Fair Taxation for Contract Workers In Antarctica

We are Taxpayers involved in a case against an IRS audit dealing with the earned income exclusion for persons working in Antarctica.

IRC § 911 provides an exclusion for persons working in a “foreign country.” While the IRS website has changed to now include the "Antarctic region", this was not always so.

Older case law in the United States Tax Court had established that Antarctica was not a foreign country for the purpose of this statute. However, in recent years, the United States Supreme Court and the District Court in Massachusetts decided under other federal states, including the Federal Tort Claims Act and the Fair Labor Standards Act, that Antarctica was a foreign country. David Smith, et al. v. Raytheon Co., 297 F. Supp. 2d 399 (D. Mass. 2004); Smith v. U.S., 507 U.S. 197 (1993). The net effect of those opinions was to deny persons living and working in Antarctica any protection under these federal laws. In the United States Tax Court, one of the taxpayers, David Arnett, Appellate Court No. 06-1934, who claimed the exclusion, was the lead case. The Tax Court ruled that Antarctica was not a foreign country for the purpose of the exclusion. This case was affirmed on appeal in the Seventh Circuit.

The net effect of these cases is whereas while one is not entitled to any of the protections under federal law for employment related injuries or labor abuses, one is also not provided any tax relief; taxes that presumably help pay for benefits such as these.

The courts took a technical approach to the question of whether or not the exclusion was available and avoided the underlying fairness issue and equities that are involved. The technical issues could have gone either way and credible legal arguments were made to support a position that Antarctica was a foreign country, thus allowing the exclusion. However, these arguments did not prevail, so the incongruity continues with the workers who are in Antarctica. Apparently, only legislative efforts will rectify the situation.