Joseph T. Smith and Marie A. Smith v. Commissioner of Internal Revenue

The issue in this case is the interpretation of the phrase “paid by the United States” in I.R.C. § 911(a)(1) as worded in 1975 and 1976. Petitioner Joseph Smith excluded overtime pay he received as a customs inspector in the Bahamas from his taxable income on the theory that it was paid by private airlines, not the United States. The Commissioner issued a deficiency, and the Tax Court agreed. We affirm.

I.R.C. § 911(a), as it appeared in 1975 and 1976, provided in relevant part:

Smith argues that his overtime pay was excludible under section 911(a)(1) because the' government billed airline companies who requested customs inspections during off hours for the overtime services of U.S. Customs officials. Smith characterizes the United States as a mere conduit for funds paid to him by the airlines.

Airlines requesting overtime services are required to pay a reasonable rate of extra compensation for those services, and to post a bond or deposit sufficient funds with the Customs Service. 19 U.S.C. §§ 267 (1976), 1451 (Supp. V 1981). These statutes indicate that the airlines’ payment obligation is to the United States government, not to the individual customs inspector who performs…