Mrs. Rogers (no relation to Buck Rogers or Fred "Mister" Rogers) is a U.S. citizen living in Taiwan. She is a flight attendant for United and works on round-trip flights between Hong Kong, Tokyo, San Francisco, and Chicago.
Because part of her income is "foreign earned income," and because her tax home is a foreign country, she is allowed to exclude part of her foreign earned income from gross income. section 911(a). Foreign earned income is defined in section 911(b)(1)(A) as amounts received in a foreign country. In this case, there was a dispute over the amount Mrs. Rogers claimed was "foreign earned income." Key to the decision here is that international waters is not a "foreign country." This means that while Mrs. Rogers was in-flight over international waters she was not receiving "foreign earned income."
Mrs. Rogers produced no evidence that could rebut the Service's calculation of flight time over international waters. Consequently, the Service's calculation was upheld.
The rationale behind the foreign earned income exclusion (and the foreign tax credit) is to provide relief to U.S. Citizens who are taxed by foreign countries on income that is also taxed by the U.S. As the opinion points out, the U.S. taxes its citizens on worldwide income (worldwide income most likely includes income earned in outer space as well -- wait! maybe Buck Rogers is relevant to this post after all!). Mrs. Rogers did not introduce evidence that she paid foreign tax on her income earned while over international waters. If this is the case, then she is probably being taxed twice (I am not familiar with Taiwan's tax laws).
In Mrs. Rogers's case, Congress might consider broadening the definition of foreign earned income to include, "income subject to tax of a foreign country." Under this broadened definition, Mrs. Rogers might be made whole.
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