126 T.C. No. 5
UNITED STATES TAX COURT
DAVE ARNETT, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8866-03. Filed January 25, 2006.
P is a U.S. citizen who earned wage income while
working in Antarctica. P excluded this wage income on
his 2001 Federal income tax return. R issued a notice
of deficiency in which R determined that the excluded
wage income earned in Antarctica is taxable.
Held: The wage income P earned in Antarctica is
not excludable from income under sec. 911, I.R.C.
Larry D. Harvey, for petitioner.
Randall L. Preheim, for respondent.
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OPINION
VASQUEZ, Judge: Respondent determined an $8,066 deficiency
in petitioner’s 2001 Federal income tax and a $1,613.20 section
66621 penalty. After a concession,2 the sole issue for decision
is whether section 911 entitles petitioner to exclude from gross
income the wage income he earned in Antarctica in 2001.
This case is before the Court on respondent’s motion for
summary judgment and petitioner’s motion for partial summary
judgment under Rule 121. This is the lead case in an
unconsolidated group of approximately 150 cases of similarly
situated taxpayers who earned wage income in Antarctica and who
make similar arguments.
Background
At the time of the filing of the petition, petitioner
resided in Hayward, Wisconsin. During 2001, petitioner was
employed by Raytheon Support Services Co. (Raytheon). Raytheon
is under contract with the National Science Foundation (NSF), an
agency of the United States, for certain research conducted in
Antarctica. During 2001, petitioner, a U.S. citizen, resided and
performed services at McMurdo Station in Ross Island, Antarctica.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
2
Respondent conceded that no penalty pursuant to sec. 6662
is due from petitioner for 2001.
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On his 2001 Federal income tax return, petitioner excluded
$48,894 of wage income earned and received as an employee of
Raytheon for services performed in Antarctica during tax year
2001.
In the notice of deficiency, respondent determined that the
income petitioner earned in Antarctica is taxable and is not
excludable under section 911.
Discussion
I. Summary Judgment
Respondent moved for summary judgment on the issue of
whether section 911 entitles petitioner to exclude from U.S.
taxation $48,894 of wage income earned and received as an
employee of Raytheon for services performed in Antarctica during
tax year 2001.
Petitioner moved for partial summary judgment on the issue
of whether the income he earned in Antarctica is foreign earned
income within the meaning of section 911. Petitioner contends
that the income he earned in Antarctica “was not earned from
sources within the United States” and that he should be entitled
to the foreign earned income exclusion under section 911.
Petitioner’s motion is for partial summary judgment because even
if the Court finds for petitioner that the income he earned in
Antarctica is foreign earned income, petitioner must still prove
that he otherwise meets the requirements of section 911.
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Rule 121(a) provides that either party may move for summary
judgment upon all or any part of the legal issues in controversy.
Full or partial summary judgment may be granted only if it is
demonstrated that no genuine issue exists as to any material fact
and that the issues presented by the motion may be decided as a
matter of law. See Rule 121(b); Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th
Cir. 1994).
We conclude that there is no genuine issue as to any
material fact and that a decision may be rendered as a matter of
law.
II. Gross Income in General
Section 61(a) provides that gross income means all income
from whatever source derived. Thus, citizens of the United
States generally are taxed on income earned outside the United
States unless the income is specifically excluded. Specking v.
Commissioner, 117 T.C. 95, 101-102 (2001), affd. sub nom. Haessly
v. Commissioner, 68 Fed. Appx. 44 (9th Cir. 2003), affd. sub nom.
Umbach v. Commissioner, 357 F.3d 1108 (10th Cir. 2003).
Exclusions from income are construed narrowly, and taxpayers must
bring themselves within the clear scope of the exclusion. Id.
III. Section 911
Section 911(a) provides in part that a "qualified
individual" may elect to exclude from gross income his or her
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“foreign earned income”. Section 911(b)(2) limits the amount of
the exclusion for foreign earned income to $78,000 for 2001.
Section 911(b)(1)(A) defines “foreign earned income” to
mean, in general, “the amount received by such individual from
sources within a foreign country or countries which constitute
earned income attributable to services performed by such
individual” during the period set forth in section 911(d)(1).
