Notice 2003-52

Guidance on the Application of Section 911 to U.S. Individuals Working
in Iraq

This notice clarifies the application of section 911 of the Internal
Revenue Code (the \"Code\") to U.S. citizens and residents earning
income in Iraq attributable to services performed by such individuals.

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" (as defined in section
911(c)). Section 911(d)(1) generally defines a \"qualified individual\"
as a citizen or resident of the United States whose tax home is in a
foreign country and who meets certain requirements of residence or
presence in a foreign country.

Section 911(d)(8)(A) of the Code provides generally that if travel with
respect to any foreign country (or any transaction in connection with
such travel) 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.

Section 911(d)(8)(B) of the Code provides that the regulations described
in section 911(d)(8) are those promulgated pursuant to the Trading With
the Enemy Act, 50 U.S.C. App. 1 *et seq*., or the International
Emergency Economic Powers Act ("IEEPA"), 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 a
foreign country. 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 the regulations described in section 911(d)(8)(B).

In 1991, Treasury's Office of Foreign Assets Control ("OFAC") issued the
Iraqi Sanctions Regulations, 31 C.F.R. part 575. The Iraqi Sanctions
Regulations were issued pursuant to IEEPA, among other authorities.
Specifically, 31 C.F.R. sec. 575.207 provides that "\[e\]xcept as
otherwise authorized, no U.S. person may engage in any transaction
relating to travel by any U.S. citizen or permanent resident alien to
Iraq, or to activities by any U.S. citizen or permanent resident alien
within Iraq," with narrow exceptions. Following promulgation of the
Iraqi Sanctions Regulations, the Service issued Rev. Rul. 92-63, 1992-2
C.B. 195, which lists Iraq as one of the countries subject to the
limitations under section 911(d)(8) of the Code.

In recent months, OFAC has issued several specific and general licenses
that authorize individuals to engage in transactions related to travel
to Iraq or to activities within Iraq. Pursuant to the terms of the Iraqi
Sanctions Regulations, individuals whose activities in Iraq are
permitted by a specific or general license issued by OFAC are not in
violation of the Iraqi Sanctions Regulations with respect to the
activities permitted by the license. 31 C.F.R. sec. 575.501(c).
Accordingly, under section 911(d)(8)(C) of the Code, the limitations of
section 911(d)(8)(A) do not apply to such individuals with respect to
such licensed activities. Such individuals are eligible for the
exclusion under section 911 of the Code provided that they meet the
other requirements of that section.

For further information on this Notice, contact Kate Hwa at (202)
622-3840 (not a toll free call).