William H. Adair and Patricia Adair - Page 16

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                  Petitioner's initial term with NATO was for 3 years                                   
            beginning June 22, 1986, and ending June 21, 1989.  Petitioner                              
            was required to obtain approval from appropriate U.S. authorities                           
            for any and all extensions of his NATO tour.  Petitioner's                                  
            initial term was extended by U.S. authorities, and twice by the                             
            Secretary General of NATO, through June 21, 1994.  In order to                              
            continue his reemployment rights with the U.S. Government,                                  
            petitioner was required to obtain an extension of such rights.                              
            Petitioner was granted extensions of his rights to reemployment.                            
            6.  Petitioners' Tax Returns                                                                
                  For the years 1988, 1989, and 1990, petitioner reported                               
            gross income of $110,465.59, $83,290.72, and $73,457.92,                                    
            respectively.  He received compensation for services performed                              
            for NATO from the DOA totaling $67,625.10, $67,625.36 and                                   
            $70,082.76, respectively.  These amounts were reflected in                                  
            petitioners' tax returns, including Form 2555, Foreign Earned                               
            Income.  Additionally, in part III of Form 2555, petitioner                                 
            reported as part of his foreign earned income, total allowances,                            
            reimbursements, and other expenses paid on his behalf totaling                              
            $28,960.49, $3,616, and $8,545.45, respectively, for the years                              
            1988, 1989, and 1990.  Petitioner reported these allowances                                 
            inconsistently during the years in issue.  The significant                                  
            decrease in amounts reported between the years 1988 on the one                              
            hand, and 1989 and 1990 on the other hand, is attributable to the                           
            fact that petitioner in 1989 and 1990 did not include the total                             




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