitioners evince a belief that the statutory interpretations as

expressed in the Court’s opinions cited above are incomplete. 

According to petitioners, the opinion of the Court in Lyle did

not take into consideration that a JROTC instructor has a “dual

relationship” with the Army and the school. The Court, however

did address this issue in Lyle v. Commissioner, 76 T.C. at 674. 

There the Court notes that:

 Although the Federal Government reimburses the school

districts for one-half the “additional amount” paid to the

retired officers, the responsibility for disbursing these

funds and determining the ultimate amount of the retired

officers’ compensation rests with the employing school.

Since the school, and not the Federal Government, is the

employer, it is difficult to see how any compensation

petitioner received from the school could be considered a

subsistence or quarters allowance received from the Federal

Government. We find that while petitioner served as a Junior

ROTC instructor, his sole employment relationship was with

the Ector County School District and that he did not receive

any nontaxable quarters or subsistence “allowances” from the

district. 

Cadet Command Regulation (CCR) 145-2, par. 4-4 (May 1,

2006), submitted as evidence by petitioners, comports with the

finding of the Court in Lyle. That provision states that the

“school or school board is the employing agency of all JROTC

personnel” and that the Army will reimburse the school in

accordance with AR 145-2. According to the regulation, although

the Army is restricted in the amount it can reimburse the school

or school board, the school or school board is not restricted in

the amount it can pay a JROTC instructor.
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Petitioners may be unaware of two Federal District Court

opinions issued before this Court’s decision in Lyle. In Scott

v. United States, 33 AFTR 2d 74-858, 74-1 USTC par. 9281 (D.S.C.

1973), the District Court found that 10 U.S.C. section 2031

merely sets out a formula to calculate the salary of retired

members serving as JROTC instructors. It further found that

military “allowances” are payable only to members entitled to

“basic pay”, only active duty members are entitled to basic pay,

and that the taxpayer, retired from the military, was not on

active duty while serving as a JROTC instructor. The decision by

the Federal District Court in Sweeney v. United States, 34 AFTR

2d 74-5700, 74-2 USTC par. 9672 (N.D. Ga. 1974), discusses

favorably and is in accord with Scott. See also Tucker v.

Commissioner, T.C. Memo. 1999-373 (even where 100 percent of

taxpayer’s salary was reimbursed under special condition by the

Federal Government, JROTC salary not excludable). Petitioners

have pointed to no court decision to support their position.

In view of the foregoing, the Court holds that no portion of

the JROTC pay that petitioner received from the Township is

excludable from gross income.
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The Court has considered all of the other arguments made by

petitioners, and, to the extent not specifically discussed 

above, the Court concludes those arguments are without merit. 

To reflect the foregoing,

Decision will be entered

for respondent.