## Facts

- George H. Jones, a retired U.S. Air Force pilot, worked as a commercial pilot for Japanese Air Lines through International Air Service Company, Ltd.
- His assignment history alternated between foreign and U.S. bases, but he was transferred back to Tokyo on March 3, 1980 and remained based there throughout 1981–1983.
- During 1981–1983, Jones lived in a Tokyo hotel for cost and convenience while working; his wife remained in Anchorage, Alaska, where she maintained her career and lived in their jointly owned townhome.
- Jones and his wife visited each other when possible, and he personally paid the travel costs.
- Jones paid Japanese income taxes and filed Japanese tax returns during the years at issue.
- Jones returned an Alaska dividend paid on the premise of Alaska residency, indicating he did not consider himself an Alaska resident.
- On their U.S. returns for 1981–1983, the taxpayers claimed the foreign earned income exclusion under I.R.C. § 911, asserting Jones was a bona fide resident of Japan and had a Japan tax home.
- The Commissioner issued deficiency notices for 1981–1983; the Tax Court sustained deficiencies after finding Jones was not a bona fide Japan resident and did not have a Japan tax home.
- The taxpayers appealed.

## Issues

1. Whether Jones was a “qualified individual” under I.R.C. § 911 because he was a bona fide resident of Japan during 1981–1983.
2. Whether Jones’s “tax home” during 1981–1983 was in Japan, a prerequisite to the foreign earned income exclusion.

## Decision

- The Fifth Circuit reversed the Tax Court.
- The court held the Tax Court erred as a matter of law in concluding Jones was not a bona fide resident of Japan during 1981–1983.
- The court held Jones’s tax home for 1981–1983 was in Japan.
- As a result, Jones qualified for the § 911 foreign earned income exclusion for the years at issue.

## Legal Principles

- Bona fide residence under I.R.C. § 911 is determined under a totality-of-the-circumstances, multi-factor analysis in which intent, duration of stay, and the nature of the taxpayer’s foreign employment are central considerations.
- Continued family, property, and travel ties to the United States are relevant but not dispositive if the overall pattern shows genuine foreign residence.
- Living in a hotel abroad, standing alone, does not preclude bona fide foreign residence when the arrangement is consistent with long-term foreign-based employment.
- A spouse’s decision to remain in the United States does not automatically defeat the taxpayer’s bona fide residence claim.
- A taxpayer’s tax home generally follows the principal place of business; where the taxpayer works and incurs living expenses in pursuit of that employment is strong evidence of tax home.

## Conclusion

The Fifth Circuit held that Jones’s long-term Tokyo-based employment, intent to remain until retirement, Japanese tax compliance, and conduct inconsistent with U.S. state residency established bona fide residence and a Japan tax home, entitling him to the § 911 foreign earned income exclusion for 1981–1983.


Jones v. Comm’r, 927 F.2d 849 (5th Cir. 1991)