T .C. Su m m ary Op i n io n 2 01 8 -5 2

UNITED STATES TAX COURT
LARRY L. LEUENBERGER, Pet i t i o n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 2 4 6 34 -1 5 S. Fi l edNo vem b er 8 , 2 0 18
.
Larry L. Leu en b erg er, p ro s e. J o h n W . Sh effi el dIII, an dHu i wen A. Xi , fo r res p o n d en t
.

SUM M ARY OPINION
W ELLS, Ju d g e: Th i s cas e was h eardp u rs u an tt o th e p ro v i s io n s o f s ect i o n 7 4 6 3 1 o f t h e In t ern al Rev enu e Co d e i n effect wh en th e p et it i on was fi l ed
.

1 Al l s ect i o n referen ces are t o th e In t ern al Rev en u e Co d e o f 1 9 8 6 , as am en d edan di n effect fo r th e y ears i n i s su e, u n les s o th erwi s e i n d i cat ed . Al l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re.- 2
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Pu rs u an t t o s ect i o n 7 4 6 3(b ), th e d eci s i o n t o b e en t eredi s n o trev i ewab le b y an y
o th er co u rt , an dth i s o p i ni o n s h al l n o t b e t reat ed as p reced en tfo r an y o th er cas e. Th i s i s a p ro ceed i n g fo r t h e red et erm i n at i o n o f d efi ci en ci es i n i n co m e t ax i n th e am o un t s o f $ 2 0 , 3 7 0 an d$ 9 ,2 94 , an d p en al t i es u n d er s ect i on 6 6 6 2 i n th e
am ou n t s o f $ 4 , 0 7 4 an d$ 1 ,8 5 9 fo r t h e 2 0 1 2 an d2 0 1 3 t ax y ears , res p ect i v el y . Th e
cas e was s ub m i t t edfu ll y

s t i p u lat ed p u rs u an t t o a jo i n tm o ti o n fo r l eav e t o s ub m i t
cas e u n d er Ru l e 1 2 2 , fi l edSep t em b er 2 5 , 2 0 1 7 . Aft er co n ces s i o n s 2 th e i s su es we
m u std eci d e are wh et h er p et it i on er i s en t it l edt o a fo rei g n earn edi n co m e ex cl u s i o n fo r t ax y ears 2 0 12 an d 2 0 13 an dwh et h er h e i s s ub jectt o accu racy -rel at ed p en al t i es . Pet i t i o ner res i d edi n Van co u v er, W as h i ng t o n , wh en h e fi l edth e p et i t i o n . Back gro u n d In 2 0 1 2 an d2 0 1 3 p et i t i o n er wo rk ed fu ll t i m e as an ai rcraft cap t ai n fo r Berry Av i at i o n , In c. (BerryAv i at i o n ). 3 Du ri n g thatt i m e BerryAv i at i o n s up p o rt ed
m u lt i p l e Dep art m en to f Defen se co n tract s rel at edt o Op erat i o n En du ri n g Freed o m

2 Pet i t i o n er co n ced es an i n creas e i n i n co m e fo r t h e t ax ab l e y ear 2 0 1 2 i n th e fo rm o f t ax ab l e qu al i fi edd i v i d en d s o f $ 1 6 an do rd i n ary d i v i d en d s o f $ 9 7 4
. Pet i t io n er al s o co n ced es an i ncreas e i n i n co m e fo r t h e t ax ab l e y ear 2 0 1 3 i n th e fo rm o f t ax ab l e qu al i fi edd i v i d en d s o f $ 3 8 an dt ax ab l e o rd i n ary d i v i d en d s o f $ 4 5 6
. 3 BerryAv i at i o n m ai n t ai n edi t s p ri n ci p al p l ace o f b us i n es s i n San M arco s , Tex as .- 3
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i n Afg h an i s t an an do th er reg i o n s . Pet i t i o n er, a U.S. ci t izen , wo rk edfo r Berry Av i at i o n as an au th o ri zedco n tract o r p i l o t i n g a Deh av i l an dDHC-8 ai rcraft i n
s up p orto f t h e U.S. Arm edFo rces . Pet i t i o ner’ s em p l o ym en t o ffer l et t er s t at edth at

“ a t y p i cal ro tat i o n fo r * * * [p et i t i o n er’ s ] as s i g n m en twi l l res em b l e 6 0 d ay s o n an d 6 0 d ay s o ff.” Du ri n g 2 0 1 2 an d2 0 1 3 p et i ti o ner s pl i th i s t i m e i n ro t at i o n al s hi ft s b et ween th e Un i t edSt at es an dBag ram Ai r Bas e i n Afg h an i s t an . In2 0 1 2 p et i t i o n er wo rk ed
o u t s i d e t h e Un i t edSt at es fo r 1 7 3 d ay s, an di n 2 0 1 3 fo r 2 0 3 d ay s . 4 Wh en o n d ep lo ym en t , p et i t i o n er was fu rn i s h edg o v ern m en tal h o u si ng , m eal s , an d tran s po rt at i o n , am o n g o th er s erv i ces . Duri n g p et it i on er’ s t i m e i n Afg h an i st an , Bag ram Ai r Bas e was s u s cep ti b l e t o reg u l ar h o st i li t ies o r at t ack s . Pet i t i o n er was
n o tarm edo r trai n edt o d efen d h i m s el f fro m s u ch at t ack s , n or was h e t rai n edt o
co p e wi th t h e p h y s i cal an d m en t al s trai n s o f ex t en d edex p os u re t o h os t i l i t i es . Al th o u g h p et i t i o n er d i dn otg o o u ts i d e o f Bag ram Ai r Bas e b ecau s e o f t h e h o s t i l e
en v iro n m en t , h e was n ev ert h el es s ex p o s edt o h o s ti l i t i es . Fo r ex am p l e a ro ck et

