None of these things is true for uniformed service members. Since 1995 some uniformed personnel have claimed the foreign earned income exclusion. In a cursory look at its records, the IRS found 30 returns that erroneously used this provision. The confusion has not been limited to NATO headquarters in Belgium, but in Naples, Turkey or any base where U.S. service members serve with NATO, he said. The ruling only affects military pay.
Service members can still exclude pay earned from a second job, for example.
It also does not affect provisions for excluding pay for service in a combat or hazardous duty zone. Uniformed members assigned to NATO sites who relied on the Adair case to support the exclusion of their military pay from taxes should talk to a legal assistance attorney about filing an amended tax return, Emswiler said. IRS officials are considering waiving interest and penalties in these cases and hope to reach a decision in the next two weeks. Affected members may want to wait until the revenue service makes this decision before mailing their amended returns, Emswiler suggested. Legal assistance attorneys will be notified of the IRS decision as soon as possible.