                    UNITED STATES COURT OF APPEALS

                                   TENTH CIRCUIT



 ERIC N. UMBACH and JOSEPH D.
 SPECKING,

       Petitioners - Appellants,

 v.                                               Nos. 02-9006 and 02-9007

 COMMISSIONER OF INTERNAL
 REVENUE,

       Respondent - Appellee.


                                     ORDER
                              Filed January 29, 2004


Before MURPHY, HARTZ and McCONNELL, Circuit Judges.


      Appellee’s motion to publish the order and judgment dated December 11,

2003, is granted. A copy of the published opinion is attached.


                                            Entered for the Court
                                            Patrick Fisher, Clerk of Court

                                            By:
                                                   Amy Frazier
                                                   Deputy Clerk
                                                                    F I L E D
                                                             United States Court of Appeals
                                                                     Tenth Circuit
                                     PUBLISH
                                                                    DEC 11 2003
                  UNITED STATES COURT OF APPEALS
                                                                  PATRICK FISHER
                                                                         Clerk
                              TENTH CIRCUIT



 ERIC N. UMBACH,

             Petitioner-Appellant,
       v.                                           No. 02-9006
 COMMISSIONER OF INTERNAL
 REVENUE,

             Respondent-Appellee.



 JOSEPH D. SPECKING,

             Petitioner-Appellant,
       v.                                           No. 02-9007
 COMMISSIONER OF INTERNAL
 REVENUE,

             Respondent-Appellee.


            APPEALS FROM THE UNITED STATES TAX COURT
                   (T. C. Nos. 12348-99 and 12010-99)


Submitted on the briefs:

Kenneth W. McWade, Kailua, Hawaii, for Petitioners-Appellants.

Eileen J. O’Connor, Assistant Attorney General, David English Carmack and
Kenneth W. Rosenberg, Attorneys, Tax Division, Department of Justice,
Washington, D.C., for Respondent-Appellee.
Before MURPHY , HARTZ , and McCONNELL , Circuit Judges.


HARTZ , Circuit Judge.



      In these appeals we decide whether taxpayers Eric N. Umbach and Joseph

D. Specking (Taxpayers) may exclude from gross income their compensation

earned while working on Johnston Island, a United States possession, in 1995,

1996, and 1997. Taxpayers sought to exclude their compensation under either

26 U.S.C. § 911, which excludes income earned in a foreign country, or 26 U.S.C.

§ 931, which excludes income earned in a “specified possession” of the United

States. We review these legal issues de novo,    see Twenty Mile Joint Venture,

PND, Ltd. v. Comm’r , 200 F.3d 1268, 1275 (10th Cir. 1999), and hold that the

compensation is not excludable under either section. Accordingly, we affirm the

decision of the Tax Court,   Specking v. Comm’r , 117 T.C. 95 (2001).   1




      1
       After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). These cases are
therefore ordered submitted without oral argument.

                                           -2-
                                  BACKGROUND

      The parties have stipulated to the facts. Taxpayers worked for Raytheon

Engineers and Constructors, Inc. (Raytheon) on Johnston Island in 1995, 1996,

and 1997. Johnston Island is located approximately 700 miles west-southwest of

Honolulu, Hawaii. It is part of the Johnston Atoll, a United States military

installation and bird refuge.

      For the 1995, 1996, and 1997 tax years, Mr. Umbach reported wage income

from Raytheon on his tax return in the amounts of $97,492, $103,112, and

$100,659, respectively. Mr. Specking reported wage income from Raytheon for

the same years in the amounts of $74,552, $85,385, and $95,246, respectively.

On their 1997 tax returns both deducted $70,000 from their wage income.        See

Tax Reform Act of 1986, Pub. L. No. 99-514, § 1233(a), 100 Stat. 2085, 2564

(1986) (establishing $70,000 maximum for annual foreign-earned-income

exclusion for years at issue here). Also, both filed amended returns for 1995 and

1996, claiming refunds because $70,000 of their wage income was excludable

from gross income under § 911 or § 931. They asserted on these amended returns

that under § 931 and 26 C.F.R. § 1.931-1 their earnings from Johnston Island

were earned income from a foreign source and therefore excludable as foreign

income.




                                          -3-
      After allowing tax refunds for 1995 and 1996, the Internal Revenue Service

(IRS) sent deficiency notices for tax years 1995, 1996, and 1997, disallowing the

claimed $70,000 exclusions. The IRS denied the exclusions because (1) Johnston

Island is not a foreign country and therefore the earned income was not

excludable under § 911, and (2) Taxpayers were not bona fide residents of a

“specified possession” as defined in § 931(c) and therefore did not qualify for

income exclusion under § 931.

      Taxpayers petitioned the Tax Court for a redetermination of the

deficiencies. The Tax Court affirmed the view of the Commissioner.


                                  JURISDICTION

      As a preliminary matter, we consider our jurisdiction over these appeals.