4 Duri ng 2 01 2 p et i t i o n er t rav el ed i n an do u to f t h e Un it ed St at es t o wo rki n Afg han i s t an du ri n g th e fo l l owi n g th ree p eri o d s : Feb ru ary 1 6 t o M arch 2 9 (4 3 d ay s ); M ay

2 5 t o J u l y

2 7 (6 4 d ay s ); an d Sep t em b er 2 0 t o No v em

b er 2 4 (6 6 d ay s ). Du ri n g 2 0 1 3 p et i t i o n er o n ce ag ai n trav el edfo r t h ree p eri od s t o h i s s t at i o n i n Afg han i s t an : J an u ary

1 9 t o M arch 2 5 (6 6 d ay s); M ay 1 4 t o J ul y

2 5 (7 3 d ay s ); an d Sep tem b er 2 1 t o No vem

ber 2 3 (6 4 d ay s ).- 4
-

l an d ed1 5 feetfro m

the b arrack s wh ere p et i t i o ner an ds ev eno th er crew m em b ers
s l ep t , an do n e o f p et i ti o n er’ s crew m em b ers wi tn es s edex t en s i v e s m al l arm s tracer
ro u n ds fi redo ff t h e l efts i d e o f an ai rcraft wh i l e l an d i n g atan o u t s tat i on . Th ro u g h o u t2 0 1 2 an d2 0 1 3 p et i t i o n er m ai n t ai n eda res i d en ce i n the Un i t ed St at es i n Van co u v er, W as h i n g to n . 5 Du ri n g th es e y ears p et i t i o n er h adfam i l y i n th e Un i ted St at es , o wn edan dreg i s t ered th ree v eh i cl es i n the St at e o f W as h i n g t o n , 6 h ad b an k i n g acco u nt s atW el l s Farg o Ban k , an dm ai n t ai n edb ro k erag e an d ret i rem en tacco u n t s atFi rs tTru s tCo . o f On ag a, J ack s on Nat i o n al Li fe In s u ran ce Co ., an dPers h i n g , LLC. In2 0 1 3 p et i t io n er al s o o wn edan d m ai n t ai n eda
res i den t ial ren t al p ro p ert y i n Lak e St ev en s , W as h in g t o n , an da res i d en t ial co m p lex i n M o n ro e, W as hi n g t o n . Pet i t i o ner t i m el y

fi l eda Fo rm

1 0 4 0 , U.S. In d i v i du al In co m e Tax Retu rn , fo r each o f t h e t ax ab l e y ears 2 0 1 2 an d2 0 1 3, s h o wi n g t o t al t ax i n th e am o u nto f $ 1 ,2 9 8 an d$ 1 9 ,4 7 3 , res p ect i v el y . He at t ach edFo rm s 2 5 5 5 , Fo rei g n Earn ed

5 Pet i t i o n er’ s Let t ers o f Au th ori zat i o n fro m th e Dep art m en to f Defen s e, au th o ri zi n g h i s d ep lo ym en t as a co n tract o r acco m p an y i n g th e U.S. Arm edFo rces , d at edM ay

2 4 , 2 0 1 1 , M ay

1 8 , 2 0 1 2 , an dM ay

1 6 , 2 0 13 , l i s tp et i t i o n er’ s “ h o m e ad dres s ” as b ei n g i n M i l wau k ee, W i s co n s i n . Fo r p u rp o s es o f t h i s o p in i o n th e rel ev an t fact i s th atb o th th e W as h i n g to n an d W i s co n s i n ad dres s es were wi th i n th e Un i ted St at es .

