Christina Jeannine LeTourneau, Petitioner

T.C. Memo. 2012-45 UNITED STÁTES TAX COURT CHRISTINA JEA1 NINE LETOURNEAU, Petitioner y. COMMISSiONER OF INTERNAL REVENUE, Respon lent Docket No.'13457 09.

Filed Febrüary 21, 2012 Christina Jeannine LeTourneau pro se.

Charles W. Gorham, for resþondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

THORNTON Judae: Petitioner is a U.S. citizen.

In 2005 she resided in .| France and earned wages as a flight at endant, working roundtrip international

RVED FEB 2 1 2012

flights based out of London. On her 2005 U.S. income tax return she excluded all these wages from her gross income, claiming the foreign earned income exclusion under section 911.1 Respondent determined that only a portion of her wages were eligible for the exclusion, resulting in a $2,594 deficiency in her 2005 Federal income tax.

The issues for decision are: (1) whether, pursuant to the Convention for the Avoidance of Double Taxation and thé Prevention of Fiscal Evasion With Respect to Taxes on Income and Capital, U.S.-Fr., Aug. 31, 1994, 1963 U.N.T.S. 67, Tax Treaties (CCH) pära. 3001 (Convention), petitioner's 2005 wages are exempt from U.S. taxation; (2) whether pursuant to section 911 she is entitled to a larger foreign earned income exclusion than respondent has allowed; and (3) whether pursuant to section 901 she is entitled to any amount of foreign tax credit. Petitioner resided in France when she filed her petition.

FINDINGS OF FACT

In 1999 petitioner began working in France on a five-year work visa.

In 2004 France granted her a permanent resident card. By then she was commuting 4Unless otherwise noted, all section referenòes are tò the Internallevenue Code for the year at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. All dollär amounts have been rounded to the nearest dollar.

from France to London for her work Ás a fliÁht attendant for United Airlines,1Iñc:

(United).

During 2005 JJnited paid petitióner wages for flight attendant services she performed from Deöember 2004 throdgh Nóvember 2005. She'performèd these services on roundtrip international fli hts between London Heathrow Airport and variousjinternational destinationscprimarily in the United States.

United prepared duty time app rtionment tables for all,these flights. It prepareël such tablps annually for the use of flight attendants who are based outside the United States. These tables summarize the time on duty for a flight attendant according to.the standard times allocated för uch activities as checking roundtri Airport and Los I uring the p io he wo d ö e rn the wages united paid h r in 2005, rvices on 3 roundtrip flights between geles International Airport, 14 roundtrip flights beiween London Heathrow Äi port and Washingtön petition r performed flight ättendant Condon Heathr flights between London Heathrow Âirport and Chicago O'Hare,International Airpo , 1 Dulles Internationâl Äirport, 13 roun ip flights beiween London Heathrow Airport and San Francisco Internatiòn 1 Airport, 5 roundtrip flights between London Heäthrow Airport and New Y rk John F. Kennedy International Airport, 1 flight from London Heathrow Airport to Paris Charles de Gaulle Airport to Washint,ton Dulles International Airp rt and back to London Heathrow Airport, and 1 flight from L ndon Heathrow Airport to Frankfurt Airport:to Washington Dulles International[Airport and back o London Heathrow Airport.

in for a flight, boarding, taxiing intaiid out, flying over the United States, flyirig over international waters, flying over foreign countries, deplaning, and cuátóms.

For 2005 United issued petitioner a Form W-2, Wage and Tax Statement, reporting $43,569 in wages and zero Federal tax withholdings. On her 2005 For ñ 1040, U.S: Individual Income Tax Return, petitioner reported these wages btít, attaching Form 2555-EZ, Foreign Earned Income Exclusion, èicluded the entire amount from þ.,ross income.

