United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 17, 2014 Decided April 17, 2015

No. 13-1241

WILLIAM D. ROGERS AND YEN-LING K. ROGERS,

APPELLANTS

v.

COMMISSIONER OF INTERNAL REVENUE SERVICE,

APPELLEE

On Appeal from the Order and 

Decision of the United States Tax Court

Yen-Ling K. Rogers, Pro se, argued the cause for 

appellants. With her on the briefs was William D. Rogers, Pro 

se.

Damon W. Taaffe, Attorney, U.S. Department of Justice,

argued the cause for appellee. With him on the brief was 

Richard Farber, Attorney. Bethany B. Hauser, Attorney, 

entered an appearance.

Before: BROWN, Circuit Judge, MILLETT, Circuit Judge, 

and EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

EDWARDS.
2

EDWARDS, Senior Circuit Judge: This case involves an 

appeal by Yen-Ling Rogers (“Rogers”) and her husband 

William Rogers (together, “Appellants”) challenging a 

decision of the Tax Court denying their request to redetermine 

their tax liability for 2007 and imposing a 20% penalty for 

negligently failing to follow the tax rules.

The United States income tax system reaches all U.S.

citizens’ income no matter where in the world it is earned, 

“unless it is expressly excepted by another provision in the 

Tax Code.” See Comm’r v. Schleier, 515 U.S. 323, 328 

(1995); see also 26 U.S.C. § 61(a) (defining “gross income” 

as “all income from whatever source derived,” except as 

otherwise provided). There are many exceptions under the 

Tax Code, however. Relevant to this case, qualified 

Americans who live abroad can exclude from their taxable 

income “foreign earned income,” which is defined as earned 

income “from sources within a foreign country or countries.”

26 U.S.C. § 911(a)(1), (b)(1)(A). Internal Revenue Service 

(“IRS”) regulations provide that income is only “from sources 

within a foreign country” if it is “attributable to services 

performed by an individual in a foreign country or countries.” 

26 C.F.R. § 1.911-3(a) (emphasis added). As a result, 

according to the IRS, qualified Americans who live abroad 

cannot use Section 911 to exclude any income from work 

performed in or over the United States or international waters.

Only income for work performed in or over foreign countries 

can be counted as foreign earned income.

In 2007, Rogers, who is a U.S. citizen, lived in Hong 

Kong and worked as an international flight attendant for 

United Airlines (“United”). She flew and worked in and over 

foreign countries and also in and over the United States and 

over international waters. Nonetheless, she and her husband 

filed a tax return reporting all of her flight attendant earnings
3

as “foreign earned income.” The Commissioner of the IRS, 

however, determined that Appellants owed a tax deficiency of 

$3,428.30 on the portion of Rogers’s earnings attributable to 

her work outside foreign countries, as well as a 20% penalty.

Appellants petitioned the Tax Court to redetermine their 

income tax liability, arguing that the language of Section 911 

authorized them to exclude all of Rogers’s flight attendant 

earnings as “foreign earned income,” and that they should not 

be charged the negligence penalty. The Tax Court disagreed. 

Citing the language of Section 911, its prior holdings, and IRS

regulations, the court found that Appellants could only 

exclude the portion of Rogers’s earnings that were related to 

her time spent working in or over foreign countries. Rogers v. 

Comm’r, 105 T.C.M. (CCH) 1478, 1479–80 (2013). The Tax 

Court also upheld the negligence penalty. Id. at 1480. Rogers 

and her husband then filed a timely appeal with this court.

Appellants argue that the Tax Court incorrectly applied

Section 911. They contend that the language of Section 911 

authorizes them to exclude all of Rogers’s flight attendant 

income as “foreign earned income” because it was received 

“from sources within a foreign country or countries” –

namely, Rogers’s Hong Kong-based job. See 26 U.S.C. § 911.

They also challenge the imposition of the negligence penalty, 

and ask this court to award costs and fees.

We agree with the Tax Court that the language of Section 

911 and the IRS’s regulations support the Commissioner’s

determination against Appellants. Rogers has failed to show 

that the Tax Court erred, or that the IRS’s regulations 

interpreting Section 911 are unreasonable. We remand only 

for the Tax Court to address a factual issue that was raised 

and clarified at oral argument before this court.
4

I. BACKGROUND

In 2007, Rogers worked for United as an international 

flight attendant based in Hong Kong. According to the 

parties’ stipulations below, she flew a total of 74 flights 

between destinations in Asia and the United States. She 

performed both in-flight duties and some pre-departure and 

post-arrival work, and was generally paid according to her 

flight time. She received vacation time and benefits as part of 

her employment, and could receive “guarantee pay” for work 

she would have performed on flights that were canceled. The 

parties agreed at oral argument that, during the time when 

Rogers received guarantee pay, she was required to remain in 

Hong Kong, awaiting reassignment to another flight.

