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May 9, 2005

Suburban Housing Cannot Be Excluded As Foreign Camp

Suburban housing wasn't a foreign camp for purposes of the lodging exclusion Ron L. Abeyta, TC Summary Opinion 2005-44 In a summary opinion, the Tax Court has held that a taxpayer on an overseas assignment couldn't exclude the value of a home in a suburban neighborhood as lodging furnished to him by his employer. The lodging in a residential suburb, among similar housing available to the general public, failed to qualify as a foreign camp for purposes of the Code Sec. 119 exclusion, even though it was in a remote location.

Background. The value of lodging furnished to an employee, his spouse, and his dependents by his employer can be excluded from income if: (i) the employee is required to accept such lodging as a condition of employment; (ii) the lodging is furnished for the convenience of the employer; and (iii) the lodging is on the business premises of the employer. (Code Sec. 119(a)) For an individual who is furnished lodging in a camp located in a foreign country by his employer, a camp is considered to be part of the business premises of the employer. (Code Sec. 119(c)(2))
For this purpose, a camp is defined as lodging which is:

(1) provided by or on behalf of the employer for the convenience of the employer because the place at which such individual renders services is in a remote area where satisfactory housing is not available on the open market,
(2) located, as near as practicable, in the vicinity of the place at which the individual renders services, and (3) furnished in a common area (or enclave) which is not available to the public and which normally accommodates 10 or more employees. (Code Sec. 119(c)(2))

Facts. Ron Abeyta, a software engineer for TRW Systems Overseas Inc. (TRW), an institutional contractor with Department of Defense agencies, accepted an overseas position to work at a joint U.S.-Australian defense facility at an Air Force Base in Australia. Abeyta, his wife, and their three children relocated to Australia where they lived for approximately 41/2 years. As a condition of his employment, TRW required Abeyta to accept assigned housing near the base in Alice Springs, a town surrounded by three deserts and which, at 22 miles from the base, is the closest residential area. The housing units assigned by TRW to its employees were located in six different sections throughout Alice Springs and for employees with families generally consisted of single family homes. The housing sections were not in a separately gated community, and were located adjacent to homes that were available to the general public. These housing units were provided only to personnel working at the base.

On his return, Abeyta excluded the value of the lodgings provided by TRW, but IRS determined that he was not entitled to the exclusion.

Lodging wasn't a camp. Agreeing with IRS, the Tax Court concluded that Abeyta met only the first two of the three requirements for a foreign "camp" (see list above). However, the Tax Court held that Abeyta failed to meet the third requirement because his lodging was not furnished in a common area (or enclave) which was unavailable to the public. While Abeyta's lodging, which was restricted to personnel who work at the base, was not available to the public, the lodging was furnished in a common area which was available to the public. It was located within the same community as housing available to the general public. The housing units were interspersed throughout Alice Springs and not separated into gated communities.
Under Reg. § 1.119-1(d)(5), a cluster of housing units does not satisfy the definition of a foreign camp under Code Sec. 119(c)(2)(C) if it is adjacent to or surrounded by substantially similar housing available to the general public. In fact, the court pointed out that a public road accessible to the general public ran through Abeyta's neighborhood. As a result, Abeyta did not qualify for the lodging exclusion and had to include the value of the lodging provided by his employer in income.

OBSERVATION: If Abeyta had been stationed in Australia for one year or less he would have been able to exclude the value of his lodgings as a working condition fringe benefit (WCFB). A WCFB is any property or services provided to an employee by his employer to the extent that the cost of the property or services would have been deductible by the employee as a business expense if he had paid for it himself. A taxpayer on a temporary work assignment away from home can deduct his expenses for lodging. However, if the assignment lasts more than a year (in Abeyta's case it lasted 41/2 years), it isn't considered a temporary assignment and wouldn't be deductible as a business expense or excludible as a working condition fringe.

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