UNITED STÁTES TAX COURT

T.C. Memo. 2012-45

UNITED STÁTES TAX COURT

CHRISTINA JEA1 NINE LETOURNEAU, Petitioner y.

COMMISSiONER OF INTERNAL REVENUE, Respon lent

Docket No.'13457 09.

Filed Febrüary 21, 2012

Christina Jeannine LeTourneau pro se.

Charles W. Gorham, for resþondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

.|

THORNTON Judae: Petitioner is a U.S. citizen. In 2005 she resided in

France and earned wages as a flight at endant, working roundtrip international

RVED FEB 2 1 2012

-2flights based out of London. On her 2005 U.S. income tax return she excluded all

these wages from her gross income, claiming the foreign earned income exclusion

under section 911.1 Respondent determined that only a portion of her wages were

eligible for the exclusion, resulting in a $2,594 deficiency in her 2005 Federal

income tax.

The issues for decision are: (1) whether, pursuant to the Convention for the

Avoidance of Double Taxation and thé Prevention of Fiscal Evasion With Respect

to Taxes on Income and Capital, U.S.-Fr., Aug. 31, 1994, 1963 U.N.T.S. 67, Tax

Treaties (CCH) pära. 3001 (Convention), petitioner's 2005 wages are exempt from

U.S. taxation; (2) whether pursuant to section 911 she is entitled to a larger foreign

earned income exclusion than respondent has allowed; and (3) whether pursuant to

section 901 she is entitled to any amount of foreign tax credit. Petitioner resided

in France when she filed her petition.

FINDINGS OF FACT

In 1999 petitioner began working in France on a five-year work visa. In

2004 France granted her a permanent resident card. By then she was commuting

4Unless otherwise noted, all section referenòes are tò the Internallevenue

Code for the year at issue, and all Rule references are to the Tax Court Rules of

Practice and Procedure. All dollär amounts have been rounded to the nearest

dollar.

from France to London for her work Ás a fliÁht attendant for United Airlines,1Iñc:

(United).

During 2005 JJnited paid petitióner wages for flight attendant services she

performed from Deöember 2004 throdgh Nóvember 2005. She'performèd these

services on roundtrip international fli hts between London Heathrow Airport and

variousjinternational destinationscprimarily in the United States.

United prepared duty time app rtionment tables for all,these flights. It

prepareël such tablps annually for the use of flight attendants who are based

outside the United States. These tables summarize the time on duty for a flight

attendant according to.the standard times allocated för uch activities as checking

I uring the p io he wo d ö e rn the wages united paid h r in 2005,

petition r performed flight ättendant rvices on 3 roundtrip flights between

Condon Heathr Airport and Los

geles International Airport, 14 roundtrip

flights between London Heathrow Âirport and Chicago O'Hare,International

Airpo , 1 roundtri flights beiween London Heathrow Äi port and Washingtön

Dulles Internationâl Äirport, 13 roun ip flights beiween London Heathrow

Airport and San Francisco Internatiòn 1 Airport, 5 roundtrip flights between

London Heäthrow Airport and New Y rk John F. Kennedy International Airport, 1

flight from London Heathrow Airport to Paris Charles de Gaulle Airport to

Washint,ton Dulles International Airp rt and back to London Heathrow Airport,

and 1 flight from L ndon Heathrow Airport to Frankfurt Airport:to Washington

Dulles International[Airport and back o London Heathrow Airport.

in for a flight, boarding, taxiing intaiid out, flying over the United States, flyirig

over international waters, flying over foreign countries, deplaning, and cuátóms.

For 2005 United issued petitioner a Form W-2, Wage and Tax Statement,

reporting $43,569 in wages and zero Federal tax withholdings. On her 2005 For ñ

1040, U.S: Individual Income Tax Return, petitioner reported these wages btít,

attaching Form 2555-EZ, Foreign Earned Income Exclusion, èicluded the entire

amount from þ.,ross income.

