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Discussion
A. Whether Petitioner May Exclude From Income Under Section 931
Compensation That He Received for Services He Performed on
Johnston Island
Petitioner contends that he may exclude from income under
section 931 compensation that he received for services he
performed on Johnston Island in 1997. Before 1986, section 931
permitted citizens to exclude income derived from sources within
various possessions of the United States, including Johnston
Island, if certain conditions were satisfied. See Farrell v.
United States, F.3d at ; Specking v. Commissioner, supra at
102-103. Section 931, as amended by the Tax Reform Act of 1986
(1986 TRA), Pub. L. 99-514, sec. 1272(a), 100 Stat. 2593, applies
only to income derived from sources within Guam, American Samoa,
and the Northern Mariana Islands; it does not apply to income
derived from sources within Johnston Island. Sec. 931(c).
Petitioner points out that section 1.931-1(a), Income Tax Regs.,2
continues to provide that section 931 applies to Johnston Island
and contends that, as a result, residents of Johnston Island may
exclude income derived from sources within Johnston Island.
Respondent recognizes that section 1.931-1(a), Income Tax Regs.,
is inconsistent with section 931 and contends that section 931
controls, not section 1.931-1(a), Income Tax Regs. We agree with
2 Sec. 1.931-1, Income Tax Regs., was most recently amended
in 1975. T.D. 7385, 40 Fed. Reg. 50260 (Oct. 29, 1975).
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