                         T.C. Memo. 2004-42



                       UNITED STATES TAX COURT



    MILTON L. HILDEBRAN AND JUDY W. HILDEBRAN, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13978-01.              Filed February 19, 2004.



     G. Paul Martin, for petitioner.

     Veena Luthra, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined deficiencies of

$7,168 and $7,621 in petitioners’ Federal income tax for taxable

years 1998 and 1999, respectively.

     The issue remaining for decision is whether certain wages

that petitioner Milton L. Hildebran (Mr. Hildebran) received

during each of the years at issue are excludable from petition-
                                -2-

ers’ gross income for each such year under section 112.1   We hold

that they are not.

                         FINDING OF FACTS

     Some of the facts have been stipulated and are so found.

     At the time petitioners filed the petition in this case,

they resided in Lake Mary, Florida.

     During the years at issue, Mr. Hildebran’s employer was Bay

Ship Management, Inc. (Bay Ship Management).2   During those

years, Bay Ship Management contracted with the United States Navy

(Navy) to provide merchant marine3 personnel to work on a ship

known as the Shughart.   The Shughart was owned by the Navy and

was operated solely at the expense of the United States by the

Military Sealift Command, which is part of the Navy (Navy Mili-

tary Sealift Command).

     During the years at issue, Bay Ship Management assigned Mr.

Hildebran to work for certain periods during those years as a

merchant marine on the Shughart.   During 1998, Mr. Hildebran



     1
      All section references are to the Internal Revenue Code in
effect for the years at issue. All Rule references are to the
Tax Court Rules of Practice and Procedure.
     2
      During the years at issue, Mr. Hildebran was a member of a
union which had contracted with Bay Ship Management regarding
certain union member rights.
     3
      At all relevant times, a professional merchant marine, also
known as a merchant seaman, was a professional mariner who moved
products by ship from one port to another port. At such times,
the duties of a merchant marine included loading and unloading
ship cargo.
                                -3-

worked on the Shughart from January 1 to February 15 and from

June 13 to November 3.   During 1999, Mr. Hildebran worked on the

Shughart from March 9 to July 27.     During the periods in 1998 and

1999 when Mr. Hildebran was working on the Shughart as a merchant

marine employee of Bay Ship Management, he was providing support

to the Navy Military Sealift Command.

     The Shughart was operating in a designated combat zone

during the period July 27, 1997, to July 10, 1999.4

Consequently, when Mr. Hildebran served on the Shughart as a

merchant marine employee of Bay Ship Management during certain

periods in 1998 and 1999, he was in a designated combat zone for

190 days and 124 days during those respective years.    During the

periods in 1998 and 1999 when Mr. Hildebran was working on the

Shughart as a merchant marine employee of Bay Ship Management and

was in a designated combat zone, he received imminent danger pay.

     At all relevant times, a merchant marine, like Mr.

Hildebran, who worked on a Navy Military Sealift Command ship,

like the Shughart, was subject to Navy physical standards and

Navy standards of appearance, training, and mission completion.

As a merchant marine working on the Shughart during certain

periods in the years at issue, Mr. Hildebran was required to, and

did, have security clearances, wear uniforms, receive an anthrax


     4
      It is unclear from the record whether the Shughart was
operating in a designated combat zone on July 10, 1999. We have
assumed that it was.
                                -4-

vaccination, receive training in small arms and antiterrorism,

and carry a Department of Defense identification card which

showed his ship assignment and speciality.

     At all relevant times, before serving on a Navy Military

Sealift Command ship, like the Shughart, a merchant marine, like

Mr. Hildebran, was required to, and did, sign articles of engage-

ment (articles of engagement) which set forth the merchant

marine’s commitment to follow the orders of the Master (i.e., the

Captain) of the ship even in the event of hostilities and regard-

less of danger.   In the event that a merchant marine assigned to

work on a Navy Military Sealift Command ship were to have refused

to sign articles of engagement, that individual would not have

been allowed to work on such a ship.

     During the years at issue, Bay Ship Management also assigned

Mr. Hildebran to work for certain periods as a merchant marine on

a ship known as the SS Sandy Bay.     During 1998 and 1999, Bay Ship

Management paid Mr. Hildebran a total of $92,548 and $66,424,

respectively, for his work as a merchant marine during those

respective years on the Shughart and on the SS Sandy Bay.