This court requested that the parties brief whether the notices of appeal in both

appeals were timely filed. We agree with the parties that the appeals are timely.

The Tax Court entered its decisions in these cases on February 1, 2002. Under

26 U.S.C. § 7483 and Fed. R. App. P. 13(a)(1), the ninety-day deadline to file a

timely notice of appeal expired on May 2. Although the notices of appeal were

not filed until May 9, their envelopes were postmarked April 29. According to

26 U.S.C. § 7502, these postmarks establish timely filings within the ninety-day

deadline. See also Fed. R. App. P. 13(b) (recognizing notice of appeal mailed to

Tax Court “is considered filed on the postmark date, subject to § 7502”).

                                         -4-
Accordingly, we exercise jurisdiction over these appeals under 26 U.S.C.

§ 7482(a)(1).

                                    ANALYSIS

      The Internal Revenue Code broadly defines gross income as “all income

from whatever source derived.” 26 U.S.C. § 61(a). “Thus, any gain constitutes

gross income unless the taxpayer demonstrates that it falls within a specific

exemption.” Brabson v. United States , 73 F.3d 1040, 1042 (10th Cir. 1996);

see also Comm’r v. Glenshaw Glass Co. , 348 U.S. 426, 430 (1955). Unlike the

sweeping inclusion of § 61(a), exclusions from income are narrowly construed.

See Comm’r v. Schleier , 515 U.S. 323, 327-28 (1995). They “are not to be

implied; they must be unambiguously proved.”     United States v. Wells Fargo

Bank , 485 U.S. 351, 354 (1988). Taxpayers therefore must clearly bring

themselves within the terms of the statutes they point to as granting an exemption.

See Jones v. Kyle , 190 F.2d 353, 353 (10th Cir. 1951).

I. Applicability of § 931

      As amended by the Tax Reform Act of 1986 (TRA), § 931 provides in part:

             (a) General Rule. –In the case of an individual who is a bona
      fide resident of a specified possession during the entire taxable year,
      gross income shall not include–
                   (1) income derived from sources within any specified
      possession, and
                   (2) income effectively connected with the conduct of a
      trade or business by such individual within any specified possession.


                                         -5-
26 U.S.C. § 931(a)(1), (2). The statute defines a “specified possession” as Guam,

American Samoa, or the Northern Mariana Islands.       Id. § 931(c). Prior to the

TRA, § 931 excluded income from sources within various United States

possessions, including Johnston Island, from gross income if certain conditions

were met. See Farrell v. United States , 313 F.3d 1214, 1219 (9th Cir. 2002).

Thus, Taxpayers’ income from Johnston Island would be excluded under the old

version but not the new. That is not disputed by the parties. What the parties do

dispute is which version of § 931 applies. Resolution of the dispute turns on the

effective-date provisions of the TRA.

      The amendment to § 931 appears in § 1272 of the TRA, which is contained

in Subtitle G of Title XII of that statute. The effective date provision for this

subtitle is § 1277, which states, in pertinent part:

      SEC. 1277. EFFECTIVE DATE

            (a) IN GENERAL.–Except as otherwise provided in this
      section, the amendments made by this subtitle shall apply to taxable
      years beginning after December 31, 1986.
            (b) SPECIAL RULE FOR GUAM, AMERICAN SAMOA,
      AND THE NORTHERN MARINA ISLANDS.–The amendments
      made by this subtitle shall apply with respect to Guam, American
      Samoa, or the Northern Mariana Islands (and to residents thereof and
      corporations created or organized therein) only if (and so long as) an
      implementing agreement under section 1271 is in effect between the
      United States and such possession.

Tax Reform Act of 1986, Pub. L. No. 99-514, § 1277(a), (b), 100 Stat. 2085, 2600

(1986).

                                           -6-
      Taxpayers rely on subsection (b). They assert that because Guam,

American Samoa, and the Northern Mariana Islands have not enacted the required

implementing agreements, the old version of § 931 still applies. Although they

claim support for their position in some language of the Tax Court opinion in

their case, we think they misread the opinion. In any event, we are not bound by

that opinion, see Twenty Mile Joint Venture , 200 F.3d at 1275, and reject their

argument.

      Section 1277(a) states that the new version of I.R.C. § 931 applies to

taxable years beginning after December 31, 1986, unless another subsection

provides otherwise. But subsection (b) (the only one possibly applicable here)

speaks only of the amendments in Subtitle G as they apply with respect to Guam,

American Samoa, or the Northern Mariana Islands. Subsection (b) thus has no

effect on the law regarding Johnston Island. The statutory language is clear, and

we see no reason to believe that we are missing the intended meaning. Taxpayers

have offered no explanation why the tax law regarding Johnston Island should be

affected by agreements between the United States and the three named

possessions. We note that the Ninth Circuit has read the statute the same as we

have. See Farrell , 313 F.3d at 1219 (contingency of signed agreements between

United States and three specified possessions affects only taxable income derived




                                         -7-
from sources within those possessions and does not affect income derived from

sources within other United States possessions).

