Amaro A. Taibo - Page 2

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                                     Background                                       
               The facts of this case were submitted fully stipulated under           
          Rule 122 and are so found.                                                  
               Since 1991, petitioner has resided on Johnston Island, an              
          unincorporated U.S. Territory located approximately 700 nautical            
          miles southwest of Hawaii where petitioner has been employed as             
          an electrical engineer by Raytheon Demilitarization Co. or its              
          successor (Raytheon).                                                       
               On April 30, 1991, petitioner signed an employment agreement           
          with Raytheon, which stated, among other things, that “Johnston             
          Island is not tax exempt; therefore, standard tax obligations               
          apply.”                                                                     
               For each of the years 1991 through 1996, on his Federal                
          income tax returns, the record herein does not indicate whether             
          petitioner treated the wages he received from Raytheon as taxable           
          or as nontaxable income.                                                    
               On his timely filed 1997 joint Federal income tax return,              
          petitioner treated the $143,013 in Raytheon wages that he                   
          received in 1997 as taxable income, and petitioner paid the                 
          $44,629 in taxes relating thereto.                                          
               On his timely filed 1998 individual Federal income tax                 
          return, petitioner treated the $156,741 in Raytheon wages that he           
          received in 1998 as nontaxable income, and petitioner did not pay           
          the Federal income taxes relating thereto.                                  





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