CCA 200947058: Federal employment status during transfer to an international organization

Plain-English summary

This Chief Counsel advice discusses whether a federal employee remained a United States employee after being transferred to NATO. It summarizes Adair v. Commissioner, T.C. Memo. 1995-493, in which the court held that the petitioner was an employee of NATO rather than the United States during the transfer. The advice notes that control over how the work was performed, the right to reemployment, leave treatment, the government's intent, and retained federal benefits were relevant facts. The matter relates to whether the § 911 foreign-earned-income exclusion applies to remuneration paid during the transfer.

Ruling snapshot

• Question: Was a taxpayer transferred to NATO an employee of the United States or of NATO for purposes of the § 911 foreign-earned-income exclusion?
• Outcome: Advice given
• Key authorities: IRC § 911; 5 U.S.C. § 3582; Adair v. Commissioner, T.C. Memo. 1995-493

Full text (IRS public release)

ID: CCA-922160-09 Number: 200947058
Release Date: 11/20/2009
Office: -----------------------
UILC: 3121.00-00, 3121.02-04

From: -------------------
Sent: Tuesday, September 22, 2009 4:03 PM

To: --------------------
Cc: -----------------
Subject: FYI

There may be additional cases other than Adair. I worked on something involving these cases years ago.

Adair v. Commissioner, TCM 1995-493. Section 911 provides a limited exclusion from the gross income of an individual for the foreign earned income of the individual. Section 911(b)(1)(B)(ii) provides that the foreign earned income for an individual shall not include amounts paid by the United States or an agency thereof to an employee of the United States or an agency thereof. The petitioner in Adair sought to exclude from gross income amounts that he received as remuneration for services he performed for the North Atlantic Treaty Organization (NATO), an international organization, to which he had been transferred from the United States Army pursuant to 5 USC 3582. The Government argued that the petitioner was an employee of the United States during the period of his transfer. If the petitioner was an employee of the United States in the performance of services for NATO, the section 911 exclusion would not apply. Because there is no special definition of employee under section 911, the common law rules applied in determining whether the petitioner was an employee of the United States or NATO with respect to the services performed. The court found that the petitioner was an employee of NATO and not of the United States (or an agency thereof) during the period of the transfer to the international organization.

The court noted that the benefits and rights that the petitioner retained with respect to federal employment were not determinative of the employment relationship. “The determination of whether petitioner was an employee of the United States depends on all the facts and circumstances, including the paramount fact that NATO, more than the United States, controlled the manner in which his work was performed.” The court noted in particular that several facts indicated that “petitioner was separated from U. S. Government service during his transfer to NATO.” The court noted that the existence of the right to reemployment indicated that the petitioner ceased employment with United States Government when he transferred to NATO. The court also noted that his annual leave account could be liquidated upon transfer, as with separated employees. The court also indicated the intent of the United States Government was that the transfer was to be a change in position. The court indicated that the specific statutory provision for the retention of certain rights and benefits (retirement, health, and workers’ 2

compensation coverage) with respect to federal employment indicated that the petitioner was not a federal employee for other purposes.