Section 911(b)(1)(B) excludes from foreign earned income certain
amounts not relevant to this case.
Section 911(d)(1) defines “qualified individual” for
purposes of section 911 to mean:
an individual whose tax home is in a foreign country and who
is–-
(A) a citizen of the United States and establishes
to the satisfaction of the Secretary that he has been a
bona fide resident of a foreign country or countries
for an uninterrupted period which includes an entire
taxable year, or
(B) a citizen or resident of the United States and
who, during any period of 12 consecutive months, is
present in a foreign country or countries during at
least 330 full days in such period.
Section 911(d)(9) authorizes the Secretary to prescribe
“regulations as may be necessary or appropriate to carry out the
purposes of” section 911. Pursuant to that grant of authority,
the Secretary promulgated proposed regulations under section 911
in 1983, see 48 Fed. Reg. 33007 (July 20, 1983), and final
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regulations in 1985, see T.D. 8006, 1985-1 C.B. 224, that apply
to the year in issue.
These regulations are legislative; therefore, they are
entitled to Chevron deference and are binding on the courts
unless procedurally defective, arbitrary or capricious in
substance, or manifestly contrary to the statute. United States
v. Mead Corp., 533 U.S. 218, 227 (2001); Chevron U.S.A. Inc. v.
Natural Res. Def. Council, Inc., 467 U.S. 837 (1984); Specking v.
Commissioner, supra at 115.
The Internal Revenue Code (Code) does not define “foreign
country” for purposes of section 911. However, section 1.911-
2(h), Income Tax Regs., provides:
(h) Foreign country. The term “foreign country”
when used in a geographical sense includes any
territory under the sovereignty of a government other
than that of the United States. It includes the
territorial waters of the foreign country (determined
in accordance with the laws of the United States), the
air space over the foreign country, and the seabed and
subsoil of those submarine areas which are adjacent to
the territorial waters of the foreign country and over
which the foreign country has exclusive rights, in
accordance with international law, with respect to the
exploration and exploitation of natural resources.
[Emphasis added.]
The parties disagree regarding whether this definition of
“foreign country” includes Antarctica. If Antarctica is a
“foreign country” for purposes of section 911, petitioner may be
able to exclude from income the wage income he earned in
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Antarctica. If Antarctica is not a “foreign country” for
purposes of section 911, petitioner must include in income the
wage income he earned in Antarctica.
IV. Caselaw
In Martin v. Commissioner, 50 T.C. 59 (1968), we decided a
similar issue--whether a U.S. citizen can exclude income earned
in Antarctica. We held that Antarctica is not a foreign country
within the meaning of section 911(a)(2) and section 1.911-
1(b)(7), Income Tax Regs., as in effect in 1962.
In Martin, the taxpayer, as an employee of a private tax-
exempt U.S. organization, took part in an Antarctic expedition.
The taxpayer claimed, as does petitioner, that his earnings in
Antarctica were exempt from tax under section 911, and the only
question raised in this respect in Martin was whether Antarctica
is a foreign country.
In finding that Antarctica is not a foreign country within
the meaning of section 911(a)(2), we relied on a treaty effective
June 23, 1961, between the United States and a number of other
nations regarding Antarctica. The Antarctic Treaty, Dec. 1,
1959, 12 U.S.T. 794. The treaty provides that Antarctica is to
be used for peaceful purposes, that scientific investigation
there is to be encouraged, and that all questions of sovereignty
over it are to be put in abeyance.
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We also relied on the language of section 1.911-1(b)(7),
Income Tax Regs., as in effect at the time, which defined
“foreign country” as follows: “The term ‘foreign country’ means
territory under the sovereignty of a government other than that
of the United States and includes the air space over such
territory. It does not include a possession or Territory of the
United States.”
We noted that in the light of the international treaty
concerning Antarctica, the U.S. Department of State did not
consider Antarctica to be under the sovereignty of any
government. Therefore we held that Antarctica was not a foreign
country within the meaning of the regulations or of section 911
as then in effect. Martin v. Commissioner, supra at 62; see also
Rev. Rul. 67-52, 1967-1 C.B. 186.
