-7-
December 4, 1987, and December 20, 1988), provides that overseas
PSC's treat a contractor as an FBO government employee for all
purposes except retirement.
Petitioner was notified by a December 12, 1989, FBO memorandum
that as a result of an Internal Revenue Service review of FBO
personnel policies, it was determined that PSC's signed by FBO
contractors created an employee-employer relationship between the
parties and that petitioner should designate himself as an FBO
employee (rather than as an independent contractor) on his 1989
Federal income tax return.
Subsequent to the issuance of this memorandum, FBO issued
petitioner a Form W-2 for "wages, tips and other compensation" in
the amount of $74,183.04. FBO withheld Social Security tax from
petitioner's income in the amount of $3,604.80.
Petitioners' 1989 Federal Income Tax Return
On petitioners' 1989 Form 1040, petitioners reported $74,183
as "business income" on line 12 and then subtracted $70,0005 on
line 22 ("other income") with the notation "Exclusion from Form
2555."6 Thus, petitioner claimed a section 911 exclusion for a
5 The maximum amount permitted for the earned income
exclusion was $70,000.
6 Form 2555, Foreign Earned Income, attached to
petitioners' 1989 return, reported foreign earned income of
$74,183, and listed "name of employer" as "self".
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