On March 16, 2006, petitioner filed a Déòlaratioñ Préremplie Simþlifiée Revenus 2005 with French income tax authorities and reported her income from United for tax year 2005. This document does not show how much inconie tax, if any, was paid to French authorities.⁴ United provided petitioner U.K. Forms P⁶⁰ End of Year Certificate, showing U.K. Pay-As-You-Earn income tax withholdings 3For,purposes of preparing the duty time apportionment tables, United considers the United States to be thé'continental Uniteif States, Aláska, ånd Hawaii aiid the air or wäter 12 nautidal miles outside the land; á foreigh (cid:0)523untiyto be thê foreign countî·y's land and the air or water 12 nautical miles outside the land; and international water and airspace to be what is between the United SÍatès and a»foreign country: To prepse the döty time apportionment tables, United examilies flight segments from a sample of flights over a year. Adjustmehts are made to the tables when there is a route change, an eqûipment change, or a change in schéilule time.

7- to 10-day period twiòe 40n February 18, 2005, petitioner paid 400 euro in income taxio Francé as the first installment of tax due for tax year 2004. The 400 euro payrnent was refunded to petitioner in 2005.

5 - of 237 ]British pourids sterling (pounds) for the EK. tax year ending April 5 2005, and 263 pounds forithe U.K. tax year ending April 5, 2006.

In auditing p titioner's 2005 Fårm 10A⁰, respondent calculated the allowable amount öf petitioner's fore gn earned iricome exclusion iising Unitèdts duty time apportiomhent tables3to determine the time she worked in and over foreignicountries In this manner he determined that 36.13%.of her wakes, or $15,-74]b;was attrib table to'time wor ed iri and over foreign countries and th t only this portion of her wages qualifi d for the foreign earned income exclusioii under sëction 911.

In the-notice of d ficiency responderit disallowéd $27,872 of petitioner's claimed foreign earned income exclusion, resulting in a $2,594 deficiency.'

e

OPINION

The taxpayer generally beárs tl e burden of proving that the Commissioner's determinations are érroneous. Rule 1 2(a)(1). If the taxþayer introduces "crediblè evidence" with res ect to relevant factual issues and meets other requirements, the [he auditor, lacking duty time apportionment tables for 2005 uhed tables from 1999.

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'At trial respóndent's counsel c needed that the notice of deficiency contairs a computational error and th the proper amount of the disallowed foreign earned incoïne exclusion shoiïld haye been $27,828 ($43,569 of total wages lëss the $15,741 ättributableio foreign countries).

burden as to those factual issue(cid:0)541inay shift to the Comniissioners Sebt 7491(a) "Credible evidence" is evidence the Court would find sufficient ùpon which to base a decision on the issue in,the taxpayer's favor, absent any contrarý evidence.

See Higbee v. Coinmissioner, 116 T.C. 438, 442 (2001).

As discussed infra, petitioner has failed to present credible evidence-- despite being given additional time after trial--as to any relevant factual issue, particularly as to whether any greater portion of her 2005 wages was attributable to her services in foreign countries than»rèspondent has determined and as to whether she paid any tax to France in 2005. Accordingly, the burden of proof does not shift to respondent.

L Effect of the Convention Petitioner contends that her 2005 wages are exempt from U.S. income taxation pursuant to the Convention. Petitioner cites article-15, paragraph 3, of the Convention, which provides:

Notwithstanding the preceding provisions of this Article, remuneration derived by a resident of a Contracting State in respect of an employment exercised as a member of the regular complement of a ship or aircraft operated in international traffic shall be taxable only in that State.

Although this provision on its face seems to favor petitionér's position, it cannot be read in isolation. Unlike many foreign countries, the United States taxes its citizens on their worldwide income. Filleri Commiséioner, 74 T.C. 406 410 (1980); see sec. 61(a) ("gross incom means all incoriie from v}hatever sourc derived").» To reserve its right to tâx its citizens1on the basis ôf tlie provisións of the Internal Revenue Code without re gard to the provisions of ä'tréâty or convention, the United States typica y includes² so called (cid:0)541avinÁdlatíse in its ta treaties and conventions¶ee Filler Comínissioner

Although parágraph 3 of article 29 of the Convention provides that certain articles of the Convention take precedence over the saving clause, article 15, upon which pétitioner relies, is not among those provisions. Accordingly, notwithstánd nj th prov ions of i le 1 , r i h 3 f tl e Con n ion, petitiónei is sùbject toU.S t xa n e a es earn 1 whi e e id in .: 8 - France. See Filler v. Commissioner, 74 T.C. at 410 (construing saving claùse under 1967 Convention between the United States and France).

