151 T.C. No. 6
UNITED STATES TAX COURT
SIDNEY O’KAGU, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3835-18. Filed September 19, 2018.
In 2014 and 2015 P earned wages while working in Germany under a personal services agreement for the U.S. Department of State.
Held: Pursuant to 22 U.S.C. sec. 2669(c) (2012) P is considered an employee of the U.S. Government for income tax purposes; consequently, P is not entitled to the I.R.C. sec. 911 foreign earned income exclusion with respect to these wages.
Sidney O’Kagu, pro se.
Christopher D. Davis, for respondent. -2-
OPINION
THORNTON, Judge: By notice of deficiency respondent determined
deficiencies of $5,361 and $5,099 and section 6662(a) penalties of $1,072 and
$1,020 in relation to petitioner’s Federal income tax for 2014 and 2015,
respectively.1
This case is before us on respondent’s motion for partial summary judgment
under Rule 121. Respondent seeks summary judgment that petitioner is not
entitled to the section 911 foreign earned income exclusion with respect to wages
that he earned while working in Germany under a personal services agreement
(PSA) for the U.S. Department of State.
Although the Court directed petitioner to file a response to respondent’s
motion, petitioner failed to do so. Because petitioner failed to respond to the
motion for partial summary judgment, the Court could enter a decision against him
for that reason alone. See Rule 121(d). We will nevertheless consider the motion
on its merits.
1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. Monetary amounts are rounded to the nearest dollar. -3-
Background
The following facts are derived from the petition and respondent’s motion
for partial summary judgment and attachments thereto.
During 2014 and 2015 petitioner, a U.S. citizen, worked for the U.S.
Department of State as a security equipment technician at the U.S. consulate in
Frankfurt, Germany. He was hired in November 2013 as a “local hire civilian
employee” pursuant to a PSA. Petitioner’s PSA was negotiated and signed under
the authority of section 2(c) of the State Department Basic Authorities Act of 1956
(Basic Authorities Act), ch. 38, 70 Stat. at. 890 (codified as amended at 22 U.S.C.
sec. 2669(c) (2012)), which authorizes the Secretary of State to “employ
individuals or organizations, by contract, for services abroad”.
For 2014 and 2015 petitioner’s wages were reported on Forms W-2, Wage
and Tax Statement, issued by the U.S. Department of State. Petitioner filed
Federal income tax returns on Forms 1040, U.S. Individual Income Tax Return,
for 2014 and 2015. Petitioner attached to his returns Forms 2555, Foreign Earned
Income, on which he claimed, pursuant to section 911, exclusions of $67,690 and
$100,800 for 2014 and 2015, respectively.
On November 17, 2017, the Internal Revenue Service issued a notice of
deficiency disallowing petitioner’s foreign earned income exclusions for 2014 and -4-
2015. The notice of deficiency also determined that petitioner is liable for
accuracy-related penalties pursuant to section 6662(a) for 2014 and 2015.
On February 22, 2018, while residing in Germany, petitioner timely
petitioned this Court.2
Discussion
A. Summary Judgment Standard
The Court may grant a motion for summary judgment where there is no
genuine dispute as to any material fact and a decision may be rendered as a matter
of law. See Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520
(1992), aff’d, 17 F.3d 965 (7th Cir. 1994). Partial summary adjudication is
appropriate if some but not all issues in a case can be disposed of summarily. See
Rule 121(b); Turner Broad. Sys., Inc. v. Commissioner, 111 T.C. 315, 323-324
(1998). A party moving for summary judgment bears the burden of showing that
there is no genuine dispute as to any material fact, and factual inferences are
viewed most favorably to the nonmoving party. See Rauenhorst v. Commissioner,
119 T.C. 157, 162 (2002). A party opposing summary judgment must set forth
specific facts showing that there is a genuine issue for trial in order to rebut the
2 This case is appealable, barring a stipulation to the contrary, to the Court of Appeals for the D.C. Circuit. See sec. 7482(b)(1). -5-
moving party’s assertions of fact. See Rule 121(d); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322-323 (1986).
B. Analysis
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, 101-102 (2001), aff’d sub nom. Haessly v. Commissioner, 68 F. App’x 44 (9th
Cir. 2003), and aff’d sub nom. Umbach v. Commissioner, 357 F.3d 1108 (10th
Cir. 2003). Exclusions from gross income are construed narrowly, and a taxpayer
must clearly establish his entitlement to any such exclusion. Id.
