Foreign Earned Income Exclusion

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International pilots, flight attendants and cruise ship employees earn income like salary and wages while working abroad. Most of them might assume that they earn foreign income. As such, under Sec. 911(e), they are eligible to elect the foreign income exclusion on the United States (U.S.) expatriate tax return. However, taxpayers should first determine the source of their income by dividing their earnings based on (1) hours spent in the U.S and the airspace over the U.S.; (2) hours spent in foreign countries and airspace over foreign countries; and (3) hours spent in international airspace and waters. The first two are self explanatory. (1) are considered as the US source of income, and (2) is consider as foreign source of income. But what about number (3)? How should taxpayers classify their source of income while flying in international airspace or performing services over international waters?
In Rogers v. Commissioner, the Rogers claimed that the salary attributable to hours spent in international airspace, was earned "within a foreign country" within the meaning of Sec. 911(b)(1)(A). But the Tax Court in Rogers focused on Sec. 1.911-2(h), and decided that for purpose of Sec. 911 the airspace over international waters was not airspace over the territory under the sovereignty of any government. As such, airspace over international waters was not within a "foreign country" for purposes of Sec. 1.911-2(h) and Sec. 911 (b)(1)(A).
The same treatment of the international airspace for purpose of Sec. 911 was expressed in Savary v. Commissioner , Clark v. Commissioner and Struck v. Commissioner. The consistency of the Tax Courts treatment of the income in questions as non-foreign source income assures the taxpayer that any in...

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.... Commissioner, 473 F.3d 790, 798 (7th Cir. 2007), aff'g 126 T.C. 89 (2006).
Clark v. Commissioner, T.C. Memo. 2008-71
(Kuntz &Peroni, U.S. International Taxation (WG&L Electronic Edition 2010), Sec.A2.03[10])
Stankee, "IRS Concedes That Concessionaire Profits Were Not Subpart F Income," 11 /. of InVl Tax'n (Mar. 2000). See also General Explanation of the Tax Reform Act of 1986, fn. 22 above, at p. 829, concluding that even though Sec.863(c) excludes from transportation income salaries of airline employees earned on flights between U.S. airports and foreign country airports, income attributable to services performed in the United States or in the U.S. territorial waters is U.S.-source
Rogers v. Commissioner, T.C. Memo. 2009-111, 97 T.C.M. 1573,
Rogers v. Commissioner, T.C. Memo. 2013-77
Struck v. Commissioner, T.C. Memo. 2007-42
TAM 9327001,
TAM 9327003
TAM 9327004

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