FROM THE OFFICE OF PUBLIC AFFAIRS

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Today, the Treasury Department and the IRS issued a notice clarifying the taxation of U.S. individuals working in Iraq.

Section 911 of the Internal Revenue Code provides special rules that apply to individuals who are U.S. citizens or residents but who live and work outside the United States. Under section 911, a portion of the foreign earned income of such individuals is excluded from U.S. tax. This special tax treatment generally does not apply in the case of income earned in countries that are subject to specific U.S. travel restrictions. Individuals who are authorized by the United States government to engage in activities in these countries, however, are eligible for the special tax treatment on the foreign earned income from the authorized activities.

Revenue Ruling 92-63 identifies Iraq as one of the countries subject to the travel restrictions described in section 911. Notwithstanding the general travel restrictions regarding Iraq, there are individuals working in Iraq pursuant to U.S. government authorization. Notice 2003-52 makes clear that if an individual’s activities in Iraq are authorized by Treasury’s Office of Foreign Assets Control, then the denial of the exclusion on income earned in a country subject to U.S. travel restrictions does not apply and the individual is eligible for the special tax treatment provided that he or she meets the other requirements of section 911.

Related Documents:

• The text of Notice 2003-52