SCOTUS Reports

Tag: Temporary Stay

  • Williams v. Commissioner, 92 T.C. 920 (1989): Tax Court’s Authority to Review and Stay Sales of Seized Property

    Williams v. Commissioner, 92 T. C. 920 (1989)

    The Tax Court has jurisdiction to review and temporarily stay the sale of seized property under a jeopardy or termination assessment, with the burden on the Commissioner to justify the sale.

    Summary

    In Williams v. Commissioner, the Tax Court addressed its jurisdiction to review the IRS’s determination to sell seized property under a jeopardy assessment. Melvin and Mary Williams sought a stay of the sale of their jewelry and furs, arguing the assets were not perishable or diminishing in value. The court ruled it had authority to review such determinations and issue temporary stays, with the burden on the Commissioner to prove the sale was justified. The court stayed the jewelry sale for six months but allowed the fur sale to proceed, as the Williamses provided no evidence on the furs’ value.

    Facts

    In 1984, the Drug Enforcement Administration (DEA) seized jewelry and furs from Melvin and Mary Williams. In 1987, the IRS made a jeopardy assessment against the Williamses and seized the property from DEA. In early 1989, the IRS scheduled an auction of the items for March 1, 1989. On February 28, 1989, the Williamses filed a motion with the Tax Court to stay the sale, arguing the property was not perishable or diminishing in value. The IRS justified the sale based on appraisals showing a decline in value.

    Procedural History

    The IRS made a jeopardy assessment against the Williamses in 1987 and seized their jewelry and furs. The Williamses timely filed petitions with the Tax Court contesting the deficiency. On February 28, 1989, the day before the scheduled auction, the Williamses filed a motion to stay the sale under newly enacted IRC § 6863(b)(3)(C). The Tax Court issued a temporary stay and allowed the parties to submit briefs and appraisals. The court then ruled on the motion on May 9, 1989.

    Issue(s)

    1. Whether the Tax Court has jurisdiction to review the IRS’s determination to sell seized property under a jeopardy assessment?
    2. Whether the Tax Court can issue a temporary stay of the sale of seized property pending review?
    3. Whether the burden of proof in such a review should be on the taxpayer or the Commissioner?
    4. Whether the IRS’s determination to sell the Williamses’ jewelry and furs was justified?

    Holding

    1. Yes, because the Tax Court’s jurisdiction to review sales of seized property under jeopardy assessments is expressly granted by IRC § 6863(b)(3)(C).
    2. Yes, because the authority to review necessarily includes the power to issue a temporary stay to preserve the rights of the parties.
    3. The burden is on the Commissioner, because the unique circumstances of these proceedings warrant departure from the usual rule.
    4. Yes for the furs, because the Williamses provided no evidence on their value; No for the jewelry, because the Williamses’ appraisal showed no likely decline in value for six months.

    Court’s Reasoning

    The Tax Court reasoned that its jurisdiction to review sales of seized property under jeopardy assessments was clearly established by the recently enacted IRC § 6863(b)(3)(C). The court further held that this jurisdiction necessarily included the power to issue temporary stays to preserve the rights of the parties. The court placed the burden of proof on the Commissioner due to the unique circumstances of these proceedings, where the IRS controls the property and initiates the sale. For the jewelry, the court found the Williamses’ appraisal showing no likely decline in value for six months more persuasive than the IRS’s appraisals. However, the court allowed the fur sale to proceed, as the Williamses provided no evidence on the furs’ value.

    Practical Implications

    This decision establishes the Tax Court’s authority to review and temporarily stay sales of seized property under jeopardy assessments. Taxpayers now have a forum to contest such sales, and the IRS bears the burden of justifying them. Practitioners should be aware of this remedy when representing clients facing jeopardy assessments and property seizures. The decision also highlights the importance of providing current appraisals to support arguments about a seized asset’s value. Subsequent cases have applied this ruling, affirming the Tax Court’s jurisdiction and the Commissioner’s burden in these matters.

