T.C. Summary Opinion 2007-115
UNITED STATES TAX COURT
DAVID A. POPPER AND CLAUDETTE B. STULZ, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23407-05S. Filed July 3, 2007.
David A. Popper and Claudette B. Stulz, pro sese.
Carrie L. Kleinjan, for respondent.
DEAN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code.
Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for the year at issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure. Pursuant to section 7463(b), the decision to be
entered is not reviewable by any other court, and this opinion
shall not be treated as precedent for any other case.
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Respondent determined for 2003 a deficiency in petitioners’
Federal income tax of $4,271. After a concession by
petitioners,1 the sole issue for decision is whether certain
payments received by Claudette B. Stulz (petitioner) are military
allowances excludable from petitioners’ gross income.
Background
The stipulation of facts and the exhibits received into
evidence are incorporated herein by reference. At the time the
petition in this case was filed, petitioners resided in
Jacobstown, New Jersey.
During 2003 petitioner was retired from the U.S. military
and was not on active duty. She was, however, employed as a
Junior Reserve Officers’ Training Corps (JROTC) instructor for
the Township of Winslow Board of Education (Township). She
performed her JROTC instruction at Winslow Township High School
located at 10 Coopers Folly Road, Atco, New Jersey.
The Township issued to petitioner a Form W-2, Wage and Tax
Statement, reporting wages of $43,466.24. Petitioners failed to
report on their joint Federal income tax return $16,965 of
petitioner’s Township wages under the belief that a portion of
the JROTC instructor wages is nontaxable. The statutory notice
of deficiency issued by respondent determined that all of the
1
Petitioners agree that additional pension and annuity
income of $108 must be included in income for 2003.
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wages reported by the Township are includable in petitioners’
gross income for the year.
Discussion
Petitioners dispute not the receipt of the contested income,
but rather its characterization as taxable compensation. The
issue for consideration, therefore, is whether the pay that
petitioner received as a JROTC instructor should be treated as
including nontaxable military allowances or whether such pay, as
argued by respondent, was entirely taxable compensation for
services rendered.
The Commissioner’s deficiency determinations are presumed
correct, and taxpayers generally have the burden of proving these
determinations are incorrect. Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933). Under certain circumstances, however,
section 7491(a) may shift the burden to the Commissioner with
respect to a factual issue affecting liability for tax. The
material facts in this case, however, are not in dispute. The
case is decided by applying the law to the undisputed facts, and
section 7491(a) is inapplicable.
Gross income means all income from whatever source derived.
Sec. 61(a). Military pay received by members of the Armed Forces
is within the scope of section 61(a). See sec. 1.61-2(a)(1),
Income Tax Regs. Congress may, if it chooses, specifically
exempt certain items from gross income. See Commissioner v.
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Glenshaw Glass Co., 348 U.S. 426, 430 (1955). For example,
certain military compensation, such as that received by members
of the Armed Forces serving in combat zones, is excluded from
gross income. Sec. 112. Military subsistence, uniform
allowances, and other amounts received as commutation of quarters
are excludable from gross income. See sec. 1.61-2(b), Income Tax
Regs.
Petitioners contend that the unreported portion of the JROTC
instructor’s pay represents “qualified military benefits” that
are excludable from gross income pursuant to section 134 and 10
U.S.C. section 2031(d) (2000). Petitioners rely on the statutes
and copies of ARMY JROTC Instructor Monthly Statements. The
latter documents calculate petitioner’s pay reimbursed to the
school “on your behalf”. Petitioner argues that the statements
clearly show pay and allowances directly from U.S. Army funds.
Department of Defense (DOD) Directive No. 1205.13 (Dec. 26,
1995), provides that the total compensation received by a
retiree-instructor is to be equal to the difference between
retired pay and active duty pay plus “allowances” that the
retiree-instructor would receive if ordered to active duty. DOD
Instruction 1205.13, reissued and updated February 6, 2006,
states that for calculating instructor pay, active duty pay is
limited to basic pay and allowances “which the individual would
receive if called to active duty.” DOD Instruction 1205.13,
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E.1.1.2.