On brief petitioner contends that respondent's application of the saving clause discriminates against her in violation of article 25 (Non-Discrimination) paragraph 1 of the Convention, which provides:

Individuals who are nationals of a Contracting State and residents of the other Contracting State shall not be subjected in that other State to any taxation or any requirement connected therewith that is other or more burdensome than the taxation and connected requirements to which individuals who are nationals and residents of that other State in the same circumstances are or may be subjected.

a As applied to petitioner's circumstances, this provision merely ensures that the taxation of her wages by France is no more burdensome than the taxation by France of individuals who are French citizens and residents. Thus article 25 does not provide a basis for the relief petitioner seeks.

Consistent with this result, the Department of the TreasurÝ technical explanation of art., I of the Convention states: "If, however, the French resident is also a citizen of the United States, the saving clause permits the United States to include that income in the worldwide income of the citizen and subject it to tax under the normal Code rules." Treasury Department Technical Ex1½lanation of the Convention, Tax Treaties (CCH) para. 3060, at 75,251. The explanation of art. 15 states: "A U.S. citizen resident in France who * * * is a crew member on a ship or airline operated in international traffic, is, nevertheless, taxable in the United States on his remuneration by virtue of the saving clause of paragraph 2 of Article 29 (Miscellaneous Provisions), subject to the special rule of subparagraph 1(b) of Article 24 (Relief From Double Taxation)." Id.

On brief petitioner suggests that any decision ifY this case is þreiliÈture u itil, pursuaiit to article 26 of the Cónvention, the cômpeteht áûthoritiès of the United States ançl I(ran,ce have had ån oppor unity to consider the pössible discriniinatory iinpact jof respondent's "audit system" on internatiòñal flight attendants who are citizens of the United States and residents of France Article 26, paragraph I of the Convention would allow petition r to presënt her cáse to the cãínßètènt authority of the United States Rev. I roc:2006154, 2006-2 C.B 1035stêÊribes the procedures to bé followed in requ sting such'assistance. It providé(cid:0)541thát when an issue is pending with the Tax ou competent aùthority àssistance is available only with the consent of the Associat hief Counsel (Inferiiätiónal). Id sec. 7.03, 2006-2 C.B. at 1042. Petitioner does not alleg¢that she^or ány bther similarly situated taxpayer h s filed for compet nt authority assistance, nor has she convincingly shown that there exists à probability of double taxation as might warrant the assistanbe of the U.S. con petent authority. We disagree that it is premáture to decide this case.

II. Foreign Earned Income Exclusion Under Section 911 Section 911(a) allows a "qualif d individual" to exclude from gross mcome "foreign earned income". Foreign ear 1ed income is "the amount received by such individual from sources within a foreign country * * * which áonstitutè earned income attributable to services performed by such individual". Sec. 911(b)(1)(Ä).

Respondent concedes that petitioner is a qualified individual for pûrpos s of section 911. He contends, however, that a portion of her wáges was not earned in a foreign country and thus is ineligible for the exclusion.

Section 911 does not define "foreign country". The regulations provide The term "foreign country" ühen used in a geographical sense includes any territory under the sovereignty of a government other than that of the United States. It includes the térritorial waters of thë foreign country (determined in accordance with the laws of the United States), the air space over the foreign country, and the seabed and subsoil of those submarine areas which are adjacent to the territorial waters of the foreign country arid over which the foreign country has exclusive rights, in accordance with international law, with respect to the exploration and exploitation of natural resources. [Sec. 1.911-2(h), Income Tax Regs.]

