SECTION 2. BACKGROUND

.01 Section 6013(d)(3) provides that married taxpayers who file a joint return under section 6013 will be jointly and severally liable for the income tax arising from that joint return. For purposes of section 6013(d)(3) and this revenue procedure, the term “tax” includes penalties, additions to tax, and interest. See sections 6601(e)(1) and 6665(a)(2). .02 Section 3201(a) of the Internal Revenue Service Restructuring and Reform

DRAFTING INFORMATION

The principal authors of this notice are Kenneth Allison and Bethany Ingwalson of the Associate Chief Counsel (International). However, other personnel from the IRS and Treasury participated in its development. For further information regarding this notice, contact Mr. Allison at (202) 622–3860 or Ms. Ingwalson at (202) 622–3850 (not toll-free calls).

Guidance on the Application of Section 911 to U.S. Individuals Working in Iraq

Notice 2003–52

This notice clarifies the application of section 911 of the Internal Revenue Code (the “Code”) to U.S. citizens and residents earning income in Iraq attributable to services performed by such individuals.

Section 911(a) of the Code allows a “qualified individual” to elect to exclude from gross income his or her “foreign earned income” (as defined in section 911(b)) and “housing cost amount” (as defined in section 911(c)). Section 911(d)(1) generally defines a “qualified individual” as a citizen or resident of the United States whose tax home is in a foreign country and who meets certain requirements of residence or presence in a foreign country.

Section 911(d)(8)(A) of the Code provides generally that if travel with respect to any foreign country (or any transaction in connection with such travel) is proscribed by certain regulations during any period, then: (1) foreign earned income does not include income from sources within that country attributable to services performed during that period; (2) housing expenses do not include any expenses allocable to such period for housing in that country, or for housing of the taxpayer's spouse or dependents in another country while the taxpayer is present in that country; and (3) an individual is not treated as a bona fide resident of, or as present in, a foreign country for any day during which the individual was present in that country.

Section 911(d)(8)(B) of the Code provides that the regulations described in section 911(d)(8) are those promulgated pursuant to the Trading With the Enemy

Act, 50 U.S.C. App. 1 et seq ., or the International Emergency Economic Powers Act (“IEEPA”), 50 U.S.C. 1701 et seq ., that include provisions generally prohibiting U.S. citizens and residents from engaging in transactions related to travel to, from, or within a foreign country. Section 911(d)(8)(C), however, provides that the limitations of section 911(d)(8)(A) do not apply to any individual during any period in which such individual's activities are not in violation of the regulations described in section 911(d)(8)(B).

In 1991, Treasury's Office of Foreign Assets Control (“OFAC”) issued the Iraqi Sanctions Regulations, 31 C.F.R. part 575. The Iraqi Sanctions Regulations were issued pursuant to IEEPA, among other authorities. Specifically, 31 C.F.R. sec. 575.207 provides that “[e]xcept as otherwise authorized, no U.S. person may engage in any transaction relating to travel by any U.S. citizen or permanent resident alien to Iraq, or to activities by any U.S. citizen or permanent resident alien within Iraq,” with narrow exceptions. Following promulgation of the Iraqi Sanctions Regulations, the Service issued Rev. Rul. 92–63, 1992–2 C.B. 195, which lists Iraq as one of the countries subject to the limitations under section 911(d)(8) of the Code.

In recent months, OFAC has issued several specific and general licenses that authorize individuals to engage in transactions related to travel to Iraq or to activities within Iraq. Pursuant to the terms of the Iraqi Sanctions Regulations, individuals whose activities in Iraq are permitted by a specific or general license issued by OFAC are not in violation of the Iraqi Sanctions Regulations with respect to the activities permitted by the license. 31 C.F.R. sec. 575.501(c). Accordingly, under section 911(d)(8)(C) of the Code, the limitations of section 911(d)(8)(A) do not apply to such individuals with respect to such licensed activities. Such individuals are eligible for the exclusion under section 911 of the Code provided that they meet the other requirements of that section.

