Court Opinion

ID: 4599705
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:23:54.993703+00
Date Added: 2024-06-11T07:59:26.375085
License: Public Domain

SIMON BOEKMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Boekman v. CommissionerDocket No. 82185.United States Board of Tax Appeals38 B.T.A. 541; 1938 BTA LEXIS 855; September 16, 1938, Promulgated *855  A nonresident alien who had no income from interest, dividends, rents or royalties, or sales of real estate and performed no personal services within the United States, is not liable for tax on his share of the income of a partnership of which he was a member.  George S. Hills, Esq., and J. E. Lawlor, C.P.A., for the petitioner.  Allen T. Akin, Esq., for the respondent.  VAN FOSSAN *541  This proceeding is brought for a redetermination of a deficiency in petitioner's income tax for the calendar year 1931, in the amount of $1,278.98, plus a penalty of $319.75.  The pleadings present issues concerning (1) the disallowance of a bad debt of $49,163.24; (2) the failure of respondent to assert the deficiency within the limitation period; (3) the assertion of the penalty; and (4) the question as to whether the income of petitioner, who is a nonresident alien, was derived from sources within the United States.  Petitioner limited his evidence and brief to the last issue above stated.  *542  FINDINGS OF FACT.  Petitioner is a nonresident alien residing in Amsterdam, Holland, and is engaged as a commission broker in grains and other commodities*856  in Europe.  Petitioner is a member of the firm of Cardozo & Boekman, Handelmaatschappij, Amsterdam, and Cardozo & Boekman, Allgemeinen, Hamburg, which are companies doing a brokerage business in the places indicated.  A firm was organized in the United States in April 1930, while petitioner was in New York for a short period of time.  Arrangement was made at that time for desk space in the office of the Rosenbaum Grain Corporation and a clerk was engaged to perform the work involved.  The clerk's work was to receive cables sent from Cardozo & Boekman, Amsterdam, and retransmit the cables to brokers in the United States.  The brokers executed the orders and confirmed their execution to the clerk, who in turn cabled the confirmations to Cardozo & Boekman, Amsterdam.  No cash was transmitted to or through the New York office and the expenses of the office were paid by the Rosenbaum Grain Corporation, which was reimbursed by Cardozo & Boekman, Amsterdam.  The New York office had a $500 bank account which was never used.  Cardozo & Boekman, New York, did business with no one except Cardozo & Boekman, Amsterdam, and occasionally Cardozo & Boekman, Hamburg.  Cardozo & Boekman, Amsterdam, *857  acted solely as commission brokers and did not buy or sell on their own account.  They had no clients other than those located in countries foreign to the United States.  All of the transactions of Cardozo & Boekman, New York, were cleared by outside brokers and the cash involved in the cash transactions was transmitted direct from abroad to the broker handling the contract in the United States.  After making the above mentioned arrangements for Cardozo & Boekman, New York, petitioner returned to Amsterdam prior to May 1, 1930, and did not return to the United States until April 1931, when he came seeking financial assistance for his business abroad.  Petitioner conducted no business while in the United States and returned to Amsterdam within two weeks.  The books of Cardozo & Boekman, New York, were opened on May 1, 1930, and were closed after all transactions had been cleared for the fiscal year ended April 30, 1931.  Cardozo & Boekman, New York, operated only during this period.  Cardozo & Boekman, New York, received no income during the taxable year in question from interest, dividends, rents or royalties, sale of real estate, or sale of personal property.  *543 *858  Petitioner and his partner were members of the New York Cotton Exchange and the Chicago Board of Trade.  A broker handling a commodity contract for a member of the New York Cotton Exchange and the Board of Trade, or for a firm whose members were members of these exchanges, charged a commission of $6.25 a round turn, which is the nomenclature of the trade for 5,000 bushels of grain.  The commission charged to a nonmember of the exchanges would be $12.50 a round turn.  Cardoze & Boekman, New York, being members of the Exchange and Board of Trade, were charged commissions on round turns at the rate of $6.25.  The foreign customers for whom the orders were placed were charged $12.50 a round turn.  This differential in commissions gave rise to the income in question.  On a partnership return filed by Cardozo & Boekman, New York for the taxable year involved, there was reported as gross income $118,795 and deductions were claimed of $126,778.66.  The deductions, in part, consisted of commissions of $55,870.70 paid to brokers and an alleged bad debt of $49,163.24.  The above mentioned partnership return was signed by petitioner on February 11, 1932.  Upon examination of the return*859  respondent determined that the bad debt deduction was not a proper one and that the firm had realized a profit from sources within the United States of $41,179.58.  OPINION.  VAN FOSSAN: The controlling question in the case at bar is whether income to petitioner, a nonresident alien individual, is, within the applicable statute, 1 gross income from a source within the United States.  