Bowring v. Commissioner

27 B.T.A. 449, 1932 BTA LEXIS 1062

• Court: United States Board of Tax Appeals
• Decided: December 29, 1932
• Docket: Docket Nos. 41871, 54100.
• Status: Published

Opinions

OXUNIOK.

Leech :

The allowance of the disputed credit involves the proper construction of the applicable sections of the Eevenue Acts of 1924 and 1926 which are identical and read as follows:

Sec. 222. (a) The tax computed under Parts I and II of this title shall be credited with:

»{s s}: & i-i

(3) In the case of an alien resident of the United States, the amount of any such taxes paid or accrued during the taxable year to any foreign country, if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country.

The facts are that petitioner’s national origin was Newfoundland, of which he became a subject and to which he owed and has continued to owe his permanent allegiance; that he had the additional status of subject of the British Crown, dependent upon his local status as a subject of Newfoundland; and that, although his domicile was at a different place and his residence at yet another, he was a subject of Newfoundland during the years in controversy.

What is the meaning of the phrase “ taxes paid or accrued * * * to any foreign country ” as used in the 1924 and 1926 Acts ? The original provision for the credit of foreign taxes, as first enacted in the Eevenue Act of 1918, section 222 (a) (3),¹ definitely limited this credit to the amount of income and profits taxes paid to the foreign country of which the resident alien was a citizen or subject, upon income derived from sources therein, provided a similar credit was allowed to citizens of the United States residing in such country. There is a significant contrast in the wording of the quoted section of the 1918 Act and the corresponding sections of the later acts here involved. The change was made in the drafting of the Eevenue Act of 1921. Section 222 (a) (3) of that act is identical with the same sections of the 1924 and 1926 Acts, except for the words “ or accrued ” in the later acts, which difference is immaterial here. A diligent search of the House and Senate Committee Eeports on the Eevenue Act of 1921 reveals no statement of the purpose of the change in wording of section 222 (a) (3) from the form in which it appeared in the 1918 Act. However, the original House Bill 8245 was drafted in the form of specific amendments to the Revenue Act of 1918 and section 228 provided that section 222 (a) (3) of the 1918 Act be amended to read as above stated. The House Bill was amended by the Senate to take the form of a new revenue act and section 222 (a) (3), as altered, was enacted in the Revenue Act of 1921. While the reports of the hearings held by the Committees of the House and Senate on the 1921 Act do not disclose any effort by taxpayers to secure a change in this particular subdivision of section 222, they do disclose a decided effort to secure new legislation to relieve American citizens residing abroad from double taxation. Without doubt the primary purpose of this provision in the Revenue Acts of 1921, 1924, and 1926 was to mitigate the evils of double taxation upon American citizens, Burnet v. Chicago Portrait Co., 281 U. S. 1, through the medium of inducement, by the allowance of credits to any resident alien whose country allowed similar credits to American citizens resident there. A change in the phraseology of a statute, reenacted, creates a presumption of change in the intent of the legislative body from that expressed in the former statute. Crawford v. Burke, 195 U. S. 176, 190. The broadened scope apparent in the wording of the later acts shows clearly the intention of Congress to extend further and logically the double taxation relief first enacted in the 1918 Act.

We hold, therefore, that section 222 (a) (3) of the Revenue Acts of 1924 and 1926, sufra, provides for this credit of income taxes, paid or accrued by a resident alien to any foreign country, whether or not the taxpayer is a citizen or subject thereof, provided the other conditions of this subsection are met.

Our next consideration is the meaning of certain controverted terms in the expression “ if the foreign country of which such alien resident is a citizen or subject,” as used in section 222 (a) (3), supra.

The term “ foreign country ” means any foreign political entity, with or without international standing as a member of the family of nations, which has the power to and does levy and collect income taxes which may be the subject of the intended credit. Burnet v. Chicago Portrait Co., supra. Upon the facts in the instant case, Newfoundland is a foreign country within the meaning of section 222 (a) (3), supra.

The Commissioner in his reply brief has abandoned his original contention that petitioner acquired the local status of subject of Great Britain by establishing his domicile therein, and concedes that the laws of Great Britan do not provide for the acquisition of such status by the nationals of the various colonies and dominions of the British Empire. The Commissioner now contends that petitioner, being a British subject (subject of the Crown), domiciled in Great Britain, was a “subject” of Great Britain within the purview of section 222 (a) (3), supra. He contends that domicile controls the status of petitioner for this statutory purpose.

In construing statutes the legislative intent must be sought and is the all important factor, Wolsey v. Chapman, 101 U. S. 755; United States v. Stone & Donner Co., 274 U. S. 225. This intent must be ascertained from the words Congress has chosen to employ, interpreted according to their ordinary meaning; Dewey v. United States, 178 U. S., 510, 520.

The following quotation from the case of State v. Manuel (1834), 4 Dev. & Bat. 20, has been quoted with approval by the Supreme Court in United States v. Wong Kim Ark, 169 U. S. 649, 663, and Hennessy v. Richardson Drug Co., 189 U. S. 25:

The term “ citizen,” as understood in our law, is precisely analogous to the term “ subject ” in the common law, and the change of phrase has entirely resulted from the change of government. The sovereignty has been transferred from one man to the collective body of the people; and he who before was a “ subject of the King ” is now a “ citizen of the state.”

