                  T.C. Summary Opinion 2002-114



                     UNITED STATES TAX COURT



         STANLEY K. AND SANDRA B. EVANKO, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11958-00S.              Filed September 3, 2002.


     Stanley K. and Sandra B. Evanko, pro sese.

     Robert B. Taylor, for respondent.




     DEAN, Special Trial Judge:     This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.    Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the year at issue.    The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.
                                 - 2 -

     Respondent determined a deficiency of $6,5711 in

petitioners’ 1997 Federal income tax.     The sole issue for

decision is whether certain payments received by Stanley K.

Evanko (petitioner) are military allowances excludable from

petitioners’ gross income.

     The stipulated facts and exhibits received into evidence are

incorporated herein by reference.    At the time the petition in

this case was filed, petitioners resided in Goodyear, Arizona.

                             Background

     During 1997, petitioner was retired from the U.S. Army and

was not on active duty.   Petitioner retired having attained the

rank of major.   Petitioner was employed by the State of Hawaii

Department of Education, at Kahuku High School, as senior Army

instructor for the Junior Reserve Officers' Training Corps

(JROTC).

     For the year 1997, petitioner received total compensation of

$49,624.   Petitioners reported on their Federal income tax return

for the year wages of $24,642.    Petitioner received a Form 1099-

R, Distributions From Pensions, Annuities, Retirement or Profit-

Sharing Plans, IRAs, Insurance Contracts, etc., from the Defense

Finance and Accounting Service reporting distributions of

$24,012.


     1
      The parties agree that there is an error in the notice of
deficiency and that the correct amount of the deficiency in
dispute is $6,515.
                                - 3 -

     Upon examination of the return, respondent determined that

the entire amount of the compensation received by petitioner

constitutes wages that must be included in petitioners' gross

income for 1997.

                             Discussion

     Petitioners do not dispute the receipt of the contested

income but rather its characterization as taxable compensation.

The issue for consideration, therefore, is whether the pay that

petitioner received as a JROTC instructor should be treated as

including nontaxable military allowances or whether that pay, as

argued by respondent, was entirely taxable compensation for

services rendered.

     Gross income means all income from whatever source derived.

Sec. 61(a).   Military pay received by members of the Armed Forces

is within the scope of section 61(a).     See sec. 1.61-2(a)(1),

Income Tax Regs.   Congress may, if it chooses, specifically

exempt certain items from gross income.     See Commissioner v.

Glenshaw Glass Co., 348 U.S. 426, 430 (1955).     For example,

certain military compensation, such as that received by members

of the Armed Forces serving in combat zones, is excluded from

gross income.   Sec. 112.   Military subsistence, uniform

allowances, and other amounts received as commutation of quarters

are excludable from gross income.    See sec. 1.61-2(b), Income Tax

Regs.
                               - 4 -

     Petitioner contends that the unreported portion of his JROTC

pay represents "qualified military benefits" that are excludable

from gross income pursuant to section 134 and 10 U.S.C. sec.

2031(d) (1994).   Petitioner relies on the statutes and Department

of Defense (DOD) Directive No. 1205.13 (Dec. 26, 1995), which

provide that the total compensation received by a retiree-

instructor is to be equal to the difference between retired pay

and active duty pay plus "allowances" that the retiree-instructor

would receive if ordered to active duty.   He proposes that the

statute and the DOD directive establish "equitable parity" in the

compensation of retired and active duty instructors.   Petitioner

then argues for an exclusion from his income equal to the sum of

the allowances received by active duty members of his rank.

Otherwise, according to petitioner, the disposable income that he

would receive as a JROTC instructor would be less than that of an

active duty officer performing identical services.

     The issues petitioners raise have already been addressed by

this Court.   See Lyle v. Commissioner, 76 T.C. 668 (1981), affd.

without published opinion 673 F.2d 1326 (5th Cir. 1982); Bynam v.

Commissioner, T.C. Memo. 2001-142; Tucker v. Commissioner, T.C.

Memo. 1999-373.

     In Lyle v. Commissioner, supra, the Court held that retired

military personnel may not rely on 10 U.S.C. sec. 2031(d) to

exclude from income salary received as a JROTC instructor.    The
                               - 5 -

Court concluded that:   (1) The plain language of 10 U.S.C. sec.

2031(d) does not authorize an exclusion from gross income for

amounts paid to JROTC instructors not on active duty; and (2)

JROTC instructors are employed by the local school district and

are paid for services, partly funded by the Federal Government,

rendered to that school district.

     Petitioner received in 1997 his regular retired pay which he

was entitled to whether or not he performed any services.   He

received no other compensation or allowances from the Federal

Government.   Although it is true that the Federal Government

reimburses school districts for one-half the "additional amount"

paid to retired officers, the ultimate burden of disbursing funds

and establishing compensation scales lies with the employing

school.   See 10 U.S.C. sec. 2031(d)(1); Lyle v. Commissioner,

supra at 674; Tucker v. Commissioner, supra.   The employing

institution is responsible for issuing compensation checks and

Forms W-2, Wage and Tax Statement, to all of its employees.

