Court Opinion

ID: 9451785
Source: CourtListenerOpinion
Date Created: 2023-08-04 17:23:35.735619+00
Date Added: 2024-06-11T17:32:53.065447
License: Public Domain

FAHY, Circuit Judge
(dissenting):
I would affirm the Tax Court, whose decision accords with Krichbaum v. United States, 138 F.Supp. 515 (E.D. Tenn.).
Admittedly, all along, taxpayer was an employee of the United States, in an excepted position,1 and admittedly he could *68look only to the United States for payment of his salary. But the provision of the tax statute now construed looks to the “source” of the income to be exempted, not to the employer-employee relationship. The provision must be construed in conjunction with the Export-Import Bank Act of 1945 2 and the Mutual Security Act of 1954.3 Under those Acts certain financial arrangements were made between the United States and Iran, as a result of which Iran and not the United States bore the burden of taxpayer’s salary while he was on loan to Iran. Except in the formal sense that his salary was remitted to him by check of the United States it was paid by Iran. The payment, though at times referred to as reimbursement, was from a deposit of funds Iran made with the United States as now explained.
Iran had entered into a loan agreement with the Export-Import Bank of Washington. A maximum line of credit of $5,000,000 was established with the Bank. The agreement provided for loan to Iran of employees of the Bureau of Public Roads. It was pursuant to this that respondent husband, an employee of the Bureau, was loaned to Iran. The agreement further provided that compensation of such personnel would be paid or reimbursed out of the “Dollar Working Fund” established under the agreement and actually on deposit with the United States Treasury Department as a trust fund entitled “Technical Assistance, United States Dollars Advanced from Foreign Government, Bureau of Public Roads.” Initially $200,000 was placed in the Dollar Working Fund. The agreement provided that the Fund should be replenished by Iran from time to time at the request of the Bureau, and the parties have stipulated that such funds “have been advanced by foreign governments, as a general rule, prior to the actual expenditure of moneys by the United States.” It would appear the requisite deposit by Iran preceded the payment of Wolfe’s salary; but even if there were a temporary time lapse this would have no significance. For taxpayer’s salary here involved came out of a fund established by Iran in the manner described. It was not paid out of any money belonging to the United States. As the Tax Court found,
Salaries paid to Bureau of Public Roads personnel, including taxpayer, who was assigned to the Iran Division throughout 1959 and through July 10, 1960, were either reimbursed from or were directly charged against the Treasury account “Dollar Working Fund” previously mentioned. This trust fund was not physically segregated in any way. Thus taxpayer was paid by a check drawn by the Treasurer of the United States on proceeds of this Dollar Working Fund. The funds credited to this Treasury account were not appropriated by Congress for salary expenses for Bureau of Public Roads personnel, but were funds provided by the Imperial Government of Iran.
Consideration of the objectives of the provisions under which American personnel are obtained by foreign governments supports the view that the salary was tax exempt as paid by Iran. The statutes under which the monetary loan to Iran was made and personnel obtained, set forth the objectives to be in part “to aid in financing and to facilitate exports and imports and the exchange of commodities between the United States * * and any foreign country or the agencies or nationals thereof. * * * ”4 Under the agreement with Iran, in addition to loan of men, the funds borrowed were to be expended mainly in the United States in the purchase of equipment and the like. This is an immediate and measurable benefit to the economy of the United States. The loan of the men, however, was intended to have a long range effect on our economy by putting Iran in a *69better position to engage in foreign commerce through improved internal transportation. These benefits to the United States are achieved without reference to whether appellee’s salary is taxed by the United States.
Moreover, legislative history shows that the general exemption was intended to encourage technical personnel to go abroad in furtherance of our political and economic objectives; that is, to encourage a bridge engineer like Mr. Wolfe to accept an assignment in Iran. When the exception “(except amounts paid by the United States or any agency thereof)” was added by the 72d Congress the legislators were focusing on those who were in the service of the United States and were abroad as a regular and ordinary incident of that service, namely, military and diplomatic personnel, not the volunteer who must be induced to go abroad. As Senator Reed said: “I was proposing to tax Americans who I think are unfairly exempted now, like officers of our military service and our Diplomatic Service * * 75 Cong.Rec. 10411 (1932). In adding what is now subsection (a) (2) of Section 911, which is our concern here, the Senate Committee specifically stated that this exemption was meant to encourage technical personnel to agree to work abroad for short periods of time in furtherance of our foreign aid policy: “ * * * managers, technicians, and skilled workmen * * * are induced to go abroad for periods of 18 to 36 months to complete specific projects. Your committee believes, in accord with the point 4 program, that it is particularly desirable to encourage men with technical knowledge to go abroad.” S.Rep. 781, 82d Cong., 1st Sess. 53 (1951); U. S. Code Congressional and Administrative Service 1951, p. 2024.
In a lengthy and well-balanced review of the history of the statute up to 1956 the District Court for the Eastern District of Tennessee, in the case of Krichbaum v. United States, supra, came to the conclusion reached by the Tax Court in the present case. The court there held that wages earned in Ethiopia by an employee of the Bureau loaned to that country, borne by money borrowed from the International Bank and transferred to the Government of the United States to cover the salary and other expenditures, were not to be included in gross income as “amounts paid by the United States or any agency thereof.” The court said:
If the United States is not the debtor but simply pays the amount which is in fact a debt of another debtor the amount so paid is within the exemption and without the exclusion in the exemption.
In the several instances in which Congress has amended the statute, three times since Krichbaum, no effort appears to have been made to clarify further the particular problem involved in Krichbaum and in our case. Since the problem has had the continuing attention of Congress through the years, it is fair to give some weight to Congressional silence in the face of three other amendments to Section 911 in the nine years since Krichbaum.
Absent further Congressional action it seems to me the Tax Court in our case, and the District Court in Krichbaum, reached the correct decision; that is, that since Iran actually paid the salary it should not be held to be an amount “paid by the United States or any agency thereof” within the intent and meaning of Section 911, though transmitted by a check of the United States. The amount was not taken from funds of the United States.

. The majority relies in good part on government employee benefit programs in which the appellee was allowed to participate by contributing. The government also made small contributions to two of these programs. These contributions grew out of the employer-employee relationship, leaving unanswered in the circumstances of this case the question whether the United States or Iran paid the amounts of salary involved.

. 12 U.S.C. §§ 635-635i (1964 ed.).

. Mutual Security Act of 1954, ch. 937, § 505(b), 68 Stat. 851.

. Export-Import Bank Act of 1945, 12 U.S.C. § 635(a) (1964 ed.). Also see Mutual Security Act of 1954, ch. 937, § 301, 68 Stat. 841.