dissenting: I respectfully disagree with the majority which places the petitioner herein within the parenthetical exception of section 911(a)(2) because he earned his overtime salary while acting in his capacity as an employee of the United States. Such a conclusion is not supported by the plain language of that section.
The exception to the general exclusion of section 911(a)(2) applies to "amounts paid by the United States or any agency thereof.” (Emphasis supplied.) To me, the words "paid by” refer to the source of the funds, which, until now, has been the unwavering position of this Court. This has been so both where a taxpayer has been employed by the United States and receiving funds, the source of which was without the United States (Mooneyhan v. Commissioner, 47 T.C. 693 (1967), revd. 404 F.2d 522 (6th Cir. 1968); Wolfe v. Commissioner, 43 T.C. 572 (1965), revd. 361 F.2d 62 (D.C. Cir. 1966)), and where a taxpayer was not employed by the United States, but received funds, the source of which was the United States (Teskey v. Commissioner, 30 T.C. 456 (1958)).1 Section 911(a)(2) by its own terms exempts "amounts received from sources without the United States.” (Emphasis supplied.) It is only reasonable to interpret the words "paid by” in the parenthetical of that very sentence to refer to the United States as the source of the income.
Although it is true that one is usually paid by the individual or entity that employs him, this is not always the case, and the instant litigation presents just such a situation.
It seems that the majority herein would continue to interpret "paid by” to refer to the source of funds where the taxpayer is not employed by the United States (Teskey v. Commissioner, supra), but would have those words refer to the taxpayer’s employer where that employer is the United States, thus overruling Mooneyhan v. Commissioner, supra, and Wolfe v. Commissioner, supra. The inconsistency is apparent and makes the section monolithic. Perhaps the majority is not being inconsistent at all, but rather is merely adding another classification to the exception of section 911(a)(2) for "individuals employed by the United States” because that is, they assert, the only reasonable interpretation of that section. In fact, it is entirely unreasonable.
On August 13, 1981, Congress rewrote section 911. See section 111(a) of the Economic Recovery Tax Act of 1981, Pub. L. 97-34, 95 Stat. 172, 190, August 13, 1981, effective for taxable years beginning after December 31, 1981 (hereinafter new section 911). The relevant exception to the exclusion from gross income now provides that foreign earned income shall not include amounts "paid by the United States or an agency thereof to an employee of the United States or an agency thereof.” Sec. 911(b)(l)(B)(ii). This is a clear expansion of present benefits to any individual who is not both paid by and employed by the United States. H. Rept. 97-201, at 62 (1981); S. Rept. 97-144, at 37 (1981); H. Rept. 97-215 (Conf.), at 204 (1981).
Although new section 911 does not govern the outcome of the instant litigation, it does aid in the interpretation of current law. Under present law, anyone "paid by” the United States is denied the benefits of the exclusion. New section 911 limits the scope of "paid by” to employees of the United States. See H. Rept. 97-215, supra. In both cases, however, the, operative element of the exception to benefits is the fact that one be "paid by the United States or an agency thereof.” Thus, under new section 911, the question of employment is never addressed until it is determined that one is in fact paid by the United States. This indicates, I submit, that under present section 911(a)(2), the question of employment is merely never addressed. If one is paid by the United States, he is not entitled to the exclusion, and if he is not so paid, he is entitled to the exclusion. One’s employment is irrelevant in determining eligibility for the section 911 benefits.
The fact that there is to be a dual requirement of "paid by” and "employed by” as the condition for denial of the earned income exclusion clearly indicates that the current section 911(a)(2) exception for amounts "paid by” does not consider relevant the identity of one’s employer as the United States.2 The majority herein has chosen to entirely ignore the significance of new section 911 as it sheds light on the correct interpretation of current law, i.e., that "paid by” cannot be reasonably interpreted to consider the identity of one’s employer.