On March 16, 2006, petitioner filed a Déòlaratioñ Préremplie Simþlifiée

Revenus 2005 with French income tax authorities and reported her income from

United for tax year 2005. This document does not show how much inconie tax, if

any, was paid to French authorities.4 United provided petitioner U.K. Forms P60

End of Year Certificate, showing U.K. Pay-As-You-Earn income tax withholdings

3For,purposes of preparing the duty time apportionment tables, United

considers the United States to be thé'continental Uniteif States, Aláska, ånd

Hawaii aiid the air or wäter 12 nautidal miles outside the land; á foreigh 523untiy

to

be thê foreign countî·y's land and the air or water 12 nautical miles outside the

land; and international water and airspace to be what is between the United SÍatès

and a»foreign country: To prepse the döty time apportionment tables, United

examilies flight segments from a sample of flights over 7- to 10-day period twiòe

a year. Adjustmehts are made to the tables when there is a route change, an

eqûipment change, or a change in schéilule time.

40n February 18, 2005, petitioner paid 400 euro in income taxio Francé as

the first installment of tax due for tax year 2004. The 400 euro payrnent was

refunded to petitioner in 2005.

5of 237 ]British pourids sterling (pounds) for the EK. tax year ending April 5 2005,

and 263 pounds forithe U.K. tax year ending April 5, 2006.

In auditing p titioner's 2005 Fårm 10A0, respondent calculated the

allowable amount öf petitioner's fore gn earned iricome exclusion iising Unitèdts

duty time apportiomhent tables3to determine the time she worked in and over

foreignicountries

In this manner he determined that 36.13%.of her wakes, or

$15,-74]b;was attrib table to'time wor ed iri and over foreign countries and th t

only this portion of her wages qualifi d for the foreign earned income exclusioii

under sëction 911. In the-notice of d ficiency responderit disallowéd $27,872 of

petitioner's claimed foreign earned income exclusion, resulting in a $2,594

deficiency.'

e

OPINION

The taxpayer generally beárs tl e burden of proving that the Commissioner's

determinations are érroneous. Rule 1 2(a)(1). If the taxþayer introduces "crediblè

evidence" with res ect to relevant factual issues and meets other requirements, the

[he auditor, lacking duty time apportionment tables for 2005 uhed tables

from 1999.

. 'At trial respóndent's counsel c needed that the notice of deficiency

contairs a computational error and th the proper amount of the disallowed

foreign earned incoïne exclusion shoiïld haye been $27,828 ($43,569 of total

wages lëss the $15,741 ättributableio foreign countries).

-6burden as to those factual issue 541

inay shift to the Comniissioners Sebt 7491(a)

"Credible evidence" is evidence the Court would find sufficient ùpon which to

base a decision on the issue in,the taxpayer's favor, absent any contrarý evidence.

See Higbee v. Coinmissioner, 116 T.C. 438, 442 (2001).

As discussed infra, petitioner has failed to present credible evidence-despite being given additional time after trial--as to any relevant factual issue,

particularly as to whether any greater portion of her 2005 wages was attributable

to her services in foreign countries than»rèspondent has determined and as to

whether she paid any tax to France in 2005. Accordingly, the burden of proof

does not shift to respondent.

L Effect of the Convention

Petitioner contends that her 2005 wages are exempt from U.S. income

taxation pursuant to the Convention. Petitioner cites article-15, paragraph 3, of the

Convention, which provides:

Notwithstanding the preceding provisions of this Article,

remuneration derived by a resident of a Contracting State in respect

of an employment exercised as a member of the regular complement

of a ship or aircraft operated in international traffic shall be taxable

only in that State.

Although this provision on its face seems to favor petitionér's position, it

cannot be read in isolation. Unlike many foreign countries, the United States taxes

its citizens on their worldwide income. Filleri Commiséioner, 74 T.C. 406 410

(1980); see sec. 61(a) ("gross incom means all incoriie from v}hatever sourc

derived").» To reserve its right to tâx its citizens1on the basis ôf tlie provisións of

the Internal Revenue Code without re gard to the provisions of ä'tréâty or

convention, the United States typica y includes2 so called 541avinÁ

dlatíse in its ta

treaties and conventions¶ee Filler

Comínissioner

4 T C. at 410. The

Convention contains such a saving cláuse in articlé 29, p ragfaph 2, which

provides in relevant part: "Notwithstáiiding any rovisión bf the ConVëntion

except the provisions ofparagraph 3, the United States may tax its residents, as

determined under Ärticle 4 (Resident , and its citizens as if the Convention had

not corne into effect."

