SCOTUS Reports

Tag: Foreign Earned Income Exclusion

  • Fichter v. Commissioner, 9 T.C. 1126 (1947): Defining ‘Bona Fide Nonresident’ for Tax Exclusion

    9 T.C. 1126 (1947)

    A U.S. citizen who is physically absent from the United States for more than six months of a taxable year, while employed abroad, qualifies as a bona fide nonresident for purposes of excluding foreign-earned income from U.S. taxation under Section 116(a) of the Internal Revenue Code, even if some of that time is spent outside their country of employment.

    Summary

    Paul Fichter, a U.S. citizen, worked in Japan for an American company for many years. In 1941, due to increasing international tensions, he traveled to the U.S. for consultations and later returned to Japan before ultimately leaving again and settling in the U.S. The IRS determined that his income earned in Japan was taxable because he wasn’t a bona fide nonresident for more than six months of the year. The Tax Court disagreed, holding that since Fichter was physically outside the U.S. for more than six months, he qualified for the foreign-earned income exclusion under Section 116(a), even considering time spent in Canada.

    Facts

    From 1919 until August 1941, Paul Fichter managed the Osaka, Japan branch of Anderson, Clayton & Co. He was a U.S. citizen but resided in Japan for 22 years. In early 1941, he traveled to the U.S. for business consultations regarding the deteriorating situation in Japan. He also visited his children in Canada. He returned to Japan but, due to worsening conditions, left permanently on August 1, 1941, arriving back in the U.S. on August 28, 1941. His wife and children resided in Canada. In 1941, Fichter was physically absent from the U.S., being in Japan, on the high seas, and in Canada, for more than six months.

    Procedural History

    The Commissioner of Internal Revenue determined a deficiency in Fichter’s 1941 income tax. The Commissioner argued that Fichter’s income earned in Japan was taxable because he wasn’t a bona fide nonresident of the United States for more than six months during that year. Fichter petitioned the Tax Court for a redetermination.

    Issue(s)

    Whether Paul Fichter, a U.S. citizen working abroad, was a bona fide nonresident of the United States for more than six months during the 1941 taxable year, thus entitling him to exclude his foreign-earned income from U.S. taxation under Section 116(a) of the Internal Revenue Code.

    Holding

    Yes, because Fichter was physically absent from the United States for more than six months during 1941, satisfying the statutory requirement for the foreign-earned income exclusion, even considering his time spent in Canada visiting his family.

    Court’s Reasoning

    The court focused on the plain language of Section 116(a), which requires the taxpayer to be a “bona fide non-resident of the United States for more than six months during the taxable year.” The court noted the purpose of the statute: “to increase and encourage our foreign trade by exempting from tax the income derived from export sales by American citizens engaged in that trade and forced to be absent on account thereof from the United States for considerable periods of time.” Fichter had worked for a U.S. company in Japan for many years. The court distinguished this case from prior cases like Estate of W. M. L. Fiske and J. W. Swent, where the taxpayers spent a significant portion of the year within the United States. Here, Fichter was physically absent from the U.S. for 206.5 days. The court rejected the Commissioner’s argument that only time spent on business in Japan should count towards the six-month requirement, holding that Fichter’s time in Canada visiting his family did not negate his status as a bona fide nonresident, especially since he returned to Japan to continue his work before ultimately returning to the U.S.

    Practical Implications

    This case clarifies the interpretation of “bona fide nonresident” under Section 116(a) of the Internal Revenue Code. It emphasizes that physical presence outside the United States for more than six months is a key factor. The case suggests that brief visits to the U.S. for business or personal reasons (like visiting family in a third country) do not necessarily disqualify a taxpayer from claiming the foreign-earned income exclusion, as long as they maintain a foreign residence and are predominantly working abroad. This ruling offers guidance for taxpayers working overseas and helps them plan their time to qualify for tax benefits. Later cases may distinguish Fichter based on the specific facts and circumstances of the taxpayer’s ties to the U.S. and the nature of their foreign employment.

