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FOSTER v. UNITED STATES

June 25, 1963

Thomas Browne FOSTER, Plaintiff,
v.
The UNITED STATES of America, Defendant



The opinion of the court was delivered by: LEVET

This is a suit to recover refunds of federal income taxes erroneously paid for the taxable years 1953, 1954 and 1955. The claims of plaintiff are based upon the assertion that he was a non-resident for the required period and earned his income as a salary from the partnership Emerson Engineers of which he was a partner. Defendant asserts that plaintiff's income for the respective years was derived as his partnership interest in Emerson Engineers. Jurisdiction is conferred upon this court by Title 28 U.S.C. § 1346. The case was tried to the court.

After hearing the testimony of the parties, examining the exhibits, the pleadings, the briefs and the proposed findings of fact and conclusions of law submitted by counsel, this court makes the following Findings of Fact and Conclusions of Law.

 FINDINGS OF FACT

 1. During the entire taxable years of 1953, 1954 and 1955 the plaintiff was a partner, and not an employee, of Emerson Engineers, a partnership situated in New York, New York.

 2. The partnership agreement (Ex. 1) provides that 'the partners shall devote all of their time and attention to the affairs of the co-partnership.' (Par. Fifth)

 3. Plaintiff became a non-resident of the United States on January 10, 1952 and remained a non-resident until July 29, 1956. He was a non-resident for the entire taxable years 1953, 1954 and 1955, being a non-resident for the requisite period of 510 days duration in 18 consecutive months for each taxable year.

 4. Emerson Engineers had a contract with Arabian American Oil Co. (Aramco) to provide management consulting services in Saudi Arabia. The contract provided for Emerson Engineers to send monthly statements to Aramco for the services of the firm. The billings were in the firm name and Foster received no sum directly from Aramco. All sums received by Foster were though the firm. The plaintiff, as a partner, represented the partnership in Saudi Arabia during 1953, 1954 and 1955. Mr. Sloane, a senior partner, made periodic business trips to Saudi Arabia and reviewed the firm's work for Aramco with Foster.

 5. Under the partnership agreement it was provided that 'Thomas B. Foster shall be entitled to 4.0816 of the profits and shall bear 4.0816 of the losses * * *.' On December 1, 1950, when plaintiff became a partner, he contributed capital to the partnership in proportion to his partnership interest.

 6. Paragraph marked 'Twelfth' of the partnership agreement (Ex. 1) provided that: 'Each partner shall be entitled to a monthly drawing account, the amount of which shall be determined and fixed by the majority in interest of all the partners, and shall further be entitled to a distributive share of the ordinary net income based upon his percentage interest of the profits.'

 7. Payroll sheets, such as Pl. Ex. 3, show Foster as a partner and receiving a monthly drawing, whereas 'employees' are shown on a separate sheet as receiving salaries less deductions for WT (withholding) and F.I.C. (social security), not shown on the listing of Foster on the Partners Sheet. In addition to his monthly drawings, plaintiff received a distributive share of the net profits for the taxable years 1953, 1954 and 1955.

 8. There is no evidence that the monthly drawings made to plaintiff during the years 1953, 1954 and 1955 were intended by the partnership to be guaranteed payments, without regard to partnership income.

 9. Although some of the associates received salaries in excess of those of plaintiff, a partner, none of the associates either contributed to capital or shared in the net profits or losses.

 10. During 1953, Emerson Engineers earned 59,4789% Of its income from sources outside the United States. Plaintiff's income for the year 1953 was $ 17,458.00, consisting of 'a drawing of a fixed amount' in the sum of $ 9,840.00, and his distributive share of the partnership profits for the year 1953 (at the rate of 4.0816%), totalling $ 7,618.00, less $ 1,000.00 credit for capital loss. The District Director allowed $ 10,383.83 (59.4789% Of $ 17,458.00) as income earned outside the United States.

 11. During 1954 Emerson Engineers earned 27.289% Of its income from sources outside the United States. Plaintiff's income for the year 1954 was $ 10,167.41, consisting of 'a drawing of a fixed amount' in the sum of $ 9,305.80, and his distributive share of the net partnership profits after all expenses, employees' salaries and partnership drawings for the year 1954 (at the rate of 4.0816%) totalled $ 861.61. The District Director allowed $ 2,834.07 (27.289% Of $ 10,167.41) as excluded from gross income as earned outside the United States.

 12. The plaintiff filed his tax return for 1955 on May 4, 1956 and a claim for refund on May 21, 1959. ...


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