Although parágraph 3 of article 29 of the Convention provides that certain

articles of the Convention take precedence over the saving clause, article 15, upon

which pétitioner relies, is not among those provisions. Accordingly,

notwithstánd nj th prov ions of

petitiónei is sùbject toU.S t xa

i le 1 ,

n

e

r i

h 3 f tl e Con n ion,

a es earn 1 whi e e id

in

.: 8 -

France. See Filler v. Commissioner, 74 T.C. at 410 (construing saving claùse

under 1967 Convention between the United States and France).

On brief petitioner contends that respondent's application of the saving

clause discriminates against her in violation of article 25 (Non-Discrimination)

paragraph 1 of the Convention, which provides:

Individuals who are nationals of a Contracting State and

residents of the other Contracting State shall not be subjected in that

other State to any taxation or any requirement connected therewith

that is other or more burdensome than the taxation and connected

requirements to which individuals who are nationals and residents of

that other State in the same circumstances are or may be subjected.

a

As applied to petitioner's circumstances, this provision merely ensures that the

taxation of her wages by France is no more burdensome than the taxation by

France of individuals who are French citizens and residents. Thus article 25 does

not provide a basis for the relief petitioner seeks.

Consistent with this result, the Department of the TreasurÝ technical

explanation of art., I of the Convention states: "If, however, the French resident is

also a citizen of the United States, the saving clause permits the United States to

include that income in the worldwide income of the citizen and subject it to tax

under the normal Code rules." Treasury Department Technical Ex1½lanation of the

Convention, Tax Treaties (CCH) para. 3060, at 75,251. The explanation of art. 15

states: "A U.S. citizen resident in France who * * * is a crew member on a ship or

airline operated in international traffic, is, nevertheless, taxable in the United

States on his remuneration by virtue of the saving clause of paragraph 2 of Article

29 (Miscellaneous Provisions), subject to the special rule of subparagraph 1(b) of

Article 24 (Relief From Double Taxation)." Id.

On brief petitioner suggests that any decision ifY this case is þreiliÈture u itil,

pursuaiit to article 26 of the Cónvention, the cômpeteht áûthoritiès of the United

States ançl I(ran,ce have had ån oppor unity to consider the pössible discriniinatory

iinpact jof respondent's "audit system" on internatiòñal flight attendants who are

citizens of the United States and residents of France Article 26, paragraph I of

the Convention would allow petition r to presënt her cáse to the cãínßètènt

authority of the United States Rev. I roc:2006154, 2006-2 C.B 1035stêÊribes

the procedures to bé followed in requ sting such'assistance. It providé 541

thát when

an issue is pending with the Tax ou

competent aùthority àssistance is available

only with the consent of the Associat

hief Counsel (Inferiiätiónal). Id sec. 7.03,

2006-2 C.B. at 1042. Petitioner does not alleg¢that she^or ány bther similarly

situated taxpayer h s filed for compet nt authority assistance, nor has she

convincingly shown that there exists à probability of double taxation as might

warrant the assistanbe of the U.S. con petent authority. We disagree that it is

premáture to decide this case.

II. Foreign Earned Income Exclusion Under Section 911

Section 911(a) allows a "qualif d individual" to exclude from gross mcome

"foreign earned income". Foreign ear 1ed income is "the amount received by such

- 10 individual from sources within a foreign country * * * which áonstitutè earned

income attributable to services performed by such individual". Sec. 911(b)(1)(Ä).

Respondent concedes that petitioner is a qualified individual for pûrpos s of

section 911. He contends, however, that a portion of her wáges was not earned in

a foreign country and thus is ineligible for the exclusion.

