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Petitioners argue that they are entitled to exclude Mr.
Favero’s wages as combat zone compensation or as foreign earned
income. They also argue that they are entitled to Schedule C
deductions for Mrs. Favero’s “cottage industries”.
Discussion
Gross income includes all income from whatever source
derived unless otherwise specifically excluded. Sec. 61(a).
Section 112 provides that certain compensation received by
members of the Armed Forces of the United States serving in
combat zones or hospitalized as a result of injuries received in
such zones shall not be included in gross income. Section
7701(a)(15) defines “Armed Forces of the United States” to
include “all regular and reserve components of the uniformed
services which are subject to the jurisdiction of the Secretary
of Defense, the Secretary of the Army, the Secretary of the Navy,
or the Secretary of the Air Force, and each term also includes
the Coast Guard.” Mr. Favero does not allege that he falls
within this definition. Mr. Favero was a civilian employed as a
merchant seaman by U.S. businesses in 1995, 1996, and 1997. Mr.
Favero was not a member of the Armed Forces of the United States
during the years in issue; thus he does not qualify for the
section 112 combat zone exclusion. See Land v. Commissioner, 61
T.C. 675, 679 (1974).
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