TAX COURT OPINION

Case: Patrick L. Duke
Docket Number: 25906-17
Judge: Morrison
Opinion Type: bench
Filed: 11/16/2020
Pages: 16

SEC UNITED STATES TAX COURT WASHINGToN, DC 20217 PATRICK L. DUKE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 25906-17. ORDER OF SERVICE OF TRANSCRIPT Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and respondent a copy of the pages of the revised transcript in the above case before Judge Richard T. Morrison, at Houston, Texas, on September 25, 2020, containing his oral findings of fact and opinion rendered at the conclusion of trial. In accordance with the oral findings of fact and opinion, a decision will be entered for petitioner. (Signed) Richard T. Morrison Judge Dated: Washington, D.C. November 16, 2020 SERVED Nov 16 2020 SEC RECEIVED 10/9/20 IN THE UNITED STATES TAX COURT In the Matter of: ) ) PATRICK L. DUKE, ) Docket No. 25906-17 Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) Pages: 1 through 14 Place: Houston, Texas (Remote Proceeding) Date: September 25, 2020 1 2 3 4 5 6 7 8 9 10 11 12 13 14 IN THE UNITED STATES TAX COURT In the Matter of: PATRICK L. DUKE, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, ) ) ) ) Docket No. 25906-17 ) ) ) ) ) ) Respondent. ) Casey U.S. Courthouse 515 Rusk Street Room 7006, 7th Floor Houston Texas 77002 (Remote Proceeding) September 25, 2020 The above-entitled matter came on for bench opinion 15 pursuant to notice at 1:00 p.m. BEFORE: HONORABLE RICHARD T. MORRISON Judge APPEARANCES: For the Petitioner: No Appearance For the Respondent: No Appearance 16 17 18 19 20 21 22 23 24 25 P R O C E E D I N G S 2 (1:00 p.m.) THE CLERK: Recalling from the docket number 25906-17, Patrick L. Duke. (Whereupon, a bench opinion was rendered.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Bench Opinion by Judge Richard T. Morrison 3 SePtember 25, 2020 Patrick L. Duke v. Commissioner Docket No. 25906-17 THE COURT: The Court has decided to render oral findings of fact and opinion in this case, and the following represents the Court's Oral Findings of Fact and Opinion. The Oral Findings of Fact and Opinion shall not be relied on as precedent in any other case. 1 2 3 4 5 6 7 8 9 10 This bench opinion is made pursuant to the 11 authority granted by section 7459(b) of the Internal 12 Revenue Code of 1986 as amended, and Rule 152 of the Tax 13 Court Rules of Practice and Procedure. 14 15 16 17 Unless otherwise indicated, all section numbers refer to the Internal Revenue Code of 1986, as amended and in effect for the tax years 2014 and 2015. All Rule numbers refer to the Tax Court Rules of Practice and 18 Procedure. We refer to respondent as the IRS. 19 20 21 22 23 24 The IRS determined that petitioner Patrick L. Duke was liable for deficiencies for the 2014 and 2015 tax years, in the amounts of $20,147 and $18,824, respectively. The IRS also determined that Duke was liable for section 6662(a) accuracy-related penalties for the 2014 and 2015 tax years, in the amounts of $4,029.40 25 and $3,764.80, respectively. The IRS concedes the accuracy-related penalties under section 6662(a) for the 2014 and 2015 tax years. After this concession, the sole 4 non-computational issue to be decided is whether Duke's wage income is excluded from gross income under section 911(d)(3) for the taxable years 2014 and 2015. FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulation of facts and the attached exhibits are incorporated by this reference. Duke's 1 2 3 4 5 6 7 8 9 10 mailing address was in Rosenberg, Texas, when he timely 11 12 filed his petition. Duke attended high school in Rosenberg, Texas, 13 and graduated in 1971. After high school, he performed 14 ranch work for many years. Around 1991, he started 15 working with heavy equipment, such as backhoes and 16 17 forklifts, in the construction field. In 2006, Duke decided that he could significantly increase his income by 18 working for a defense contractor in Iraq as a heavy 19 20 21 22 23 equipment operator. Duke was first married to Anita Duke, whom I refer to as Anita, approximately 32 years ago. In 2003, they divorced and re-married. On February 14, 2006, Duke left his home in 24 Rosenberg, Texas, to begin work as a heavy equipment 25 Operator in 1raq. ne also