                  T.C. Summary Opinion 2009-26



                     UNITED STATES TAX COURT



              JOHN FRANCIS O’ROURKE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8691-07S.             Filed February 25, 2009.



     John Francis O’Rourke, pro se.

     Jon D. Feldhammer, for respondent.



     PANUTHOS, Chief Special Trial Judge:   This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect when the petition was filed.1   Pursuant to

section 7463(b), the decision to be entered is not reviewable by



     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                - 2 -

any other court, and this opinion shall not be treated as

precedent for any other case.

     Respondent determined deficiencies of $2,594 and $2,646,

respectively, in petitioner’s 2003 and 2004 Federal income taxes.

     The issue for decision is whether petitioner is entitled to

exclude income earned working at the U.S. Embassy in Mexico City.

                            Background

     Some of the facts have been stipulated, and we incorporate

the stipulation and the accompanying exhibits by this reference.

Petitioner lived in California when he filed the petition.

     During 2003 and 2004 (the years in issue) petitioner resided

in Mexico City, Mexico, and worked continuously and exclusively

for the U.S. Drug Enforcement Agency (DEA) as an administrative

unit secretary in the DEA’s offices in the U.S. Embassy.    The

U.S. Department of State paid petitioner for the work he

performed for the DEA at the Embassy.

     Petitioner worked 8-hour days, 5 days a week, on a regular

schedule prescribed by the DEA.   The U.S. Government provided

petitioner with the equipment and supplies required to perform

his job.   Petitioner’s duties included typing travel orders and

job postings, making hotel and food reservations, arranging moves

and securing housing for DEA employees, and entering requests for

money into a proprietary DEA computer system that determined

whether the requested funds could be issued.
                                - 3 -

     Petitioner and the Government executed a contract which

referred to petitioner as a “Contractor” and provided for an

hourly rate of pay, five 8-hour days per week, and annual and

sick leave earned at the rate of 4 hours every 2 weeks.2   The

contract also stated that the Government would “withhold an

amount from the U.S. Citizen Contractor’s gross salary for

Federal withholding and FICA taxes”.    Under the contract, either

party could terminate the contract on 15 days’ notice, and the

Government could terminate without advance notice upon

petitioner’s failure to fulfill any terms of the contract.

Petitioner’s work for the DEA did not provide any opportunity for

profit or loss outside the income and benefits enumerated in the

contract.

     The U.S. Embassy distinguished between local hire

contractors, who received limited benefits, and direct hire

employees, who were DEA employees from the United States with the

full panoply of Federal employee benefits.   The Embassy also

instructed its local hire contractors not to present themselves

as U.S. Government employees.

     Petitioner did not pay any taxes to the Mexican Government

on his income from the DEA for 2003 or 2004.   Petitioner timely

filed U.S. individual income tax returns for 2003 and 2004.      On


     2
       The Contracting Officer of the U.S. Embassy in Mexico
City, Mexico, executed the contract on behalf of the U.S. Drug
Enforcement Agency.
                              - 4 -

those returns petitioner reported his income from the DEA as

wages; included Forms 2555-EZ, Foreign Earned Income Exclusion;

excluded all of his income; and claimed refunds for all Federal

income taxes withheld.

     Respondent issued a notice of deficiency disallowing

petitioner’s foreign earned income exclusion on the grounds that

his payments from the U.S. Department of State were not foreign

earned income but rather income from a U.S. source.

     In his petition and at trial petitioner asserted that

because he was a contractor and not a regular employee of the

U.S. Government, he is entitled to the foreign earned income

exclusion.

                           Discussion

     In general, the Commissioner’s determinations set forth in a

notice of deficiency are presumed correct, and the taxpayer bears

the burden of proving that these determinations are in error.

Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Pursuant to section 7491(a), the burden of proof as to factual

matters shifts to the Commissioner under certain circumstances.