  • Chapin v. Commissioner, 9 T.C. 142 (1947): Establishing Bona Fide Foreign Residence for Tax Exclusion

    Chapin v. Commissioner, 9 T.C. 142 (1947)

    To qualify for the foreign earned income exclusion under Section 116 of the Internal Revenue Code, a U.S. citizen must demonstrate bona fide residency in a foreign country, considering factors beyond mere physical presence and stated intent.

    Summary

    Dudley A. Chapin, a U.S. citizen, sought to exclude income earned while working in North Ireland for Lockheed Overseas Corporation in 1943, claiming bona fide residency in the British Isles under Section 116 of the Internal Revenue Code. The Tax Court denied the exclusion, finding that Chapin’s intent to remain permanently was unconvincing given his lack of familiarity with Ireland, the lower wages compared to the U.S., and the restrictions on his stay after his contract expired. The court relied on previous similar cases involving fellow Lockheed employees, emphasizing the lack of genuine intent to establish permanent foreign residency.

    Facts

    Chapin, a U.S. citizen, worked for Lockheed Overseas Corporation in North Ireland during 1943.
    His employment contract was similar to those of other Lockheed employees working in Ireland.
    Chapin testified that he intended to remain in Ireland permanently when he went there.
    He admitted he had never been to Ireland before, knew little about the country, and was aware that wages were lower than in the U.S.
    Chapin was not permitted to remain in Ireland after his contract expired and his visa period ended.

    Procedural History

    The Commissioner of Internal Revenue assessed a deficiency in Chapin’s income tax for 1943.
    Chapin petitioned the Tax Court for a redetermination of the deficiency, arguing he was entitled to the foreign earned income exclusion under Section 116.
    The Tax Court ruled in favor of the Commissioner, denying the exclusion.

    Issue(s)

    Whether Dudley A. Chapin was a bona fide resident of the British Isles during 1943, as required to qualify for the foreign earned income exclusion under Section 116 of the Internal Revenue Code.

    Holding

    No, because Chapin’s stated intent to remain permanently in Ireland was not credible, given his lack of knowledge about the country, the wage disparity, and the limitations on his stay. Therefore, he did not establish bona fide residency as required by Section 116.

    Court’s Reasoning

    The court emphasized that the facts were almost identical to those in previous cases involving fellow Lockheed employees (Arthur J.H. Johnson, Michael Downs, and Ralph Love), where the court had already determined that the employees were not bona fide residents of the British Isles.
    The court found Chapin’s testimony about his intent to remain permanently unconvincing. The court stated, “It is difficult to believe in view of the fact that he admits that he had never been to Ireland, that he knew nothing of the country except what he had read, and that the pay of workers in Ireland was far below that received by them in the United States. Moreover, it would have been impossible for him to have remained in Ireland, since he was not permitted to stay after the expiration of his contract and the termination of the visa period.”
    The court concluded that Chapin was bound by the precedent established in the Johnson, Downs, and Love cases.

    Practical Implications

    This case highlights the importance of demonstrating a genuine intent to establish a permanent residence in a foreign country to qualify for the foreign earned income exclusion. Taxpayers cannot simply claim residency based on physical presence or a stated desire to stay permanently. Courts will examine objective factors such as familiarity with the country, economic ties, and immigration restrictions to determine whether a taxpayer is truly a bona fide resident. This case reinforces that temporary work assignments abroad, even with an expressed intention to remain, are unlikely to meet the bona fide residency test. Subsequent cases continue to emphasize the need for a holistic assessment of a taxpayer’s connections to the foreign country and their intent to make it their home.