     Petitioners timely filed Form 1040, U.S. Individual Income

Tax Return, for each of their taxable years 1998 (petitioners’

1998 return) and 1999 (petitioners’ 1999 return).    Petitioners

filed Form 1040X, Amended U.S. Individual Income Tax Return, for

taxable year 1998 (petitioners’ amended 1998 return).    In peti-
                                 -5-

tioners’ amended 1998 return, they claimed that they were enti-

tled under section 112 to exclude from their gross income $17,220

of wages that Mr. Hildebran received from Bay Ship Management

during 1998 for his work as a merchant marine on the Shughart.

In petitioners’ 1999 return, petitioners claimed that they were

entitled under section 112 to exclude from their gross income

$37,883 of wages that Mr. Hildebran received from Bay Ship

Management during 1999 for his work as a merchant marine on the

Shughart.

     Respondent issued to petitioners a notice of deficiency

(notice) for taxable years 1998 and 1999.    In the notice, respon-

dent determined, inter alia, that petitioners were not entitled

under section 112 to exclude from their gross income for 1998 and

1999 the respective wages of Mr. Hildebran that they excluded

from gross income in petitioners’ amended 1998 return and peti-

tioners’ 1999 return.

                               OPINION

     We presume that respondent’s examination of petitioners’

1998 return, petitioners’ amended 1998 return, and petitioners’

1999 return began after July 22, 1998, and that section 7491(a)

is applicable in the instant case.     However, the parties do not

address whether the burden of proof relating to the deficiency

determinations at issue should shift to respondent under section

7491(a).    We need not decide whether that burden shifts to
                                -6-

respondent.   That is because resolution of the issue presented

does not depend on who has the burden of proof.

     It is petitioners’ position that they are entitled under

section 112 to exclude from their gross income the wages that Mr.

Hildebran received during each of the years at issue for his work

as a merchant marine on the Shughart.   In support of their

position, petitioners argue that

     petitioner herein [Mr. Hildebran] experienced substan-
     tial incidents of military standing including but not
     limited to a signed agreement committing him to orders
     from the United States Navy, training in small arms and
     anti-terrorism and required inoculations for various
     illnesses. Moreover, petitioner wore uniforms and had
     to have security clearances prior to deployment under
     the Military Sealift Command. These trappings would
     seem sufficient for petitioner to claim status as an
     [sic] uniformed member of the United States Armed
     Forces pursuant to the definition contained in I.R.C.
     Section 7701(a)(15) and, therefore, eligibility for
     exclusion of his relevant income under I.R.C. Section
     112.

     It is respondent’s position that petitioners are not enti-

tled under section 112 to exclude from their gross income the

wages that Mr. Hildebran received during each of the years at

issue for his work as a merchant marine on the Shughart.      In

support of respondent’s position, respondent argues that

          I.R.C. section 112 provides that gross income does
     not include compensation received for active service as
     a member of the Armed Forces of the United States for
     any month during which the taxpayer served in a combat
     zone. I.R.C. section 7701(a)(15) defines the term
     “Armed Forces of the United States” as including all
     active and reserve components of the uniformed services
     that are subject to the jurisdiction of the Department
     of Defense, the Secretary of the Army, the Secretary of
                                -7-

     the Navy, or the Secretary of the Air Force, as well as
     the Coast Guard. Although petitioner’s [Mr.
     Hildebran’s] merchant marine occupation required him to
     work in support of the United States Navy and to work
     within a recognized combat zone, petitioner did not
     serve in the Armed Forces of the United States and,
     therefore, is not entitled to exclude any portion of
     his wages from gross income under I.R.C. section 112.

     In further support of respondent’s position, respondent

points out that

          The Tax Court has consistently denied the combat
     pay exclusion under I.R.C. section 112 to civilian
     employees providing support to the United States mili-
     tary. Land v. Commissioner, 61 T.C. 675 (1974); Smith
     v. Commissioner, T.C. Memo. 1972-147; Reynolds v.
     Commissioner, T.C. Memo. 1972-84; Fagerland v. Commis-
     sioner, T.C. Memo. 1971-134. Pilots employed by pri-
     vate airlines flying civilian aircraft under contract
     with the Department of Defense in support of the United
     States military were found not to be members of the
     Armed Services and, therefore, not entitled to the
     I.R.C. section 112 exclusion. Land, 61 T.C. 675;
     Smith, T.C. Memo. 1972-147; Reynolds, T.C. Memo. 1972-
     84; Fagerland, T.C. Memo. 1971-134. A taxpayer who has
     been issued a Department of Defense identification card
     is not necessarily a member of the Armed forces of the
     United States. Land, 61 T.C. 675; Smith, T.C. Memo.
     1972-147; Reynolds, T.C. Memo. 1972-84; Fagerland, T.C.
     Memo. 1971-134. Merchant marines are civilians and are
     not members of the Armed Forces of the United States;
     therefore, they are not entitled to income exclusion
     under I.R.C. section 112. Favero v. Commissioner, T.C.
     Memo. 2001-219.

