Alfred Christopher Morgan

United States Tax Court

T.C. Summary Opinion 2022-10

ALFRED CHRISTOPHER MORGAN,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 20912-19S. Filed June 23, 2022.

—————

Alfred Christopher Morgan, pro se.

Daniel K. McClendon and William J. Prater, for respondent.

SUMMARY OPINION

WELLS, Judge: This case was heard pursuant to the provisions

of section 7463 of the Internal Revenue Code in effect when the petition

was filed. 1 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.

Petitioner failed to file a timely federal income tax return for

taxable year 2016 (year in issue), which led respondent to prepare a

substitute for return in accordance with section 6020(b). Respondent

subsequently issued a notice of deficiency to petitioner determining an

income tax deficiency of $28,932, plus additions to tax. Petitioner filed

1 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references

are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant

times, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Monetary amounts are rounded to the nearest dollar.

Served 06/23/22

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a timely Petition for redetermination with the Court disputing the notice

of deficiency. He resided in Saudi Arabia when the Petition was filed.

After concessions by both parties, 2 the issues remaining for

decision are (1) whether petitioner is entitled to exclude from gross

income, as “foreign earned income” under section 911(a)(1), the wages

he earned while employed as a contractor in Saudi Arabia and

(2) whether he is liable for failure-to-file and failure-to-pay additions to

tax under section 6651(a)(1) and (2), respectively.

Background 3

I. Petitioner’s Background and United States Ties

Petitioner was born in Kingston, Jamaica, but later moved to and

grew up in the United States. He enlisted in the U.S. Army in 1988 and

eventually became a U.S. citizen during his military service sometime

in or around 1996. While serving, petitioner was stationed at Fort

Benning near Columbus, GA, and at Fort Hood near Killeen, TX, where

he typically resided in military-provided housing. He retired from the

U.S. Army in 2008 and thereafter purchased a home at 247 Parkway

Drive, Fairburn, GA. Petitioner’s daughter lived with him in this home

and continued to reside there following his acceptance of a job outside

the United States in 2013. Petitioner opted against renting it out, in

part to maintain a place for his daughter to live until she found a place

of her own. The mortgage on the home and lawn maintenance fees were

both paid via petitioner’s military retirement checks as he retained sole

financial responsibility for the upkeep of the home. He has not owned

or rented any other property in the United States.

Petitioner’s mother, daughter, brother, and sisters all live in the

United States. He rarely visits his brother and sisters but generally

uses his leave from work to visit his mother and daughter. In 2016

petitioner spent about two weeks in the United States visiting his then

29-year-old daughter at the home he owned in Georgia, and about one

week visiting his then 80-year-old mother at her home in Chattanooga,

2 Respondent concedes that petitioner (1) is not liable for the addition to tax for

failure to pay estimated tax under section 6654 and (2) did not realize cancellation of

debt income of $2,286. Respondent also concedes that petitioner properly elected to

exclude his foreign earned income for the 2016 tax year because he had elected it in

previous years. By statute, an initial foreign earned income exclusion election

continues to apply to subsequent taxable years unless it is revoked. See I.R.C. § 911(e).

3 Some of the facts have been stipulated.

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TN. He was not primarily responsible for providing living assistance to

his immediate relatives. He was also married at some point, but the

record is unclear as to what support, if any, he provides to his former

spouse. He became divorced in 2006 and remains legally unmarried.

During the year in issue petitioner maintained a U.S. bank

account (as a requirement of his employment in Saudi Arabia), a U.S.

driver’s license, and U.S. medical insurance that supports retired

military, and he retained his U.S. citizenship. He did not visit any

doctors, dentists, or other medical providers while he was in the United

States in 2016. He registered to vote in the 2012 U.S. Presidential

election, and presumably had his voting registration automatically

renewed to allow him to vote in the 2016 U.S. Presidential election.

II. Employment at Vinnell Arabia and Life in Saudi Arabia

Petitioner accepted an offer of employment from Vinnell Arabia

(Vinnell) in 2013 to work as a quality control manager in Saudi Arabia

under a U.S. government contract; he has renewed his contract with

Vinnell under mutual agreement every year since then. As part of his

role, petitioner is tasked with training the Saudi Arabia National Guard

in rotary aviation. He is primarily responsible for mission assurance

and quality safety—i.e., ensuring that members of the Saudi Arabia

National Guard are in compliance with regulatory standards of rotary

aviation, such as AS110 and ISO 9100. In a letter dated September 28,

2020, Vinnell representatives described petitioner as “highly valued,”

his performance as “excellent,” and his role as “essential.”