United paid Rogers $41,762.10 in wages during 2007, 

and provided her with an apportionment of her estimated duty 

time between minutes spent in or over foreign countries, in or 

over the United States, and over international waters.

Appellants jointly filed their 2007 taxes, excluding all of 

Rogers’s flight attendant earnings as “foreign earned income”

under Section 911. Rogers, 105 T.C.M. (CCH) at 1478–79.

On December 30, 2010, the Commissioner sent Rogers 

and her husband a deficiency notice for the 2007 tax year, 

stating that they could not exclude the portion of Rogers’s

income earned while she was working in or over the United 

States and over international waters. That portion of her 

wages was not “foreign earned income” because it was not 

“attributable to services performed by an individual in a 

foreign country or countries.” 26 C.F.R. § 1.911-3(a)

(emphasis added). Based on United’s duty time 

apportionment, the IRS concluded that Rogers and her 

husband owed $3,428.30 in taxes on the erroneously excluded

wages. The IRS also assessed Rogers and her husband a 
5

$685.66 “accuracy-related penalty” under a provision of the 

tax code that allows the Commissioner to impose a penalty 

equal to 20% of the underpayment if a taxpayer withholds 

taxes due to “[n]egligence or disregard of rules or 

regulations.” 26 U.S.C. § 6662.

Appellants petitioned the Tax Court for a redetermination 

of their tax liability. The parties stipulated before the Tax 

Court to duty time apportionments far more favorable to 

Rogers than United’s estimates; they also stipulated that 

Rogers was a “qualified individual” eligible for the foreign 

earned income exclusion. In their arguments to the Tax Court, 

Appellants claimed that they were entitled to exclude all of 

Rogers’s flight attendant income as “foreign earned income”; 

that the value of Rogers’s vacation pay, sick pay, guarantee 

pay, and training pay should be considered earned in Hong 

Kong and thus allocated to foreign earned income; and that 

they should not have been charged a penalty.

The Tax Court rejected all of Appellants’ legal 

arguments. Citing its prior cases, the court ruled that Rogers 

could only exclude earnings for services actually performed in 

or over foreign countries, and that Appellants must pay taxes 

on the portion of Rogers’s earnings attributable to time when 

she worked over international waters and in or over the 

United States. Rogers, 105 T.C.M. (CCH) at 1479 (citing 

LeTourneau v. Comm’r, 103 T.C.M. (CCH) 1229 (2012); 

Rogers v. Comm’r, 97 T.C.M. (CCH) 1573 (2009)). The court 

also concluded that most of Rogers’s other benefits and pay, 

such as vacation and sick days, arose from Rogers’s general 

work and should therefore be allocated according to Rogers’s 

flight time. Id. at 1479–80. As to the accuracy-related penalty, 

the court found that Appellants had failed to carry their 

burden of showing that they acted with reasonable cause and 

in good faith in excluding all of the flight attendant earnings. 
6

The Tax Court noted that the IRS had issued deficiency 

notices to Appellants for the exact same behavior in prior tax 

years. Id. at 1480. Using the new, stipulated apportionment, 

the court reduced the tax deficiency to $1,635.30, and 

adjusted the accuracy-related penalty downward to $327.06.

Rogers and her husband appealed to this court. Their 

chief argument is that the Tax Court erred in applying Section 

911 and the IRS regulations. In particular, they contend that 

the language of Section 911 entitles them to exclude all of 

Rogers’s flight attendant income as “foreign earned income” 

because it is “from sources within a foreign country.” See 26 

U.S.C. § 911(b)(1)(A). Appellants also challenge the 

accuracy-related negligence penalty, and ask the court to 

award them costs and fees.

II. ANALYSIS

Appellants’ primary argument is that the Tax Court erred 

in requiring them to apportion Rogers’s flight attendant 

earnings because, in their view, Section 911 allows them to 

exclude all of her earnings from taxable income. We review 

the Tax Court’s legal conclusions de novo. See Byers v. 

Comm’r, 740 F.3d 668, 675 (D.C. Cir. 2014).

Appellants note that Section 911 defines “foreign earned 

income” as earned income “from sources within a foreign 

country or countries.” 26 U.S.C. § 911 (emphasis added). 

Focusing on the “from sources” language, they reason that, 

under the statute, the location where personal services are

performed is irrelevant to the tax status of the earnings arising 

from those services. Instead, they argue, all that matters is the

location of the source of the income. As a result, Appellants 

contend that all income related to Rogers’s United Airlines

job placement in Hong Kong – the ostensible foreign “source” 
7

of her earnings – should be excluded. To bolster their legal 

argument, Appellants cite a number of cases that they claim 

show a practice by the IRS and the Tax Court of allowing 

pilots and other persons living abroad to exclude all of their 

income from taxation, rather than apportion it. Based on their 

reading of the statute and case law, they argue that the Tax 

Court incorrectly forced them to apportion Rogers’s income.