.

.

Consistent with this regulation, this Court has held that a U.S. taxpayer is allowed the foreign earned income exclusion only with respect to wages earned while in or over foreign countries and not for wages earned in international airspace or in or over the United States. Rogers v. Commissioner, T.C. Memo.

2009-111. This Court reasoned that because international airspace, like international waters, is not under the sovereignty of a foreign government, international airspace is not a "foreign country" for purposes of section 911.

see Clark v. Commissioner, T.C. Memo. 2008-71 (international waters are not a foreign coui3try for purposes of,section 911); Struck v. Commissioner, T.C. Memo.

2007-42 (same).

F etitioner suggests that such ai alyses misconstrue the regulatión's literal language, which st tes that the term "foreign country" "includes", ratlier than "means", certain th ngs. Petitioner s ems to suggest that because the regulation does not expressly xclude internatio al airspace from.the definition of foreign country, it must be neluded.

In rejec ing a similar argument and upholding the validity of the regulation, the Court of Appeals for the Seventh Circuit stated "Whe read in its entirety and in common sense fashion, the rule supports the positiori that sovereignty is an essenti l component of the definition [of] a 'foreign country' under" tl e regulation. Arnett v. Commissioner, 473 F.3d 790 798 (7th Cir. 2007), aff'g-126 T.C.,89;(2006).

Pietitioner has treated all her wages as earned in a foreign country. This treatment is clearly incorrect. For thé relevant peiiod all her flights flew through international airspace and landed in tl e United Stàtes.

Respondent calculated the allokable amount of petitioner s foreign earned income exclusion using United s duty time apportionment tábles to dete14ñine tlie time she worked in and over foreign countries.⁸ Petitioner compÏÅins that the tables reflect only aggregated data rather tlian actual times ón specific fÏights.

Petitioner further asserts that respondent has used these tables "as an impermissible substitutè" for required rulemaking under the Administrative Procedure Act.

The issue is not one of rulemaking but of proof. If petitioner could pro e that she spent more time flying over foreign countries than the duty tiiÁe apportionment tables show, she might be entitled to a greater foreign* edrned income exclusion than respondent has allowed. See Rogers vi CommÍssioner T.C. Memo. 2009-111. But"pétitioner has made no such showing and has failed to establish or even suggest a more reliable allocation method.

Petitioner suggests that she is entitled to exclude all her wages frbni gross income for 2005 because she did so in prior yeårs without any challeàge from the 8Petitioner complains that the Internal Revenue Service (IRS) auditor used duty time apportionment tables from 1999. Petitioner's complaint rings hollow. Although she has had access to 2005 duty time al5portioriihent tables at all relevant times, she never provided them to the IRS during the audit or to the Court during this proceeding. According to the trial.testimony of a United repi'ese'ntative; United's duty time apportionment tables do not vary significantly from year to year. In any event, respondent compared the total flight time determined using the⁴ 1999 duty time apportionment tables with petitioner's actual flight time in 2005 using her per diem reports prepared by United and determined that using the 1999 tables made no significant difference. Petitioner has not shown otherwise.

13 - IRS. R espondent is not precluded from challenging treatmeñt of an item merely because.he has failed to challenge it n the past See Coors v. Commissioner, 60 T.C. 368, 406 (1973)íaff"d, 519 F.2d .1280 (10th Cir. 1975); see also Rose v.

Commi!ssioner, 55@C. 28, 32 (1970). e We sustain réspondent's deterinination thát $27,828 of petitioner's 2005 wages ijs ineligible for.the section 91 exclusion.

III. Foreign,Tax Ci·edit Under Section 901 n A taxpayer n ay elect to take a cijdit again(cid:0)541this or her U.S. incofnè tax liability for income taxes paid or acciued to a foreign country or U;S@ossession.

