Narrative Opinion Summary
This case involves the tax treatment of income earned by an individual residing on Johnston Island, a U.S. military installation and insular possession. The primary legal issue is whether this income is excludable from gross income under § 911 as 'foreign earned income' or under § 931 as income from a 'specified possession.' The individual, working for Raytheon Corporation from 1994 to 1996, claimed exclusions on his tax returns, which were disallowed by the IRS. Following the denial of amended returns for refunds, the individual brought suit in district court. The court ruled that Johnston Island does not qualify as a foreign country under § 911 and is not a 'specified possession' under § 931, which is limited to Guam, American Samoa, and the Northern Mariana Islands. The Ninth Circuit Court of Appeals affirmed the summary judgment, reviewing the case de novo and agreeing with the district court's interpretation and application of the tax code. The appellate court emphasized that statutory changes post-1986 rendered previous Treasury regulations regarding Johnston Island obsolete, thus reinforcing the denial of tax exclusions for the income in question. The decision underscores the precedence of statutory language over conflicting regulations and clarifies the scope of income exclusions under §§ 911 and 931.
Legal Issues Addressed
Appellate Review Standardsubscribe to see similar legal issues
Application: The Ninth Circuit reviews grants of summary judgment de novo, affirming the district court's decision regarding income exclusion in this case.
Reasoning: The Ninth Circuit Court of Appeals affirmed the district court’s summary judgment, agreeing that the income earned by Farrell on Johnston Island is not excludable under either § 911 or § 931.
Foreign Earned Income Under § 911subscribe to see similar legal issues
Application: Income earned on Johnston Island is not excludable as 'foreign earned income' because the island is considered a U.S. possession, not a foreign country.
Reasoning: Income earned by Paul Farrell on Johnston Island, a U.S. insular possession, is not excludable from gross income as 'foreign earned income' under § 911 of the Internal Revenue Code.
Income Exclusion Under § 931subscribe to see similar legal issues
Application: The income earned by Farrell on Johnston Island does not qualify for exclusion under § 931 as it is not from a 'specified possession' like Guam, American Samoa, or the Northern Mariana Islands.
Reasoning: Additionally, the court found that Farrell's income did not meet the criteria for exclusion under § 931, as this section specifically lists only Guam, American Samoa, and the Northern Mariana Islands as 'specified possessions.'
Precedence of Statute Over Regulationsubscribe to see similar legal issues
Application: The regulation supporting the prior interpretation of § 931 is invalid as it contradicts the updated statute that excludes Johnston Island's income.
Reasoning: Under established legal principles, when a regulation contradicts a newly enacted statute, the statute prevails, rendering the regulation obsolete.