Gross income from sources in the United States is defined in section 119(a) of the Revenue Act of 1928 as follows: * * * The following items of gross income shall be treated as income from sources within the United States: (1) INTEREST. - Interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise, not including - (A) interest on deposits with persons carrying on the banking business paid to persons not engaged in business within the United States and not having an office or place of business therein, or (B) interest received from a resident alien individual, a resident foreign corporation, or a domestic corporation, when it is shown to the satisfaction of the Commissioner that less than 20 per centum of*860  the gross income of such resident payor or domestic corporation has been derived from sources within the United States, as determined under the provisions of this section, *544  for the three-year period ending with the close of the taxable year of such payor preceding the payment of such interest, or for such part of such period as may be applicable, or (C) income derived by a foreign central bank of issue from bankers' acceptances; (2) DIVIDENDS. - The amount received as dividends - (A) from a domestic corporation other than a corporation entitled to the benefits of section 251, and other than a corporation less than 20 per centum of whose gross income is shown to the satisfaction of the Commissioner to have been derived from sources within the United States, as determined under the provisions of this section, for the three-year period ending with the close of the taxable year of such corporation preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence), or (B) from a foreign corporation unless less than 50 per centum of the gross income of such foreign corporation for the three-year period ending with the*861  close of its taxable year preceding the declaration of such dividends (or for such part of such period as the corporation has been in existence) was derived from sources within the United States as determined under the provisions of this section; (3) PERSONAL SERVICES. - Compensation for labor or personal services performed in the United States; (4) RENTALS AND ROYALTIES. - Rentals or royalties from property located in the United States or from any interest in such property, including rentals or royalties for the use of or for the privilege of using in the United States, patents, copyrights, secret processes and formulas, good will, trade-marks, trade brands, franchises, and other like property; and (5) SALE OF REAL PROPERTY. - Gains, profits, and income from the sale of real property located in the United States.  Section 119(c) defines gross income from sources without the United States as follows: (1) Interest other than that derived from sources within the United States as provided in subsection (a)(1) of this section; (2) Dividends other than those derived from sources within the United States as provided in subsection (a)(2) of this section; (3) Compensation for*862  labor or personal services performed without the United States; (4) Rentals or royalties from property located without the United States or from any interest in such property, including rentals or royalties for the use of or for the privilege of using without the United States, patents, copyrights, secret processes and formulas, good will, trade-marks, trade brands, franchises, and other like properties; and (5) Gains, profits, and income from the sale of real property located without the United States.  In , it was held that the income of a foreign corporation, in order to be taxable, must fall within the limited scope of the statute.  The Board said: Section 119 contains no definition of income of a general or all-inclusive nature such as is found in section 22(a) and, therefore, the income shown to be taxed must come strictly within the limits of the statutory requirements.  *545  The partnership of which petitioner was a member received no income during the taxable year from interest, dividends, rents or royalties, or sale of real estate.  The only source of income within the United States listed*863  in the statute, under which the respondent could urge that petitioner is liable for tax is the one taxing personal services.  Petitioner's contention is that all the personal services giving rise to the income in question were performed in Amsterdam, Holland, or Hamburg, Germany.  We are of the opinion that this conclusion is supported by the record.  The transactions referred to in the findings of fact were all initiated and consummated in Europe.  No service was performed by petitioner in the United States.  The sole purpose of the New York office was the coding and decoding of cables and transmission thereof to the proper person or firm, all of which was done by a clerk.  No money was handled, no contracts were entered into by the New York office.  The record makes it clear that petitioner was not in the United States during the taxable period, except for a short time in April 1931, when he was here for the sole purpose of seeking financial assistance for his business abroad.  We conclude and hold that petitioner did not render personal services within the United States which are taxable under the statute.  There being no deficiency, there is no penalty.  Decision will be*864  entered for the petitioner.Footnotes1. Sec. 212(a).  Revenue Act of 1928. ↩