Rev. Rul. 72-526

Advice has been requested whether a United States citizen who received compensation for the performance of personal services in Australia as a member of the "civilian component" under the Agreement Concerning the Status of United States Forces in Australia during his presence in Australia for at least 510 days during a period of 18 consecutive months, may elect not to claim the exemption from Federal income tax under section 911(a)(2) of the Internal Revenue Code of 1954.

The United States Department of the Air Force has entered into contracts with domestic corporations that are not agencies or instrumentalities of the United States for the performance of certain services in Australia. The activities for which such services are performed have been agreed upon by the Commonwealth of Australia and the United States. The corporations employ United States citizens not ordinarily resident in Australia who perform personal services in Australia for the corporations and are paid by the corporations. Such employees may remain in Australia for periods of 18 consecutive months or longer. These employees are "members of the civilian component" under the Agreement Concerning the Status of United States Forces in Australia, signed May 9, 1963, Treaties and Other International Act Series No. 5349, 14 UST (pt. 1) 506 (1963), Article 1 of which defines the term to include personnel in Australia in connection with activities agreed upon by the two Governments who are neither nationals of, nor ordinarily resident in, Australia, but who are serving with an organization which, with the approval of the Australian Government, is accompanying the United States Forces.

Article 6 of such Agreement provides, in part, that income derived by a member of the United States Forces or of the civilian component from rendering services as a member to the United States Government in Australia, shall be deemed not to have been derived in Australia, provided that it is not exempt, and is brought to tax, under the taxation laws of the United States.

Section 911(a)(2) of the Code provides that in the case of an individual citizen of the United States who during any period of 18 consecutive months is present in a foreign country or countries during at least 510 full days in such period, amounts received from sources without the United States (except amounts paid by the United States or any agency thereof) which constitutes earned income attributable to services performed during such 18-month period shall not be included in gross income and shall be exempt from taxation. (Emphasis supplied) The amount so exempt is limited to $20,000 for any taxable year under section 911(c) of the Code. Earned income is defined in section 911(b) of the Code as including wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered.

Compensation paid the employees of the domestic corporations is not an amount paid by the United States or any agency thereof within the meaning of section 911 of the Code and is, therefore, excludable from gross income if the test of section 911(a)(2) of the Code is otherwise met.

Citing section 911(a)(2) of the United States Internal Revenue Code, Australian authorities have contended that contractor's employees who satisfy the "foreign presence" test are, as a matter of United States law, exempt from the payment of United States income tax to the extent of the limitations of section 911(c) of the Code, and that accordingly, those employees are not entitled to the exemption from Australian tax provided by the Status of Forces Agreement.

The specific issue in the instant case is whether a United States citizen is required to claim the exemption provided in section 911(a)(2) of the Code if he otherwise meets the test of such provisions.

It was stated in Anne Moen Bullitt Brewster v. Commissioner, 55 T.C. 251 (1970) that the provisions of section 911(a)(2) of the Code are not permissive or elective. Thus, a United States citizen is required to claim the exemption provided in section 911(a)(2) of the Code if he otherwise meets the test of such provision.

Accordingly, the compensation received by a United States citizen as an employee of a United States corporation, who has been present in Australia for at least 510 days during a period of 18 consecutive months, for the performance of personal services during such period as one of the "members of the civilian component" under the Status of United States Forces agreement is exempt from United States income taxation under section 911(a)(2) of the Code, as limited by section 911(c) of the Code.