6 Pet i t i o n er o wn edan dreg i st ereda 2 00 7 Ni tro m ari n e t rai l er, an o ran g e 2 0 0 5 Harl ey -Dav i d so n , an da wh i t e 2 0 0 6 Do d ge Ram crew p i ck

up .- 5
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In co m e, t o th e 2 0 1 2 an d2 0 1 3 t ax retu rn s , ex cl u d in g wag e i n co m e o f $ 9 5,1 0 0 an d $ 5 2 ,9 4 8 , res pect i vel y . Up o n ex am i n at i o n res p o n d en ti s s u edp et i t i o ner a n o t i ce o f d efi ci en cy

d at edJ u n e 2 6 , 2 0 1 5 , d i s al l o wi n g th e en t i ret y o f t h e fo rei g n earn ed i n co m e ex cl u s i o n p et i t i o n er cl ai m edfo r 2 0 1 2 an d2 0 1 3 . OnSep t em b er 2 3 , 2 0 1 5 , p et i t i o n er m ai l edh i s p et i t i o n . Di s cu ss i o n W e h av e ju ri s d i ct i o n o v er t h e i n s t an td efi ci en cy cas e p u rs u an tt o s ect i o n 6 2 1 3 (a). Res p o n d en t’ s d et erm i n at i o n o f a d efi ci en cy i s en t it l edt o a p res u m

p t i o n
o f co rrect n es s , an d p et i ti o ner b ears th e b u rd en o f p ro v i n g res p o nd en t ’ s d et erm i n at i o n i s erro neo u s . See Ru l e 1 4 2 (a); W el ch v . Hel v eri n g , 2 9 0 U.S. 1 1 1 , 1 1 5 (1 93 3 ). Pet i ti o ner d o es n o tco n t en d , an dres p o n den th as n o tco n ced ed , th at th e b u rd en o f p ro o f h as s h i ft edp u rs uan tt o s ect i o n 7 4 9 1 (a). Sect i o n 6 1 (a) p ro v i d es th atg ro s s i n co m e m ean s “ al l i n co m e fro m wh at ev er
s o u rce d eri v ed ”. Ci t i zen s o f t h e Un i t ed St at es are t ax edo n thei r wo rl dwi d e i n co m e u n l es s a s p eci fi c ex cl u si o n ap p l i es . Sp eck i n g v . Co m m i s si o n er, 1 1 7 T.C. 9 5 , 1 0 1 -1 0 2 (2 0 0 1), an d aff’ ds ub n o m . Um b ackv . Co m

m is si o n er, 3 5 7 F.3 d1 1 0 8 (1 0 th Ci r. 2 0 0 3 ), aff’ d s ub n om . Haes s l y v . Co m m is si o n er, 6 8 F. Ap p ’ x 4 4 (9 th Ci r. 2 0 03 ). Ex cl u s i o n s fro m i n co m e are co ns tru edn arro wl y , an d t ax p ay ers m u s t b ri n g th em s el v es wi thi n th e cl ear s co p e o f t h e ex cl u s i o n . Arn et tv . Co m m i s s i o n er,- 6
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1 2 6 T.C. 8 9 , 9 1 -9 2 (2 0 0 6 ), aff’ d , 4 7 3 F.3 d 7 9 0 (7 th Ci r. 2 0 07 ). Sect i o n 9 1 1 (a)(1 ) p ro v id es , i n rel ev an t p art , th ata “ qu al i fi edi n d i v i dual ” m ay el ectt o ex cl u d e fro m g ro s s i n co m e h i s o r h er “ fo rei g n earn edi nco m e”, s ub jectt o l im i t at io n s s etfo rt h i n
s ub s ect i o n (b )(2 ). Pet i t i o ner co n ten d s th ath e i s a qual i fi edi n d i vi du al wh o i s en t i t l edt o
ex cl u d e h i s fo rei g n earn edi n co m e fo r t ax y ears 2 0 12 an d2 0 13 p u rs u an tt o s ect i on 9 1 1 (a)(1 ). Fo rei g n earn edi n co m e i s d efi n ed as earn edi n co m e at tri b u t ab l e t o
s erv i ces p erfo rm edb y

a t ax p ay er o u t s i d e t h e Un i t edSt at es . Sec. 9 11 (b )(1 )(A). To b e a qu al i fi ed in d i v i du al a t ax pay er m u s ts at i s fy two req u i rem en t s : (1 ) t h e t ax p ay er m

u s t b e an i n d iv i du al “ wh o s e t ax h o m e i s i n a fo rei g n co u n try ” an d (2 ) t h e t ax p ay er m

u s tei th er b e a “ b o n a fi d e res i d en t” o f o ne o r m o re fo rei g n
co u nt ri es o r b e p h y si cal ly p res en ti n s u ch co u nt ry du ri n g atl eas t3 3 0 fu l l d ay s i n a 1 2 -m o n th p eri o d. Sec. 9 1 1 (d )(1 ). Ani nd i v i du al wh o , l i k e p et i t i o n er, i s n o ta b o n a fi de res i d en to f an o th er co u n try , m u s tth erefo re m eetb o th t h e t ax h o m e an dth e p h y s i cal p res en ce req u i rem en t s t o b e el i gi b le fo r t h e fo rei gn earn ed i n co m e
ex cl u s i o n . Bu