The treaty regarding Antarctica is still in effect, and
therefore Antarctica remains a sovereignless region.3 Petitioner
nevertheless contends that Martin has been overruled and
superseded by the holding of the Supreme Court of the United
States in Smith v. United States, 507 U.S. 197 (1993), and the
holding of the U.S. District Court for the District of
Massachusetts in Smith v. Raytheon Co., 297 F. Supp. 2d 399 (D.
Mass. 2004).
3
The treaty was in force as of Jan. 1, 2005. Treaties in
Force, http://www.state.gov/documents/organization/53776.pdf.
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In Smith v. United States, supra at 198, the issue was
“whether the Federal Tort Claims Act (FTCA), 28 U.S.C. §§
1346(b), 1402(b), 2401(b), 2671-2680 (1998 ed. and Supp. II),
applies to tortious acts or omissions occurring in Antarctica, a
sovereignless region without civil tort law of its own.” The
plaintiff, Mrs. Smith, brought a wrongful-death action against
the United States under the FTCA for the death of her husband,
Mr. Smith. At the time of his death, Mr. Smith was employed as a
carpenter at McMurdo Station on Ross Island, Antarctica, for a
construction company under contract to the NSF, the same agency
that had a contract with Raytheon in the instant case. Mr. Smith
died after falling into a crevasse in Antarctica.
The Supreme Court held that Antarctica is a foreign country
for purposes of the FTCA. Id. at 201-202. The Supreme Court
reasoned that Mrs. Smith’s claim was barred by the foreign-
country exception of the FTCA under 28 U.S.C. sec. 2680(k), which
precludes the exercise of jurisdiction over “any claim arising in
a foreign country.” The Court based its conclusion on the
particular language of the FTCA. Id. at 201-205.
In Smith v. Raytheon Co., supra, the U.S. District Court for
the District of Massachusetts held that Antarctica is a foreign
country for purposes of the Fair Labor Standards Act (FLSA). The
plaintiffs claimed that the FLSA required their employer,
Raytheon, which had entered into a contract with the NSF to
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perform services in Antarctica, to pay them overtime for work
they performed in Antarctica. Id. at 400. The FLSA requires an
employer to pay an employee “at a rate not less than one and one-
half times the regular rate at which he is employed” for the
hours the employee works in excess of 40 hours per week. 29
U.S.C. sec. 207(a). However, there are several exceptions to
this rule including geographical limits. Certain provisions of
the FLSA, including section 207, do not apply where employee
services are performed within a foreign country. 29 U.S.C. sec.
213(f). The court concluded that Antarctica is a foreign country
for purposes of the FLSA and based its conclusion on the
particular language of the FLSA. Smith v. Raytheon Co., supra at
401-402.
In the instant case, we are revisiting the same issue we
discussed in Martin v. Commissioner, supra. Although the
statutory and regulatory provisions discussed in Martin have been
modified and there have been caselaw developments since Martin,
these changes do not affect the conclusion that petitioner’s
income earned in Antarctica is subject to tax in the United
States and petitioner does not qualify for the foreign earned
income exclusion under section 911.
Moreover, both Smith v. United States, supra, and Smith v.
Raytheon Co., supra, discuss the issue of whether Antarctica is a
foreign country within the context of statutes other than the
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Code. The provisions of the Code and the applicable regulations
are controlling herein. Therefore, we do not find Smith and
Raytheon Co. to be controlling, and we will not overrule our
holding in Martin that Antarctica is not a foreign country for
purposes of the Code.
V. Conclusion
The foreign earned income exclusion of section 911 applies
to amounts received “from sources within a foreign country or
countries”. As Antarctica is not a foreign country for purposes
of the Code, we conclude that petitioner is not entitled to
exclude the wage income he earned in Antarctica from income for
2001 pursuant to section 911. See also sec. 863(d) (providing
that income earned in Antarctica by a U.S. person is sourced in
the United States).
In reaching all of our holdings herein, we have considered
all arguments made by the parties, and, to the extent not herein
discussed, we find them to be irrelevant or without merit.
To reflect the foregoing,
An appropriate order and
decision will be entered granting
respondent’s motion for summary
judgment and denying petitioner’s
motion for partial summary
judgment.