## Facts

- Edward R. Fink and Joan O. Fink, U.S. citizens domiciled in Washington (a community-property state), sought a federal income-tax refund for tax year 1965.
- Edward Fink served in the U.S. Navy and received Navy compensation while stationed abroad in 1965; federal income tax was paid on that compensation.
- Under Washington community-property law, each spouse had a vested one-half interest in community income, including Edward’s Navy pay.
- The Internal Revenue Code’s foreign earned-income exclusion applied to certain income earned abroad but expressly did not apply to “amounts paid by the United States or any agency thereof.”
- The Finks argued that Joan’s one-half community share was attributable to her domestic services and was not an “amount paid by the United States” because the government paid only Edward.
- The government accepted the community-property allocation but denied that any portion of the Navy pay qualified for the exclusion.
- The case was presented on plaintiffs’ motion for judgment on the pleadings and the government’s cross-motion for summary judgment; the material facts were undisputed.

## Issues

1. Whether, for purposes of the foreign earned-income exclusion, a spouse’s one-half community-property share of military pay earned abroad can be treated as income not “paid by the United States,” even though the compensation was paid by a federal agency to the servicemember.

## Decision

- The court denied plaintiffs’ motion for judgment on the pleadings and granted the government’s cross-motion for summary judgment.
- The court held that the wife’s community-property share of the Navy pay remained an “amount paid by the United States” and therefore was ineligible for the foreign earned-income exclusion.
- Judgment was entered for the United States; the refund claim was dismissed.

## Legal Principles

- For the foreign earned-income exclusion, whether income is an “amount paid by the United States or any agency thereof” turns on the source/payor of the compensation at the time of payment.
- State community-property law may define ownership interests in income, but it does not recharacterize the federal source of the payment for purposes of applying a federal tax exclusion.
- Federal tax consequences under a statutory exclusion are determined by federal law; state-law allocations cannot be used to avoid an express statutory limitation tied to the identity of the payor.

## Conclusion

The court held that Navy compensation paid by the United States remains fully within the statutory category of “amounts paid by the United States,” and a community-property allocation to a non-earning spouse does not make any portion of that pay eligible for the foreign earned-income exclusion.


Fink v. United States, 454 F.2d 1387 (Ct. Cl. 1972)