j o l v . Co m

m i s s i on er, T.C. M em o. 1 9 87 -2 3 0 , aff’ d , 8 42 F.2 d 3 2 8 (5 th Ci r. 1 9 8 8 ); s ec. 1 .9 11 -2 (a), In co m e Tax Reg s . Pet i t i o ner h as fai l edt o s h o w th ath e s at i s fi es th e t ax h om e req u i rem en t
. Sect i o n 9 1 1 (d )(3 ) d efi n es the t erm “ t ax h om e” as , i n th e cas e o f an i n d i v i du al ,- 7
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“ s u ch i n d i v i du al ’ s h o m e fo r p u rp o s es o f s ect i o n 1 6 2 (a)(2 )”. Un der s ect io n 1 6 2 (a)(2 ) a p ers o n’ s t ax h o m e i s g en eral l y co n s i d eredt o b e t h e l o cat io n o f h i s reg u l ar o r p ri n ci p al p l ace o f em p l o ym en t . M i t ch el l v . Co m m i ss i o n er, 7 4 T.C. 5 78 , 5 8 1 (1 98 0 ). Ho wev er, s ect i o n 9 1 1 (d )(3 ) g o es o n t o p ro v i d e t h at “ [a] n i n di v i du al
s h al l n o tb e t reat edas h av i n g a t ax h o m e i n a fo rei gn co u n try fo r an y p eri o dfo r wh i ch h i s ab o d e i s wi thi n the Un i tedSt at es .” Th us , a p ers on wh o s e “ ab od e” i s wi th i n th e Un i t edSt at es can n o tes t ab l i s h thath i s “ t ax h o m e” i s i n a fo rei g n
co u nt ry , ev en i f h i s reg u l ar o r p ri n ci p al p l ace o f em p l o ym en ti s i n a fo rei g n
co u nt ry . Harri n gt o n v . Co m m i s s i on er, 9 3 T.C. 2 97 , 3 0 3 (1 9 89 ); s ec. 1 .9 1 1 -2 (b ), In co m e Tax Reg s . Al th ou g h the t erm “ ab o d e” i s n o t d efi n edb y s ect i o n 9 1 1 o r t h e reg u l at i o n s , thi s Co u rth as h el d t h ati tg en eral l y m ean s th e co u n try

i n wh ich th e t ax p ay er h as th e s tro n ges t eco no m i c, fam i l i al , an dp ers o n al t i es . Bu jo l v . Co m m i s s i o n er, T.C. M em o . 1 9 8 7 -2 3 0
. Al th ou g h p et i t i o n er p erfo rm ed h is wo rkreg u l arl y an dp ri n ci p al ly i n Afg han i s t an du ri n g 2 0 1 2 an d2 0 1 3 , th e reco rds h o ws th ath i s ab o de was wi th i n th e Un i ted St at es . A t ax p ay er p o s tedab ro adwi l l i n vari ab l y h av e s o m e co nn ect i o n s wi th th e fo rei g n co u n try

i n wh i ch h e wo rk s , b u th i s ab o d e rem ai n s i n th e Un i t ed St at es i f h i s t i es t o th e Un it edSt at es are s tro n g er. See Harri ng t o n v . Co m m i s s i o n er, 9 3 T.C. at 3 0 8 ; Dal y v . Co m m is si o n er, T.C. M em o . 2 0 1 3-1 4 7 . In- 8
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Dal y v . Co m m i s s i o n er, at* 1 2, th i s Co u rth el d t h atthe t ax p ay er’ s ab o de was i n the Un i ted St at es b ecau s e h is t i es t o th e fo rei g n co u n tri es were “ s ev erel y l im i t edan d tran s it o ry ”. M r. Dal y

was an au th o ri zedco n tract o r fo r t he Dep art m en to f Defen se wh o wo rk edan dl i vedo n ai r b as es i n Afg h an i s t an an d Iraq , wh i ch h e d i d n o tl eav e fo r s afet y reas o n s . Id . at* 3 -* 4 . He wo rk edro t at i on al s h ift s an dl eftth es e
co u nt ri es wh en off dut y

o r wh en req u i redt o d o s o fo r wo rk . Id . M r. Dal y ’ s wi fe
an d fam il y res i d edi n th e Un i t edSt at es , wh ere h e al s o o wn edan dm ai n tai n eda
res i den ce. Id . at* 1 3 -* 1 4
. Onth e b as i s o f t h es e fact s we d et erm in edth at M r. Dal y ’ s eco no m i c, fam il i al , an dp ers o n al t i es t o th e Un i t edSt at es were s u ffi ci en t l y
s tro n g t o co n si d er th e Un it edSt at es t o b e h i s ab o de at al l t i m es . Id
. Th e fact s i n th e i n s tan tcas e are s i m i l ar t o th o se i n Dal y . Li k e t h e t ax p ay er i n Dal y , p et i t io n er was an au th ori zedco n tract o r wo rk i n g fo r t he Dep art m en to f Defen s e i n ro t at i o n al s h i ft s . Pet i t i o n er d idn o t l eav e t h e ai r b as e wh ere h e l i v ed
an d wo rk edb ecau s e o f s afet y co n cern s . Hi s fam il y co nt i n u edt o res i de i n th e Un i ted St at es wh il e h e wo rk edo v ers eas . Inad d i t i o n t o ret u rn i n g t o h i s h o m e i n th e Un i t edSt at es wh ere h e l i veddu ri ng th e “ o ff” p eri o d s o f h i s ro t at i o n al s h i ft s , p et i t i o n er o wn edan dm an ag edm u l t i p l e i n v es t m en tp ro p ert ies i n the Un i t edSt at es i n 2 0 1 3, o n e o f wh ich was a “ res i d en t i al ap art m en t co m p l ex ”. Pet i t i o n er al s o
o wn edan dreg i s t eredv ari o us v eh icl es i n W as hi n g t o n du ri n g 2 0 1 2 an d2 0 1 3 an d- 9
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m ai n t ai n eda n um

