Paul E. Farrell Frances G. Farrell v. United States
Opinion
Opinion
Silverman, J.
We hold today that income earned by a taxpayer 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. Neither is it income derived from a source within a “specified possession” as defined by § 931 of the Code. We therefore affirm the district court.
I. FACTS
Between 1994 and 1996, appellant Paul Farrell was employed by Raytheon Corporation. During those years, Farrell lived and worked on Johnston Island, a 591-acre island located approximately 700 miles west-southwest of Hawaii. It is the principal island of the Johnston Atoll, a U.S. military installation and bird refuge. See U.S. General Accounting Office, Report to the Chairman, Committee on Resources, House of Representatives, U.S. Insular Areas — Application of the U.S. Constitution, GAO/OGC 98-5 (app.II) at 50-52 (Nov.1997).
On Farrell’s federal income tax returns for 1994, 1995 and 1996, Farrell (filing jointly with his wife) treated $70,000 of his earnings each year as excludable from gross income as “foreign earned income” under § 911 of the Internal Revenue Code. The exclusions were disallowed by the IRS. Farrell then…