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Tuesday, January 14, 2003


I did not even know the U.S. had a possession called Johnston Island, but according to the Tax Court in the case of Stephen Jones, before 1987 income earned there was exempt from federal taxes under section 931. After 1986, however, the exclusion only applies to Guam, American Samoa, and the Northern Mariana Islands. The fact that the IRS has not updated its Regulations in the past decade and a half does mean the Regulations are superior to the Statute. None of the earnings are excludible under section 911 either, as that section refers to the exclusion of foreign income, and Johnston Island is a U.S. possession, not a foreign country.

I don't know, but I have a suspicion that Mr. Jones got screwed because some legislators were as ignorant of the existence of Johnston Island as I, and simply forgot to write it in the statute when they re-wrote the tax code in 1986.

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