TAX COURT OPINION

Case: William H. Woods & Margaret E. Creger Woods
Docket Number: 27117-08S
Judge: Colvin
Opinion Type: bench
Filed: 06/22/2009
Pages: 8

UNITED STATES TA X COURT WASHINGTON, DC 2021 7 WILLIAM H . WOODS AND MARGARET E . CREGER WOODS , Petitioners, v . COMMISSIONER OF INTERNAL REVENUE, Respondent . O R D E R Docket No . 2711-7-08 S Pursuant to Rule 152(b), Tax Cour Rules of Practi c Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and to respondent a copy of the pages of the transcript of the proceedings of the above case before Judge Diane L . Kroupa at Anchorage, Alaska on June 10, 2009, containing her oral findings of fact and opinion . In accordance with the oral findings of fact and opinion, decision will be entered for petitioners . (Signed) Diane L. Kroupa Judge Dated : Washington, D .C . June 22, 2009 SERVED JUN 2 3 2009 3 1 Bench Opinion by Judge Diane L . Kroupa June 10, 200 9 2 Woods v . Commissione r Docket No . 27117-08 S 3 The Court has decided to render oral findings o f 4 fact and opinion in this case and the following represent s 5 the Court's'oral findings of fact and opinion . These ora l findings of fact and opinion shill not be relied upon a s 7 precedent in any other case . 8 This proceeding was heard as a small tax cas e 9 pursuant to the provisions of section 7463 and Rules 170 10 through 175 . All section references are to the Interna l 11 Revenue Code for the year 2004,1which year shall be referred 12 to as the year,at issue , and all Rule references are ' to the 13 Tax Court Rules of Practice and Procedure . This benc h 14 opinion is made pursuant to the authority granted by section 15 7459 ( b) and Rule 152 . 16 Kenneth P . Jacobus appeared on behalf o f 17 Petitioners , and Robert Boeshaa rj appeared on behalf o f 18 Respondent . 19 This is a deficiency case in which Respondent 20 determined that Petitioners erroineously excluded income 21 Petitioner husband earned as a FedEx pilot in the 22 Philippines during 2004 under section 911 . Respondent als o 23 determined that Petitioners failed to timely file a return 24 under section 6651(a')(1) when they elected to exclude the 25 income on the return they filed for 2004 on December 27 , Heritage Reporting Corporation (202) 628L4888 4 1 2007 . We find Petitioners madeia timely election and that 2 Petitioners are not liable for the late filing addition . 3 FINDINGS OF FACT 4 The .record establishes that Petitioners moved to 5 Subic Bay, Philippines, in December 2003 and resided ther e 6 during all of 2004, the year a t issue, plus at least thre e 7 subsequent years through most of 2008, .when Petitioner s 8 moved to Alaska . Petitioner husband worked as a FedEx pilo t 9 during all of 2004 . He provided a spreadsheet showing hi s 10 flights in 2004 originating and terminating in Subic Bay , 11 Philippines (with the SFS call letters) as well .as temporary 12 layovers throughout Asia, such as in Bangkok (BKK) ; 13 Singapore (SIN) ; Shanghai (PVG) ; Kuala Lumpur, Malaysi a 14 (KUL) ; Cebu, Philippines (CEB) ; Penang, Malaysia (PEN) ; Hong 15 Kong, China (HKG) ; and Jakarta, Indonesia (CGK) . 1 16 Petitioner husband taught himself the "ex-pat " 17 rules to exclude the wages he ea~ned as a pilot as well a s 18 the housing allowance . Petitioner husband contacted 19 Respondent with questions he had~and kept track of . th e ~}erv\e Re%. &t 20 employee's name and the information the Service personnel 21 provided . Petitioner husband contacted his accountant t o 22 request an extension to file the return for 2004 . 23 Petitioner provided evidence that he requested an extension 24 for 2004 but Respondent denies r ceiving the extensio n 25 request . Petitioners included Form 2555, .Foreign Earne d Heritage Reporting Corporation (202)- 628J4888 1 Income, with the return they filed for 2004, the first yea r 2 in which Petitioners claimed the foreign earned incom e 3 exclusion . On Form 2555, Petitioners elected to exclude 4 wages Petitioner earned as a pilot in 2004 as foreign earned 5 income and requested'the foreign housing exclusion unde r 6 section 911 on Form 2555 as well Respondent grante d 7 Petitioners the exclusion for the three subsequent years but 8 denied the exclusion for 2004 on the grounds that the 9 election to exclude was not timely even though it was filed I 10 with the income tax return for the first taxable year of th e 11 individual for which the election is to be effective ; i .e . , 12 on the return Petitioners filed for 2004 . 13 Respondent filed a motion to dismiss for lack o f 14 jurisdiction because Petitioners filed the petition mor e 15 than 90 days but less than 150 days after Respondent issue d 4 206 ? . EL (- 16 the deficiency notice to Petitioners on August---7--, 17 held a hearing on Respondent ' s motion and determined that 18 Petitioners were residents of the Philippines in-2 , no t 200 33 19 residents of the U .S . Therefore, Petitioners had 150 days, 20 not 90 days, in which to file the petition . Because they 21 filed the petition in less than 150 days, they filed the 22 petition timely and we have jurisdiction . We shall deny 23 Respondent's motion to dismiss . 