  • Love v. Commissioner, 8 T.C. 400 (1947): Determining Bona Fide Residency for Foreign Earned Income Exclusion

    8 T.C. 400 (1947)

    To qualify for the foreign earned income exclusion under Section 116 of the Internal Revenue Code, a U.S. citizen must establish bona fide residency in a foreign country, demonstrating a clear intent to reside there permanently or for an extended period, not merely a temporary presence for employment purposes.

    Summary

    Ralph Love, a U.S. citizen, worked in Northern Ireland for Lockheed Overseas Corporation from 1942 to 1944. He excluded his 1943 income from U.S. taxes, claiming he was a bona fide resident of Ireland. The IRS disagreed, assessing a deficiency. The Tax Court sided with the IRS, holding that Love’s presence in Ireland was temporary and tied to his employment, not indicative of bona fide residency, despite his intent to eventually reside there with his Irish wife. This case clarifies the criteria for establishing foreign residency for tax exclusion purposes.

    Facts

    Ralph Love, a U.S. citizen, was employed by Lockheed Overseas Corporation to work at an aircraft depot in Northern Ireland during World War II. He arrived in the British Isles in July 1942 and remained until July 1944. His initial employment contract was for a limited duration, later extended. Love met and married an Irish woman, intending to eventually settle in Ireland. However, his presence in Ireland was contingent upon his employment with Lockheed and renewals of his exit permit by his draft board. His wife immigrated to the U.S. shortly after he returned.

    Procedural History

    The Commissioner of Internal Revenue determined a deficiency in Love’s 1943 income tax due to the exclusion of income earned while working for Lockheed in Ireland. Love contested the deficiency in the United States Tax Court.

    Issue(s)

    Whether Ralph Love was a “bona fide resident of a foreign country” during 1943 within the meaning of Section 116 of the Internal Revenue Code, thus entitling him to exclude his foreign earned income from U.S. taxation.

    Holding

    No, because Love’s presence in Ireland was primarily for employment purposes, contingent on his employer and draft board permissions, and did not demonstrate a sustained intention to reside there permanently or indefinitely, despite his future plans and marriage to an Irish citizen.

    Court’s Reasoning

    The court relied on Treasury Regulations defining residency, emphasizing the taxpayer’s intentions regarding the length and nature of their stay. The court distinguished Love’s situation from that of a bona fide resident, noting that his stay in Ireland was tied to his Lockheed employment and subject to the approval of his draft board. Even though Love intended to eventually reside in Ireland, his immediate presence lacked the permanence required for establishing residency for tax purposes. The court cited Michael Downs, 7 T.C. 1053, as controlling precedent, finding no significant distinguishing facts. The court emphasized that Love’s wife applied for a visa as a “quota immigrant,” stating her intent to reside permanently in the U.S., further undermining his claim of bona fide residency in Ireland.

    Practical Implications

    Love v. Commissioner underscores the importance of demonstrating a clear intent to establish a genuine, ongoing connection with a foreign country to qualify for the foreign earned income exclusion. Taxpayers must show more than just physical presence; they must demonstrate that their stay is not merely temporary or incidental to employment. Factors such as visa status, dependence on employer-sponsored arrangements, and statements of intent regarding future residence are critical in determining bona fide residency. This case serves as a reminder that future intentions, without concrete actions to establish residency, are insufficient to claim the exclusion. Later cases applying this ruling focus on the totality of the circumstances to ascertain the taxpayer’s true intentions regarding their foreign stay.

  • Hoofnel v. Commissioner, 7 T.C. 1136 (1946): Determining ‘Bona Fide Residence’ for Tax Exemption

    7 T.C. 1136 (1946)

    For tax exemption purposes, a U.S. citizen is not considered a bona fide nonresident of the United States while aboard a foreign vessel docked in a U.S. harbor, and temporary presence in a foreign country for war-related work does not automatically establish ‘bona fide residence’ there.