Sec. 901(a). Subjeòt to the limitation of section 904, the amount of thë credit is "[i]n thp case of á citizen of the United States * * *, the amount of any inôome, war profits, and exöess profits taxes p id of accrued during the taxable year to*ány foreign!country".1° Sec. 901(b)(1).

egulations require an individ zal taxpaýer to claim!the forèign tax'ciedit by filing Form 1116, Foreign Tax Crddit (Individual, Estate, or Trust), and complying with certain conditions S c. 1.905-2, Incomê Tax Regs. Respondent has not iraised and vke do not consider any issue as to whether petitioner has properly elected to blaim'the foreign tax credit:

ioSec. 904(a)[generally limits tlie allowable foreign tax.credit to the amount of U.S taf on foréié,n income. Because we reject petitioner's claim to the foreign tax credit on other årounds, we need ot and do not address the application of the sec. 90 (a) lirnitation to petitioner's circumstances.

A cash basis taxpayer generally must take the foreign tax credit for the year in which the foreign taxes were paid, unless the taxpdyer makes an irrevocable election to instead take foreign tax credits in the year in which foreign taxes accrue. Sec. 905(a); sec. 1.905-1(a), Income Tax Regs. Respondent asserts, and petitioner does not dispute, that for 2005 she was a cásh basis taxpayer'and made no election to take foreign tax credits in the year in which foreign takes accrued rather than in the year in which they were paid. We deem petitioner to have conceded these matters. Accordingly, petitioner is entitled to the foreign tax credit, if at all, only with respect to foreign taxes she paid in 2005.

A. Taxes Allegedly. Paid to France .

. Petitioner contends that she is entitled to the foreign tax credit for income taxes paid to France. But she has failed to show that she actually paid tax to France in 2005.

.

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Although petitioner filed with French tax authorities a Déclaration Préremplie Simplifiée - Revenus 2005 on which she reported her United wages for tax.year 2005, the return does not show how much, if any, income tax was paid to France. The evidence shows that she paid 400 euro in early 2005 as an installment of tax due on her 2004 French income tax, but this amount tvas also refunded to her in 2005. Aòcordingly, we do not regard this an amount paid to France in -!15 - 2005.9 Petitioner has otherwise pro ided noèecéipt for þayinent!canceled cheòk, or other evidence df taxes paid to.FrNnce'for 2005;12 Following trial the Court kept the record opén for.³⁰ days to allow petitiòner to produce evidenÊé Iháiàhe paid tax to France in 2005, but petitioner failed.to do so: Havinifailed to show that she paid.tax to(France in 2005 s e has failed to éstablish erititléme t to the foreign tax credit v(cid:16)041ithrespect to any su h tax:

B. Taxes Paid to the United Kingdom I etitioner fdther contend(cid:0)541tha shéis entitled tå the foreign täx credit foi the relatively small amounts that Uni ed withlield from her wages to payViiitèd Kingdom.taxes. Respondent concedes that petitioner paid takés in 2005, throùgh withholding,.to-the United Kingdom. Respondënt cofitends; howeier, that ¶The regulations provide that n amount is not treated as tax paid to a foreign country to the exteni it is réas nåbly Zériaii ô e un21ed. Sec 1.901- 2(e)(2), Income 'l'a Regs. Perforce, an amount that the foreign country actually refunds during the saine yèar is'nbt tréâied as ßaid.

Petitioner p¼ovided an untran lated document, written in French, which appears to relate to 2005 and which sl e contends is a bill from Trésor Public (French taxing authbrity) for 1,002 eu o. But she provided no proof that she paid the amdunt shown s due.

C±Cont'l I 1. Corp. v Comii ssióner/998 F.2d 513p516-517 (r/th Cii 1993) (liolding that to show entitlement to the foreign ia:icerëdit, the taxpayer must show not merely that foreign tax wäs lawful taxing authority), aff'g on this þoint and i.ev'g in'part T.C Memo. 1991-66 (confinùed...)

ithheld but àlso that it was paid to the petitioner is not entitled to the foreign tax credit with respect to these taxes because the income upon which the United Kingdom imposéd these taxes has bèen excluded from petitioner's U.S. gross income under section 911. We agree.