Section 911 does not define "foreign country". The regulations provide

The term "foreign country" ühen used in a geographical sense

includes any territory under the sovereignty of a government other

.

than that of the United States. It includes the térritorial waters of thë

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 arid over which the foreign

country has exclusive rights, in accordance with international law,

with respect to the exploration and exploitation of natural resources.

[Sec. 1.911-2(h), Income Tax Regs.]

Consistent with this regulation, this Court has held that a U.S. taxpayer is

allowed the foreign earned income exclusion only with respect to wages earned

while in or over foreign countries and not for wages earned in international

airspace or in or over the United States. Rogers v. Commissioner, T.C. Memo.

2009-111. This Court reasoned that because international airspace, like

international waters, is not under the sovereignty of a foreign government,

international airspace is not a "foreign country" for purposes of section 911.

.

- 11 see Clark v. Commissioner, T.C. Memo. 2008-71 (international waters are not a

foreign coui3try for purposes of,section 911); Struck v. Commissioner, T.C. Memo.

2007-42 (same).

F etitioner suggests that such ai alyses misconstrue the regulatión's literal

language, which st tes that the term "foreign country" "includes", ratlier than

"means", certain th ngs. Petitioner s ems to suggest that because the regulation

does not expressly xclude internatio al airspace from.the definition of foreign

country, it must be neluded. In rejec ing a similar argument and upholding the

validity of the regulation, the Court of Appeals for the Seventh Circuit stated

"Whe read in its entirety and in common sense fashion, the rule supports the

positiori that sovereignty is an essenti l component of the definition [of] a 'foreign

country' under" tl e regulation. Arnett v. Commissioner, 473 F.3d 790 798 (7th

Cir. 2007), aff'g-126 T.C.,89;(2006).

Pietitioner has treated all her wages as earned in a foreign country. This

treatment is clearly incorrect. For thé relevant peiiod all her flights flew through

international airspace and landed in tl e United Stàtes.

Respondent calculated the allokable amount of petitioner s foreign earned

income exclusion using United s duty time apportionment tábles to dete14ñine tlie

- 12 time she worked in and over foreign countries.8 Petitioner compÏÅins that the

tables reflect only aggregated data rather tlian actual times ón specific fÏights.

Petitioner further asserts that respondent has used these tables "as an

impermissible substitutè" for required rulemaking under the Administrative

Procedure Act.

The issue is not one of rulemaking but of proof. If petitioner could pro e

that she spent more time flying over foreign countries than the duty tiiÁe

apportionment tables show, she might be entitled to a greater foreign* edrned

income exclusion than respondent has allowed. See Rogers vi CommÍssioner

T.C. Memo. 2009-111. But"pétitioner has made no such showing and has failed to

establish or even suggest a more reliable allocation method.

Petitioner suggests that she is entitled to exclude all her wages frbni gross

income for 2005 because she did so in prior yeårs without any challeàge from the

8Petitioner complains that the Internal Revenue Service (IRS) auditor used

duty time apportionment tables from 1999. Petitioner's complaint rings hollow.

Although she has had access to 2005 duty time al5portioriihent tables at all relevant

times, she never provided them to the IRS during the audit or to the Court during

this proceeding. According to the trial.testimony of a United repi'ese'ntative;

United's duty time apportionment tables do not vary significantly from year to

year. In any event, respondent compared the total flight time determined using the4

1999 duty time apportionment tables with petitioner's actual flight time in 2005

using her per diem reports prepared by United and determined that using the 1999

tables made no significant difference. Petitioner has not shown otherwise.

13 IRS. R espondent is not precluded from challenging treatmeñt of an item merely

because.he has failed to challenge it n the past See Coors v. Commissioner, 60

T.C. 368, 406 (1973)íaff"d, 519 F.2d .1280 (10th Cir. 1975); see also Rose v.

Commi!ssioner, 55@C. 28, 32 (1970). e

We sustain réspondent's deterinination thát $27,828 of petitioner's 2005

wages ijs ineligible for.the section 91 exclusion.