b er o f b an kacco u n t s, b ro k erag e acco u n t s , an dret i rem en t
acco u n t s. In co n tras tp et i t i on er h as n ots h own an y co n n ect i o n wi th Afg h an i s t an
o th er t han th e l o cat i o n o f h is em p l o ym en t. Becau s e p et i t i o n er h ads ub s t an ti al ly m o re eco n om i c, fam i l i al , an dp ers o n al t i es t o th e Un i t ed St at es du ri n g 2 0 1 2 an d 2 0 1 3 , we fi n dth ath i s ab o d e was i n th e Un i ted St at es du ri n g t h o s e y ears . If an i n d i v i du al ’ s ab o d e i s i n th e Un i t edSt at es , a d et erm i n at i o n o f t h ati n d iv idu al ’ s t ax h o m e wi th i n the m ean i ng o f s ect i o n 1 6 2 (a)(2 ) i s i m

m at eri al . Bu

jo l v . Co m

m i ss i o n er, T.C. M em o . 1 9 8 7 -2 3 0 . Th e t ax p ay er can n o t qu al ify fo r t h e s ect i o n 9 1 1 fo rei gn earn edi n co m e ex cl u s i o n b ecau s e h e d o es n o ts at i s fy the t ax h o m e req u i rem en t , an d there i s n o n eedfo r fu rt her i n qu iry

t o d et erm i n e wh et h er h e i s a b on a fi d e res id en to r m eet s the 3 3 0 -d ay p h y s i cal p res en ce t es t . See Dal y v . Co m m i s s i o n er, at* 1 5 ; Bu

jo l v . Co m m i s s i o n er, T.C. M em o . 1 9 8 7 -2 3 0 . Becau s e p et i t i o n er fai l edt o p ro ve t h ath i s ab o de was o u t s i de t h e Un i tedSt at es , h e d o es n o t m eetth e t ax h o m e req u i rem en t , h e d o es n o t s at i s fy

th e d efi n it i on o f a “ qu al i fi ed i n d i v i du al ”, an dth ere i s n o n eed fo r fu rth er i n qu i ry

t o d et erm i n e wh et h er h e was a b o n a fi d e res i d en to f Afg han i s t an o r m etth e 3 3 0 -d ay p h y s i cal p res en ce t es t . See Dal y v . Co m m i s s i o n er, at* 1 5 ; Bu

jo l v . Co m

m i s s i o n er, T.C. M em o . 1 9 8 7 -2 3 0.- 1 0 -

Pet i t i o ner co n ten d s th ath e n ev ert h el es s i s a qu al i fi edi n d i v i du al b ecau s e h e i s el i g i b l e fo r a wai v er o f t h e s ect i o n 9 1 1(d )(1 ) req u i rem en t s p u rs u an tt o s ect i o n 9 1 1 (d )(4 ). See Harri ng t o n v . Co m m i s s i o n er, 9 3 T.C. at3 1 1-3 1 5 . Th e Secret ary , aft er co n su l t at i o n wi th the Secret ary o f St at e o r h i s d el eg at e, d et erm i n es fo r wh i ch p eri o d s an di n wh i ch fo rei g n co u n tri es th e wai v er m ay ap p l y . See s ec. 9 1 1 (d )(4 )(B)(i ). Th e Secret ary ’ s t as ki s t o d et erm i n e wh i ch fo rei gn co u n tri es , an d du ri n g wh i ch p eri o d s , i n d i v i du al s are req u iredt o l eav e b ecau s e war, ci v il u n res t , o r s i m i l ar ad v ers e co n di t i o n s p recl u d e t h e n o rm al co n du ct o f b u s i n es s . Id . Th e wai v er o f s ect i o n 9 1 1 (d )(4 ) i s t h en av ai l ab l e t o an y i nd i v i du al wh o i s (A) a b o n a fi de res i d en to f, o r p res en ti n , s u ch fo rei g n co u n try fo r an y p eri o d ; (B) l eav es s u ch fo rei gn co u n try du ri n g an y p eri o dd et erm i n edb y

the Secret ary

as d es cri b edab o v e;
an d (C) es t ab l is h es t o t h e s at i s fact io n o f th e Secret ary th ats u ch i n d iv i du al co u l d
reas on ab l y