We have little trouble dismissing Appellants’ argument 

that the Tax Court erred in applying the law, because 

Appellants’ presentation of both the law and prior cases is 

unconvincing. First, Appellants paint an incomplete portrait 

of the law. They focus on the language of the statute and fail 

to take account of the controlling IRS regulation. The 

regulation is telling. It states:

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. The place of receipt of 

earned income is immaterial in determining whether earned 

income is attributable to services performed in a foreign 

country or countries.

26 C.F.R. § 1.911-3(a) (emphasis added). While this 

regulation does not speak directly to the treatment of income 

earned over international waters, a separate regulation defines 

the term “foreign country” to mean “any territory under the 

sovereignty of a government other than that of the United 

States,” including, among other things, “the territorial waters 

of the foreign country” and “the air space over the foreign 

country.” 26 C.F.R. § 1.911-2(h). The regulation thus makes 

explicit that income earned over waters not subject to any 

foreign country’s jurisdiction would not be income earned “in 

a foreign country or countries” for purposes of Section 1.911-
8

3(a). In sum, it is clear that Appellants’ position in this case is 

completely at odds with IRS’s regulations.

An agency’s regulation implementing its authorizing 

statute “is binding in the courts unless procedurally defective, 

arbitrary or capricious in substance, or manifestly contrary to 

the statute.” Household Credit Servs. v. Pfennig, 541 U.S. 

232, 242 (2004) (quoting United States v. Mead Corp., 533 

U.S. 218, 227 (2001)) (internal quotation marks omitted).

This principle “appl[ies] with full force in the tax context.” 

Mayo Found. for Med. Educ. and Research v. United States, 

562 U.S. 44, 55 (2011). “Filling gaps in the Internal Revenue 

Code plainly requires the Treasury Department to make 

interpretive choices for statutory implementation at least as 

complex as the ones other agencies must make in 

administering their statutes.” Id. at 56.

The IRS’s regulatory limitation of income “from sources 

within a foreign country” to income attributable to services 

performed in a foreign country accords with the language of 

Section 911, particularly in light of the “default rule of 

statutory interpretation that exclusions from income must be 

narrowly construed.” Schleier, 515 U.S. at 328 (internal 

quotation marks omitted). Furthermore, the regulation 

harmonizes with related sections of the Internal Revenue 

Code, in which the phrase “income from sources within” 

generally limits personal services income to income earned 

from services “performed in” a given jurisdiction. See 26 

U.S.C. § 861(a)(3) (defining income from personal services as 

being “from sources within the United States” if those “labor 

or personal services [are] performed in the United States”); id.

§ 862(a)(3) (defining income from personal services as being 

“from sources without the United States” if those “labor or 

personal services [are] performed without the United States”). 

The IRS’s regulation and its application here simply mirror 
9

the use of similar “source” language in related sections of the 

Code, where “the source of income is the place where the 

services are performed.” Tipton & Kalmbach, Inc. v. United 

States, 480 F.2d 1118, 1120 (10th Cir. 1973).

It is particularly noteworthy that Appellants do not 

contest the validity of § 1.911-3(a). And we have no basis to 

find that the regulation is “procedurally defective, arbitrary or 

capricious in substance, or manifestly contrary to the statute.” 

Therefore, we are bound to give deference to the IRS’s 

interpretation of the statute. Pfennig, 541 U.S. at 242; see Tax 

Analysts v. IRS, 350 F.3d 100, 102–03 (D.C. Cir. 2003) 

(applying Chevron deference to IRS tax regulations).

In light of the controlling regulation and Appellants’ 

stipulation below that Rogers earned a significant portion of 

her wages for services performed in or over the United States 

and over international waters, the Tax Court did not err in 

requiring Appellants to pay taxes on that portion of Rogers’s 

wages. Appellants have put forward no colorable argument 

for why those earnings should be considered “attributable to 

services performed . . . in a foreign country or countries.” 26 

C.F.R. § 1.911-3(a). Nor could they in the face of the IRS’s

regulation.

This conclusion does not conflict with precedent.

Appellants claim to have unearthed a host of cases showing a 

longstanding practice by the IRS and the Tax Court of 

allowing the categorical exclusion of earnings from foreignbased jobs. Appellants’ Br. 8. However, none of the cases 

cited by Appellants is controlling or on point. Most of the 

cases involve wholly unrelated issues, such as whether 

taxpayers qualify as bona fide residents of foreign countries 

for purposes of Section 911. See, e.g., Jones v. Comm’r, 927 

F.2d 849 (5th Cir. 1991). Contrary to Appellants’ 
10

characterization, these cases generally say nothing about how 

much of their income the taxpayers earned in the United 

States or over international waters, what portion of it they 

sought to exclude, or whether they could do so categorically. 