The term “ subject ” has been held, in exceptional circumstances, to include a person owing obedience and temporary allegiance to a particular government because of residence within its boundaries. Such a definition has been applied where the statute or treaty under discussion, directly or indirectly, so construed the term, The Pizarra, 2 Wheat. 227, or, where the sovereign right of the Federal Government to enforce obedience to its laws by those resident here was involved; Carlisle v. United States, 16 Wall. 147. Obviously, the facts do not bring the instant case within these exceptions. The word is more commonly and accurately used in its narrower sense and is limited in its meaning to one who, by birth or naturalization, owes permanent allegiance to a government. Nagle v. Loi Hoa, 275 U. S. 475; United States v. Karnuth, 30 Fed. (2d) 242; Hammerstein v. Lyne, 200 Fed. 165; Dicey, Conflict of Laws (2d Ed.), 164. The word “ subjects ” in section 2 of Article III of the Federal Constitution, extending the jurisdiction of the Federal courts to cases between a state or its citizens “ and foreign states, citizens or subjects,” has been held to refer to permanent allegiance to a foreign government. Hammerstein v. Lyne, supra.

Domicile has to do with civil status, upon the basis of which, the civil rights of the individual rest. In re Green’s Estates, 164 N. Y. S. 1063. It is important in determining state citizenship in the United States under the Fourteenth Amendment to the Federal Constitution,¹ The Slaughter House cases, 16 Wall. 36. Domicile is wholly irrelevant to the issue of Federal citizenship or any alien political status, of which permanent allegiance, by birth or naturalization, is solely decisive. Hammerstein v. Lyne, supra; Nagle v. Loi Hoa, supra; United States v. Karnuth, supra.

We conclude that “ subject ” as used here means, exclusively, a person owing permanent allegiance to a government because of birth or naturalization alone, and, that petitioner was a subject of Newfoundland within the meaning of section 222 (a) (3), supra. Any other construction would produce absurd consequences, which should be avoided. In re Chapman, 166 U. S. 661; United States v. Katz, 271 U. S. 354. This subsection applies only to resident aliens. If domicile controls the status of petitioner for this statutory purpose, as contended by the Commissioner, and if, arguendo, petitioner were domiciled as well as resident in this country, he would not be an alien within the meaning of the subsection, but, on the contrary, would be a citizen and entitled to the credits provided in other subdivisions of section 222 of the Revenue Acts of 1924 and 1926.

The Commissioner contends that the question of whether petitioner is in fact a citizen or subject of Great Britain is res adjudícala by the decision in the case of Bowring v. Bowers, 24 Fed. (2d) 918; certiorari denied, 277 U. S. 608. That case was an action brought by this petitioner to recover income taxes for the years 1917 to 1921, inclusive, assessed and collected on the basis that he was a resident alien, whereas he had reported his income and paid a lesser tax on the basis of a nonresident alien. The record in that case has been submitted as a joint exhibit in this proceeding. The pleadings raised no issue as to the nationality of the petitioner. No evidence of his foreign allegiance was introduced, nor was the question of such status argued. After holding that residence, as used in the estate tax provisions of the revenue acts, is synonymous with domicile because the incidence of estate and succession taxes has been determined historically by domicile, the court held that there is a difference between the legal intendment of the terms “ residence ” and “ domicile ” and that, as to the income tax provisions of the revenue acts, the liability for tax was fixed by residence, a permanent abode of no transient character. The court then decided that petitioner was a resident alien and taxable as such. After noting that petitioner was required to pay an income tax to Great Britain, because domiciled there, and also to the United States upon the same income, stated:

* * * Moreover, the hardship of the double taxation would have been prevented by reason of section 222 (a) (3) of the Revenue Act * * * if Great Britain, the •country of which plaintiff is a citizen, had allowed to citizens of the United States residing there a credit of taxes paid by them in the United States upon their taxes paid in Great Britain, but there is no such reciprocal legislation. [Italics ours.]

In making this statement, the court was not deciding as a matter of fact or law that petitioner was a citizen of Great Britain, for there was no such issue presented to the court. It was not necessary for the court to determine the question of petitioner’s citizenship, i. e., the country to which he owed permanent allegiance, in deciding the issue which was before the court, namely, whether petitioner was a resident or a nonresMent alien of the United States for purposes of income taxation. We are of the opinion that the decision in the case of Bowring v. Bowers, supra, does not determine this issue. Cromwell v. County of Sac, 94 U. S. 351.

However, the stipulation of the parties as to Newfoundland satisfying the similar credit provision here in question, by allowing credit for income taxes paid to this country or by exempting income derived from this country by our citizens residing in Newfoundland, is not broad enough to include the instant case within the meaning of the term “similar credit,” as used in section 222 (a) (3), supra.

