Friday, June 12, 2015
U.S. Flight Attendants living abroad owe tax when flying over the U.S. or international airspace
U.S. Flight Attendants living abroad owe tax when flying over the U.S. or international airspace The D.C. Circuit in Rogers v. C.I.R., 115 AFTR 2d 2015-1534 (D.C. Cir., 2015), has just affirmed the Tax Court's decision that a flight attendant providing services in or over the United States. and international waters could not use the foreign earned income exclusion under Code Sec. 911. Background: U.S. Citizens and U.S. Residents must pay tax on their worldwide income unless there is an exclusion that applies. Code Sec. 911 provides an exclusion for U.S. persons residing outside the U.S. and earning “earned income” to exclude same up to a limit. The limit is $80,000 plus inflation adjustment. The adjustment brings the maximum foreign earned income exclusion to $100,800. The taxpayer in Rogers did not earn more than that amount but the Internal Revenue Service determined that some of her earnings were attributable to time flown in and over the U.S. and some while flying over international waters. The portion of her earnings in the U.S. or over international waters was determined not to qualify as foreign earned income and both the Tax Court and the D,C. Circuit agreed with the Commissioner’s interpretation. The Circuit Court relied on the Regulation found at Treas. Reg. 1.911-3(a) which provides “earned income is from sources within a foreign country if it is attributable to services performed by an individual in a foreign country or countries.” Treas. Reg. 1.911-2(h) defines foreign country to include territorial waters of and airspace over the foreign country. But income earned over waters not subject to any foreign country's jurisdiction is not income earned in a foreign country. Thus, the Courts sided with the regulations. Flight attendants, pilots, ship crew members etc. must consider the Rogers ruling and keep logs of earnings in foreign countries versus the U.S. and international waters and report the income from those areas without claiming the foreign earned income exclusion on those earnings.