For further information on this notice, contact Kate Hwa at (202) 622–3840 (not a toll-free call).

August 11, 2003 296 2003-32 I.R.B.

only to the extent that the income tax liability exceeds the value of the disqualified assets. For this purpose, the term “disqualified asset” has the meaning given the term by section 6015(c)(4)(B).

(6) The requesting spouse did not file or fail to file the return with fraudulent intent.

(7) The income tax liability from which the requesting spouse seeks relief is attributable to an item of the individual with whom the requesting spouse filed the joint return (the “nonrequesting spouse”), unless one of the following exceptions applies:

(a) Attribution solely due to the oper- ation of community property law . If an item is attributable or partially attributable to the requesting spouse solely due to the operation of community property law, then for purposes of this revenue procedure, that item (or portion thereof) will be considered to be attributable to the nonrequesting spouse.

(b) Nominal ownership . If the item is titled in the name of the requesting spouse, the item is presumptively attributable to the requesting spouse. This presumption is rebuttable. For example, H opens an individual retirement account (IRA) in W's name and forges W's signature on the IRA in 1998. Thereafter, H makes contributions to the IRA and in 2002 takes a taxable distribution from the IRA. H and W file a joint return for the 2002 taxable year, but do not report the taxable distribution on their joint return. The Service later proposes a deficiency relating to the taxable IRA distribution and assesses the deficiency against H and W. W requests relief from joint and several liability under section 6015. W establishes that W did not contribute to the IRA, sign paperwork relating to the IRA, or otherwise act as if W were the owner of the IRA. W thereby rebutted the presumption that the IRA is attributable to W.

(c) Misappropriation of funds . If the requesting spouse did not know, and had no reason to know, that funds intended for the payment of tax were misappropriated by the nonrequesting spouse for the nonrequesting spouse's benefit, the Service will consider granting equitable relief although the underpayment may be attributable in part or in full to an item of the requesting spouse. The Service will consider relief in this case only to the extent that the funds

Act of 1998, Pub. L. No. 105–206, 112 Stat. 685, 734 (RRA), enacted section 6015, which provides relief in certain circumstances from the joint and several liability imposed by section 6013(d)(3). Section 6015(b) and (c) specifies two sets of circumstances under which relief from joint and several liability is available. If relief is not available under section 6015(b) or (c), section 6015(f) authorizes the Secretary to grant equitable relief if, taking into account all the facts and circumstances, the Secretary determines that it is inequitable to hold a requesting spouse liable for any unpaid tax or any deficiency (or any portion of either). Section 66(c) provides relief from income tax liability resulting from the operation of community property law to taxpayers domiciled in a community property state who do not file a joint return. Section 3201(b) of RRA amended section 66(c) to add an equitable relief provision similar to section 6015(f).

.03 Section 6015 provides relief only from joint and several liability arising from a joint return. If an individual signs a joint return under duress, the election to file jointly is not valid and there is no valid joint return. The individual is not jointly and severally liable for any income tax liabilities arising from that return. Therefore, section 6015 does not apply.

.04 Under section 6015(b) and (c), relief is available only from a proposed or assessed deficiency. Section 6015(b) and (c) does not authorize relief from an underpayment of income tax reported on a joint return. Section 66(c) and section 6015(f) permit equitable relief for an underpayment of income tax. The legislative history of section 6015 provides that Congress intended for the Secretary to exercise discretion in granting equitable relief if a requesting spouse “does not know, and had no reason to know, that funds intended for the payment of tax were instead taken by the other spouse for such other spouse's benefit.” H.R. Conf. Rep. No. 105–599, at 254 (1998). Congress also intended for the Secretary to exercise the equitable relief authority under section 6015(f) in other situations if, “taking into account all the facts and circumstances, it is inequitable to hold an individual liable for all or part of any unpaid tax or deficiency arising from a joint return.” Id .