III. Foreign,Tax Ci·edit Under Section 901

n

A taxpayer n ay elect to take a cijdit again 541t

his or her U.S. incofnè tax

liability for income taxes paid or acciued to a foreign country or U;S@ossession.

Sec. 901(a). Subjeòt to the limitation of section 904, the amount of thë credit is

"[i]n thp case of á citizen of the United States * * *, the amount of any inôome,

war profits, and exöess profits taxes p id of accrued during the taxable year to*ány

foreign!country".1° Sec. 901(b)(1).

egulations require an individ zal taxpaýer to claim!the forèign tax'ciedit

by filing Form 1116, Foreign Tax Crddit (Individual, Estate, or Trust), and

complying with certain conditions S c. 1.905-2, Incomê Tax Regs. Respondent

has not iraised and vke do not consider any issue as to whether petitioner has

properly elected to blaim'the foreign tax credit:

ioSec. 904(a)[generally limits tlie allowable foreign tax.credit to the amount

of U.S taf on foréié,n income. Because we reject petitioner's claim to the foreign

tax credit on other årounds, we need ot and do not address the application of the

sec. 90 (a) lirnitation to petitioner's circumstances.

- 14 A cash basis taxpayer generally must take the foreign tax credit for the year

in which the foreign taxes were paid, unless the taxpdyer makes an irrevocable

election to instead take foreign tax credits in the year in which foreign taxes

accrue. Sec. 905(a); sec. 1.905-1(a), Income Tax Regs. Respondent asserts, and

petitioner does not dispute, that for 2005 she was a cásh basis taxpayer'and made

no election to take foreign tax credits in the year in which foreign takes accrued

rather than in the year in which they were paid. We deem petitioner to have

conceded these matters. Accordingly, petitioner is entitled to the foreign tax

credit, if at all, only with respect to foreign taxes she paid in 2005.

A. Taxes Allegedly. Paid to France

.

. Petitioner contends that she is entitled to the foreign tax credit for income

taxes paid to France. But she has failed to show that she actually paid tax to

France in 2005.

.

.

Although petitioner filed with French tax authorities a Déclaration

Préremplie Simplifiée - Revenus 2005 on which she reported her United wages for

tax.year 2005, the return does not show how much, if any, income tax was paid to

France. The evidence shows that she paid 400 euro in early 2005 as an installment

of tax due on her 2004 French income tax, but this amount tvas also refunded to

her in 2005. Aòcordingly, we do not regard this an amount paid to France in

-!15 2005.9 Petitioner has otherwise pro ided noèecéipt for þayinent!canceled cheòk,

or other evidence df taxes paid to.FrNnce'for 2005;12 Following trial the Court

kept the record opén for.30 days to allow petitiòner to produce evidenÊé Iháiàhe

paid tax to France in 2005, but petitioner failed.to do so: Havinifailed to show

that she paid.tax to(France in 2005 s e has failed to éstablish erititléme t to the

foreign tax credit v 041ith

respect to any su h tax:

B. Taxes Paid to the United Kingdom

I etitioner fdther contend 541

tha shéis entitled tå the foreign täx credit foi

the relatively small amounts that Uni ed withlield from her wages to payViiitèd

Kingdom.taxes. Respondent concedes that petitioner paid takés in 2005, throùgh

withholding,.to-the United Kingdom.

Respondënt cofitends; howeier, that

¶The regulations provide that n amount is not treated as tax paid to a

foreign country to the exteni it is réas nåbly Zériaii ô e un21ed. Sec 1.9012(e)(2), Income 'l'a Regs. Perforce, an amount that the foreign country actually

refunds during the saine yèar is'nbt tréâied as ßaid.

Petitioner p¼ovided an untran lated document, written in French, which

appears to relate to 2005 and which sl e contends is a bill from Trésor Public

(French taxing authbrity) for 1,002 eu o. But she provided no proof that she paid

the amdunt shown s due.

