Blackwater Contractor in Iraq Cannot Exclude Compensation Under § 112

Posted by defensebaseactcomp on February 1, 2011

From Tax Professor Blog

The Tax Court yesterday held that a Florida man who earned $98,400 in 2005  working for Blackwater (since renamed Xe) providing security services to the U.S. Army in Iraq could  not exclude the compensation from income under § 112 as “combat zone compensation of members of the Armed  Forces.

Holmes v. Commissioner, T.C. Memo. 2011-26 (Jan. 31, 2011).

The Tax Court concluded that the taxpayer did not serve in the Armed Forces of  the United States but instead was a private citizen hired by and paid by a  private company (Blackwater). The Tax Court refused to impose a penalty because  the taxpayer relied on an IRS memorandum wrongly stating that  civilian personnel in direct support of combat zone military operations  qualified for the § 112 exclusion. (Hat Tip: Bob Kamman.)  Please see the original here

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