Tax Court: Employment tax liability for foreign flight attendants

Employment tax liability for foreign flight attendants

The U.S. Tax Court today issued an opinion in which it concluded that it has jurisdiction to address the issue of employment taxes associated with the remuneration paid to foreign flight attendants by the foreign branches of a U.S. domestic airline for 2003 and 2004.

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The case is: American Airlines, Inc. v. Commissioner, 144 T.C. No. 2 (January 13, 2015)

Read the Tax Court’s opinion [PDF 105 KB]


The case involves foreign flight attendants who staff the taxpayer’s South American routes; who are domiciled in Argentina, Chile, Colombia, or Peru; and who work on flights between Miami and South America.

Typically, the foreign flight attendants leave the United States within 12 hours of arrival, and almost always within 24 hours of arrival. They are paid only for the period beginning when the aircraft pushes off the blocks at the departure gate and ending when it arrives at the blocks of the destination gate—a “block-to-block” basis. The flight attendants are not paid for any other time they are required to be at work, including pre- and post-flight time and training sessions.

The foreign branches are responsible for the foreign flight attendants payroll (which is paid in foreign currency) and withholding taxes under the law of the country of origin. The taxpayer never withheld U.S. income or FICA taxes from the salaries paid to the foreign flight attendants, and never paid employment taxes including FICA or FUTA with respect to the foreign flight attendants.

On audit of 2003 and 2004, an issue focused on the employment taxes relating to the foreign flight attendants. The taxpayer asserted it was not liable for employment taxes or the mandatory 30% withholding tax on nonresident aliens under section 1441 because of the “business visitor exception” and / or because of relief provided under the provisions of Section 530 of the Revenue Act of 1978.

A notice of deficiency was issued, and the taxpayer filed a petition with the Tax Court. [Today’s opinion also goes into details about review of this case by IRS Appeals.]

Tax Court jurisdiction

The taxpayer and the IRS each filed a motion for partial summary judgment, each focusing on the jurisdiction of the Tax Court with respect to the employment tax issue.

The Tax Court granted the taxpayer’s motion for partial summary judgment, and denied the IRS summary judgment motion on the jurisdictional question.The Tax Court concluded that pursuant to section 7436(a), it has jurisdiction to consider a determination by the IRS that the taxpayer was not entitled to Section 530 relief, and to consider a deficiency notice asserting the taxpayer’s liability under section 1441.

The IRS contended that the court lacked jurisdiction unless the IRS had made a determination of worker classification and further contended that because the taxpayer had always treated its foreign flight attendants as employees, there was no need to make a determination of worker classification. The Tax Court rejected this argument, stating that it was not necessary at this stage to consider how the taxpayer had treated its foreign flight attendants because section 7436(a)(2) does not require that the IRS make a determination of worker classification.

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