L. Ben Smith & Carol Smith - Page 17

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          the TRA 1986 amended old section 931 because the Treasury did not           
          amend or withdraw that regulation.  Id. at 110-111.  In Specking,           
          we held that old section 931 no longer applied to the taxpayers             
          there, id., and that “Consequently, the regulatory provision also           
          has no application to them and is obsolete as to petitioners [in            
          Specking]”, id. at 111.  In so holding, we stated:                          
                    We do not agree with petitioners that respondent’s                
               failure to amend section 1.931-1, Income Tax Regs.,                    
               supports petitioners’ position.  As the Supreme Court                  
               recently observed regarding another unamended regula-                  
               tion provision:  “The Treasury’s relaxed approach to                   
               amending its regulations to track Code changes is well                 
               documented. * * * The absence of any amendment * * * is                
               more likely a reflection of the Treasury’s inattention                 
               than any affirmative intention on its part to say                      
               anything at all.”  United Dominion Indus., Inc. v.                     
               United States, 532 U.S. * * * [822, 836-837 (2001)].                   
          Id.13                                                                       

               13Even before we issued our Opinion in Specking v. Commis-             
          sioner, 117 T.C. 95 (2001), affd. sub nom. Haessly v. Commis-               
          sioner, 68 Fed. Appx. 44 (9th Cir. 2003), affd. sub nom. Umbach             
          v. Commissioner, 57 F.3d 1108 (10th Cir. 2003), the United States           
          District Court for the District of Hawaii (U.S. District Court)             
          held that taxpayers who earned compensation during 1994, 1995,              
          and 1996 while working on Johnston Island must include such                 
          compensation in gross income for those years.  Farrell v. United            
          States, 87 AFTR 2d 2001-1159, 2001-1 USTC par. 50,279 (D. Haw.              
          2001), affd. 313 F.3d 1214 (9th Cir. 2002).  In so holding, the             
          U.S. District Court rejected the arguments of the taxpayers in              
          Farrell and petitioners here (1) that the amendment by the TRA              
          1986 of old section 931 was not effective because certain imple-            
          menting agreements were not entered into between the United                 
          States and the specified possessions identified in sec. 931 after           
          that amendment and (2) that the taxpayers were entitled to rely             
          on sec. 1.931-1 Income Tax Regs., promulgated under old section             
          931 because that regulation was not amended or withdrawn by the             
          Treasury after the TRA 1986 amended old section 931.  In reject-            
          ing the argument of the taxpayers in Farrell with respect to the            
                                                             (continued...)           





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