By contrast, in another cited case, the parties in fact stipulated 

that, if the airline pilot taxpayer were found eligible for the 

Section 911 exclusion, he would allocate his income 

according to his geographic flight time percentages. See

Schoneberger v. Comm’r, 74 T.C. 1016, 1017 n.2 (1980). 

We have found only one, non-binding case, uncited by 

Appellants, in which an international airline employee 

excluded the entirety of his salary under Section 911. But in 

that case, the Tax Court specifically noted that “no issue 

[was] raised with respect” to whether the salary constitutes

foreign earned income. Cobb v. Comm’r, 62 T.C.M. (CCH) 

408, 411 n.5 (1991). In contrast, the Tax Court has decided 

several recent cases specifically dealing with the question

raised in this case and consistently limiting the Section 911 

exclusion to income actually earned in or over foreign 

countries. See LeTourneau, 103 T.C.M. (CCH) 1229

(requiring apportionment of income by a flight attendant); 

Rogers, 97 T.C.M. (CCH) 1573 (same, in a case involving the 

instant Appellants). Appellants have shown no error in the 

Tax Court’s application of Section 911 or the relevant IRS 

regulation.

* * * *

Although we reject Appellants’ argument regarding the 

scope of Section 911, we will remand the case to the Tax 

Court on one factual issue that was raised and clarified at oral 

argument before this court.
11

As part of Rogers’s employment, she was eligible to 

receive “guarantee pay” when a flight she was scheduled to 

work was canceled. In 2007, Rogers received guarantee pay 

for one canceled flight. As the parties explained at argument, 

Rogers was expected to remain in Hong Kong during this 

period, available in the event that United chose to assign her 

to a new flight. Government counsel conceded at oral 

argument that he could think of no reason why any portion of 

this payment to Rogers – for time spent on assignment in and 

with orders to stay in a foreign country – would be included 

as taxable income. In other words, Government counsel 

acknowledged that the entire amount is excludable pursuant to 

Section 911. We agree.

Given the vagaries of guarantee pay and the different 

ways in which it may be earned under different employment 

contracts, we take no position on whether every form of 

guarantee pay should be excludable under Section 911. 

However, we agree with the Commissioner and Appellants 

that in this case there is no reason to apportion the guarantee 

pay earned by Rogers in Hong Kong. The Tax Court’s 

opinion is unclear about the treatment of this payment, which 

amounted to $1,041.82. For this reason, we remand the case 

for the Tax Court to ensure that the entirety of this payment 

has been properly excluded from Appellants’ taxable income.

We reject the remainder of Appellants’ objections to the 

Tax Court’s apportionment calculations. They have failed to 

identify a basis for setting aside the stipulations to which they 

agreed below or any clear error in the Tax Court’s factual 

determinations regarding how other forms of non-flight 

compensation (for example, vacation or sick pay) should be 

apportioned. Finally, Appellants’ objection notwithstanding, 

apportioning the time Rogers worked on the basis of minutes 

rather than days is expressly contemplated by IRS regulation 
12

in a related context. See 26 C.F.R. § 1.861-4(b)(2)(ii)(E) 

(noting that, in calculating the amount of compensation 

received for labor or personal services performed within the 

United States on a time basis, “[a] unit of time less than a day 

may be appropriate”).

* * * *

Appellants’ claims regarding the accuracy-related penalty 

and the award of costs and fees lack merit. Because “[t]he Tax 

Court’s assessment of an accuracy-related penalty is a factual 

determination,” it is reviewed for clear error. Calloway v. 

Comm’r, 691 F.3d 1315, 1334 (11th Cir. 2012). Appellants 

have not demonstrated any error in the Tax Court’s 

conclusion that they failed to meet their burden of showing 

reasonable cause and good faith in excluding their income 

earned in and over the United States and over international 

waters. As the Tax Court noted, Appellants had been issued a 

deficiency notice for the same behavior in prior tax years, and 

were on notice that they were not complying with the

applicable IRS regulations. See Rogers, 97 T.C.M. (CCH) 

1573.

Finally, Appellants are not entitled to costs and fees 

under 26 U.S.C. § 7430. That section provides that Appellants 

are only entitled to costs and fees if (1) they prevail in this 

appeal and (2) the Government cannot establish that its 

position was “substantially justified.” Id. § 7430(c)(4)(A), 

(B). Appellants have failed to prevail on almost all of their 

claims, and the Government has easily shown that the 

Commissioner’s position was “substantially justified.”

Therefore, Appellants’ claim for fees and costs is denied.
13

III. CONCLUSION

For these reasons, we affirm the judgment of the Tax 

Court, with only one caveat. We remand the case to ensure 

the proper allocation of Rogers’s guarantee pay.

So ordered.