     Because the Federal Government does not assume any kind of

employer status, no portion of the compensation that petitioner

received as a JROTC instructor could be classified as a

subsistence, quarters, or variable housing allowance from the

Armed Forces.   Lyle v. Commissioner, supra at 674.   The statutory

provision, in conjunction with the implementing directives issued

by DOD, establishes a formula for computing the minimum
                                - 6 -

"additional amount" of compensation retired military instructors

are entitled to receive from the employing school and the maximum

portion of that additional amount that will be reimbursed by the

Federal Government.   Id. at 675.    The "additional amount" is, in

effect, an inducement offered to persuade retired personnel to

accept employment as JROTC instructors.     Id. at 676.   Active duty

pay is merely a guideline in determining the level at which JROTC

instructors are to be compensated.

     In Lyle v. Commissioner, supra at 674-675, the Court

explained why retired officers serving as JROTC instructors do

not receive nontaxable "allowances".    Only officers who are

entitled to receive "basic pay" are entitled to an allowance for

subsistence, in lieu of meals in kind, and a basic allowance for

quarters, unless the officer occupies quarters provided by the

military.   See 37 U.S.C. secs. 402 and 403 (1994).   The taxpayer

did not qualify for these allowances because he did not receive

"basic pay".   He did not receive "basic pay" because he was not

on "active duty".   See 37 U.S.C. sec. 204 (1994).    The taxpayer

was not on "active duty" because, as a retired military JROTC

instructor, he "is not, while so employed, considered to be on

active duty or inactive duty training for any purpose."     10

U.S.C. sec. 2031(d)(2).

     Petitioners object to the Court's "reliance" on the language

of 10 U.S.C. sec. 2031(d)(2).   They argue that the provision is
                               - 7 -

"in contravention to other federal statutes", citing Army

Regulation 210-50, Installations Housing Management.   They

contend that this provision allows petitioner to live in Army

housing, thus proving he is on "active duty" and entitled to

allowances.

     They have pointed to no specific provision of this very long

and detailed regulation.   Army Regulation 210-50 (revision

effective March 26, 1999),2 par. 3-40, Authority to Occupy Army

Lodging Facilities, "When space is available," however, states

that paid retirees may occupy UPH(TDY) (unaccompanied personnel

housing, temporary duty) or GH (guest housing) facilities.    On

equal footing with paid retirees for such housing on a space

available basis are certain employees of the U.S. Public Health

Service, the National Oceanographic and Atmospheric

Administration, and foreign military personnel.   Surely

petitioners would not argue that the provision means that those

employees and foreign personnel are on active duty with and are

entitled to allowances from the U.S. Army.   There is no

"contravention" of Army Regulation 210-50 by the language of 10

U.S.C. sec. 2031(d)(2).

     Petitioners have evidently failed to take note of a more

relevant provision.   Army Regulation 145-2, Junior Reserve


     2
      Army Regulation 210-50 was revised on Sept. 1, 1997. The
1999 version is only a reorganization of the 1997 version; "No
content has been changed."
                               - 8 -

Officers' Training Corps Program; Organization, Administration,

Operation, and Support (revision effective March 24, 2000), par.

4-20, states that "Although an instructor may receive an amount

'equal' to the military pay and allowances he or she would

receive if on active duty, the payments he or she receives are

not, in fact, military pay and allowances paid by the Army."

     In their oral and written presentations to the Court,

petitioners evince a belief that the statutory interpetations as

expressed in the Court's opinions cited above are somehow

aberrant or anomalous.   The Court reminds petitioners that the

decision in Lyle, was affirmed by the Court of Appeals for the

Fifth Circuit.   Also, petitioners may be unaware of two Federal

District Court opinions issued before this Court's decision in

Lyle.   In Scott v. United States, 33 AFTR 2d 74-858, 74-1 USTC

par. 9281 (D.S.C. 1973), the District Court found that 10 U.S.C.

sec. 2031 merely sets out a formula to calculate the salary of

retired members serving as JROTC instructors.   It further found

that military "allowances" are payable only to members entitled

to "basic pay", that only active duty members are entitled to

basic pay, and that the taxpayer, retired from the military, was

not on active duty while serving as a JROTC instructor.   The

decision by the Federal District Court in Sweeney v. United

States, 34 AFTR 2d 74-5700, 74-2 USTC par. 9672 (N.D. Ga. 1974),

discusses favorably and is in accord with the Scott decision.
                                 - 9 -

Petitioners have pointed to no court decision that comports with

their interpretations.

     In view of the foregoing, we hold that no portion of the

JROTC pay that petitioner received from the State of Hawaii

Department of Education is excludable from gross income.

     We have considered all of the other arguments made by

petitioners, and, to the extent that we have not specifically

discussed them above, we conclude those arguments are without

merit.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                              Decision will be entered

                                         for respondent.3




     3
      In the reduced amount to which the parties agreed.