In 2016 petitioner worked 9 hours per day, 5 days per week,

splitting his time equally between collecting data at an airfield and

entering that data into a database in an office. In his free time petitioner

served as the president of a social club in Saudi Arabia called the

Worldwide Fraternity of Turtles, of which he has been a member since

2014. The social club is a local chapter of a charitable fraternity that

organizes food and clothing drives and donates collected items to home

shelters and orphanages within local communities. He also spent much

of his free time using the amenities at the compound where he lived and

visiting local grocery stores and restaurants. On the weekends, which

are Fridays and Saturdays, he typically traveled with other contractors

to places including South Africa, Bahrain, and Dubai to partake in

recreational activities that are otherwise forbidden in Saudi Arabia.

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Petitioner’s employee benefit plan grants him 32 total days of

leave per year and provides about $800 per month to cover travel and

food expenses during his leave. Petitioner used his leave in 2016 to

travel back to the United States to spend time with his daughter and

mother. In addition to those benefits petitioner resides in an employer-

provided housing compound more similar in appearance to a military

compound than to an apartment complex. The compound has a

swimming pool, a recreational facility, an exercise gym, and a

convenience store. Since 2015 he has lived in the same villa within the

compound, which he shares with two other contractors.

Petitioner continues to work in Saudi Arabia for Vinnell. He is

currently engaged to a woman who works as a manager of a local beauty

salon in Saudi Arabia. He has not sought work in any other country

outside of Saudi Arabia and earned wage income in 2016 only from his

employment with Vinnell. He does not pay tax to Saudi Arabia on his

wage income because it is excepted from Saudi Arabia’s value added tax

(VAT). As a requirement (or consequence) of his employment with

Vinnell, petitioner has obtained Saudi Arabian proof of residence

(referred to as an Iqama), Saudi Arabian medical insurance, and a Saudi

Arabian driver’s license.

III. Notice of Deficiency

Petitioner failed to file a federal income tax return for the 2016

taxable year on or before the April 15, 2017, due date. In June 2019

respondent prepared a substitute for return pursuant to section 6020(b)

and issued a notice of deficiency determining that petitioner received

unreported wage income of $109,024 and an unreported pension

distribution of $20,069. Respondent further determined that petitioner

was not entitled to the section 911(a) foreign earned income exclusion

for 2016 and that he was liable for additions to tax under section

6651(a)(1) and (2).

Petitioner timely filed a Petition arguing that he qualifies for the

foreign earned income exclusion because he is a resident of Saudi Arabia

and otherwise meets the bona fide residence requirements of section

911. After filing his Petition, petitioner provided respondent with a

Form W–2, Wage and Tax Statement, showing $109,024 in taxable

wages, a Form 1099–R, Distributions From Pensions, Annuities,

Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,

showing $20,069 in taxable pension distributions, and a 2016 Form

1040, U.S. Individual Income Tax Return, reflecting the above amounts

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offset by excludable foreign earned income of $94,412. On Form 2555,

Foreign Earned Income, attached to his 2016 tax return, petitioner took

the position that his tax home for 2016 was Saudi Arabia and excluded

his wages earned there from his gross income under section 911(a). He

reported that he took two trips to the United States for a total of 25 days

in 2016: one trip for 17 days between May 25 and June 11, and a second

trip for 8 days between December 24 and December 31.

We heard testimony from petitioner remotely via Zoom in October

2020 during the Court’s Atlanta, GA, trial session.

Discussion

As a general rule, the Commissioner’s determinations of a

taxpayer’s liability in a notice of deficiency are presumed correct, and

the taxpayer bears the burden of proving that those determinations are

erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Section 7491(a) shifts the burden of proof to the Commissioner as to any

factual issue relevant to a taxpayer’s liability for tax if the taxpayer

meets certain preliminary conditions. See Higbee v. Commissioner, 116

T.C. 438, 442–43 (2001). Petitioner does not contend, and respondent

has not conceded, that the burden of proof has shifted to respondent

pursuant to section 7491(a). Consequently, we conclude that petitioner

bears the burden of proving that respondent’s income tax deficiency

determinations are erroneous.

I. Foreign Earned Income Exclusion

Section 61(a) provides that gross income means “all income from

whatever source derived.” Citizens of the United States are taxed on

their worldwide income unless a specific exclusion applies. Specking v.

Commissioner, 117 T.C. 95, 101–02 (2001), aff’d sub nom. Haessly v.

