The letter references no IRS code or anything.  I would call the IRS but I doubt I would get anyone familiar with the question.  When I read the original link I posted, it seems one could just deduct the income and attach a note stating the income was earned in a combat zone as a military contractor.  But still paying SE tax of course.  Im going to read Publication 3 (Armed Services Tax Guide) tonight and see if I can get anything out of it.  Thanks for all the help and sorry I wasn't clear on some things.