Petitioners propose that 10 U.S.C. sec. 2031(d) establishes
equitable parity in the compensation of retired and active duty
instructors. Petitioners argue for an exclusion from income
equal to the sum of the allowances received by active duty
members of the same rank. Otherwise, the disposable income that
petitioner would receive as a JROTC instructor would be less than
that of an active duty officer performing identical services.
The issues petitioners raise already have been addressed by
this Court. See Lyle v. Commissioner, 76 T.C. 668 (1981), affd.
without published opinion 673 F.2d 1326 (5th Cir. 1982); Bynam v.
Commissioner, T.C. Memo. 2001-142; Tucker v. Commissioner, T.C.
Memo. 1999-373.
In Lyle v. Commissioner, supra, the Court held that retired
military personnel may not rely on 10 U.S.C. section 2031(d) to
exclude from income wages received as a JROTC instructor. The
Court found: (1) The plain language of 10 U.S.C. section 2031(d)
does not authorize an exclusion from gross income for amounts
paid to JROTC instructors not on active duty; and (2) JROTC
instructors are employed by the local school district and are
paid for services, partly funded by the Federal Government,
rendered to that school district.
Petitioner received in 2003 her regular retired pay to which
she was entitled whether or not she performed any services. She
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received no other compensation or allowances from the Federal
Government. Although it is true that the Federal Government
reimburses school districts for one-half of the “additional
amount” paid to retired members, the ultimate burden of
disbursing funds and establishing compensation scales lies with
the employing school. See 10 U.S.C. sec. 2031(d)(1); Lyle v.
Commissioner, supra at 674; Tucker v. Commissioner, supra. The
employing institution is responsible for issuing compensation
checks and Forms W-2 to all of its employees.
Because the Federal Government does not assume any kind of
employer status, no portion of the compensation that petitioner
received as a JROTC instructor could be classified as a
subsistence, quarters, or variable housing allowance from the
Armed Forces. Lyle v. Commissioner, supra at 674. The statutory
provision, in conjunction with the implementing directives issued
by DOD, establishes a formula for computing the minimum
“additional amount” of compensation retired military instructors
are entitled to receive from the employing school and the maximum
portion of such “additional amount” that will be reimbursed by
the Federal Government. Id. at 675. The “additional amount” is,
in effect, an inducement offered to persuade retired personnel to
accept employment as JROTC instructors. Id. at 676. Active duty
pay is merely a guideline in determining the level at which JROTC
instructors are to be compensated.
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In Lyle v. Commissioner, supra at 674-675, the Court
explained why retired members serving as JROTC instructors do not
receive nontaxable “allowances”. Only members of the military
who are entitled to receive “basic pay” are entitled to an
allowance for subsistence, in lieu of meals in kind, and a basic
allowance for quarters, unless quarters provided by the military
are occupied by the member. See 37 U.S.C. secs. 402 and 403
(2000). Petitioner did not qualify for these allowances because
she did not receive “basic pay”. She did not receive “basic pay”
because she was not on “active duty”. See 37 U.S.C. sec. 204
(2000). Petitioner was not on “active duty” because, as a
retired military JROTC instructor, she “is not, while so
employed, considered to be on active duty or inactive duty
training for any purpose.” 10 U.S.C. sec. 2031(d)(2).
Petitioners object to the Court’s “reliance” on the language
of 10 U.S.C. section 2031(d)(2). They argue that the provision
is in contravention of other Federal rules. Petitioners produced
a memorandum dated September 9, 1993, from the Department of the
Army serving notice that retired military are allowed to use
“government housing”. They contend that this proves petitioner
is on “active duty” and entitled to allowances.
