n-06-84.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Guidance on the Application of Section 911 to U.S. Individuals Working at Guantanamo
Bay

Notice 2006-84

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

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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

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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

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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).