Commissioner, 68 F. App’x 44 (9th Cir. 2003), and Umbach v.

Commissioner, 357 F.3d 1108 (10th Cir. 2003). Exclusions from income

are construed narrowly, and a taxpayer must clearly establish

entitlement to any such exclusion. Id. at 101.

Section 911(a)(1) provides, in relevant part, that a “qualified

individual” may elect to exclude from gross income his or her “foreign

earned income” subject to limitations set forth in subsection (b)(2).

Foreign earned income is “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.” I.R.C.

§ 911(b)(1)(A).

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To be a qualified individual a taxpayer must satisfy two

requirements: (1) the taxpayer must either be physically present in a

foreign country or countries during at least 330 full days in a 12-month

period or be a “bona fide resident” of one or more foreign countries for

an uninterrupted period which includes an entire taxable year and

(2) the taxpayer must be an individual “whose tax home is in a foreign

country.” I.R.C. § 911(d)(1).

A. Physical Presence

Under section 911(d)(1)(B), a taxpayer who spends at least 330

days during an applicable period in a foreign country or countries will

satisfy the physical presence requirement for the related tax year. For

this purpose, a taxpayer is to aggregate all foreign days falling within

any one applicable period. Treas. Reg. § 1.911-2(d)(1) and (2). Under

section 911, a foreign country includes airspace, lands, and territorial

waters under the sovereignty of a country, territory, or possession other

than the United States. Farrell v. United States, 313 F.3d 1214, 1216

(9th Cir. 2002); Arnett v. Commissioner, 126 T.C. 89, 93–95 (2006), aff’d,

473 F.3d 790 (7th Cir. 2007); Treas. Reg. § 1.911-2(g) and (h).

Petitioner contends that he satisfies the physical presence

requirement because he spent less than 35 days in the United States

throughout the entirety of the year in issue. On his Form 2555 he

reported two trips to the United States during 2016 for a total of 25 days:

one trip for 17 days between May 25 and June 11 and a second trip for

8 days between December 24 and December 31. At trial he testified that

he spent 14 days in July to visit his daughter in Fairburn, GA, and 7

days in December to visit his mother in Chattanooga, TN, for a total of

21 days in the United States during 2016. Respondent urges us to cast

doubt upon petitioner’s reported time spent in the United States because

his testimony does not exactly correspond with the information provided

on his Form 2555; however, we find that the small disparity was an

honest mistake and that his testimony as a whole was credible. Each of

these representations falls short both of the 32 total days per year in

leave he receives as part of his employment benefits and of the 35-day

threshold of permissible days spent in the United States during a given

tax year. Further, while petitioner occasionally spent weekends away

from Saudi Arabia, he used that time to visit other foreign places

including Bahrain, South Africa, and Dubai, not to return to the United

States. Consequently, we find that petitioner was present in a foreign

country or countries for at least 330 full days during the period from

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January 1 through December 31, 2016, and that he thereby satisfies the

physical presence requirement for the entirety of the year in issue.

Because petitioner meets the first requirement of the foreign

earned income exclusion, we will forgo analysis of whether he was also

a bona fide resident of one or more foreign countries, which entails

overlapping inquiries with the tax home requirements. See, e.g., Wood

v. Commissioner, T.C. Memo. 2021-103, at *12.

B. Foreign Tax Home

Section 911(d)(3) defines “tax home” as an individual’s home for

purposes of section 162(a)(2), which is generally “the vicinity of the

taxpayer’s principal place of employment and not where his or her

personal residence is located.” Mitchell v. Commissioner, 74 T.C. 578,

581 (1980). For petitioner, this is Saudi Arabia.

An individual, however, shall not be treated as having a tax home

in a foreign country for any period for which his “abode” is within the

United States. I.R.C. § 911(d)(3); see also Harrington v. Commissioner,

93 T.C. 297, 307 (1989). Temporary presence of the individual in the

United States does not necessarily mean that the individual’s abode is

in the United States. Treas. Reg. § 1.911-2(b). Moreover,

“[m]aintenance of a dwelling in the United States by an individual,

whether or not that dwelling is used by the individual’s spouse and

dependents, does not necessarily mean that the individual’s abode is in

the United States.” Id.

In Bujol v. Commissioner, T.C. Memo. 1987-230, 1987 Tax Ct.

Memo LEXIS 234, at *8–9, aff’d without published opinion, 842 F.2d 328

(5th Cir. 1988), we considered the meaning of the word “abode” as used

in section 911(d)(3) and stated:

“Abode” has been variously defined as one’s home,

habitation, residence, domicile, or place of dwelling.

