Close this search box.

Antarctica is Not a Foreign Country (for Tax Purposes)

I’m not a tax guy, but stories like this make me want to get an LLM in tax and a collection of bowties.

IRS regulations allow U.S. citizens who live and work in a foreign country to exclude up to $80,000 in foreign-earned income, which could result in a significant tax savings.

David Arnett, a Wisconsin Resident, excluded $ 48,894 in income received from his 2001 income taxes due to his claim that he lived and worked in a foreign country.

The foreign country? Antarctica. Arnett worked for Raytheon at McMurdo Station, Ross Island, Antarctica.

In Smith v. United States, 507 U.S. 197 (1993), the Supreme Court held that the Federal Tort Claims Act did not apply to a wrongful death in Antarctica, because Antarctica was considered to be a “foreign country.” In Smith v. Raytheon Co., 297 F. Supp. 2d 399 (D. Mass. 2004), the Fair Labor Standards Act didn’t apply to overtime pay in Antarctica — same reason.

However, the IRS took the position that Antarctica is not a foreign country.

At first blush, this seems inconsistent and unfair. If you can’t sue for wrongful death or deprivation of overtime, since Antarctica is a “foreign country,” then why can’t you apply the same rule to income tax?

In Arnett v. Comm’r, 473 F.3d 790 (7th Cir. 2007), the appeals court held that the relevant statute was ambiguous, therefore the IRS commissioner had latitude in interpreting it. Where a statute does not delegate rule-making authority to an agency, the the Seventh Circuit considers ambiguities “to be implicit delegations to the agency administering the statute to interpret the statute through its rulemaking authority.”

Since the court held that the statute was ambiguous, the court only needed to determine whether IRS commissioner interpreted the statute reasonably. Since the purpose of the statute was to avoid double-taxation of income, and to thereby increase American competitiveness abroad. Accordingly, the foreign income exclusion applies only to territory that is within the sovereign territory of a foreign nation — which Antarctica is not.

Skip to content