    Summary

    J. Gerber Hoofnel, a U.S. citizen, sought to exclude income earned overseas in 1942 and 1943 from his U.S. taxable income, claiming he was a bona fide nonresident/resident of a foreign country. In 1942, he boarded a British vessel in New York harbor on June 30, which sailed on July 1. He worked in the British Isles until 1944. The Tax Court held that Hoofnel was not a bona fide nonresident for more than six months in 1942 because he was still within the U.S. until July 1. The court further held that he was not a bona fide resident of a foreign country in 1943 because his presence was temporary and related to war work.

    Facts

    • Hoofnel was a U.S. citizen employed by Lockheed Overseas Corporation.
    • In February 1942, Hoofnel signed an employment contract to work at an aircraft depot in the British Isles. He indicated a willingness to work overseas for more than two years.
    • On June 30, 1942, Hoofnel boarded a British vessel, the H.M.S. Maloja, in New York Harbor, bound for the British Isles. The ship sailed on July 1, 1942.
    • He worked in England and Northern Ireland until July 13, 1944, and then returned to the United States.
    • Hoofnel did not apply for citizenship in Northern Ireland or become a British subject. He intended to return to the United States after his employment terminated.

    Procedural History

    • The Commissioner of Internal Revenue determined a deficiency in Hoofnel’s income tax for 1943, including an unforgiven tax liability for 1942.
    • Hoofnel contested the determination, arguing that his overseas earnings were exempt under Section 116 of the Internal Revenue Code.
    • The Tax Court reviewed the Commissioner’s determination.

    Issue(s)

    1. Whether Hoofnel was a bona fide nonresident of the United States for more than six months in 1942, thus exempting his overseas income from U.S. taxation under the then-existing version of Section 116 of the Internal Revenue Code.
    2. Whether Hoofnel was a bona fide resident of a foreign country during the entire taxable year of 1943, thus exempting his overseas income from U.S. taxation under Section 116 of the Internal Revenue Code, as amended by the Revenue Act of 1942.

    Holding

    1. No, because being aboard a foreign vessel docked in a U.S. harbor does not constitute being “outside the United States” for the purposes of the tax code.
    2. No, because Hoofnel’s presence in Northern Ireland was temporary and related to war work, not indicative of a bona fide residence.

    Court’s Reasoning

    • For the 1942 income, the court emphasized that physical absence from the United States for more than six months was required for the exemption. Since Hoofnel was in New York Harbor until July 1, he did not meet this requirement. The Court stated, “While it may be true that for certain purposes British sovereignty extended over the vessel H. M. S. Maloja while she was anchored in New York Harbor, nevertheless for purposes of section 116 (a), supra, petitioner was not ‘outside the United States’ as long as the ship remained at its pier in New York Harbor.”
    • For the 1943 income, the court relied on the amended Section 116 and the precedent set in Michael Downs, 7 T.C. 1053 (1946), which involved similar facts. Hoofnel’s intention was to remain in Ireland only for the duration of the war or his employment, indicating a lack of intent to establish a bona fide residence. His failure to pay taxes in the UK further supported this conclusion.
    • The court considered Hoofnel’s employment contract, which specified a defined period of employment related to the war effort, as evidence against the establishment of a bona fide foreign residence.

    Practical Implications

    • This case clarifies the requirements for establishing bona fide nonresidence or residence in a foreign country for U.S. tax purposes.
    • It emphasizes that physical presence outside the U.S. is a key factor in determining nonresidence for the six-month rule and that temporary presence for specific work assignments does not automatically qualify as bona fide residence.
    • The case highlights the importance of intent to establish residency, as evidenced by actions such as seeking citizenship, paying foreign taxes, and demonstrating a long-term commitment to living in the foreign country.
    • Later cases have cited Hoofnel for its interpretation of Section 116 and its emphasis on the temporary nature of an individual’s presence in a foreign country as it relates to determining resident status. The case also shows that factors such as being reimbursed for foreign taxes do not demonstrate intent to establish residency, but rather the opposite.