h av e b een ex p ect edt o h av e m etth e requ irem en ts o f s ect i o n 9 1 1 (d )(1 ) b u tfo r t he war, ci v il u n res t , o r s i m i l ar ad v ers e co nd i t i o ns . Sec. 9 1 1 (d )(4 ). Pet i t i o ner h as fai l edt o s h o w th ath e s at i s fi es th e req u irem en t s o f s ect i o n 9 1 1 (d )(4 )(B) o r (C). Afg h an is t an d o es n otap p ear i n th e l i s to f co u nt ri es an d p eri o d s wh i ch th e Secret ary d et erm i n edqu al i fy

fo r a wai ver du ri n g 2 0 12 an d 2 0 1 3 . Rev . Pro c. 2 0 1 4 -2 5, 2 01 4 -1 5 I.R.B. 9 2 7 ; Rev . Pro c. 2 0 1 3 -2 3 , 2 0 1 3-1 7 I.R.B. 9 7 8 , 9 7 9. Pet i t i o n er co n t en d s th atan y U.S. ci t i zen wo rk in g i n a fo rei g n- 1 1 -

co u nt ry wh o h as t o l eav e s u ch co u n try as a res u lto f war, ci v i l u n res t , o r s i m i l ar ad v ers e co n d i t io n s i n h i b i t i n g n o rm al b u s i nes s act i v it i es , ev en i f o n l y fo r t em p o rary rel i ef fro m

th o s e co n d i ti o n s , s ho u l dqu al i fy fo r t h e fo rei g n earn ed i n co m e ex cl u s i o n wi th o u th av i n g t o m eeto th erwi s e p res cri b edm in im u m t i m e req u i rem en t s . Su ch i s p et it i o n er’ s i n t erp ret at i on o f t h e i n st ru ct io n s t o Fo rm 2 5 5 5 , wh i ch p et i t i on er co nt en d s m is l eadt ax p ay ers i n t o b el i ev in g th ati f t h ey are wo rk i n g
o u t s i d e t h e Un i t edSt at es an dare fo rcedt o l eav e b ecau s e o f war, ci v i l u n res t , o r
s i m i l ar ad v ers e co n d it i o n s , th i s i s s u ffi ci en tfo r an ex cl u s i o n o f fo rei g n i n co m e. W e d i s ag ree wi th p et i t i o n er’ s co n t en t i o ns . Th e s t atu t e ex p res s l y co n d i t i o n s th e wai v er o f s ect i o n 9 1 1 (d )(4 ) up o n a d et erm i n at i o n b y th e Secret ary . Ad d i t i o n al l y , th e i n s tru ct i o ns as p et i t io n er u n d ers to o dth em are n o t m i sl ead i n g . Pet i t io n er wri t es i n h is No v em b er 2 7 , 2 0 1 7, fi l i n g t h atth e i ns tru ct i o ns are t h e fo l l o w i n g : If y o u r t ax h om e was i n a fo rei g n co u n try an dy o u were a b o na fi d e res i d en t o f, o r p hy s i cal l y

p res en t i n , a fo rei gn co u n try an dh adt o l eav e b ecau s e o f war, ci v i l u n res t , o r s i m il ar ad v ers e co nd i t i o ns , th e m i n i m um t i m e req u i rem en ts p eci fi edu n d er th e b o n a fi d e res id en ce an dp h y s i cal p res en ce t es tm ay b e wai ved . Yo u m

u s tb e ab l e t o s h o w th aty o uco ul dh av e ex p ect edt o m eetth e m i n im u m t i m e req ui rem en t s i f y o uh adn ’ tb een req u i redt o l eav e. Each y ear t h e IRS wi l l p ub l i s h i n th e In tern al Rev en u e Bu l l et i n a l i s to f th e o nl y co u n tri es th atqu al i fy fo r t h e wai v er.- 1 2 -

Th e i n s tru ct io ns , as p et i t i o n er q u o t es th em , s tat e t h atth e IRS p ub l i s hes a l is to f t h e
o n l y co u nt ri es th atqu al ify

fo r t h e wai v er. Pet i t i o n er co n t en d s thati t i s i n co m preh en s i b l e t h atth e Secret ary , i n co n s u l t at io n wi th th e Secret ary o f St at e,
wo u l do m i tAfg h an i s t an , “ th e Un i t ed St at es o f Am eri ca’ s l o ng es t en gag em en t
ev er, * * * 1 6 y ears an dco u nt in g ”, fro m a l i s t o f co un tri es th ats h ou l db e al l i n cl u s i v e o f l ocat i o ns wi th war, ci v i l u nres t , o r s im il ar ad v ers e co n d i t i o n s . Nev erth el es s , Afg h an i s t an w as o m i t t edfro m th e l i s t ; p et i t i o ner h as p ro v i dedn o
ev i d en ce t h ath e recei v eda s p eci al wai v er fro m the Secret ary , an d we can n o t i g n o re t h e ex p res s co n d it i o n req u i redb y th e s t atu t e. Fu rt herm o re, p et i t i o n er h as n o tes t ab l i s h ed , t o t h e s at i s fact i o n ei th er o f t h e Secret ary o r o f t h i s Co u rt , thath e co u l dreas o n ab l y h av e ex p ect edt o m eetth e req u i rem en t s o f s ect i o n 9 1 1 (d )(1 ) b u tfo r t h e ad v ers e co n di ti o n s i n Afg h an i s t an . See s ec. 9 1 1 (d )(4 )(C); Harri n g to n v . Co m m i s s io n er, 9 3 T.C. at3 0 4 . InHarri n g t o n
v . Co m m i s s i o n er, 9 3 T.C. at3 1 4 , we h el dth at th e t ax p ay er fai l edt o s h o w h e co u l d
reas on ab l y