left behind his wife Anita, his e a ners 5 1 grown daughter, step-grandchild, siblings, and elderly 2 mother. His wife Anita was very upset when he left. 3 4 5 6 7 8 9 10 11 12 From February 14, 2006, through March 31, 2014, Duke worked as a heavy equipment operator for defense contractor KBR Construction, or "KBR". In 2010, he was promoted to foreman. He worked on base at Camp Liberty, in Baghdad, Iraq. In 2013, Duke was relocated to the U.S. Embassy's Diplomatic Support Center in Baghdad, Iraq. Around 2011, Duke purchased a home in Rosenberg, Texas, where Anita lived and Duke stayed when he traveled from Iraq. Duke maintained a U.S. bank account. Anita had access to Duke's wage earnings to pay for the 13 mortgage, utilities, and insurance associated with the 14 home. Duke also owned two vehicles, one that he primarily 15 used and the other that Anita primarily used. 16 In 2014, KBR lost its military contract to 17 Pacific Architects and Engineers Government Services, 18 Inc., or "PAE". Duke began his employment with PAE on 19 April 1, 2014. As a lead equipment operator for PAE, he 20 did the same work as he did with KBR. His employment 21 contract was on an annual basis and was renewed each year. 22 He was a salaried employee who worked 6 days a week, 10 23 hours a day. 24 During the 2014 and 2015 tax years, Duke 25 maintained a Texas commercial driver's license, or CDL. The CDL was required for him to operate the heavy 6 equipment for his job. The U.S. Embassy's Diplomatic Support Center is a 300-acre base in Baghdad. The base's perimeter was fenced off with 12-foot-high, steel-reinforced concrete 1 2 3 4 5 6 walls, or "T" Walls. Duke was not allowed outside the 7 8 9 10 11 12 base due to safety concerns. Up to 5,000 people lived on the base. PAE provided housing and meals to Duke. Duke ate most of his meals at the dining facility on base, or "DEFAC". He received cash advances from PAE to pay for supplies and clothing. He generally went shopping once a 13 week, for supplies or clothing, at the PX, Taylor's storer 14 or the Iraqi market on base. He was also provided a 15 vehicle to drive on base when needed. 16 17 18 Duke lived in a shipping container unit on base. He lived in the same unit the entire time he worked on base. It was a 12 to 14 foot by 40 foot shipping 19 container with two rooms and a bathroom in the middle. 20 Duke lived in one of those rooms and shared the bathroom. 21 22 He was not allowed to make any modifications to the unit. He did not hang pictures on the walls, for fear of them 23 being knocked off the wall by explosions from incoming 24 25 enemy fire. Duke socialized with others on base when he was 7 1 2 3 4 5 6 7 not working. He shared most of his meals at the DEFAC with two coworkers, who became his closest friends. He attended barbeques with his closest friend on occasion. Duke also made friends with three Iraqis who worked on base. They frequently brought homemade local dishes on base to share with Duke. Duke had a cell phone and Internet access in Iraq and a P.O. box on base to receive 8 mail. He also received medical treatment in Iraq. He did 9 10 11 not have a bank account in Iraq because he could need to evacuate the area on short notice at any given time. PAE withheld Iraqi income taxes from Duke's 12 wages in the amount of $5,984.71 and $8,346.26 for tax 13 14 15 16 17 years 2014 and 2015, respectively. Duke was not required to file an Iraqi income tax return because the tax was covered by the withholdings. Duke's salary was increased to take into account the Iraqi income taxes. Duke earned 30 hours of paid time off each 18 month. PAE provided him with two trips per year and also 19 paid his airfare. 20 Duke and Anita were having marital issues and 21 were separated during the 2014 and 2015 tax years. During 22 arguments with Duke, Anita had frequently complained to 23 Duke that "[his] life was over there", meaning over in 24 Iraq. Their marital problems stemmed from Duke's decision 25 to renew his employment contract year after year. Duke did not travel home for the holidays. 