  • Audio v. Commissioner, 1947 Tax Ct. Memo LEXIS 96 (1947): Establishing Bona Fide Foreign Residence for Tax Exemption

    Audio v. Commissioner, 1947 Tax Ct. Memo LEXIS 96 (1947)

    A U.S. citizen working on a U.S. military base in a foreign country, under the exclusive jurisdiction of the U.S. government and exempt from foreign taxes, is not a bona fide resident of that foreign country for the purposes of claiming an exemption on income earned abroad under Section 116(a) of the Internal Revenue Code.

    Summary

    The petitioner, a U.S. citizen, worked in Greenland for a U.S. Army contractor in 1943. He sought an exemption from U.S. income tax on the basis that he was a bona fide resident of Greenland for the entire tax year. The Tax Court denied the exemption, holding that because the U.S. had exclusive jurisdiction over the defense areas where the petitioner worked, and the petitioner was exempt from Danish taxes, he could not be considered a bona fide resident of Greenland under Section 116(a) of the Internal Revenue Code, as amended. The court emphasized that the intent of Congress was to prevent unjust duplication of taxes, not to provide a tax haven for U.S. citizens working abroad but still under U.S. jurisdiction.

    Facts

    • The petitioner was a U.S. citizen.
    • He worked in Greenland for a U.S. Army contractor during 1943, constructing military bases.
    • His work was within areas under the exclusive jurisdiction of the U.S. government, according to a defense agreement with Denmark.
    • He was exempt from all forms of taxation by Danish authorities in Greenland.
    • His employment contracts stipulated payment in New York and were subject to New York laws.
    • He secured transportation back to Duluth, Minnesota, his original home.

    Procedural History

    The Commissioner of Internal Revenue determined a deficiency in the petitioner’s income tax for 1943. The petitioner contested this determination in the Tax Court, arguing that his income earned in Greenland was exempt from U.S. income tax under Section 116(a) of the Internal Revenue Code. The Tax Court reviewed the Commissioner’s determination and ruled in favor of the Commissioner.

    Issue(s)

    Whether a U.S. citizen working in Greenland on a U.S. military base, under the exclusive jurisdiction of the U.S. government and exempt from Greenlandic taxes, is a bona fide resident of Greenland for the purpose of excluding income earned in Greenland from U.S. gross income under Section 116(a) of the Internal Revenue Code, as amended by Section 148(a) of the Revenue Act of 1942.

    Holding

    No, because the petitioner, working on a U.S. military base under U.S. jurisdiction and exempt from Danish taxes, did not establish a bona fide residence in Greenland within the meaning and intent of Section 116(a) as amended. The court found that the purpose of the statute was to prevent double taxation, not to provide a tax exemption where no foreign tax liability existed.

    Court’s Reasoning

    The court reasoned that the legislative history of Section 116(a) indicated Congress intended to relieve hardship for U.S. citizens genuinely subject to foreign income taxes. Because the U.S. had exclusive jurisdiction over the defense areas in Greenland and the petitioner was exempt from Danish taxes, he was not subject to the hardship Congress sought to address. The court cited the “Agreement Relating to the Defense of Greenland,” which granted the U.S. exclusive jurisdiction and exempted U.S. personnel from Danish taxes. The court stated, “Indeed, the expression, ‘the Government of the United States of America shall have exclusive jurisdiction over any such defense area in Greenland and over military and civilian personnel of the United States * * * within such areas,’ constitutes reservation of jurisdiction under the general income tax law of the United States…” The court also noted that the petitioner’s intent was to work temporarily until discharged or until he wished to quit, and he maintained ties to his home in Duluth, Minnesota, further undermining his claim of bona fide residency in Greenland. Additionally, the Court emphasized that exemptions from taxation are not based on inference. The petitioner had the burden to show he was in the position of suffering the hardship the Senate Committee on Finance had in mind when speaking of those subject to income tax abroad.