Petitioner has neither alleged that section 7491(a) applies nor

established his compliance with its requirements.   Petitioner

therefore bears the burden of proof.3



     3
       As the facts are not in dispute, the burden of proof does
not play a role in our findings or conclusions.
                               - 5 -

     Every citizen of the United States is subject to U.S. income

tax on his worldwide income.   Sec. 1; sec. 1.1-1(b), Income Tax

Regs.   Section 911(a) permits U.S. citizens residing and working

abroad to elect to exclude foreign earned income from U.S. income

taxation.   However, “foreign earned income” does not include

amounts “paid by the United States or an agency thereof to an

employee of the United States or an agency thereof”.   Sec.

911(b)(1)(B)(ii).

     There is no dispute that petitioner worked for an agency of

the United States in 2003 and 2004 when he was a secretary in

Mexico City for the DEA and paid by the Department of State.

Thus, if petitioner was an employee, he is not entitled to

exclude this income.   We must decide whether petitioner worked as

an independent contractor or as a contract employee.

     Section 911 does not define “employee”.   Accordingly, we

apply common law rules to determine whether a taxpayer is an

employee.   See United States v. Silk, 331 U.S. 704 (1947);

Matthews v. Commissioner, 907 F.2d 1173, 1175 (D.C. Cir. 1990),

affg. 92 T.C. 351 (1989); Weber v. Commissioner, 103 T.C. 378,

386 (1994), affd. 60 F.3d 1104 (4th Cir. 1995).

     Whether an individual is an employee must be determined on

the basis of the specific facts and circumstances involved.

Profl. & Executive Leasing, Inc. v. Commissioner, 89 T.C. 225,

232 (1987), affd. 862 F.2d 751 (9th Cir. 1988); Simpson v.
                                 - 6 -

Commissioner, 64 T.C. 974, 984 (1975).    Relevant factors include:

(1) The degree of control exercised by the principal over the

details of the work; (2) the relationship the parties believe

they are creating; (3) whether the work is part of the

principal’s regular business; (4) which party invests in the

facilities used in the work; (5) the individual’s opportunity for

profit or loss; (6) the permanency of the relationship and the

right to discharge; and (7) the provision of benefits typical of

those provided to employees.     NLRB v. United Ins. Co., 390 U.S.

254, 258-259 (1968); Weber v. Commissioner, supra at 387; Profl.

& Executive Leasing, Inc. v. Commissioner, supra at 232.     No one

factor is determinative; rather, all the incidents of the

relationship must be assessed and weighed.     NLRB v. United Ins.

Co., supra at 258.

1.   Degree of Control Exercised by the DEA

     Although no single factor is dispositive, the test usually

considered fundamental is whether the alleged employer has the

right to control the activities of the individual whose status is

in issue.   Weber v. Commissioner, supra at 387; Profl. &

Executive Leasing, Inc. v. Commissioner, supra at 232-233.     An

employer can retain the requisite control over the details of an

employee’s work even without standing over the employee and

directing every move he makes.     Weber v. Commissioner, supra at
                               - 7 -

388; Profl. & Executive Leasing, Inc. v. Commissioner, supra at

234; Simpson v. Commissioner, supra at 985.

     It is clear that petitioner performed his administrative

support work in the DEA’s offices in the U.S. Embassy, following

DEA’s procedures and guidelines, and that the DEA dictated the

days and hours petitioner worked.    We conclude that the DEA

exercised the requisite control over petitioner, and this factor

supports a finding that petitioner was an employee of the

Government.

2.   The Relationship the Parties Believed They Were Creating

     The contract petitioner signed with the DEA labels

petitioner the “Contractor” for the purposes of that document.

Petitioner relies upon that label and the convention at the

Embassy to distinguish between the local hire contractors and

direct hire workers.   Petitioner explained that even though he

was a U.S. citizen, he was “in many respects on the same level as

the Mexican contract employees.”    Finally, he relies on

instructions he received not to refer to himself as a U.S.

Government employee.

     The label used in the contract is “Contractor” not

“Independent Contractor”.   The contract specifies that the

Government would withhold Federal income and employment taxes

from petitioner’s gross pay.   Such withholding is inconsistent
                               - 8 -

with the assertion that the parties intended petitioner to be an

independent contractor for U.S. income tax purposes.