In Army Regulation (AR) 210-50 (revision effective March 26,
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1999)2, par. 3-40, Authority to Occupy Army Lodging Facilities,
“When space is available,” however, it states that paid retirees
may occupy UPH(TDY) (unaccompanied personnel housing, temporary
duty) or GH (guest housing) facilities. On equal footing with
paid retirees for such housing on a space available basis are
certain employees of the U.S. Public Health Service, National
Oceanographic and Atmospheric Administration, and foreign
military personnel. Surely, petitioners would not argue that the
provision means that those Federal employees and foreign military
personnel are on active duty with and are entitled to allowances
from the U.S. Army. There is no connection between the
availability of housing and the operation of 10 U.S.C. sec.
2031(d)(2).
Petitioners have failed to take note of a more relevant
provision. Army Regulation (AR) 145-2, Junior Reserve Officers'
Training Corps Program, Organization, Administration, Operation,
and Support (revision effective March 24, 2000), par. 4-20,
states that “Although an instructor may receive an amount ‘equal’
to the military pay and allowances he or she would receive if on
active duty, the payments he or she receives are not, in fact,
military pay and allowances paid by the Army.”
2
AR 210-50 was revised as of October 3, 2005. The substance
of the revised regulation is the same. See AR 210-50, 3-3
(Eligibility for family housing), 3-33 (Assignment of housing to
civilian employees), 3-34 (Assignment of housing to foreign
military personnel).
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In their oral and written presentations to the Court,
petitioners evince a belief that the statutory interpretations as
expressed in the Court’s opinions cited above are incomplete.
According to petitioners, the opinion of the Court in Lyle did
not take into consideration that a JROTC instructor has a “dual
relationship” with the Army and the school. The Court, however
did address this issue in Lyle v. Commissioner, 76 T.C. at 674.
There the Court notes that:
Although the Federal Government reimburses the school
districts for one-half the “additional amount” paid to the
retired officers, the responsibility for disbursing these
funds and determining the ultimate amount of the retired
officers’ compensation rests with the employing school.
Since the school, and not the Federal Government, is the
employer, it is difficult to see how any compensation
petitioner received from the school could be considered a
subsistence or quarters allowance received from the Federal
Government. We find that while petitioner served as a Junior
ROTC instructor, his sole employment relationship was with
the Ector County School District and that he did not receive
any nontaxable quarters or subsistence “allowances” from the
district.
Cadet Command Regulation (CCR) 145-2, par. 4-4 (May 1,
2006), submitted as evidence by petitioners, comports with the
finding of the Court in Lyle. That provision states that the
“school or school board is the employing agency of all JROTC
personnel” and that the Army will reimburse the school in
accordance with AR 145-2. According to the regulation, although
the Army is restricted in the amount it can reimburse the school
or school board, the school or school board is not restricted in
the amount it can pay a JROTC instructor.
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Petitioners may be unaware of two Federal District Court
opinions issued before this Court’s decision in Lyle. In Scott
v. United States, 33 AFTR 2d 74-858, 74-1 USTC par. 9281 (D.S.C.
1973), the District Court found that 10 U.S.C. section 2031
merely sets out a formula to calculate the salary of retired
members serving as JROTC instructors. It further found that
military “allowances” are payable only to members entitled to
“basic pay”, only active duty members are entitled to basic pay,
and that the taxpayer, retired from the military, was not on
active duty while serving as a JROTC instructor. The decision by
the Federal District Court in Sweeney v. United States, 34 AFTR
2d 74-5700, 74-2 USTC par. 9672 (N.D. Ga. 1974), discusses
favorably and is in accord with Scott. See also Tucker v.
Commissioner, T.C. Memo. 1999-373 (even where 100 percent of
taxpayer’s salary was reimbursed under special condition by the
Federal Government, JROTC salary not excludable). Petitioners
have pointed to no court decision to support their position.
In view of the foregoing, the Court holds that no portion of
the JROTC pay that petitioner received from the Township is
excludable from gross income.
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The Court has considered all of the other arguments made by
petitioners, and, to the extent not specifically discussed
above, the Court concludes those arguments are without merit.
To reflect the foregoing,
Decision will be entered
for respondent.