    Practical Implications

    This case clarifies the requirements for establishing bona fide foreign residence for U.S. tax purposes, particularly when U.S. citizens are working in foreign countries under the protection and jurisdiction of the U.S. government. It emphasizes that physical presence alone is insufficient; the taxpayer must demonstrate genuine integration into the foreign country’s economic and social life, including being subject to its tax laws. This ruling limits the application of Section 116(a) to situations where U.S. citizens are truly residents of a foreign country, bearing the same tax burdens as other residents. Later cases have cited Audio to emphasize the importance of examining the substance of a taxpayer’s connection to a foreign country, not just the form. Legal practitioners must carefully examine the specifics of employment contracts and jurisdictional agreements when advising clients on foreign earned income exclusions.

  • Freedman v. Commissioner, 6 T.C. 915 (1946): Determining Source of Income for U.S. Citizens Working Abroad

    Freedman v. Commissioner, 6 T.C. 915 (1946)

    For a U.S. citizen working abroad, the source of income is determined by where the services are performed, not where the payment is made.

    Summary

    Freedman, a U.S. citizen and bona fide nonresident, received $95,000 for services performed in Germany. He sought to exclude this income from his U.S. taxes under Section 116(a) of the Internal Revenue Code, arguing it was earned income from sources outside the U.S. The Commissioner argued the income was profit from a joint venture or, alternatively, was sourced within the U.S. The Tax Court held that the $95,000 constituted earned income from sources outside the U.S. and was therefore exempt from U.S. taxation.

    Facts

    • Freedman, a U.S. citizen, resided outside the U.S. for more than six months during the tax year.
    • He was contacted by Gottlieb and Romney regarding the potential sale of bonds in Germany.
    • Freedman traveled to Berlin and negotiated with German financial officials (Siemens & Halske A.G., the German Reichsbank, and other German banks) to facilitate the sale.
    • He received $95,000 for these services, deposited into his New York bank account.
    • Freedman did not contribute any capital or credit to the transaction.
    • The bonds were sold by General Electric Corporation to Siemens & Halske A.G.

    Procedural History

    The Commissioner determined that the $95,000 was not exempt from U.S. income tax. Freedman petitioned the Tax Court for a redetermination. The Tax Court reversed the Commissioner’s determination.

    Issue(s)

    1. Whether the $95,000 received by Freedman constituted “earned income” under Section 25(a)(4)(A) of the Internal Revenue Code.
    2. Whether the $95,000 was received from sources “without the United States” under Section 116(a) of the Internal Revenue Code.
    3. Whether, if the income was for personal services, a portion should be treated as income from sources within the United States because Freedman sent cablegrams to New York during his negotiations.

    Holding

    1. Yes, because the $95,000 was compensation for personal services Freedman actually rendered in Germany.
    2. Yes, because the source of income is determined by where the services are performed, not where the payment is made.
    3. No, because all of Freedman’s services were performed in Germany; sending cablegrams to New York did not constitute performing services in New York.

    Court’s Reasoning

    The court reasoned that the $95,000 was paid to Freedman as compensation for his personal services in Berlin, where he contacted and negotiated with German financial officials. The court emphasized that Freedman had no prior commitments and did not contribute any capital to the transaction. His services were valuable, extending over two months, and he was uniquely positioned to handle the negotiations.

    The court relied on established precedent (I.T. 2293, I.T. 2286, S.M. 5488, S.M. 5446, and Regulations 103, sec. 19.119-4) and Section 119(c)(3) of the Code, which states that “compensation for labor or personal services performed without the United States” is treated as income from sources without the United States. The court rejected the Commissioner’s argument that the location of Gottlieb and Romney or the payment’s origin in New York was relevant. "[I]n determining whether compensation is from sources within or ‘without the United States,’ the place where the services are performed and not the place where the compensation is paid is the controlling factor."