h av e b een ex p ect edt o s at i s fy th e req u i rem en t s o f s ect i o n 9 11 (d )(1 ). M r. Harri n g t o n h adaccep t edem p l oym en ti n An g o la t h ati n v o l veda ro t at i o n al
wo rks ch edu l e i n a l o cat i o n th atp ro v i d edh i s m eal s an d h ou s in g , an dh i s fam i l y
was p ro h i b i t edfro m

jo i n i ng h im

du ri n g h i s wo rk . W e al s o p res u m edth at h e was
aware o f th e h o s t i l e co n d i t i o ns wh i ch ex i s tedi n An go l a wh enh e accep t edh i s- 1 3 -

em pl o y m en t . Gi v en th o s e fact s , we d i dn o ts ee h o w h e “ co u ld p o ss i b l y h av e, ei th er p ri o r t o h i s arri v al i n An g o l a o r aft er an y o f h is n u m ero u s d ep artu res , h arb o redan y reas on ab l e ex p ect at io n th ath e wo u l d s at i s fy th e req u i rem en t s o f p arag rap h (1 ).” Harri n g to n v . Co m m i s s io n er, 9 3 T.C. at3 1 4 -3 1 5
. Pet i t i o ner s im i l arl y

co u l dn o th av e h arb o reda reas o nab l e ex p ect at io n th at h e wo u l drem ai n i n Afg han i s t an l o n g en ou g h t o s at i s fy th e req u i rem en t s o f s ect io n 9 1 1 (d )(1 ). Pet i t i o n er accep t eda ro t at i o n al wo rks ch edu l e wh i ch , b y d es i gn , h ad h i m retu rn i n g t o th e Un i t edSt at es s ev eral t i m es a y ear. As p et i t io n er h i m s el f p o i n t s o u t , h e was t o wo rk in a co u n try i n wh i ch th e Un i t edSt at es h adal read y b een en g ag edi n h o s ti l i t i es fo r m an y y ears . As we s t at edi n Harri ng t o n : “ W e
s i m p l y d o n o tb el i ev e t h atCo n g res s i n t en d edth e wai v er p ro vi s i o n t o b e av ai l ab l e wh en a t ax p ay er b eg i n s em p l o ym en ti n an al read y

u n s tab l e fo rei g n co u nt ry wh ere th ere was n ev er ev en th e s l i g h tes tch an ce h e wo u l ds at i s fy th e ‘ qu al ifi ed i n d i v i du al ’ req u i rem en t s .” Harri n g t o n v . Co m m i s s i o ner, 9 3 T.C. at3 15 (ci t i n g S. Rep t. No . 9 6 -1 0 3 1 (1 9 8 0), 1 98 0 -2 C.B. 7 3 0 , 7 3 2 ). Pet i t i on er’ s p eri o d i c d ep artu res fro m Afg h an i st an , wh i ch were m ad e wi th ev ery i n t en t i o n o f retu rn i n g wi th i n a
s h o rtt im e as req u i redb y hi s em p l o ym en tco n tract , were n o tth e t y p e o f p erm an en t d ep artu re t h atCo n g res s co nt em p l at edwh en en act i n g t h e wai v er. See i d . at3 1 6- 1 4 -

(d i s cu s s i ng S. Rep t . No . 9 6 -1 0 3 1 ). Acco rd i n g l y , p et i ti o n er i s n o t a “ qu al i fi ed i n d i v i du al ” p u rs u an tt o th e ex cep t i o n o f s ect i o n 9 1 1 (d )(4 ). Fi n al l y , res p o n d en td et erm i n edth atp et i t i o n er i s s ubjectt o a p en al ty fo r each y ear fo r anu n d erp aym en tat tri bu t ab l e t o a s ub s t an t i al u nd ers t at em en to f i n co m e t ax . See s ec. 6 6 62 (a), (b )(2 ). An u n d ers t at em en to f i n co m e t ax i s
s ub s t an t i al wh en th e am o u n to f t h e u n d ers t at em en t fo r th e t ax ab l e y ear ex ceed s th e g reat er o f 1 0 % o f t h e t ax req u i redt o b e s h o wno n th e t ax retu rno r $ 5 ,0 00 . Sec. 6 6 6 2 (d )(1 )(A). Res p o nd en t bears th e b urd en o f p ro du ct i o n wi th res p ectt o th e i m p o s i t i o n o f t h e s ect io n 6 6 6 2 (b )(2 ) p en al ty , s ee s ec. 7 4 9 1 (c); Hi g bee v
. Co m m i s s i o n er, 1 1 6 T.C. 4 3 8 , 4 4 6 -4 4 7 (2 0 0 1), i n cl ud i n g th e req u i s i te ap pro v al fo r i m p o s i t i o n o f t h e p en al ty , s ec. 6 7 5 1 (b )(1 ). Pet i t i o ner rep o rt edi n co m e t ax fo r t ax y ear 2 0 1 2 o f $ 1 ,2 9 8 , u nd ers t at i n g h i s i n co m e t ax l i ab i l i ty