Section 911(a)(1) provides that a “qualified individual” may elect to exclude
from gross income, subject to limitations set forth in subsection (b)(2), his or her
“foreign earned income.” Pursuant to section 911(b)(1)(B)(ii), foreign earned
income does not include amounts “paid by the United States or an agency thereof
to an employee of the United States or an agency thereof”.
Respondent asserts that petitioner’s wages are not foreign earned income for
purposes of section 911 because the U.S. Department of State paid these wages to
petitioner as its employee. -6-
In his petition, petitioner appears to assert that he was not a U.S.
Government employee during the years at issue. He alleges that under the terms
of his PSA he is excluded from certain perquisites which he says are normally
afforded to U.S. Government employees. He further alleges that in order to apply
for his position he was required to be a resident of Germany, have a German work
permit, and have a local bank account to receive his salary, which was paid in
local currency. He cites 22 U.S.C. section 2669, which provides in relevant part:
The Secretary of State may use funds appropriated or otherwise available to the Secretary to--
* * * * * * *
(c) employ individuals or organizations, by contract, for services abroad, and individuals employed by contract to perform such services shall not by virtue of such employment be considered to be employees of the United States Government for purposes of any law administered by the Office of Personnel Management * * *
As the Court of Appeals for the D.C. Circuit has observed, however, this
“clause (considered in isolation) confirms that § 2669(c) employees are employees
of the federal government for purposes of any law not administered by [the Office
of Personnel Management]”. Miller v.
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151 T.C. No. 6
UNITED STATES TAX COURT
SIDNEY O’KAGU, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3835-18. Filed September 19, 2018.
In 2014 and 2015 P earned wages while working in Germany under a personal services agreement for the U.S. Department of State.
Held: Pursuant to 22 U.S.C. sec. 2669(c) (2012) P is considered an employee of the U.S. Government for income tax purposes; consequently, P is not entitled to the I.R.C. sec. 911 foreign earned income exclusion with respect to these wages.
Sidney O’Kagu, pro se.
Christopher D. Davis, for respondent. -2-
OPINION
THORNTON, Judge: By notice of deficiency respondent determined
deficiencies of $5,361 and $5,099 and section 6662(a) penalties of $1,072 and
$1,020 in relation to petitioner’s Federal income tax for 2014 and 2015,
respectively.1
This case is before us on respondent’s motion for partial summary judgment
under Rule 121. Respondent seeks summary judgment that petitioner is not
entitled to the section 911 foreign earned income exclusion with respect to wages
that he earned while working in Germany under a personal services agreement
(PSA) for the U.S. Department of State.
Although the Court directed petitioner to file a response to respondent’s
motion, petitioner failed to do so. Because petitioner failed to respond to the
motion for partial summary judgment, the Court could enter a decision against him
for that reason alone. See Rule 121(d). We will nevertheless consider the motion
on its merits.
1 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. Monetary amounts are rounded to the nearest dollar. -3-
Background
The following facts are derived from the petition and respondent’s motion
for partial summary judgment and attachments thereto.
During 2014 and 2015 petitioner, a U.S. citizen, worked for the U.S.
Department of State as a security equipment technician at the U.S. consulate in
Frankfurt, Germany. He was hired in November 2013 as a “local hire civilian
employee” pursuant to a PSA. Petitioner’s PSA was negotiated and signed under
the authority of section 2(c) of the State Department Basic Authorities Act of 1956
(Basic Authorities Act), ch. 38, 70 Stat. at. 890 (codified as amended at 22 U.S.C.
sec. 2669(c) (2012)), which authorizes the Secretary of State to “employ
individuals or organizations, by contract, for services abroad”.
For 2014 and 2015 petitioner’s wages were reported on Forms W-2, Wage
and Tax Statement, issued by the U.S. Department of State. Petitioner filed
Federal income tax returns on Forms 1040, U.S. Individual Income Tax Return,
for 2014 and 2015. Petitioner attached to his returns Forms 2555, Foreign Earned
Income, on which he claimed, pursuant to section 911, exclusions of $67,690 and
$100,800 for 2014 and 2015, respectively.
On November 17, 2017, the Internal Revenue Service issued a notice of
deficiency disallowing petitioner’s foreign earned income exclusions for 2014 and -4-
2015. The notice of deficiency also determined that petitioner is liable for
accuracy-related penalties pursuant to section 6662(a) for 2014 and 2015.