    Finally, the court dismissed the argument that sending cablegrams to New York constituted performing services in the United States. All of Freedman’s substantive work occurred in Germany.

    Practical Implications

    Freedman clarifies that the location of service performance is the primary factor in determining the source of income for U.S. citizens working abroad. This case provides a clear rule for applying Section 116(a) (now Section 911) of the Internal Revenue Code. Attorneys advising U.S. citizens working overseas should focus on documenting the location where services are rendered. Later cases and IRS guidance continue to emphasize this “place of performance” test. It also highlights the importance of distinguishing between earned income and investment income in this context, as only the former qualifies for the foreign earned income exclusion.

  • Bertin v. Commissioner, 1 T.C. 355 (1942): Calculating Nonresidency for Tax Exemption

    1 T.C. 355 (1942)

    When determining whether a U.S. citizen is a bona fide nonresident for more than six months for tax exemption purposes, the calculation should include aggregate days of absence, not just full calendar months.

    Summary

    Michel Bertin, a U.S. citizen, worked for Socony-Vacuum Oil Co. and traveled extensively abroad. In 1939, he was outside the U.S. for 186 days across three trips. Bertin prorated his salary, excluding income earned while abroad. The Commissioner argued that only full calendar months of absence could be counted, and Bertin did not meet the six-month requirement. The Tax Court held that the statute intended for the aggregate days of absence to be considered, not just full months, and ruled in favor of Bertin, allowing the exemption.

    Facts

    Michel J. A. Bertin, a U.S. citizen, worked for Socony-Vacuum Oil Co. His duties required him to travel to European, South, and Central American countries. In 1939, Bertin was absent from the U.S. for 186 days, spread across three separate trips. His salary was deposited monthly in his New York bank account.

    Procedural History

    Bertin filed his 1939 tax return, prorating his salary based on time spent inside and outside the U.S. The Commissioner determined a deficiency, arguing that Bertin did not qualify for the foreign earned income exclusion because he was not a bona fide nonresident for more than six months. The Tax Court reviewed the Commissioner’s determination.

    Issue(s)

    Whether, in determining if a U.S. citizen is a bona fide nonresident of the United States for more than six months during a taxable year under Section 116(a) of the Internal Revenue Code, the calculation should include the aggregate of days spent outside the U.S., or only full calendar months?

    Holding

    Yes, because the statute intended to include aggregate days of absence, not just full calendar months, in determining whether the six-month nonresidency requirement was met.

    Court’s Reasoning

    The court rejected the Commissioner’s argument that only full calendar months should be counted, relying on a General Counsel Memorandum (G.C.M. 22065) that supported this view. The court noted that prior G.C.M.s had allowed the aggregation of days to meet the six-month requirement. The court found that the Commissioner’s interpretation was too narrow and not supported by the statute’s intent. The court reasoned that the purpose of the statute, originating in the Revenue Act of 1926, was to encourage foreign trade by exempting income earned by U.S. citizens working abroad. The court stated, “Taxation is a realistic matter…the respondent’s view here is, in our opinion, the antithesis of realism.” The court highlighted the absence of specific language in Section 116 requiring the exclusion of partial months, contrasting it with explicit language in Section 25(b)(3) regarding personal exemptions, which provided specific rules for fractional parts of months. The court held that Bertin’s 186 days of absence, consisting of five full calendar months and 36 additional days, satisfied the more-than-six-month requirement.

    Practical Implications

    This case clarifies how to calculate the six-month nonresidency requirement for U.S. citizens seeking the foreign earned income exclusion. It confirms that taxpayers can aggregate days of absence from the U.S. to meet the requirement, even if they do not have six full calendar months of continuous absence. This ruling benefits taxpayers who travel frequently for work, ensuring they are not penalized for shorter trips abroad. Later cases and IRS guidance continue to refine the definition of “bona fide resident,” but Bertin remains a key authority for understanding the temporal aspect of the six-month rule.