8 Duke and Anita communicated once a month by Skype. During the calls, they discussed the prior month's bills that were paid and upcoming bills to be paid. Anita would also update Duke on how his elderly mother was doing. Duke's mother lived less than a half-mile from his Rosenberg, Texas, home. Duke did not use online banking and did not use email services while in Iraq because he feared his personal information could be compromised in the event of an evacuation. Duke communicated with his grown daughter approximately one time per month by Skype. He had four 1 2 3 4 5 6 7 8 9 10 11 12 13 siblings who lived in Texas, three of which live in 14 Rosenberg, Texas. Duke did not communicate with his 15 16 17 18 19 siblings regularly. Nor did he keep in touch with his friends in the U.S. while in Iraq. In 2014, Duke traveled to Rosenberg, Texas, once for 23 days, from September 16, 2014 through October 8, 2014. One purpose of this trip was to get a required 20 physical exam. Another purpose of this trip was to visit 21 his elderly mother, who was in the hospital. He visited 22 his mother in the hospital every other day while he was in 23 Rosenberg, Texas. On one of those days, his daughter 24 visited him and his mother in the hospital, and he and his 25 daughter went to dinner that evening. He did not spend much time with Anita during this trip. They slept in 9 separate rooms. In 2015, Duke traveled to Rosenberg, Texas twice for a total of 30 days, from March 7, 2015 through March 21, 2015, and from November 4, 2015 through November 18, 2015. During his March 2015 trip, Duke visited his elderly mother and went fishing. He did not spend much time with Anita during this trip. They slept in separate rooms. Duke maintained a Texas hunting license during the 2014 and 2015 tax years. During his November 2015 trip, Duke spent most of his time away from Rosenberg, Texas, at a camp for hunting. The couple of days he did stay in 1 2 3 4 5 6 7 8 9 10 11 12 13 Rosenberg, Texas, were spent inspecting his property, 14 along with packing and unpacking for his hunting trip. He 15 Spent almost no time with Anita during this trip. They 16 slept in separate rooms. 17 18 Duke is a U.S. citizen. Duke was registered to vote in Texas since he 19 was 21 years old, but did not vote during the 2014 or 2015 20 21 22 23 24 25 tax years. Duke timely filed a Form 1040, U.S. Individual Income Tax Return, for the 2014 and 2015 tax years. For each return, he included a Form 2555, Foreign Earned Income, and claimed foreign earned income exclusions in the amounts of $99,200 and $100,800, for the 2014 and 2015 10 tax years, respectively. On September 13, 2017, the IRS issued Duke a notice of deficiency for the 2014 and 2015 tax years. The IRS determined that Duke's tax home was not in a foreign country during the 2014 and 2015 tax years. In April 2020, PAE informed Duke it would no longer employ him because the base's medical facilities would not be adequate to treat him if he contracted COVID- 19. (Duke is in his late 60s and is at increased risk for severe illness from COVID-19). But for this, Duke would have kept working in Iraq. Duke returned to Rosenberg, Texas, in April 2020, and has reconciled with his wife. 1. Burden of Proof OPINION The IRS's determinations in a notice of 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 deficiency are generally presumed correct, and the RTM taxpayer bears the burden of proving them t5TT!TTTITE. Rule erroneous 17 18 142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). 19 In this case, our findings are based on the preponderance 20 of the evidence. Therefore, we need not determine which 21 Party has the burden of proof. See Mason v. Commissioner, 22 23 24 132 T.C. 301, 323 (2009). 2. Foreign Earned Income Exclusion Section 61(a) provides that gross income means 25 "all income from whatever source derived". Citizens of the U.S. are taxed on their worldwide income unless a specific exclusion applies. Eram v. Commissioner, T.C. 11 Memo. 2014-60, at *10. Section 911(a)(1) provides that, "[a]t the election of a qualified individual * * *, there shall be excluded from the gross income of such individual * * * for any taxable year * * * the foreign earned income of such individual," subject to limitations set forth in subsection (b)(2). To be a "qualified individual" 1 2 3 4 5 6 7 8 9 10 eligible for this exclusion, a U.S. citizen must satisfy a 11 three-part test. First, he must be a "bona fide resident" 12 of a foreign country for an uninterrupted period which 13 14 includes an entire taxable year or physically present in a foreign country during at least 330 days in a 12-month 15 period. 