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On August 23, 2002, respondent mailed a notice of deficiency
to petitioner with respect to the $10,828 accuracy-related
penalty for 2000 which petitioner had not yet paid.
On November 7, 2002, petitioner became the sixth Raytheon
employee to file a petition in this Court in which petition
petitioner challenges not the taxability of his Johnston Island
wages but only the imposition by respondent of the $10,828
accuracy-related penalty.
On December 24, 2002, the Court of Appeals for the Ninth
Circuit in Farrell v. United States, 313 F.3d 1214 (9th Cir.
2002), affirmed the District Court’s decision in Farrell v.
United States, 87 AFTR 2d 1159, 2001-1 USTC par. 50,279 (D. Haw.
2001). The Court of Appeals held that Johnston Island does not
constitute a foreign country for purposes of section 911 and does
not constitute a specified possession for purposes of section
931. In addition, the Court of Appeals held that section 931
controls over the conflicting regulation at section 1.931-1,
Income Tax Regs. Therefore, the Court of Appeals concluded that
wages earned on Johnston Island by U.S. citizens constituted
taxable income.
On January 14, 2003, we decided Jones v. Commissioner, T.C.
Memo. 2003-14, involving the fourth petition filed in the Tax
Court involving Johnston Island wages. In our decision in Jones,
we held that Johnston Island does not constitute a foreign
country for purposes of section 911 and that Johnston Island does
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