Tax ruling leaves 150 Raytheon workers out in cold
Pay for Antarctic work not considered by IRS as earned outside US
Meghan Prentiss thought working for Raytheon Co. as a meteorologist at McMurdo Station in Antarctica was "like going to the moon for a year." But as far as the IRS is concerned, she never left the state of Massachusetts.
What the 31-year-old Boston resident describes as "the ultimate adventure" seven years ago turned into a painful lesson in tax law. Prentiss is among about 150 people who worked on the frozen continent for the Waltham-based defense contractor who were penalized by the Internal Revenue Service for claiming on their taxes that they were working outside the United States.
Because other federal courts have ruled that Antarctica is a foreign country with regards to tort claims and the Fair Labor Standards Act, the workers believed they were on safe ground claiming the Foreign Earned Income Exclusion, which allows some US citizens who work overseas to exempt as much as $82,400 in income from federal taxes.
But the Tax Court, which handles disputes between the IRS and taxpayers, thought otherwise. In a January ruling that's binding for all the cases, the court said the workers' arguments were "irrelevant or without merit" since they were based on laws other than the tax code, which specifies that foreign countries must have governments recognized by the US government. The US rejects any territorial claims over Antarctica.
"I guess I fought the law and the law won," joked Prentiss, whose case was officially decided this month.
Many Raytheon workers claimed the foreign income deduction for years, according to Dean Klein, who spent 12 seasons at the South Pole. Raytheon took over running the Polar research stations for the National Science Foundation in 2000. The company hires about 1,000 contract workers at the South Pole and employs 400 there full-time, supporting three year-round research stations and two vessels.
"Until Raytheon took over, there was never an issue with the IRS," said Klein, 45, a North Carolina resident who hasn't been hired back by Raytheon since 2005. "I was told that you didn't need to worry."
But a company spokesman, Jonathan Kasle, said workers hired for Antarctica are told during orientation that they can't claim the foreign income exclusion.
Many of the workers who had the tax problems used a Colorado accounting firm run by former IRS official Joyce Zeglin, said Scott Saltzman, a former Raytheon worker from Brockton. At Zeglin's suggestion, they hired a tax attorney together. "The idea was power in numbers," Saltzman said.
It didn't work out that way. Zeglin said she was disappointed with the ruling. Larry Harvey, the Colorado lawyer who represented the workers, said he isn't filing an appeal because chances are slim for prevailing.
The question of who owns Antarctica is unsettled as a matter of international law. New Zealand claims sovereignty over the Ross Dependency, where McMurdo and Palmer Station are located. The United States doesn't recognize New Zealand's claim.
"Not all [New Zealand] law is automatically applied to or exercised in the Ross Dependency," said Lorraine Schofield, a spokeswoman for the New Zealand Embassy in Washington, who said she was unable to determine if tax law was applicable. "It is significant to note, though, that [New Zealand] does not exercise jurisdiction over other national programs in Antarctica, including the US"
Tangling with the IRS has taken its toll on the former polar workers. When she first was notified the agency had questioned her taxes, Prentiss immediately posted a $5,000 bond, which forced her to borrow more than she planned to go to graduate school. Other former Raytheon workers found themselves in worse shape.
Saltzman fell down a flight of stairs at Palmer in 2002, breaking his neck leaving him disabled. He took the same deduction Prentiss did in 2001 and now owes the IRS $12,604.71, which includes $1,665.75 in penalties, and $2,112.93 in interest, which he's paying off in monthly installments of $171. The IRS seized his social security benefits from his bank account and wouldn't release them until he worked out a payment arrangement.
"I got a raw deal," said Saltzman, 43, who lives in Florida part of the year because he can no longer take New England winters. "Now, if I miss a payment they will take my disability away again."