1d. subsec. (d)(1). Second, he must have "earned 16 income" from personal services rendered in a foreign 17 country. Id. para. (2). Third, his "tax home" for the 18 applicable period must be outside the U.S. Id. paras. (1), 19 20 21 22 23 24 (3). In addition to satisfying these substantive tests, the taxpayer must make an affirmative timely "election" to exclude foreign earned income, which Duke has done. Id. subsec. (a). The parties have stipulated that Duke met the 330-day physical presence test for the 2014 and 2015 tax 25 years. There is no dispute that Duke earned income from personal services rendered in a foreign country. 12 Therefore, the sole issue is whether Duke's "tax home" was outside the U.S. during 2014 and 2015. Section 911(d)(3) defines the term "tax home" to mean, in the case of an individual, "such individual's home for purposes of section 162(a)(2)". Under section 162(a)(2) a person's home is generally considered to be the location of his regular or principal place of business. See Mitchell v. Commissioner, 74 T.C. 578, 581 (1980). Section 911(d)(3) provides, however, that "[a]n individual shall not be treated as having a tax home in a foreign country for any period for which his abode is 1 2 3 4 5 6 7 8 9 10 11 12 13 within the [U.S.]." Thus, a person whose "abode" is within 14 the U.S. cannot have a "tax home" in a foreign country. 15 16 See aones v. Commissioner, 927 F.2d 849, 856 (5th Cir. 1991), rev'g T.C. Memo. 1989-616; Harrington v. 17 Commissioner, 93 T.C. 297, 307 (1989). The IRS's sole 18 argument is that Duke's abode was in Rosenberg, Texas. 19 20 21 22 Neither section 911 nor the regulations define "abode". Therefore, we rely on caselaw. In Bujol v. Commissioner, T.C. Memo. 1987-230, 53 T.C.M. (CCH) 762, 763-764 (1987), aff'd without 23 published opinion, 842 F.2d 328 (5th Cir. 1988), we 24 25 considered the meaning of the word "abode" as used in section 911(d)(3) and stated: 13 residence, domicile, or place of (5th ed. 1979). "Abode" has been variously defined as one's home, habitation, dwelling. Black's Law Dictionary 7 While an exact definition of "abode" depends upon the context not mean one's principal place of business. "abode" has a domestic rather than vocational meaning, and stands in contrast to "tax home" as defined for purposes of section 162(a)(2). in which the word is used, it clearly does Thus, A taxpayer's "abode" is generally in the country in which he has the strongest economic, familial, and personal ties. 1d. at 764; see also aones v. Commissioner, 927 F.2d at 856. Considering the facts and circumstances of this case, we find that Duke's ties to Iraq were stronger than 1 2 3 4 5 6 7 8 9 10 11 12 his ties to the U.S. during the 2014 and 2015 tax years. 13 Duke left for Iraq in 2006 and returned to the U.S. in 14 2020, some 14 years later. He only moved back to the U.S. 15 because of the pandemic. His communications with his 16 friends and family in the U.S. were few and infrequent. 17 18 19 20 21 22 23 24 25 He returned to the U.S. only occasionally. He became estranged from his wife due to his living and working in Iraq for so long. We therefore hold that Duke's abode was not in the U.S. and that his tax home was in Iraq. To reflect the foregoing, a decision will be entered for petitioner. (Whereupon, at 1:17 p.m., the above-entitled matter was concluded.) CERTIFICATE OF TRANSCRIBER AND PROOFREADER 14 CASE NAME: Patrick L. Duke v. Commissioner DOCKET NO.: 25906-17 We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 14 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Donna Boardman on September 25, 2020 before the United States Tax Court at its remote session in Houston, TX, in accordance with the applicable provlslons of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the 1 2 3 4 5 6 7 8 9 10 11 12 13 typewritten transcript against the verbal recording. 14 17 18 19 20 21 22 23 24 25 Meribeth Ashley, CET-507 Transcriber 10/5/20 Date Lori Rahtes, CDLT-108 Proofreader 10/5/20 Date