Black’s Law Dictionary 7 (5th ed. 1979). While an exact

definition of “abode” depends upon the context in which the

word is used, it clearly does not mean one's principal place

of business. Thus, “abode” has a domestic rather than

vocational meaning, and stands in contrast to “tax home”

as defined for purposes of section 162(a)(2).

To determine a taxpayer’s “abode” for a particular period under section

911(d)(3), we compare and contrast “the taxpayer’s domestic ties (i.e.,

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his familial, economic, and personal ties) to the United States with his

ties to the foreign country in which he claims a tax home.” Haskins v.

Commissioner, 820 F. App’x 994, 995 (11th Cir. 2020) (quoting

Harrington, 93 T.C. at 307–08), aff’g T.C. Memo. 2019-87. A taxpayer

posted abroad will invariably have some connections with the foreign

country in which he works, but when his ties to the United States are

stronger, we have held that his “abode” remains in the United States.

See, e.g., Harrington, 93 T.C. at 309. Considerations for determining the

taxpayer’s “abode” include property ownership, community

involvement, banking activity, recreational activities, the amount of

time the taxpayer spent in each location, and the residence of the

taxpayer’s family. See id.

On the basis of the record before us, we conclude that petitioner

had stronger domestic ties to Saudi Arabia than he did to the United

States in 2016. His community involvement and recreational activities

in Saudi Arabia were relatively significant in comparison with those in

the United States, and overall, most of his time had been spent in Saudi

Arabia. He dedicated much of his free time in Saudi Arabia to serving

as the president of a local social club and organizing charitable events

such as food and clothing drives in order to benefit the local community.

These charitable events benefited local orphanages, homeless shelters,

and members of the local community who worked at the compound. He

also spent his free time frequenting local grocery stores and restaurants,

using the recreational amenities at the residence, and traveling with

other contractors from the compound to nearby foreign countries. He

had obtained an Iqama, which is a Saudi Arabian resident alien card or

visa indicating proof of his legal residence; Saudi Arabian medical

insurance; and a Saudi Arabian driver’s license. He also did not seek

work in any country outside of Saudi Arabia. Taken together, these

facts evidence an effort to create a domestic life for himself in Saudi

Arabia. See, e.g., Linde v. Commissioner, T.C. Memo. 2017-180.

Meanwhile, petitioner’s family and personal ties to the United

States were limited. Petitioner divorced in 2006 and did not remarry.

He had family in the United States—his sisters, brother, mother, and

daughter—but only visited his daughter for two weeks over the summer

and his mother for one week during the winter holidays. Also of note,

he did not visit any doctors, dentists, or other medical providers while

he was present in the United States Although he owned a single home

in Georgia and chose not to rent it out, it was used as a place for his

daughter to live while she did not own a home of her own. He was not

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primarily responsible for providing any other living assistance, financial

or otherwise, to any of his immediate relatives.

Some of the facts respondent points to as adverse to petitioner

appear neutral to us. Petitioner maintained a U.S. driver’s license

throughout 2016 but also obtained a Saudi Arabian driver’s license as a

requirement of his employment; and we presume that he used his Saudi

Arabian license far more frequently considering the significant amount

of time he spent there compared with the time he spent in the United

States. He maintained a U.S. bank account but that was an additional

requirement of his employment which served as the sole medium to

receive his salary payments. He retained his U.S. citizenship but also

obtained an Iqama, which indicated proof of his legal residence and

desire to stay in Saudi Arabia. He lived in housing provided by his

employer and therefore did not own property in Saudi Arabia, but he

was accustomed to such housing accommodation for most of his military

career and it was bargained for as part of his employment contract. He

had no need to seek out his own housing arrangements. He retained

medical insurance with a U.S. provider that supports retired members

of the military, but he also obtained medical insurance in Saudi Arabia.

Lastly, he did not pay tax to Saudi Arabia but that can be attributed to

the fact that Saudi Arabia has a VAT from which earned income is

generally excepted.

