I see this from IRS : 

If you are a member of an organization directly supporting military operations and working in a combat zone, you may be eligible for a tax extension. See link:

 https://www.irs.gov/individuals/military/eligibility-for-military-tax-benefits

• Civilian Employees
• Contractors
• Red Cross Members 
• Can you provide a official reference that his pay is exempt from taxes

To exclude the income under §112, the compensation received must be for active service in the combat zone as a member of the United State Armed Forces.

§1.112-1(a)(4) goes on to stipulate compensation paid to your client as a civilian is not be eligible for the exclusion:

Compensation paid to civilian employees of the federal government, including civilian employees of the Armed Forces, cannot be excluded under section 112, except as provided in section 112(d)(2) (which extends the exclusion to compensation of civilian employees of the federal government in missing status due to the Vietnam conflict).

https://www.irs.gov/newsroom/combat-zones

He is direct support services for a contracting agency.  But how do I modify his income correctly in ProSeries?  Has anyone had this situation in the past?

1. As far as the pay, it is denoted separately on his paystubs for the weeks of work in the combat zone.  It is not, however, denoted differently on his W-2. 
2. On the IRS website, it instructs one to write in red at the top of his return "Combat Zone" as well as any IRS letter that should follow asking for a review.  I assume they must mail in the tax return.

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@cstock wrote:

https://www.irs.gov/newsroom/combat-zones

 

He is direct support services for a contracting agency.  But how do I modify his income correctly in ProSeries?  Has anyone had this situation in the past?

 

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The article you cited does not say anything contrary to what I stated.  How did you read from the article your client will qualify?  If you try to claim the exclusion, you could be subject to preparer penalty for taking a position contrary to the statute and expose your client to unnecessary P&I.

Your client is NOT eligible for the combat zone tax exclusion!

Only members of the military are eligible.

But a guy at work did it, and IRS allowed it.  Well, at least they didn't catch it.  

Reminds me of the days when meals at the firehouse were deductible because everyone else could do it.  

"Civilian taxpayers covered by the relief provisions described here should put the words "COMBAT ZONE" and their deployment date in red at the top of their tax returns. Members of the military do not need to write "COMBAT ZONE" and their deployment date on the tops of their tax returns because the U.S. Department of Defense informs the IRS about members in the combat zone."

https://www.irs.gov/newsroom/questions-answers-on-combat-zone-tax-provision

Now back to the question...

https://www.irs.gov/newsroom/questions-answers-on-combat-zone-tax-provision

Civilian taxpayers covered by the relief provisions described here should put the words "COMBAT ZONE" and their deployment date in red at the top of their tax returns. Members of the military do not need to write "COMBAT ZONE" and their deployment date on the tops of their tax returns because the U.S. Department of Defense informs the IRS about members in the combat zone.

I think this will answer the question. 

https://www.irs.gov/newsroom/new-law-makes-clear-combat-zone-contract-workers-qualify-for-foreign-ea...

https://www.irs.gov/forms-pubs/about-form-2555

FORM 2555 or 255-EZ

Your link does not work for me.

https://www.irs.gov/individuals/military/eligibility-for-military-tax-benefits mentions "Recently retired or separated members may also be eligible for benefits." but I have only ever seen it apply to active military/reserve/guard.

That allows you to use the "Combat Zone" to qualify for an extension not to the tax benefit that military members receive.

That's foreign earned income exclusion, not combat zone exclusion.

@itonewbie This is from IRS" Contractors or employees of contractors supporting the U.S. Armed Forces in designated combat zones, also may qualify for the foreign earned income exclusion. Do disagree with this statement

@cstock @sjrcpa @BobKamman see this link:

https://www.irs.gov/newsroom/new-law-makes-clear-combat-zone-contract-workers-qualify-for-foreign-ea...

@Brent1969 The link you provided are not working (you omitted the "s" in provisions).  In any case, what you cited is for tax extensions and suspension of IRS compliance actions.  As explained previously, civilians are generally not eligible for the exclusion under the Code or the Regs.  There was an HR4621 back in 2014 that could have extended the exclusion to civilians but the bill went nowhere.

https://www.congress.gov/bill/113th-congress/house-bill/4621/text?q=%7B%22search%22%3A%5B%22H.R.+462...

https://www.irs.gov/newsroom/questions-answers-on-combat-zone-tax-provisions

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@Terry53029 wrote:

@cstock @sjrcpa @BobKamman see this link:

https://www.irs.gov/newsroom/new-law-makes-clear-combat-zone-contract-workers-qualify-for-foreign-ea...

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@Terry53029 That's for §911 but the original and latest posts were about §112.

@itonewbie The original poster asked about tax benefits for contractors, and that is what I was replying to.They do qualify for "TAX BENEFITS" which according to IRS:

Based on the multiple uses of the word combat zone we assumed combat zone pay exclusion.

I don't think very many civilians are deployed in a combat zone long enough to qualify for the foreign earned income exclusion. My 2 cents.