The word “ similar ” is defined as: “ nearly corresponding ”; “ resembling in many respects ”; “ somewhat alike ”; “ having a general likeness.” Of. Webster’s New International Dictionary; Fletcher v. Interstate Chemical Co., 110 Atl. 109; 94 N. J. Law, 332; Greenbaum v. DeJong, 166 N. Y. S. 1042, 1044; Fidelity & Deposit Co. v. Brown, 92 Vt. 390; 104 Atl. 234, 236; but “ similar ” does not mean “ identical,” In re Bonsall's Estate, 135 Atl. 724, 725, 228 Pa. 39. Bouvier’s Law Dictionary defines “ similar ” as follows: “ Denotes partial resemblance, and also sameness in all essential particulars.”

The sense in which Congress has employed the word “similar” must be determined in accordance with its ordinary meaning and in the light of all the circumstances that may fairly be regarded as having been within the knowledge of Congress at the time. Dewey v. United States, supra. We have stated the purpose of Congress in enacting section 222 of the Revenue Acts of 1921, 1924, and 1926 was to mitigate against the evils of double taxation of American citizens. This is the controlling factor in construing the provision, Wolsey v. Chapman, supra; United States v. Chapman, supra. Section 222 (a) (1), applicable to citizens of the United States, and section 238, applicable to domestic corporations, provide that taxes paid to any foreign country sliall be credited against income taxes due this country. Thus some relief against double taxation of American citizens and corporations by this country was secured by direct legislation. But this was only a part of the relief which Congress obviously intended to accomplish. What of our citizens residing abroad and engaged in the highly competitive foreign trade? How could they, so situated, be relieved of the burden of double taxation at the hands of foreign countries ? The only answer was, by encouraging these foreign countries to provide this desired relief by our proposed reciprocity. In the case of Burnet v. Chicago Portrait Co., supra, the Supreme Court referred to section 222 (a) (3) as a reciprocal provision.

The stipulation of the parties, and the Commissioner’s Regulations 65 and 69, art. 385, with which it is identical, pro tanto, merely sets out two conditions wherein certain countries meet the “ similar credit” requirement of this section, namely, that those countries, including Newfoundland, allow to American citizens resident there a credit for income taxes paid to this country, or exempt from tax income derived from this country. In the case of a foreign country whose tax laws contain either one of those two provisions and whose citizen or subject is resident in this country, section 222 (a) (3)-, supra, and the Commissioner’s regulations allow such resident alien a credit for taxes paid to such country. Either of the two provisions will suffice, for, while the type of credit or exemption may not be identical with that allowed by this country, the credits allowed by the two countries would be “ similar,” as above defined, and the result would be, practically, the corresponding and reciprocal relief from double taxation the legislation was intended to effect.

The instant case goes far beyond the provisions of the regulations, and the stipulation. The credit sought is not for taxes paid Newfoundland, which would fall squarely within the regulations and the stipulation, but is for taxes paid to Great Britain. Petitioner contends that “ similar credit ” in this section means that, if either type of credit above described is allowed to American citizens residing in Newfoundland, for instance a credit for taxes paid to this country, then the Newfoundland subject residing here may take credit for any income taxes paid, not only to Newfoundland, but also to any foreign country. We have held that a resident alien is entitled to credit for income taxes paid to any foreign country, provided the other conditions of the subsection are met. We have also stated that the provision is reciprocal. It was not enacted primarily for the benefit of aliens residing here, but as a means of inducing foreign countries to relieve American citizens residing abroad from double taxation. The clear intendment of the subsection, read as a whole, is that the credit must be a corresponding one. Applied here, petitioner must show that Newfoundland allows our citizens resident there a credit for taxes paid to Groat Britain or exempts from taxation income arising there. If we should construe this clause as petitioner contends, Congress would have accomplished the protection of the resident alien against double taxation, to a much greater extent than American citizens, and not only the intended purpose of the legislation would be largely thwarted, but the revenues of the Government would be depleted without justification or consideration. This is apparent in the instant case in the fact that petitioner’s income tax paid to Newfoundland is insignificant, in the words of petitioner’s counsel, whereas the British income taxes he seeks to credit are very substantial.

Petitioner has rested his case upon the stipulation that Newfoundland satisfies the similar credit provision in certain particulars and has argued strenuously that this is sufficient to entitle him to the credit sought. The petitioner, having failed to establish as a fact that Newfoundland allows to American citizens resident there a credit for income taxes paid to Great Britain, or an exemption from income tax of income arising there, we hold that he is not entitled to credit British income taxes against such taxes due the United States.

The parties having stipulated the correct amount of the deficiencies in the event the credits sought are not allowed in this proceeding, the deficiencies are redetermined to be in the amounts of $23,674.34, $4,055.35, and $3,942.59 for the years 1924, 1925, and 1927, respectively.

Reviewed by the Board.

Judgment will be entered accordingly.

1 Sec. 222. (a) That the tax computed under Part II of this title shall be credited with:

*******

(3) In the case of an alien resident of the United States who is a citizen or subject of a foreign country, the amount of any such taxes paid during the taxable year to such country, upon income derived from sources therein, if such country, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country.

1 Section 1. All persons born or naturalized in tbe United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. * * *