Originally published on Forbes.com.
“You have been in Afghanistan I perceive” is one of my favorite lines in literature, so I just can’t pass up a Tax Court decision that concerns service in Afghanistan. And then there is the taxpayer’s name -Samuel Striker. Something in my mind associated that with the trope of the ethnically, if not racially, diverse WW II infantry squad – Murphy, Kowalski, Cohen, Running Deer – led by a generic American sergeant – like Sergeant Fury or Sergeant Rock or Sergeant Saunders. Then it dawned on me. The one time that John Wayne in all his martial glory deigned to portray an enlisted man it had been Sergeant Stryker in The Sands of Iwo Jima.
Not A Sergeant
As it happens Samuel Striker was not a sergeant. It is actually Doctor Striker, although I don’t know if he goes by that in the field. In this profile of him by Western Michigan University they call him Sam Striker. (That’s what I would use in the movie, so the young soldiers could call him Uncle Sam.)
Striker is a social scientist in intelligence field operations. He is attached to various U.S. and NATO combat forces, and his work is about the subtle ways the military can become an enabling force rather than an occupying force.
“We‛re not fighting armies in uniform,” he says. “To be effective, the military has to understand the population on a socio-demographic level.
“My role is to get into villages, talk to people and find out what the needs and wants of the village are—things like farming equipment, water resources, safety and security. During the process, I sometimes also uncover actionable security issues.
The Tax Issue
As with many of my posts, the story behind the story is more intrinsically interesting than the issues the Tax Court was dealing with. The stakes were pretty high – just over $50,000 in tax for the years 2010 and 2011.
The issue was the foreign earned income exclusion.
Petitioner attached to his returns Forms 2555, Foreign Earned Income, on which he claimed under section 911 exclusions of $91,500 and $92,900 for 2010 and 2011, respectively. (His actual wages for performing services in Afghanistan were higher; the exclusions he claimed represented the maximum amounts allowed for each year.) On the Forms 2555 petitioner listed his occupation as “Defense Contractor”; listed his employer as “Defense Finance & Accounting Services”; stated that his employer was a “U.S. company”; listed his employer’s U.S. address as a location in Cleveland, Ohio; and listed his employer’s foreign address as a location in Kabul, Afghanistan.
What Was He Doing In Afghanistan Anyway?
Petitioner’s mission as a social science expert was to act as a liaison between the NATO command and the local people of Kandahar and its surrounding area. He sought to help military officers gain a better cultural understanding of this population. He also gathered and analyzed information concerning local commerce (including illicit commerce) with the aim of helping NATO create a successful local security apparatus. Petitioner regularly participated in NATO-sponsored training and workshops, some of which were mandatory.
Petitioner wore a NATO-ISAF civilian name tag and a NATO badge when rendering these services, which he performed as part of a Human Terrain Team (HTT). The HTT was composed of citizens from various NATO countries, and the team’s composition changed as personnel came and went. Each HTT had a team leader whose main role was to ensure that requests for information from NATO military officers were properly addressed. The team leader conducted petitioner’s performance evaluations but had no authority to discipline him or discharge him from his post.
Who Was He Working For? – That’s The Question
US government employees assigned overseas do not qualify for the Foreign Earned Income Exclusion. Why is that? I’m going to invoke Reilly’s First Law of Tax Planning – It is what it is. Deal With it.
Mr. Striker, pretty reasonably, took the position that he was working for NATO. Unfortunately the IRS had a different view and some facts to back up that position.
The record includes a DCIPS evaluation of petitioner for his second deployment. It is 12 pages long and rates his overall performance as “outstanding.” The rating official who signed this evaluation was a colonel in the U.S. Army. The reviewing official who reviewed this evaluation was a likewise a U.S. Army officer and was part of TRADOC, the same “organizational element” to which petitioner belonged.
The Army paid petitioner on the basis of standard U.S. Government pay scales. He had a GS-13 grade during his first deployment and a GS-14 grade during his second. The Army provided him with standard DoD fringe benefits, including health and retirement benefits. The Army furnished him with a bi-weekly “Civilian Leave and Earnings Statement” showing his gross pay and deductions. The Army reported petitioner’s wages to the IRS on Forms W-2, Wage and Tax Statement, and withheld from his paychecks the required Federal income and employment taxes.
Tax Court Has Dealt With This Before
The Tax Court actually had sorted this out whether somebody was working for NATO and qualified for the exclusion or working for the Army and not qualifying. In Samuel Striker’s case the weight fell on him being still of the Army, even though he was not exactly in the Army.
We find the instant case to have much in common with Gillis and very little in common with Adair. The taxpayer in Adair applied for a specific position at NATO headquarters and, following an interview and receipt of an offer, was formally transferred by the Army to that NATO position. Petitioner did not apply for a specific NATO position; indeed, he had no idea when he left the United States where he would be stationed or what his mission would be. Unlike the taxpayer in Adair, petitioner did not have a contract with NATO; he was not formally transferred to NATO pursuant to an international agreement or U.S. domestic law; he received no benefits under NATO personnel regulations; he took no oath of loyalty to NATO; and he was subject to regular DoD performance evaluations that are required for all DoD intelligence personnel and were conducted at the Army’s direction.
The Other Exclusion
It is worth noting that if Striker had actually been in the Army, much of his pay would have been excluded under Section 112 – Certain combat zone compensation of members of the Armed Forces. There has been a bit of litigation on that issue, but no taxpayers have ever gotten anywhere with it. That is noted in this website which outlines rules concerning civilians whom the Army sends into harm’s way.
All salary earned during a deployment is subject to income tax. There have been several attempts to have legislation passed on this matter, but to date, that has not been successful.
That’s under the Benefits section which notes cheeringly:
Civilian employees killed in the line of duty are entitled to many of the same benefits as military casualties. Mortuary benefits for eligible employees include search, recovery and identification of remains; disposition of remains; removal and preparation of remains; casket; clothing; cremation (if requested); and transportation of remains to permanent duty station or other designated location.
Although most of us have some, if not enough, appreciation for “the troops”, I doubt we reflect much that there are also civilians putting themselves in harm’s way. Going down into the village and learning about “actionable security issues” hardly seems like a walk in the park. That had me rooting for Striker, even though I did not think he had much of a case.
My Literary Reference
I’m sure most of you got it, but for those who did not it is from A Study In Scarlet by Arthur Conan Doyle.
“Dr. Watson, Mr. Sherlock Holmes,” said Stamford, introducing us.
“How are you?” he said cordially, gripping my hand with a strength for which I should hardly have given him credit. “You have been in Afghanistan, I perceive.”
“How on earth did you know that?” I asked in astonishment.
Here is a more contemporary enactment beginning at 2:15.
Other Coverage
Lew Taishoff covered the case in a post titled “You’re In The Army Now”. Lew also could not resist the temptation to get literary
Sam, a social scientist, desires to serve his country and “breathe short-winded accents of new broils to be commenced in strands afar remote,” as a far better writer than I put it. Sam gets his wish, and signs up as what we used to call a DAC (Department of the Army Civilian).
I had to look that one up. It is from Henry IV, a play, by somebody named Shakespeare, but you probably knew that.