Court Opinion

ID: 8596529
Source: CourtListenerOpinion
Date Created: 2022-11-23 16:03:47.525961+00
Date Added: 2024-06-11T16:54:58.583054
License: Public Domain

Defendant’s Motion for Rehearing
July 9, 1979
This case comes before the court on defendant’s motion for rehearing of the opinion and decision of April 18, 1979. *93Defendant’s request that Part III of the opinion be reconsidered and its holding changed is denied. However, defendant’s request with respect to Part VII of the opinion is granted (as fore-shadowed in footnote 18 of the opinion), and instead of awarding plaintiff judgment of $40.46 (plus interest), that portion of the opinion is revised to hold that further factual proceedings are necessary before the court can decide whether the bronze in the sculptures was or was not a "material income-producing factor” under 26 U.S.C. §911(b).
Accordingly, the conclusion of the opinion of April 18, 1979 is modified to provide that (a) plaintiffs motion for summary judgment is denied as to 1970, defendant’s motion as to that year is granted, and the petition is dismissed as to 1970; and (b) as for 1971, plaintiffs and defendant’s motions are granted and denied to the extent indicated in the opinion (as revised) and the case is remanded to the trial division for further proceedings on the issue discussed in Part VII of the opinion. If plaintiff does not wish to proceed further on that issue (in view of the small amount at stake), the petition will be dismissed as to 1971.
It is so ordered.
appendix a: computation OF 1970 TAXES
Item Amount
1) Gross business income ("Gross receipts or gross sales”, line 1, schedule C, Form 1040): $48,506.99
2) Excludable foreign income:
67 business days in U.S.1 „ ,.„„ _ _ 240 total business days X $48'506*99
= $13,541.53 (U.S. source income)2
$48,506.99- $13,541.53
= $34,965.46 (foreign source income)
Maximum excludable foreign income
= $25,000.00
*943) Gross business income: $48,506.99
Less maximum excludable foreign income: ($25,000.00)
$23,506.99
4) Less business expenses attributable to included income:3 ($11,641.79)
Reportable business income (line 35, Form 1040; line 26 on Schedule C for Form 1040): $11,865.20
5) Adjusted Gross income:
—Reportable business income; $11,865.20
—Dividend income (line 13c, Form 1040): $ 888.00
—Sale or exchange of property (Schedule D loss): ($ 418.00)
—Trust Income:4 $ 0.00
Adjusted gross income: $12,335.20
6) Taxable income:
—Less 4 exemptions: ($2,500.00)
—Less standard deduction: ($1,000.00)
Taxable income: $8,835.20
7) Taxes:
—Income tax: $1,563.74
—Self-employment tax: $ 538.20
—Surcharge:-5 $ 39.00
Total tax liability: $2,140.94
—Less tax per audit (already paid): ($ 794.48)
Net tax liability:6 $1,346.46
*95appendix b: COMPUTATION OF 1971 TAXES
Item Amount
1)Gross business income: $27,772.00
.2) Excludable foreign income:1 $15,522.00
3) Gross business income: $27,772.00
Less excludable foreign income: ($15,522.00)
$12,250.00
4) Less business expenses attributable to included income:2 ($ 4,979.00)
Equals reportable business income: $ 7,271.00
5) Adjusted gross income:
—Reportable business income: $ 7,271.00
—Dividend income: $ 984.00
—Sale or exchange of property: ($ 1,000.00)
—Trust income (line 37, Form 1040):3 $ 567.00
Adjusted gross income: $ 7,822.00
6) Taxable income: $ 7,822.00
7) Taxes:
—Income tax with 3 exemptions and standard deduction:4 $ 763.00
—Self-employment tax:5 $ 545.32
Total tax liability: $ 1,308.32
Tax per audit (already paid): $ 1,348.78
Net refund: $ 40.46

 The allocation of 67/240 business days is based on taxpayer’s own calculations contained in a supplementary schedule to Form 2555 in his 1970 return. As noted in the opinion, see note 13 and corresponding text, supra, even if one assumes (as taxpayer now argues) that no business days were spent in the United States, taxpayer still reaches the statutory maximum exclusion of $25,000.00.

 The $11,641.79 figure was calculated by computing the proportion of includable business income to gross business income times the total business expenses claimed by taxpayer in his return.
$23,506.99 (includable business income) $48,506.99 (gross business income) X $24,023.00 = $11,641.79.
See Rev. Rul. 75-86,1975-1 Cum.Bull. 242 (example number 1); Tax Guide for U.S. Citizens Abroad 16 (example 3) (I.R.S. Public. No. 54, 1971 ed.); Brewster v. Commissioner, 67 T.C. 352, 365 (1976), aff'd, supra, (adopting similar formula); accord Alexander v. Commissioner, 47 T.C.M. (P-H) ¶ 78,487 at 2020 (1978); Quinn v. Commissioner, 43 T.C.M. (P-H) ¶ 74,064(1974).

 The figures for dividend income, sale or exchange of property, and trust income are those found in taxpayer’s return.

 I.R.C. §§ 1401-03 impose a tax on an individual’s "self-employment income” defined in section 1402. In 1970, the self-employment tax for anyone with net earnings of $7,800 or greater was $538.20. See Treas. Reg. § 1.1401-1 (1971) (tax rate on self-employment income was 6.9 percent); Form 1040, Schedule SE, part III, line 7 (1970) reprinted in Research Institute of America, 1970 Individual Tax Return Guide 75.
In 1970 a surtax on the amount of income tax was also imposed, and the tax tables for joint returns with an income tax between $1,540 and $1,580 show a surtax of $39.00. See 1970 Tax Surcharge Table, reprinted in Research Institute of America, 1970 Individual Tax Return Guide 122.

 As stated in our opinion, the Government does not have a counter-claim for the $1,346.46 liability, and thus the figure of "Net tax liability” does not produce any actual tax liability for the taxpayer.

 Plaintiff made no work-related trips to the United States in 1971, and thus no allocation of income between days worked in America and days worked abroad is necessary. The figure of $15,522, the total of all noncommissioned sales in 1971, is taken from plaintiffs tax return. It differs from defendant’s figure of $15,522.61 by only $.61, an insignificant amount.

 The dividend income, loss on sale or exchange of property, and trust income are taken from taxpayer’s 1971 return.

 Although taxpayer in his 1971 return claimed four exemptions, the Service in the audit disallowed one of the exemptions. Taxpayer has not contested this disallowance before this court. The 1971 tax tables included the standard deduction and personal exemptions in the tax computation, and no separate figures are shown.

 The figure for the 1971 self-employment tax is derived by multiplying the applicable rate (7.5 percent) by taxpayer’s net self-employment income ($7,271), his "reportable business income”.