     This factor supports a finding that petitioner was a

contract employee; i.e., an employee operating under a contract.

3.   Whether the Work Is Part of the Principal’s Business

     Petitioner supported DEA operations by providing

administrative support in the DEA’s offices in the Embassy.    This

support was in furtherance of the DEA’s mission, and this factor

supports a finding that petitioner was an employee.

4.   Investment in Facilities Used in the Work

     The DEA and the Embassy provided the office, tools, and

supplies required for petitioner to provide the administrative

support for which he contracted.   Petitioner did not provide any

facilities or equipment.   This factor supports a finding that

petitioner was an employee.

5.   Petitioner’s Opportunity for Profit or Loss

     Petitioner’s opportunity for profit was limited to the

hourly wage specified in the contract.   This factor supports a

finding that petitioner was an employee.

6.   The Permanency of the Relationship and the Right To
     Discharge

     Petitioner argues that his having a contract that expired

annually and would be renewed only if the budget permitted and

his not having the chance of promotion to direct hire status made

him an independent contractor and not an employee.
                               - 9 -

     The contract provided for renewal for additional periods at

the Government’s option and with the Contractor’s concurrence.

The contract also stated that either party could terminate the

agreement on 15 days’ notice and that the Government could

terminate without advance notice “upon the Contractor’s failure

to fulfill any terms of this contract”.

     The permanency of a relationship indicates an employer-

employee relationship, while a transitory relationship does not.

Levine v. Commissioner, T.C. Memo. 2005-86; Hathaway v.

Commissioner, T.C. Memo. 1996-389.     Additionally, the right to

discharge a worker and the worker’s right to quit at any time

indicate an employer-employee relationship.     Levine v.

Commissioner, supra.

      This factor supports a finding that petitioner was an

employee.

7.   The Provision of Benefits Typical of Those Provided to
     Employees

     The Government trained petitioner and provided him with

annual leave, sick leave, and paid holidays.    These benefits are

typical of those an employer provides an employee.    The DEA did

not provide petitioner secure housing, health care, access to the

Embassy health unit, or certain other benefits provided to its

direct hire workers.   Nevertheless, this factor supports a

finding that petitioner was an employee.
                               - 10 -

                             Conclusion

     Despite the fact that petitioner was treated differently

from direct hire employees, the record overwhelmingly supports a

finding that petitioner was an employee of the U.S. Government.

Accordingly, petitioner’s earnings from working for the DEA are

not foreign earned income.    Sec. 911(b)(1)(B)(ii).   Petitioner is

not entitled to exclude those wages for 2003 and 2004, and

respondent’s determination is sustained.4

     To reflect our disposition of the issue,


                                          Decision will be entered

                                     for respondent.




     4
       Because petitioner did not pay income taxes to the
Government of Mexico in 2003 or 2004, and he seeks to exclude his
compensation from Federal income taxes as well, our comment in
Matt v. Commissioner, T.C. Memo. 1990-209, is equally apt here:

         Finally, we note that the exclusion of foreign earned
         income was designed to prevent United States Government
         employees from escaping taxation on their income by both
         the United States and the foreign governments. Soboleski
         v. Commissioner, 88 T.C. 1024, 1030 (1987), affd. without
         published opinion 842 F.2d 1292 (4th Cir. 1988). Congress
         was concerned that section 911 not provide an
         unjustifiable windfall for those individuals who paid
         neither Federal nor foreign income taxes. See Smith v.
         Commissioner, 77 T.C. 1181, 1185 (1981), affd. 701 F.2d
         807 (9th Cir. 1983). Petitioner's position is precisely
         that which Congress sought to preclude by enacting section
         911(b)(1)(B)(ii); that is, she paid no foreign income
         taxes in 1984 on her compensation from USAID and seeks to
         avoid the payment of Federal income taxes as well by
         excluding that compensation from her gross income.
