The opinion of the court was delivered by: WORTENDYKE
Taxpayer predicates his claims of overpayment upon his failure to claim exemption from tax upon his earned income for the stated years (by reason of his ignorance of the law), because of his alleged bona fide residence in France, and his consequent receipt of the earned income from sources outside of the United States, all within the purview of Section 116(a)(1) of the Internal Revenue Code of 1939, as amended (Code), 26 U.S.C.A. § 116(a)(1). Alternatively, taxpayer pleads that if this Court should conclude that he was not entitled to the exemption provided by the cited statutory section, he should have been allowed, as deductions under Section 23(a)(1) of the Code, 26 U.S.C.A. § 23(a) (1), business and living expenses incurred by reason of the employment away from home, in the sum of $ 4,427.51 for the year 1951, and $ 4,039.59 for the year 1952.
The Government denies that taxpayer was a bona fide resident of France during the years in question, and, therefore, contends that taxpayer is disentitled to exemption under Section 116(a)(1). The Government also insists that the net proceeds of settlement of the lawsuit referred to may not, in any event, be excluded from gross income under the statute, because such payment was received for services performed within the United States. Defendant further asserts that the deductions claimed for expenses in 1951 and 1952 under Section 23(a) (1)(A) of the Code should be disallowed because without support in the evidence.
The two cases came duly to issue, and, pursuant to stipulation, were consolidated for trial to the Court, without a jury. In compliance with F.R.Civ.P. 52, 28 U.S.C.A., the Court makes the following
1. Plaintiffs are husband and wife, presently residing together in the Borough of Demarest in this District, in a dwelling house purchased by the wife in 1942, with her own funds. Their children were enrolled in schools in the United States from which they graduated in due course. One of the children was in residence as a student at the Sorbonne in Paris during the 1950-51 academic year.
2. Prior to the outbreak of World War II, Mr. Supino had for some time been in the employ of Louis Dreyfus et Cie., (Dreyfus), in Paris, France, where he then resided with his wife and children. The business of that concern was world-wide, and the position then held by taxpayer was that of director of insurance for his employer, throughout the areas of its interests.
3. When the Germans invaded France, the further conduct of the employer's business from Paris was interdicted. Taxpayer and his family left Paris, and after a number of temporary changes of residence in various parts of Southern France, he was assigned to New York by his employer, where he performed similar duties at Dreyfus' New York affiliate, Leval & Co. Inc. (Leval), a New York corporation. Taxpayer and his family arrived in the United States on May 5, 1941. They remained in this country, until taxpayer was reassigned to Dreyfus' Paris headquarters in 1949. Mr. and Mrs. Supino were both naturalized as United States citizens in 1946.
5. Taxpayer took his entire family with him upon his return to Paris in 1949, and for a time they stayed in a hotel in that city. Attempts to enroll his children in suitable schools in Paris for the school year 1949-50 were unavailing, and, therefore, the three oldest children returned to the United States where they resumed their studies. Mrs. Supino and the youngest child followed them back to the United States in November of that year. Taxpayer remained in Paris and that fall purchased a dwelling house in a suburb of Paris which he renovated and furnished and in which he resided together with other members of his family when they were in France. That house is still owned by taxpayer. For the purposes of his employment, by reason of his United States' citizenship, taxpayer was required to secure, and did obtain, a permanent resident card, permitting him to work in France.
6. Following the reenrollment of the Supino children in private schools in the United States, mrs. Supino customarily divided her time between France and the United States, usually maintaining the home in Demarest during school vacations and returning to Paris after the children resumed their studies at the various schools in which they were enrolled.
7. During the period between April 1949 and 1954 when his employment connection was terminated, taxpayer returned to the home in Demarest during his annual business vacations for varying periods of time. On one occasion, in 1950, he remained in the United States for a somewhat longer period of time than was customary, by reason of the pendency of the litigation herein previously referred to. During that year taxpayer was in the United States for four and a half months; in 1951 he was here for two and a half months; in 1952 three and a half months; and in 1953 spent four months in the United States. The remainder of those years was spent abroad, working out of the Paris office. During the periods of his stay in Demarest, taxpayer conducted a side-line business from his home there. He continued his church affiliations in the United States, made contributions to various charities in this country, pruchased and maintained an automobile registered in New Jersey, and held a mambership in a luncheon club in New York City throughout the period. He also placed advertisements, seeking employment which would permit him to reside in the United States. He purchased and kept another automobile in France, for his use when there.
8. In his 1953 income tax return, taxpayer reported the net proceeds of settlement of a law suit instituted by taxpayer in New York State, in the amount of $ 4,312.50, and claimed this amount as exempt income. This litigation was for the recovery of a share of a finder's commission in connection with the purchase by The General Insurance Company of Trieste of the Buffalo Insurance Company of Buffalo, New York. Taxpayer had met the controlling broker in New York City, and there brought together the representatives of the parties. The services for which he became entitled to a share in the commission were performed in the United States.
9. During the years in question taxpayer and his wife made joint income tax returns to the United States, which were prepared for them by a New York tax accountant. For the years 1949 through 1952 these returns reflected that taxpayers' residence was in the United States. Taxpayer asserts that his tax accountant did not disclose to him the provisions of Section 116(a)(1) of the Code, but that he was first informed thereof, in 1954, by arepresentative of the Internal Revenue Service of the United States, stationed in Paris. As a result of this disclosure, in their joint return for the year 1953 plaintiffs for the first time reported that taxpayer was not a resident of the United States. The Internal Revenue Service determined that taxpayer was not a resident of France for the year 1953, and assessed a deficiency tax for that year amounting to $ 8,722.02. Deficiency taxes were also assessed for the years 1951 and 1952 upon a review of plaintiff's returns for those years, in the respective amounts of $ 3,347.18 and $ 3,774.24, which deficiencies were all paid by the taxpayer. Claims for the refunds here sought were made and filed with the Commissioner more than six months prior to the commencement of these actions; no decision having been rendered by the Commissioner within that time. It is admitted that taxpayer paid no income taxes to France during the period of his employment there from 1949 to 1954, because of his payment of United States income taxes upon that earned income.
10. Since the termination of taxpayer's employment in 1954 he has continuously resided in the United States, and he has neither sought nor participated in further employment abroad.
11. Evidence was adduced on the hearing to the effect that at the time of taxpayer's reassignment to Paris in 1949, it was contemplated that he would live and continue to work in Europe indefinitely. The assignment was not for the performance of any task which could be promptly accomplished and completed. On the contrary, taxpayer contemplated a continuing responsibility which required him to maintain headquarters in Paris during the performance of his duties, despite the necessity that he travel elsewhere on occasion. In aid of the accomplishment of this purpose, taxpayer was annually paid an amount in excess of his salary to cover the added expense incident to his ...