On February 22, 2018, while residing in Germany, petitioner timely
petitioned this Court.2
Discussion
A. Summary Judgment Standard
The Court may grant a motion for summary judgment where there is no
genuine dispute as to any material fact and a decision may be rendered as a matter
of law. See Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520
(1992), aff’d, 17 F.3d 965 (7th Cir. 1994). Partial summary adjudication is
appropriate if some but not all issues in a case can be disposed of summarily. See
Rule 121(b); Turner Broad. Sys., Inc. v. Commissioner, 111 T.C. 315, 323-324
(1998). A party moving for summary judgment bears the burden of showing that
there is no genuine dispute as to any material fact, and factual inferences are
viewed most favorably to the nonmoving party. See Rauenhorst v. Commissioner,
119 T.C. 157, 162 (2002). A party opposing summary judgment must set forth
specific facts showing that there is a genuine issue for trial in order to rebut the
2 This case is appealable, barring a stipulation to the contrary, to the Court of Appeals for the D.C. Circuit. See sec. 7482(b)(1). -5-
moving party’s assertions of fact. See Rule 121(d); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322-323 (1986).
B. Analysis
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, 101-102 (2001), aff’d sub nom. Haessly v. Commissioner, 68 F. App’x 44 (9th
Cir. 2003), and aff’d sub nom. Umbach v. Commissioner, 357 F.3d 1108 (10th
Cir. 2003). Exclusions from gross income are construed narrowly, and a taxpayer
must clearly establish his entitlement to any such exclusion. Id.
Section 911(a)(1) provides that a “qualified individual” may elect to exclude
from gross income, subject to limitations set forth in subsection (b)(2), his or her
“foreign earned income.” Pursuant to section 911(b)(1)(B)(ii), foreign earned
income does not include amounts “paid by the United States or an agency thereof
to an employee of the United States or an agency thereof”.
Respondent asserts that petitioner’s wages are not foreign earned income for
purposes of section 911 because the U.S. Department of State paid these wages to
petitioner as its employee. -6-
In his petition, petitioner appears to assert that he was not a U.S.
Government employee during the years at issue. He alleges that under the terms
of his PSA he is excluded from certain perquisites which he says are normally
afforded to U.S. Government employees. He further alleges that in order to apply
for his position he was required to be a resident of Germany, have a German work
permit, and have a local bank account to receive his salary, which was paid in
local currency. He cites 22 U.S.C. section 2669, which provides in relevant part:
The Secretary of State may use funds appropriated or otherwise available to the Secretary to--
* * * * * * *
(c) employ individuals or organizations, by contract, for services abroad, and individuals employed by contract to perform such services shall not by virtue of such employment be considered to be employees of the United States Government for purposes of any law administered by the Office of Personnel Management * * *
As the Court of Appeals for the D.C. Circuit has observed, however, this
“clause (considered in isolation) confirms that § 2669(c) employees are employees
of the federal government for purposes of any law not administered by [the Office
of Personnel Management]”. Miller v. Clinton, 687 F.3d 1332, 1343 (D.C. Cir.
2012) (emphasis in original) (holding that a U.S. citizen working abroad for the
U.S. Department of State pursuant to a PSA, authorized under 22 U.S.C. sec. -7-
2669(c), was an employee covered by the statutory protections of the Age
Discrimination in Employment Act of 1967, Pub. L. No. 90-202, sec. 15, 81 Stat.
at 607 (codified as amended at 29 U.S.C. sec. 633a (2012))); see also 48 C.F.R.
sec. 637.104-71(b) (2017) (defining a PSA as “a method of employment using the
statutory authority under 22 U.S.C. [sec.] 2669(c)”). Petitioner has cited, and we
are aware of, no other clause of the Basic Authorities Act or any other provision of
law that would suggest any other construction or effect of the Basic Authorities
Act as applied to this case.
Clearly, section 911 is not a “law administered by” the Office of Personnel
Management. Rather, it is part of the Internal Revenue Code, which (with
exceptions not relevant here) is administered “by or under the supervision of the
Secretary of the Treasury.” Sec. 7801(a). Accordingly, pursuant to 22 U.S.C. sec.
2669(c) petitioner is considered an employee of the U.S. Government for income
tax purposes, notwithstanding his assertions about the nature of his employment
perquisites and conditions. Consequently, the wages that he received from the
U.S. Department of State do not constitute foreign earned income within the -8-
meaning of section 911(b)(1). He is therefore not entitled to the foreign earned
income exclusion for the years in issue.3
To reflect the foregoing,
An order will be issued
granting respondent’s motion for
partial summary judgment.
3 Respondent has not sought summary judgment with respect to the sec. 6662(a) accuracy-related penalties. We leave that issue for further proceedings.