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able basis in claiming the $99,980 exclusion of 2001 wages in
their 2001 joint return, petitioners advance three arguments as
follows:
It is * * * petitioners’ position that there was a
reasonable basis for questioning the effective date of
the proposed amendments to I.R.C. sec. 931 [old section
931] contained in the Tax Reform Act [TRA 1986]. It
has never been established that the so called “specific
possessions” have ever entered into the required agree-
ments regarding tax administration, which the Tax
Reform Act included as a condition precedent to the
effective date of the proposed amendments. This was the
basis upon which the Court’s decision in Specking et
al, supra [Specking v. Commissioner, 117 T.C. 95
(2001), affd. sub nom. Haessly v. Commissioner, 68 Fed.
Appx. 44 (9th Cir. 2003), affd. sub nom. Umbach v.
Commissioner, 357 F.3d 1108 (10th Cir. 2003)] was
appealed to the 9th and 10th Circuit Courts of Appeal,
the decisions affirming to Tax Courts opinion not being
issued until 2003. Based upon the respondent’s contin-
ued publication of Treas. Reg. 1.931-1, Mr. Medeck’s
response [IRS November 13, 2001 letter to Mr. Jordan]
to the Presidential inquiry, and the question posed in
the appeal of the Specking et al, supra opinion,[11]
there was a reasonable basis for the petitioners treat-
ment of L. Ben Smith’s Johnston Island income on the
return filed for the year 2001, sufficient to relieve
them from liability for the I.R.C. sec. 6662(a) addi-
tions to the tax. [Reproduced literally.]
We consider first petitioners’ arguments that they had a
reasonable basis in claiming the $99,980 exclusion of 2001 wages
in their 2001 joint return because: (1) The amendment by the TRA
11On Mar. 6, 2002, when petitioners signed their 2001 joint
return, no notice of appeal had been filed with respect to
Specking v. Commissioner, 117 T.C. 95 (2001), affd. sub nom.
Haessley v. Commissioner, 68 Fed. Appx. 44 (9th Cir. 2003), affd.
sub nom. Umbach v. Commissioner, 57 F.3d 1108 (10th Cir. 2003).
It was not until May 9, 2002, that the taxpayers involved filed
respective notices of appeal to the U.S. Courts of Appeals for
the Ninth Circuit and the Tenth Circuit.
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