       Taxpayers find support for their position in the Treasury regulation

interpreting § 931. To be sure, since 1975, 26 C.F.R. § 1.931-1 has listed

Johnston Island among the “possessions of the United States” to which § 931

applies. See 40 Fed. Reg. 50,260 (Oct. 29, 1975). An interpretative regulation,

however, can hardly override clear statutory language.          See Scofield v. Lewis ,

251 F.2d 128, 132 (5th Cir. 1958). Also, it is obvious that §1.931-1(a)(1) is not

interpreting the new § 931. Although the Treasury Secretary should update

Treasury regulations to conform to the law,         see 26 U.S.C. § 7805(a), it is

unfortunately true that “[t]he Treasury’s relaxed approach to amending its

regulations to track Code changes is well documented,”          United Dominion Indus.,

Inc. v. United States , 532 U.S. 822, 836 (2001). We agree with the Ninth Circuit

that the regulation is simply incorrect with reference to Johnston Island.           See

Farrell , 313 F.3d at 1219.

       There may be more merit to Taxpayers’ contention that the Commissioner’s

failure to amend § 1.931-1 for many years after the TRA should preclude any

additions to tax until the regulation is amended and should entitle them to

abatement of interest under 26 U.S.C. § 6404(e) for the three tax years at issue.

They have failed to show, however, that they presented this argument to the Tax


                                              -8-
Court. See 10th Cir. R. 28.2(C)(2). The argument therefore is not properly

before us and we will not consider it.   See Lopez v. Behles (In re Am. Ready Mix,

Inc.) , 14 F.3d 1497, 1502 (10th Cir. 1994).

II. Applicability of § 911

       As relevant here, § 911 provides:

              (a) Exclusion from gross income. –At the election of a
       qualified individual . . ., there shall be excluded from the gross
       income of such individual, and exempt from taxation under this
       subtitle, for any taxable year–
                     (1) the foreign earned income of such individual . . . .

26 U.S.C. § 911(a)(1). “Foreign earned income” is the amount an individual

receives “from sources within a foreign country . . . which constitute[s] earned

income attributable to services performed by such individual” during the

applicable time period described in 26 U.S.C. § 911(d)(1)(A) or (B).     Id.

§ 911(b)(1)(A). Under § 911(d)(1)(A) or (B), to qualify for the exclusion, the

individual’s tax home must be in a foreign country and the individual must be

a United States citizen who has been a bona fide resident of the foreign country

for the entire tax year or a United States citizen or resident who has been present

in the foreign country for at least 330 full days during twelve consecutive months.

See also 26 C.F.R. § 1.911-2(a). The regulations define a “foreign country”

as “any territory under the sovereignty of a government other than that of the

United States,” id. § 1.911-2(h), and “United States” to “include[] any territory


                                           -9-
under the sovereignty of the United States[,]” including its “possessions and

territories,” id. § 1.911-2(g).

      Taxpayers do not dispute that Johnston Island is not a foreign country, but

is instead a United States possession. Thus, as the Tax Court stated:

      Inasmuch as Johnston Island does not fall within the definition of a
      foreign country, the compensation [Taxpayers] earned on Johnston
      Island does not come within the definition of “foreign earned
      income”, nor was their “tax home” in a foreign country. Sec.
      911(b)(1)(A) and (d). Consequently, [they] cannot satisfy the
      requirements for the exclusion from income provided by section 911.

Specking , 117 T.C. at 113; see also Farrell , 313 F.3d at 1218.

      Understandably, then, Taxpayers do not rely on the language of § 911. Nor

do they rely on its accompanying regulations. Rather they rely on a regulation

interpreting § 931. That regulation, 26 C.F.R. § 1.931-1(b)(2), provides:

      Relationship of sections 931 and 911.   A citizen of the United States
      who cannot [qualify under] section 931 but who receives earned
      income from sources within a possession of the United States, is not
      deprived of the benefits of the provisions of section 911 (relating to
      the exemption of earned income from sources outside the United
      States), provided he meets the requirements thereof . In such a case
      none of the provisions of section 931 is applicable in determining the
      citizen’s tax liability. . . .

26 C.F.R. § 1.931-1(b)(2) (emphasis added).

      Taxpayers’ reliance is misplaced. The quoted provision does not purport to

expand § 911 benefits. All it is saying is that failure to qualify for § 931 benefits

does not in itself disqualify the citizen from § 911 benefits. By the regulation’s


                                         -10-
very terms, a citizen can receive the benefits of § 911 only if he or she meets that

section’s requirements. Neither of the Taxpayers satisfied § 911.

                                   CONCLUSION

      Taxpayers cannot exclude from gross income their compensation earned

while working on Johnston Island under either § 931 or § 911. Accordingly, we

AFFIRM the Tax Court’s judgments.




                                         -11-