24 At trial Respondent argued that Petitioners are no t 25 entitled to exclude any of the foreign earned income in 200 4 Heritage Reporting, Corporation (202) 628-,4888 6 1 because Petitioners did not timely file an election to 2 exclude the foreign earned income . 3 OPINION 4 We are asked to decide whether Petitioners may 5 exclude income Petitioner husband earned in the Philippines 6 during 2004 as a FedEx pilot under section 911 or whethe r 7 Petitioners are barred because Petitioners failed to make a 8 timely election . The parties agree that foreign earne d 9 income is the amount an individulal received from "sources 10 within a foreign country" that constitutes earned incom e 11 attributable to services performed by such individual . Sec . r f 12 911(b) (1) (A) . Earned income is from sources within a 13 foreign country if it is attributable to services performed 14 by the individual in a foreign country . Sec . 1 .911-3(a), 15 Income Tax Regs . 16 The parties further agree that the election must b e 17 made on Form 2555 or on a comparable form under sectio n 18 1 .911-7( a)(1)', Income Tax Regs . and that Petitioners made 19 the election on Form 2555 attached to the return for 2004 . 20 The parties further agree that the election must be filed 21 with the income tax return for the first taxable year of the 22 individual for which the election is to be effective . 23 Sec . 1 .911-7( a)(1), Income Tax Regs . 24 The parties disagree on whether Petitioners made a 25 timely election . Respondent argues that even though 2004 i s Heritage Reporting Corporation (202) 628 -', 4888 1 the income tax return for the first taxable year for whic h 2 the election is to be effective, Petitioners must have file d 3 the return by the due date of the return for 2004 withou t any extensions . We do not read the regulations to engraf t 5 an absolute bar against making an election on a return that 6 was filed on an extension . Under Respondent's theory , 7 Petitioners must have filed their return .(and made the 8 election thereon on Form 2555) . for 2004 no later than Apri l 15, 2005 . We disagree . 10 We find support in the regulations themselves . 11 valid election to exclude foreign earned income and th e 12 housing cost amount must be made in one of three ways . Sec . 13 1 .911-7( a)(2)(i), Income Tax Regs . The first way to make a 14 valid election is with a timel y fled return (including any 15 extensions) . Sec . 1 .911-7(a)(2) i)(A), Income Tax Regs . 16 The record reflects that Petitioners requested an 17 extension to file the return for 2004 . Moreover, the recor d 18 reflects that 2004 was an open year for assessment through 19 April 15, 2008, which is after the December 27, 2007 dat e 20 Petitioners filed the return for 2004 and made the election . 21 . We found Petitioner to be credible and that he acte d 22 reasonably and in good faith in making the election timely . fe~lec{i n 23 He kept accurate notes with dhom he spoke ands what ~1^ 24 action he took . In addition , special time consideration s 25 exist for taxpayers who live abroad . Sec . 301 .9100-1(c), Heritage Reporting Corporatio n (202) 628-1 4888 8 1 Proced . & Admin . Regs . Thus, we conclude that Petitioners I 2 timely made the election on the tax return for 2004, th e 3 first year that Petitioner husband qualified for th e 4 exclusion . It therefore follows that Petitioners are not 5 liable for the late filing addition under sectio n 6 6651(a)(1) . 7 To reflect the foregoing, decision will be entered 8 for Petitioners . 9 This concludes the Court's oral findings of fac t 10 and opinion in this case . 11 (Whereupon, at 11 :31 a .m ., the bench opinion in the 12 above-entitled matter was concluded . ) 13 14 15 ' 1 6 17 1 8 19 20 21 22 23 24 / / 25 Heritage Reporting Corporation (202) 628,4888 Certificate-of Transcriber and Proofreade r CASE NAME : v . C )cox:pC DOCKET NUMBER : \1~ We, the undersigned, do hereby certify that the foregoing pages, numbers L through , inclusive , are the, true, accurate and complete transcript' prepared from the tape made by electronic recording b y Va on 0n 7 \O . ~9 before th e to LI A) United States Tax Court at its session i n ~N'e 3r- . a , in accordance with the applicable provisions of the current verbatim reporting contract of .the Court, and have verified the accuracy of the transcript by comparing the printed transcript against the verbal recording . (Signature of Transcriber ) (Print-Transcriber Name ) (Date ) (Signature of Proofreader ) (Print- Proofreader Name ) c'!' WLJ (Date) Heritage Reporting Corporation (202) 628-4888