Originally Posted by
Tax Pilot
Note that there have been some recent cases [Lisa Hamilton Savary, Petitioner v. Commissioner of Internal Revenue, Respondent; Rogers v. Commissioner, T.C. Memo, 2009-111; Clark v. Commissioner, T.C. Memo. 2008-71]
concerning pilots and crew trying to claim the foreign earned income exclusion under either the bona-fide residence or physical presence test when they live abroad.
One big item that seems to be consistently ignored is that flight time over international airspace is not considered a foreign workday. You must actually be flying over a foreign country or its territorial waters for such time to be considered a foreign work day for foreign earned income exclusion purposes.
In the event of audit, such oversight can be end up resulting in a huge amount of tax due plus 20% negligence penalty!
Plus 40% per year interest, and they have been doing this 2-3 years after the tax year. I am on my second audit. I won the first over the phone. The IRS hasn't been answering any phone calls for months. I go to tax court next month.
I did everything 100% above board and correct. The IRS has been going after pilots working overseas big time. A couple of colleagues of mine are also on their second audit.