The whole thing is a crock of shi?.

The point of the Foreign earned income exclusion is that you shouldn't have to pay taxes for services you are not receiving. If you are living and working overseas you are not using:

1) U.S. schools
2) U.S. roads
3) Any U.S. social services
4) Police and Fire departments
5) etc, etc, etc

So this whole interpretation by the IRS is fundamentally flawed. If someone would spend the dollars to challenge them in court I would wager that the challenge would be successful.

They are just playing games with the wording since the wording states you must be in a foreign country.

For the people who have been audited on this they have gone to great lengths to show that their percentage of working time spent over international waters is negligible.

One guy I know had this audit when he was an F.O.. He wasn't going to pay any tax since his total income was well under the limit. After caluculating that 7% of his work time was over international waters he was still under the cap. So the IRS agent spent a fair amount of time on this and earned the U.S. government exactly $0.


TP