  • Nelson v. Commissioner, T.C. Memo. 1957-66: Defining Bona Fide Foreign Residence for Tax Exemption

    T.C. Memo. 1957-66

    To qualify for the foreign earned income exclusion under Section 116(a)(1) of the 1939 Internal Revenue Code, a U.S. citizen must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire taxable year; temporary stays or stopovers do not constitute bona fide residence.

    Summary

    Donald H. Nelson, a retired U.S. military officer, was employed for a telecommunications project in Ethiopia. He and his wife traveled from the U.S., intending to go directly to Ethiopia, but stopped in France to handle preliminary matters. Unexpected delays extended their stay in France for several months. The Tax Court considered whether the Nelsons were bona fide residents of a foreign country for an entire taxable year to qualify for the foreign earned income exclusion. The court held that while they were bona fide residents of Ethiopia, their time in France was merely a temporary stopover and did not qualify as foreign residence. Consequently, they did not meet the requirement of bona fide residence in a foreign country for an entire taxable year.

    Facts

    Petitioners, Donald H. Nelson and his wife Edwina C. Nelson, were U.S. citizens. Donald Nelson, after retiring from the military in 1949, was hired for a telecommunications project in Ethiopia in 1951. Prior to departing the U.S., they obtained passports listing foreign addresses in Ethiopia. They sold their belongings and leased their ranch in Oregon. They departed the U.S. on November 21, 1951, en route to Ethiopia, but first stopped in Paris, France, for project-related matters. Unexpected delays caused them to remain in France from November 28, 1951, to February 28, 1952. During this time, they resided in a hotel in Paris and traveled to other European countries. They arrived in Addis Ababa, Ethiopia, on March 2, 1952, and stayed until March 13, 1953. Nelson received his salary from the Ethiopian government for his work on the telecommunications project.

    Procedural History

    The Commissioner of Internal Revenue determined deficiencies in the Nelsons’ income tax for 1952 and 1953. The Nelsons petitioned the Tax Court, contesting this determination.

    Issue(s)

    1. Whether the petitioners were bona fide residents of a foreign country or countries for an uninterrupted period which includes an entire taxable year, as required by section 116(a)(1) of the Internal Revenue Code of 1939, to exclude foreign earned income from their gross income.

    Holding

    1. No. The Tax Court held that the petitioners were not bona fide residents of a foreign country or countries for a period including an entire taxable year.

    Court’s Reasoning

    The court emphasized that determining bona fide residence is a factual question decided on a case-by-case basis. While acknowledging the Nelsons were bona fide residents of Ethiopia from March 2, 1952, to March 13, 1953, this period did not encompass an entire taxable year (calendar year 1952). The court then considered whether their stay in France could be considered bona fide foreign residence. The court reasoned that the Nelsons went to France solely for matters related to their Ethiopian project and initially intended a brief stay. Despite unforeseen delays prolonging their time in France, the court concluded their stay was a “mere stopover, a delay in their movement from the United States to their destination of Addis Ababa.” They were deemed “transients or sojourners in France, and not bona fide residents.” The court cited Treasury Regulations defining a non-resident alien as one who is “merely a transient or sojourner.” The court stated, “They were in France ‘for a definite purpose which in its nature may be promptly accomplished.’ See Regs. 118, sec. 39.211-2”. Because the Nelsons’ time in France was not considered bona fide foreign residence, and their Ethiopian residence did not cover a full taxable year, they failed to meet the statutory requirements for the foreign earned income exclusion. The burden of proof was on the petitioners to demonstrate they qualified for the exemption, which they failed to do.

    Practical Implications

    Nelson v. Commissioner clarifies that physical presence in a foreign country is not automatically equivalent to bona fide residence for tax purposes. The case underscores the importance of intent and the nature of the stay. Taxpayers intending to claim the foreign earned income exclusion must demonstrate more than just being physically present in a foreign country; they must establish bona fide residence, indicating a degree of permanence and integration into the foreign environment. Temporary stays, even if unexpectedly prolonged, particularly those considered preparatory or transitional to reaching a final foreign destination, may not qualify as bona fide foreign residence. This case highlights that the IRS and courts will scrutinize the circumstances of a taxpayer’s foreign stay to determine if it meets the criteria for bona fide residence, focusing on whether the stay is more than a transient or temporary visit.