b y $ 2 0 ,3 70 ; fo r t ax y ear 2 0 1 3 th e fi g ures were $ 1 9 ,4 73 an d $ 9 ,2 9 4 , res p ect iv el y . Th e am o u n t s o f b o th u n d ers t at em en t s o f i n co m e t ax ex ceed $ 5 ,0 0 0 , wh i ch i s l es s th an 1 0 % p ercen to f t h e t ax req u i redt o b e s h o wno n p et i t i o n er’ s 2 0 12 an d2 0 1 3 retu rn s . Pet i ti o n er d i dn o tp ro v i de an y reas on wh y

th e p en al ty s ho u l dn o tap p l y

i n th e ev en tth at h e was fo u n d n o t t o b e en t i t l edt o th e fo rei gn earn edi nco m e ex cl u si o n .- 1 5 -

Nev ert h el es s , we fi n dfo r p et i t i o n er b ecau s e res p on d en th as fai l edt o m eet th e b u rd en o f p ro du ct i o n . Sect i o n 6 7 51 (b )(1 ) p ro v i d es th at , s ub jectt o cert ai n
ex cep t i o n s i n s ect i o n 6 7 5 1(b )(2 ), n o p en al ty s h al l b e as s es s edu n l es s th e i ni t i al d et erm i n at i o n o f t h e as s es s m en ti s p ers o n al l y ap p ro v edi n wri t i n g b y the i m m ed i at e s up erv i s o r o f t he i n di v i du al m ak i n g th e d et erm i n at io n o r s u ch h i g h er l ev el o ffi ci al as th e Secret ary m ay d es i g n at e. Wri t t en ap pro v al o f th e i n i t ial p en al ty d et erm i n at i on u nd er s ect i on 6 7 5 1 (b )(1 ) m u st b e o b t ai n edn o l at er t h an th e d at e t h e n o t i ce o f d efi ci en cy i s i s s uedo r t h e d at e t h e Co m m is s i o n er fi l es an
an s wer o r am en d edan s wer as s ert in g th e p en al ty . Ch ai v . Co m m i s s i o n er, 8 5 1 F.3 d 1 9 0 , 2 2 1 (2 dCi r. 2 01 7 ), aff’ g i n p art , rev ’ g i n p artT.C. M em o . 2 0 1 5 -4 2 ; s ee al s o Graev v . Co m

m i s si o ner, 1 4 9 T.C. _

_ (Dec. 2 0, 2 0 1 7 ), s up p l em en ti n g an d
o v erru l i ng i n p art1 4 7 T.C. 4 6 0 (2 0 1 6 ). Co m p l i an ce wi th s ect i o n 6 7 5 1 (b )(1 ) i s p arto f t he Co m

m i s s io ner’ s b u rd en o f p ro du ct i o n i n an y d efi ci en cy

cas e i n wh i ch a p en al ty s ub

jectt o s ect i o n 6 7 5 1 (b )(1 ) i s as s ert ed . Ch ai v . Co m m is s i o n er, 8 5 1 F.3 d at2 2 1
. Res p o n d en t h as n otp ro v i d edan y ev i d en ce t h atth e s ub st an t i al
u n d ers t at em en to f i n co m e t ax pen al t i es were p ers o nal l y ap p ro v edi n wri t in g b y

th e i m m ed i at e s up erv i s o r o f t he i n di v i du al m ak i n g th e d et erm i n at io n s . Th erefo re,
res p o n d en t h as fai l edt o m eetth e b u rd en o f p ro du ct i o n .- 1 6 -

In co n cl u s i o n , p et it i o n er i s n o ten t i tl edt o ex cl u d e an y fo rei g n earn ed i n co m e fro m

t ax at i o n fo r t h e t ax ab l e y ear 2 0 12 o r 2 0 1 3 b ecau s e h e was n ota

“ qu al i fi edi n d i v i dual ” fo r p urp os es o f s ect i o n 9 1 1(a). He i s n o ts ubjectt o t h e 2 0 % p en al ty fo r an u nd erp aym en tat tri bu t ab le t o s ub s t an t i al u n d ers tat em en t o f i n co m e t ax fo r ei th er y ear, h o wev er, b ecau s e res p o n d en tfai l edt o m eetth e b u rd en o f p ro duct i o n . Deci s i o n wi ll b e en t eredfo r
res p o nd en t as t o the d efi ci en ci es an d fo r p et i ti o n er as t o th e p en al t ies
.