This notice provides guidance regarding the application of section 911
of the Internal Revenue Code to U.S. citizens and residents earning income
from performing services at the U.S. Naval Base at Guantanamo Bay.
Section 911(a) of the Code allows a qualified individual to elect to
exclude from gross income his or her foreign earned income (as defined in
section 911(b)) and housing cost amount. Section 911(d)(1) generally defines
a “qualified individual” as a U.S. citizen or resident whose tax
home is in a foreign country and who meets certain requirements of residence
or presence in a foreign country. Section 1.911-3(a) of the Income Tax Regulations
defines foreign earned income as earned income from sources within a foreign
country (as defined in section 1.911-2(h) of the regulations) that is earned
during a period for which the individual qualifies under section 1.911-2(a)
to make an election. 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. Section 1.911-2(h) provides, in part, that the term
“foreign country” when used in a geographical sense includes any
territory under the sovereignty of a government other than that of the United
States. Section 911(b)(1)(B) excludes from the definition of foreign earned
income certain amounts, including amounts paid by the United States or an
agency thereof to an employee of the United States or an agency thereof.
Section 911(d)(8)(A) of the Code provides, generally, that if travel
(or any transaction in connection with such travel) with respect to any foreign
country is proscribed by certain regulations during any period, then: (1)
foreign earned income does not include income from sources within that country
attributable to services performed during that period; (2) housing expenses
do not include any expenses allocable to such period for housing in that country,
or for housing of the taxpayer’s spouse or dependents in another country
while the taxpayer is present in that country; and (3) an individual is not
treated as a bona fide resident of, or as present in,
a foreign country for any day during which the individual was present in that
country during that period. The regulations identified in section 911(d)(8)(A)
are those promulgated pursuant to the Trading With the Enemy Act (“TWEA”),
50 U.S.C. App. 1 et seq., or the International Emergency
Economic Powers Act, 50 U.S.C. 1701 et seq., that include
provisions generally prohibiting U.S. citizens and residents from engaging
in transactions related to travel to, from, or within certain foreign countries.
Section 911(d)(8)(B). Section 911(d)(8)(C), however, provides that the limitations
of section 911(d)(8)(A) do not apply to any individual during any period in
which such individual’s activities are not in violation of these regulations.
In 1963, the Department of the Treasury’s Office of Foreign Assets
Control (“OFAC”) issued the Cuban Assets Control Regulations (the
“CACR”), 31 C.F.R. part 515. The CACR were issued pursuant to
TWEA. Section 515.201(b)(1) of the CACR prohibits persons subject to United
States jurisdiction from all dealings in any property in which Cuba or a Cuban
national has or has had an interest since July 8, 1963, unless authorized
by OFAC. OFAC interprets this prohibition to include a prohibition on all
transactions related to travel to, from, and within Cuba. See,
e.g., § 515.560 of the CACR, which authorizes certain
transactions related to travel to, from, and within Cuba for participation
in certain activities.
Section 911(d)(8) of the Code was enacted as part of the Tax Reform
Act of 1986 (Pub. L. No. 99-514, 1986-3 C.B. 1, 481). The Report of the Senate
Committee on Finance (S. Rep. No. 99-313, 99th Cong.,
2d Sess. 389 (1986)) listed Cuba as one of the countries for which Treasury
regulations proscribed transactions related to travel of U.S. citizens and
residents. Section 911(d)(8) continues to apply to Cuba. See, Rev. Rul.
2005-3, 2005-1 C.B. 334.
After consultations with OFAC, the IRS and Treasury have determined
that for purposes of section 911(d)(8) of the Code, the CACR do not proscribe
transactions related to travel, to, from, or within the U.S. Naval Base at
Guantanamo Bay. For purposes of determining whether an individual’s
earned income is from sources within a foreign country for the purpose of
section 911(b) and section 1.911-3(a) of the regulations, however, the individual
who is performing services at the U.S. Naval Base at Guantanamo Bay is performing
services within a foreign country. See section 1.911-2(h).
Accordingly, under section 911(d)(8)(C) of the Code, the limitations
of section 911(d)(8)(A) do not apply to qualified individuals who are performing
services at the U.S. Naval Base at Guantanamo Bay. Therefore, such individuals
are eligible for the exclusion under section 911 provided that they meet the
other requirements of that section.
The principal author of this notice is Kate Y. Hwa of the Office of
Associate Chief Counsel (International). For further information regarding
this notice, contact Kate Y. Hwa at (202) 622-3840 (not a toll-free call).
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