As a general rule, no foreign tax credit is permitted insofar as the foreign tax paid is allocable.to income excluded from gross÷income under section 911. Sec.

911(d)(6); sec. 1.911-6(a), Income Tax Regs.; see also Faltesek v. Commissioner,

Insofar as the U.K. taxes in question were imposed upon'the same U.K. income for which petitioner has been allowed the foreign earned income exclusion, slïe is not entitled to also claim the foreign tax credit for these U.K. taxes.

Petitioner has presented no evidence regarding the tax base for the taxes she paid to the United Kingdom but merely states in her posttrial brief that the U.K.

"(...continued) Wilcox v. Commissioner, T.C. Memo. 2008-222 (same); see Rev. Rul. 57-516, 1957-2 C.B. 435 ("The credit provided in section 901 of the Code is not based oh tax withheld by a foreign country * * * during.the taxable year, since tax withheld is merely an advance collection of what may or may not be an actual tax liability.").

taxes were "withhe d from the total income.''1(cid:16)040We take judicial notice of seVeral authorities that strongly suggest that the United Kingdom withholds tãx-from a non@esident only för employment;carried outtwithin the United Kingdom.'Sée Income Tax (Trading and Other Inco e) Act 2005, ch. 2psec. 6 (U.K!) (available at http://www.legis ation.gov.uk/ukp a/2005/5/section/6) (last visited Feb. 1, 2012) ('Profits of a trade * * * [of] a on-.UK resident are:chargeable tb tax under this Chapter only if they arise--(a) from a trade carried on wholly in the United Kingd m, or (b) in he case of a trade carried on partly in the United Kingdom and partly elsewhere, from the part of the rade carried on in the United Kingdom."); see also R (Davies & another) v.-Commissioners for H.M. Rev. & Customs, (2011) UKSC 47 (aþpeal taken from Éng.); H.M. Rev. & Customs, IR²⁰, Residerits and non-ëe(cid:0)541identsLiability o tax in the United Kingdom, para. 5.2 (1999) (available at http://www.hmrc gov.uk/pdfs/ir²⁰.pdf) (last visited Feb. 1, 2012) ("If you are not resident in the JK, we will generally tax you on any UK pensions or on earnings from employ¹ ent the duties of which are carried on in this country." Duties performed by a on-U.K. resident member of an aircraft Both petitioner and respondenk characterize these taxes as "commuter" taxes. Although the' record does not reveal the precise nature of the "commuter" tax, respondent does not dispute that the tax paid was a tax on "income, war profits, and excess profits" as required for eligibility for the foreign tax credit under sec. 901(b)(1).

crew are generally treated as performed in the United Kingdom only if "thë flight does not extend to a place outside the UK"). On the basis of these authorities it seems most likely that the taxes petitioner paid to the United Kingdóm in 2ÖÒ5 were attributable to her duties carried on in the United Kirigdom. Petilioner has not shown otherwise. Because she has excluded her United King om-based income under section 911(a), she is riot entitléd to the foreign tax credit with respect to these.U.K. taxes.

We conclude and hold that petitioner has failed to establish endtlenient to the foreign tax credit for 2005.

To reflect the foregoing and resl(cid:0)541ondent'sconcessions, Decision will be entered under Rule 155.

4. T C. at 410. The Convention contains such a saving cláuse in articlé 29, p ragfaph 2, which provides in relevant part: "Notwithstáiiding any rovisión bf the ConVëntion except the provisions ofparagraph 3, the United States may tax its residents, as determined under Ärticle 4 (Resident , and its citizens as if the Convention had not corne into effect."
92. T.C. 1204, 1207 (1989). As previously discussed, respondent has allowed petitioner the foreign earned income exclusion with respect to her wages for services performed in and over foreiàn countries, including the United King¿lom.