     Petitioners counter respondent’s reliance on the foregoing

cases by pointing out certain factual distinctions between those

cases and the instant case.   The distinctions between the cases

on which respondent relies and the instant case that petitioners

describe are not material, and petitioners’ reliance on such

distinctions is misplaced.
                                  -8-

     Section 112 provides in pertinent part:

     SEC. 112.    CERTAIN COMBAT ZONE COMPENSATION OF MEMBERS
                  OF THE ARMED FORCES.

          (a) Enlisted Personnel.--Gross income does not
     include compensation received for active service as a
     member below the grade of commissioned officer in the
     Armed Forces of the United States for any month during
     any part of which such member--

                  (1) served in a combat zone, or

                 (2) was hospitalized as a result of wounds,
            disease, or injury incurred while serving in a
            combat zone; but this paragraph shall not apply
            for any month beginning more than 2 years after
            the date of the termination of combatant activi-
            ties in such zone.

        *         *       *       *       *         *    *

          (b) Commissioned Officers.--Gross income does not
     include so much of the compensation as does not exceed
     the maximum enlisted amount received for active service
     as a commissioned officer in the Armed Forces of the
     United States for any month during any part of which
     such officer--

                  (1) served in a combat zone, or

                 (2) was hospitalized as a result of wounds,
            disease, or injury incurred while serving in a
            combat zone; but this paragraph shall not apply
            for any month beginning more than 2 years after
            the date of the termination of combatant activi-
            ties in such zone.

     Section 7701(a)(15) defines the phrase “Armed Forces of the

United States” that is used in section 112 as follows:

     SEC. 7701.    DEFINITIONS

          (a) When used in this title, where not otherwise
     distinctly expressed or manifestly incompatible with
     the intent thereof--
                                -9-

               (15) Military or naval forces and armed
          forces of the United States.--The term “military
          or naval forces of the United States” and the term
          “Armed Forces of the United States” each includes
          all regular and reserve components of the uni-
          formed services which are subject to the jurisdic-
          tion of the Secretary of Defense, the Secretary of
          the Army, the Secretary of the Navy, or the Secre-
          tary of the Air Force, and each term also includes
          the Coast Guard. The members of such forces in-
          clude commissioned officers and personnel below
          the grade of commissioned officers in such forces.

     On the record before us, we find that at no time during the

years at issue was Mr. Hildebran a member of the Armed Forces of

the United States within the meaning of sections 112 and

7701(a)(15).   During those years, Bay Ship Management employed

Mr. Hildebran as a merchant marine, assigned him to work as such

on, inter alia, the Shughart during certain periods in those

years, and paid Mr. Hildebran for the work that he performed,

inter alia, while on the Shughart.    The Armed Forces of the

United States did not employ, and did not pay any wages or

compensation to, Mr. Hildebran with respect to such work.

Although Mr. Hildebran’s work as a merchant marine on the

Shughart during certain periods in the years at issue was in

support of the Navy Military Sealift Command and although he was

required to, and did, carry a Department of Defense identifica-

tion card, sign articles of engagement, and meet certain Navy

standards during such periods, those facts did not in any way

change the status of Mr. Hildebran as a civilian employee of Bay
                              -10-

Ship Management.5

     On the instant record, we hold that petitioners are not

entitled under section 112 to exclude from their gross income any

of the wages that Mr. Hildebran received from Bay Ship Management

during each of the years at issue for his work as a merchant

marine on the Shughart.

     We have considered all of the arguments and contentions of

petitioners that are not discussed herein, and we find them to be

without merit and/or irrelevant.

     To reflect the foregoing and the concessions of the parties,


                                     Decision will be entered under

                              Rule 155.




     5
      We note that during the years at issue Mr. Hildebran was a
member of a union which had contracted with his employer Bay Ship
Management. Members of the Armed Forces of the United States are
prohibited from joining labor unions. See 10 U.S.C. sec. 976
(2000).