The section 911(a)(2) exclusion was designed specifically as a tax benefit to encourage "managers, technicians, and skilled workers” to go abroad. S. Rept. 781, 82d Cong., 1st Sess. 53 (1951); 1951 C.B. 458, 495, 496. Judge Fahy, dissenting in Commissioner v. Wolfe, supra, noted that, notwithstanding that the taxpayer was an employee of the United States and that he could look only to the United States for payment of his salary, section 911(a)(2) looks only to the source of income, not the employer-employee relationship. He suggested that by considering execution and delivery of the salary checks, the majority ignored substance in favor of the form of the transaction. Finally, Judge Fahy took exception with the majority’s view of the thrust of the legislative history. He stated (361 F.2d at 69):
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 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.* * *
Moreover, to consider relevant, as the majority does, that the petitioner was paid by U.S. Treasury checks, and that he could look only to the United States in case of nonpayment, ignores the fundamental principle of Federal tax law that courts will not permit the form of a transaction to belie its substance. Weiss v. Stearn, 265 U.S. 242 (1924); Commissioner v. Wolfe, supra at 69. The provisions of 19 U.S.C., sections 267 and 1451 (1976) leave no room for doubt that the United States is a mere conduit for overtime pay of customs employees in situations such as those presented herein. Moreover, the risk of nonpayment referred to by the majority is nonexistent for all practical purposes. Section 1451 of title 19 of the U.S. Code provides that: "Before any such special license to unlade shall be granted * * * [the prospective licensee] shall be required to deposit sufficient money to pay, or to give a bond * * * conditioned to pay.” (Emphasis supplied.) Thus, technically, the airline does not reimburse the United States, but it pays in advance for the services. Additionally, in the case of a bond, both the airline and the bonding company would have to become insolvent before the Government’s risk from nonpayment materialized. I submit that such a possibility is extremely remote.
Finally, I would like to address the, majority’s position that Mooneyhan and Wolfe can be distinguished from the instant case. While it may be that petitioner herein was performing an "intrinsically governmental function” performed "exclusively under government auspices,” as opposed to performing services for a foreign government, the distinction is without relevance. To suggest that the nature of the service performed determines the definition of the words "paid fry” is pure sophistry. "Paid by” is a phrase referring to the one who pays. "Paid for” is a phrase one would use to refer to the reason for payment. This latter phrase does not appear in' section 911(a)(2) and there is no reason for this Court to write it into that section.
Furthermore, because of the statutory requirements of 19 U.S.C. secs. 267 and 1451 (1976), the instant case presents an even stronger case than Mooneyhan v. Commissioner, supra, and Wolfe v. Commissioner, supra, both of which relied merely on international agreements to determine the identity of the actual payor. Moreover, we can think of no valid reason why the mandate of 19 U.S.C. secs. 267 and 1451 (1976), that a customs agent’s overtime be "paid by” the airline, should be ignored by the majority in their interpretation of identical words within the exception of section 911(a)(2).
Applying the reasoning of our prior cases, I would conclude that the petitioner in the instant case was not "paid by” the United States or any agency thereof, but was in fact "paid by” the airlines.
Scott, Simpson, Goffe, Hall,* Wiles, and Ekman, JJ., agree with this dissenting opinion.Erlandson v. Commissioner, T.C. Memo. 1958-218, affd. 277 F.2d 70 (9th Cir, 1960). Both Teskey v. Commissioner, 30 T.C. 456 (1958), and Erlandson v. Commissioner, supra, have been legislatively overruled by sec. 111(a) of the Economic Recovery Tax Act of 1981, Pub. L. 97-34, 95 Stat. 172, 190, Aug. 13, 1981. Effective for taxable years beginning after Dec. 31, 1981, foreign earned income will not include amounts "paid by the United States or an agency thereof to an employee of the United States or an agency thereof.” See. 911(b)(l)(B)(ii). (Emphasis supplied.) Consequently, amounts paid by the United States to one who is not an employee thereof entitles the payee to the benefits of sec. 911. See H. Rept. 97-215 (Conf.) 204 (1981).
Under sec. 111(a) of the Economic Recovery Tax Act of 1981, Pub. L. 97-34, 95 Stat. 172, 190, Aug. 13,1981, one paid by the United States and employed by a third party, as well as one paid by a third party but employed by the United States, may be entitled to the foreign earned income exclusion. Clearly, because "paid by” and "employed by” are separate and distinct tests, "paid by” cannot reasonably contemplate one’s employment and thus must refer only to the source of one’s compensation.