Moreover, while it is well settled that each tax year stands by

itself and “must be separately considered,” see Pekar v. Commissioner,

113 T.C. 158, 166 (1999), respondent emphasizes that petitioner

consistently referred to the United States as “home” and always

intended to return there. Consequently, we should find that his tax

home was not in Saudi Arabia because his abode remained in the United

States. However, three additional facts support the conclusion that

petitioner’s domestic ties in Saudi Arabia continue to be stronger than

those in the United States: (1) he continues to be employed in Saudi

Arabia; (2) his employer recently described him as “highly valued,” his

performance as “excellent,” and his role as “essential”; and (3) he has a

fiance in Saudi Arabia, who has been in Saudi Arabia for 30 years and

is the manager of a local beauty salon. On the basis of foregoing, we

conclude that petitioner’s abode was in Saudi Arabia in 2016; therefore,

he is entitled to exclude his foreign earned income up to the limitations

set forth in section 911(b)(2).

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II. Additions to Tax Under Section 6651(a)(1) and (2)

Respondent determined that petitioner is liable for failure-to-file

and failure-to-pay additions to tax under section 6651(a)(1) and (2),

respectively. As discussed above, foreign earned income is income for

services performed by a taxpayer outside the United States. See I.R.C.

§ 911(b)(1)(A). This definition specifically excludes pension income.

I.R.C. § 911(b)(1)(B)(i); Treas. Reg. § 1.911-3(c)(2). Therefore,

petitioner’s pension income, along with the amount left over after

accounting for limitations on his foreign earned income exclusion, both

remain taxable and subject to additions to tax.

Respondent bears the burden of production with respect to

petitioner’s liability for the additions to tax. See I.R.C. § 7491(c). In

order to meet that burden respondent must offer sufficient evidence to

indicate that it is appropriate to impose the additions. See Higbee, 116

T.C. at 446. Once respondent meets his burden of production, petitioner

must come forward with persuasive evidence that respondent’s

determination is incorrect or that he has an affirmative defense. Id.

at 446–47.

Section 6651(a)(1) provides for an addition to tax in the event a

taxpayer fails to file a timely return (determined with regard to any

extension of time for filing) unless it is shown that such failure is due to

reasonable cause and not due to willful neglect. The amount of the

addition is equal to 5% of the amount required to be shown as tax on the

delinquent return for each month or fraction thereof during which the

return remains delinquent, up to a maximum addition of 25% for returns

more than four months delinquent.

Section 6651(a)(2) provides for an addition to tax for failure to

timely pay “the amount shown as tax on any return specified in

paragraph (1)” unless the taxpayer establishes that the failure was due

to reasonable cause and not willful neglect. The addition is calculated

as 0.5% of the amount shown as tax on the return but not paid, with an

additional 0.5% for each month or fraction thereof during which the

failure to pay continues, up to a maximum of 25%. The amount of the

addition to tax under section 6651(a)(2) reduces the addition to tax

under section 6651(a)(1) for any month for which both additions to tax

apply. See I.R.C. § 6651(c)(1). The addition applies only when an

amount of tax is shown on a return. See Cabirac v. Commissioner, 120

T.C. 163, 170 (2003), aff’d per curiam, 2004 WL 7318960 (3d Cir. Feb.

10, 2004). A substitute for return made by the Secretary under section

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6020(b) is treated as “the return filed by the taxpayer for purposes of

determining the amount of the addition” under section 6651(a)(2). I.R.C.

§ 6651(g)(2). For these purposes, a substitute for return “must be

subscribed, it must contain sufficient information from which to

compute the taxpayer’s tax liability, and the return form and any

attachments must purport to be a ‘return’.” Spurlock v. Commissioner,

T.C. Memo. 2003-124, 2003 WL 1987156, at *10; see Cabirac, 120 T.C.

at 170–71.

Petitioner’s 2016 return was due to be filed on or before April 15,

2017, in the absence of any extensions. See I.R.C. §§ 6072(a), 6081(a).

The parties stipulated that petitioner did not file a return for 2016.

Further, respondent prepared a substitute for return pursuant to

section 6020(b) for 2016 showing tax due of $28,932, plus additions to

tax. The foregoing satisfies respondent’s burden of production under

section 7491(c) and establishes petitioner’s liability for the section

6651(a)(1) and (2) additions to tax unless petitioner can establish

reasonable cause for his failure to timely file or pay. See Higbee, 116

T.C. at 446. Petitioner does not argue, nor does the record show, that

he had a meaningful defense to the imposition of the additions to tax.

Therefore, we sustain respondent's imposition of the additions to tax

under section 6651(a)(1) and (2), with the “amount required to be shown

as tax on [the] return” computed in a manner consistent with

petitioner’s taxable income as redetermined herein.

We have considered all of the parties’ arguments, and, to the

extent not addressed above, we conclude that they are moot, irrelevant,

or without merit.

To reflect the foregoing,

Decision will be entered under Rule 155.