C±Cont'l I 1. Corp. v Comii ssióner/998 F.2d 513p516-517 (r/th Cii

1993) (liolding that to show entitlement to the foreign ia:icerëdit, the taxpayer must

show not merely that foreign tax wäs ithheld but àlso that it was paid to the

lawful taxing authority), aff'g on this þoint and i.ev'g in'part T.C Memo. 1991-66

(confinùed...)

- 16 petitioner is not entitled to the foreign tax credit with respect to these taxes

because the income upon which the United Kingdom imposéd these taxes has bèen

excluded from petitioner's U.S. gross income under section 911. We agree.

As a general rule, no foreign tax credit is permitted insofar as the foreign tax

paid is allocable.to income excluded from gross÷income under section 911. Sec.

911(d)(6); sec. 1.911-6(a), Income Tax Regs.; see also Faltesek v. Commissioner,

92 T.C. 1204, 1207 (1989). As previously discussed, respondent has allowed

petitioner the foreign earned income exclusion with respect to her wages for

services performed in and over foreiàn countries, including the United King¿lom.

Insofar as the U.K. taxes in question were imposed upon'the same U.K. income for

which petitioner has been allowed the foreign earned income exclusion, slïe is not

entitled to also claim the foreign tax credit for these U.K. taxes.

Petitioner has presented no evidence regarding the tax base for the taxes she

paid to the United Kingdom but merely states in her posttrial brief that the U.K.

"(...continued)

Wilcox v. Commissioner, T.C. Memo. 2008-222 (same); see Rev. Rul. 57-516,

1957-2 C.B. 435 ("The credit provided in section 901 of the Code is not based oh

tax withheld by a foreign country * * * during.the taxable year, since tax withheld

is merely an advance collection of what may or may not be an actual tax

liability.").

- 17 taxes were "withhe d from the total income.''1 040

We take judicial notice of seVeral

authorities that strongly suggest that the United Kingdom withholds tãx-from a

non@esident only för employment;carried outtwithin the United Kingdom.'Sée

Income Tax (Trading and Other Inco e) Act 2005, ch. 2psec. 6 (U.K!) (available

at http://www.legis ation.gov.uk/ukp a/2005/5/section/6) (last visited Feb. 1,

2012) ('Profits of a trade * * * [of] a on-.UK resident are:chargeable tb tax under

this Chapter only if they arise--(a) from a trade carried on wholly in the United

Kingd m, or (b) in he case of a trade carried on partly in the United Kingdom and

partly elsewhere, from the part of the rade carried on in the United Kingdom.");

see also R (Davies & another) v.-Commissioners for H.M. Rev. & Customs,

(2011) UKSC 47 (aþpeal taken from Éng.); H.M. Rev. & Customs, IR20,

Residerits and non-ëe 541idents

Liability o tax in the United Kingdom, para. 5.2

(1999) (available at http://www.hmrc gov.uk/pdfs/ir20.pdf) (last visited Feb. 1,

2012) ("If you are not resident in the JK, we will generally tax you on any UK

pensions or on earnings from employ1 ent the duties of which are carried on in

this country." Duties performed by a on-U.K. resident member of an aircraft

1

Both petitioner and respondenk characterize these taxes as "commuter"

taxes. Although the' record does not reveal the precise nature of the "commuter"

tax, respondent does not dispute that the tax paid was a tax on "income, war

profits, and excess profits" as required for eligibility for the foreign tax credit

under sec. 901(b)(1).

- 18 crew are generally treated as performed in the United Kingdom only if "thë flight

does not extend to a place outside the UK"). On the basis of these authorities it

seems most likely that the taxes petitioner paid to the United Kingdóm in 2ÖÒ5

were attributable to her duties carried on in the United Kirigdom. Petilioner has

not shown otherwise. Because she has excluded her United King om-based

income under section 911(a), she is riot entitléd to the foreign tax credit with

respect to these.U.K. taxes.

We conclude and hold that petitioner has failed to establish endtlenient to

the foreign tax credit for 2005.

To reflect the foregoing and resl 541ondent's

concessions,

Decision will be entered

under Rule 155.