Appeal from the United States Tax Court decision prohibiting dual status taxpayers from filing a joint return and from electing the standard deduction for the taxable year in which taxpayers were both nonresident and resident aliens, and from denial of deduction for moving expenses.
Mulligan and Timbers, Circuit Judges, and Dudley B. Bonsal, District Judge.*fn*
Appellants Severino Nico, and his wife, Teresita Nico were Philippine nationals who came to the United States in May, 1971. It is conceded that no income earned by either prior to their residency in the United States is taxable here. The issue is the proper computation of the tax on their income earned in the United States after they assumed residency here. This appeal is from a decision of the United States Tax Court and involves their liability for federal income taxes for the taxable year 1971 which amounts to $150.92 for Severino and $303.81 for Teresita. The facts are fully set forth in the findings and opinion of the Tax Court, reported at 67 T.C. 647 (1977). While the facts are simple and the sum involved is modest, the solution to the issues here is complicated by the pertinent provisions of the Internal Revenue Code and the regulations which are hardly as clear as the noonday sun.
The appellants urge that under 26 U.S.C. § 443(a)(2)*fn1 they were not taxpayers "in existence" for the full calendar year 1971 but only for that part commencing with their arrival in the United States. They argue that therefore they were entitled to use a short tax year which excludes the period of nonresidency.
The same contention was considered and rejected by the Tax Court in Jose E. More, 66 T.C. 27 (1976), aff'd without opinion, No. 76-4235 (2d Cir., June 24, 1977). The Tax Court here followed its prior decision in More.
The Internal Revenue Code defines a taxpayer as "any person subject to any internal revenue tax." 26 U.S.C. § 7701(a)(14). Appellants have taken the position that since neither taxpayer here had income subject to United States internal revenue tax prior to May, 1971 they were not "taxpayers in existence" under 26 U.S.C. § 443(a)(2) for the period of nonresidency. The Commissioner has demonstrated a long standing policy of requiring alien taxpayers who were residents and nonresidents in the same taxable year to make a full-year return despite the fact that a taxpayer may have had no income taxable by the United States during his period of nonresidency. We agree with the Commissioner that an individual who has died prior to the end of his taxable year is not a taxpayer in existence under the Code. Similarly a corporation, prior to its formation or after its dissolution during a taxable year, may be properly considered pro tanto not to be in existence. Treas. Reg. § 1.443-1(a)(2). However, a nonresident alien who is alive, is clearly in existence and is subject to tax on any income earned in the United States. Had the Congress intended to include nonresidence as a basis for utilization of a short tax year, it could have done so explicitly. To equate nonresidency with non-existence would require a strained reading which cannot sensibly comport with the congressional intent. We therefore agree with the analysis of the Tax Court in More and find the present case indistinguishable on its facts. Consequently, the appellants' tax year was the calendar year of 1971.
Thus, it follows inexorably that the appellants were not entitled to file a joint tax return for 1971. Section 6013(a)(1) prohibits the filing of a joint return by a husband and wife "if either the husband or wife at any time during the taxable year is a nonresident alien."*fn2 Since both taxpayers were admittedly nonresident aliens during part of the year 1971, they are expressly prohibited from filing a joint return. We affirm the Tax Court's decision on this issue.
The appellants further contend that as resident aliens they were entitled to elect the standard deduction for their taxable income earned while in the United States. Section 142(b)(1) of the Code provides that "the standard deduction shall not be allowed in computing the taxable income of (1) a nonresident alien individual." It would appear to follow therefore that a resident alien would be entitled to take a standard deduction with respect to taxable income earned during his residency in the United States. Expressio unius est exclusio alterius.*fn3 Indeed, it is conceded that if the appellants had been resident aliens for the entire calendar year of 1971 they would be entitled to a standard deduction. The Tax Court, however, found the section's language to be ambiguous, not clearly covering dual status taxpayers such as the appellants who were nonresident and resident aliens during the same taxable year. As we have indicated, in the case of the filing of a joint return the Code in § 6013(a)(1) explicitly bars such a return if either husband or wife was a nonresident alien " at any time during the taxable year " (emphasis supplied). The absence of such qualification in § 142(b)(1) would seemingly support appellants' contention that they are entitled to take the standard deduction for that period when their income was earned as residents of the United States.
Arguendo, ambiguity does exist, the Commissioner contends that great deference should be given to the rulings of the Internal Revenue Service which is charged with administration of the statute, and that these rulings should be sustained even though there may be another reasonable reading which the court might think preferable. United States v. Correll, 389 U.S. 299, 306-07, 19 L. Ed. 2d 537, 88 S. Ct. 445 (1967); Commissioner of Internal Revenue v. Stidger, 386 U.S. 287, 296, 18 L. Ed. 2d 53, 87 S. Ct. 1065 (1967). We, of course, agree with this principle. The question therefore becomes what position has the Commissioner taken and has this position been consistent. Rev. Rul. 64-60, 1964-1 Cum. Bull. (Pt. 1) 84, explicitly held, "The standard deduction is allowable only to an individual who is a United States citizen or a resident alien for the entire taxable year." Two memorandum opinions of the Tax Court are in accord. Donald G. Baddock, 27 T.C.M. 289 (1968); Robert H. Hoyle, 29 T.C.M. 760, 761 n. 2 (1970).*fn4
However, the appellants rely upon Treas. Reg. § 1.871-13(a)(1) which provides:
(1) An individual who is a citizen or resident of the United States at the beginning of the taxable year but a nonresident alien at the end of the taxable year, or a nonresident alien at the beginning of the taxable year but a citizen or resident of the United States at the end of the taxable year, is taxable for such year as though his taxable year were comprised of two separate periods, one consisting of the time during which he is a citizen or resident of the United States and the other consisting of the time during which he is not a citizen or resident of the United States. Thus, for example, the income tax liability of an alien individual under chapter 1 of the Code for the taxable year in which he changes his residence will be computed under two different sets of rules, one relating to resident aliens for the period of residence and the other relating to nonresident aliens for the period of nonresidence. However, in determining the taxable income for such year which is subject to the graduated rate of tax imposed by ...