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September 9, 2011

Foreign Earned Income Exclusion - Seaman & Ships Employees

Benefits under section 911 (Foreign Earned Income Exclusion of $92,900 for 2011) are conditioned upon the taxpayer being present or residing in a foreign country. A ship employee’s presence or residence aboard a ship does not qualify as presence or residence in a foreign country for purposes of section 911 even though the ship is of a foreign registry or is in international waters. The regulations have consistently defined the term "foreign country" as " any territory under the sovereignty of a government other than that of the United States." See Treas. Reg. section 1.911-2(h). It includes the territorial waters of the foreign country as determined in accordance with the laws of the United States. In Revenue Ruling 67-52, 1967-1 C.B. 186, cited in L.R. Martin, 50 T.C. 59 (1968), the Service ruled that the Antarctica region is not under the sovereignty of any government and, therefore, is not considered a foreign country for purposes of section 911. Also, in Revenue Ruling 73-181, 1973-1 C.B. 347, the Service ruled that physical presence on a fishing boat in international waters, adjacent to the territorial waters of a foreign country, does not satisfy the presence requirement of Section 911(d)(2). In Souza, 33 T.C. 817 (1960), the court held that a U.S. registered fishing vessel operating off the coast of Peru beyond the 3 mile territorial waters limit but within the 200 mile limit recognized by Peru as its territorial waters does not constitute presence in a foreign country for purposes of section 911. The court ruled, the fact that a vessel is of U.S. or foreign registry should have no effect on the determination of whether its crews members are present or resident in a foreign country. Consequently, the high seas and Antarctica are not considered a foreign country for purposes of section 911. See also, Balestries, 47 BTA 241.

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