Joseph D. Specking, et al. - Page 9




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          Income from         Adjusted                                                
               Year         Wages       other sources      gross income               
          1995        $97,492         ($2,337)           $95,155                      
          1996        103,112              16            103,128                      
               1997        100,659          133,363            134,022                 
               1Included in income from other sources is $31,209 of Form              
          W-2 wages earned by Alicia LePard.                                          
          With the 1997 return, Umbach included a Form 2555 on which he               
          claimed that he had foreign earned income of $100,659 relating to           
          work performed on Johnston Island, of which $70,000 was an                  
          eligible “foreign earned income exclusion”.                                 
               On or about October 7, 1997, Umbach filed a Form 1040X, for            
          1996 on which he claimed he was entitled to a refund of $18,802             
          because he could exclude $70,000 from gross income for that year            
          because “UNDER SECTION 931 AND REGULATION 1.931-1 PERSONS EARNING           
          INCOME FROM JOHNSTON ISLAND ARE CONSIDERED TO HAVE EARNED INCOME            
          FROM A FOREIGN SOURCE WHICH CAN BE EXCLUDED AS FOREIGN INCOME.”             
          On or about April 15, 1999, Umbach filed a Form 1040X for 1995 on           
          which he claimed he was entitled to a refund of $18,262 because             
          he could exclude $99,829 from gross income for that year since he           
          was entitled to exclude earnings from his work on Johnston Island           
          Atoll.  Respondent issued refunds to Umbach for 1995 and 1996 in            
          the amounts of $17,844 and $18,802, respectively.                           
               In notices of deficiency issued to Umbach for 1995 and 1996            
          on April 13, 1999, and to Umbach and Alicia Lepard Umbach for               
          1997 on June 9, 1999, respondent determined that Umbach was not             






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