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October 25, 2011

Tax Rules for Contractors in Afghanistan, Iraq and Middle East

Foreign Earned Income Exclusion Concerns for Contractors in Iraq and Afghanistan and Middle East
The IRS has issued Memorandum Number AM2009-0003 regarding the availability of the FEIE to contractors working in Iraq and Afghanistan. It states that IRS will be looking closely at contractors who claim to meet the bona fide residence test, but whose family and home are back in the US and who travel there often on leave.  Unfortunately there is not a lot of case law on the subject and the IRS rules and legislative history leave a lot of room for interpretation. However, contractors should understand the rules may have changed, and they may have to defend their claim to the FEIE.

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