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View Full Version : Tax issues to be aware of!


NEDude
12-07-2015, 02:09 AM
For all of you working overseas there were two major tax issues that occurred this week that we all need to be aware of.

First, congress passed and President Obama signed into law a new highway funding bill. Included in this bill is a provision that orders the IRS to report to the State Department any Americans who owe $50,000 or more in back taxes, interest, fines and penalties. The State Department is supposed to use this information to deny and/or revoke the passports of anyone on the list. At its most basic provision there is zero recourse or appeal process before the passport is revoked. Of course you can appeal and perhaps get your passport back at some later time. But for now, if the IRS says you owe $50,000 or more, kiss your passport goodbye for at least some period of time.

The second issue at hand is that the Supreme Court refused to hear the case of an United flight attendant, who is an American citizen and based in Hong Kong, who attempted to claim the foreign income exclusion for all of her income. The U.S. tax court ruled in 2013 that all income earned while in international airspace did not qualify as foreign earned income and thus was not eligible for the exclusion. The IRS assessed a 20% negligence penalty on her taxes as well. Since the Supreme Court refused to hear the case, the 2013 ruling of the tax court stands and is now essentially the accepted and undisputed law of the land. The article did not mention how much she owed or what the 20% penalty was, but you can see that with the new passport revocation law, her career could quickly be jeopardy. Even most regional U.S. airlines require a passport for flight crews.

Anyway I only posted this for information. If you are working overseas, or considering working overseas, make sure you hire a well qualified tax specialist who has experience in dealing with Americans who work overseas. Failure to do so may risk your entire career.

Sources:
The Supreme Court Denies Certiorari for USC Taxpayer Who Claimed Foreign Earned Income Exclusion « Tax-Expatriation (http://tax-expatriation.com/2015/12/06/the-supreme-court-denies-certiorari-for-usc-taxpayer-who-claimed-foreign-earned-income-exclusion/)

Forbes Welcome (http://www.forbes.com/sites/robertwood/2015/12/04/irs-power-over-passports-signed-into-law/)


got2fly
12-07-2015, 09:10 AM
The second issue at hand is that the Supreme Court refused to hear the case of an United flight attendant, who is an American citizen and based in Hong Kong, who attempted to claim the foreign income exclusion for all of her income. The U.S. tax court ruled in 2013 that all income earned while in international airspace did not qualify as foreign earned income and thus was not eligible for the exclusion. The IRS assessed a 20% negligence penalty on her taxes as well. Since the Supreme Court refused to hear the case, the 2013 ruling of the tax court stands and is now essentially the accepted and undisputed law of the land. The article did not mention how much she owed or what the 20% penalty was, but you can see that with the new passport revocation law, her career could quickly be jeopardy. Even most regional U.S. airlines require a passport for flight crews

There is no news here. You can live overseas, but if you are employed in the USA there is no foreign earned income exemption because it is not foreign earned income! I lived and worked overseas and had the foreign earned income exemption. Then I took a job for a USA company for 6 months while still maintaining my residence overseas, and did not establish any residence in the USA. I was not able to take the foreign earned income exemption for that calendar year. Any $30 tax software program will keep you from making that mistake. The foreign earned income exemption is still in place for people who are bonafide residents of a foreign country and are employed in that country for an entire tax year. There is no mystery here. Just follow the rules. Turbotax basic or H&R Block basic software or will keep you out of trouble.

NEDude
12-07-2015, 09:58 AM
There is no news here. You can live overseas, but if you are employed in the USA there is no foreign earned income exemption because it is not foreign earned income! I lived and worked overseas and had the foreign earned income exemption. Then I took a job for a USA company for 6 months while still maintaining my residence overseas, and did not establish any residence in the USA. I was not able to take the foreign earned income exemption for that calendar year. Any $30 tax software program will keep you from making that mistake. The foreign earned income exemption is still in place for people who are bonafide residents of a foreign country and are employed in that country for an entire tax year. There is no mystery here. Just follow the rules. Turbotax basic or H&R Block basic software or will keep you out of trouble.

I am not claiming to be fully knowledgable about tax issues. But I do know there have been others on here who have claimed that the IRS has attempted to collect taxes from pilots (and flight attendants and sailors too) who spend much of their time in international airspace or waters, even if they are working for a foreign company. Not quite sure how or if the IRS is capable of tracking all of your international travel other than when you entered and departed the United States or how they can prove when or if you were in international airspace. But supposedly they have made attempts in the past to collect on that income.

Anyway, I am most definitely not a tax expert and will certainly not try and steer anyone in any direction other than to seek the help and advice of a tax professional. I simply posted the two articles for informational purposes because they are recent developments and do have potential implications for those of us who are employed by foreign carriers.


NEDude
12-07-2015, 10:22 AM
There is no news here. You can live overseas, but if you are employed in the USA there is no foreign earned income exemption because it is not foreign earned income! I lived and worked overseas and had the foreign earned income exemption. Then I took a job for a USA company for 6 months while still maintaining my residence overseas, and did not establish any residence in the USA. I was not able to take the foreign earned income exemption for that calendar year. Any $30 tax software program will keep you from making that mistake. The foreign earned income exemption is still in place for people who are bonafide residents of a foreign country and are employed in that country for an entire tax year. There is no mystery here. Just follow the rules. Turbotax basic or H&R Block basic software or will keep you out of trouble.

Sorry for the second reply. But just as a point of clarification it does appear from the article that the issue is not one of whether you are a bonafide resident of a foreign country, but rather where your income is earned. The tax court ruled that income earned in international airspace (or waters) is not eligible for the foreign earned income exclusion regardless of where you live or what company you work for.

Braniff DC8
12-07-2015, 08:03 PM
There are two different tests. People do try to trick the system and get caught. It then puts the spotlight on everyone. I know passport holders who do not file U.S. taxes and use a second, or foreign passport, as their id. I keep telling them they will get caught but they are convinced they won't.

In addition, I know people that say they work for a foreign company and use the exclusion. They then say to the foreign tax department that they are in the U.S. thus double dipping. Imagine that!

Northwest pilots were caught years ago using, I believe, a Tokyo P.O. box as an address. Yes, this is still going on!

They, the IRS, are after the scammers not those that are completely honest.

A UAL F/A trying, it seems, to use a loophole or is trying a fast one, Is Lucky she's not going to jail Mrs. Snipes!

Funny, if you tell people from other countries, ie; Canada, Australia and England, that it's coming to their country they say NEVER! Guess what, it is! Governments are up turning rocks to find all sorts of bugs hiding.

You would be shocked at what some get away with and have for years.

Happy Holidays

NEDude
12-07-2015, 09:26 PM
There are two different tests. People do try to trick the system and get caught. It then puts the spotlight on everyone. I know passport holders who do not file U.S. taxes and use a second, or foreign passport, as their id. I keep telling them they will get caught but they are convinced they won't.

In addition, I know people that say they work for a foreign company and use the exclusion. They then say to the foreign tax department that they are in the U.S. thus double dipping. Imagine that!

Northwest pilots were caught years ago using, I believe, a Tokyo P.O. box as an address. Yes, this is still going on!

They, the IRS, are after the scammers not those that are completely honest.

A UAL F/A trying, it seems, to use a loophole or is trying a fast one, Is Lucky she's not going to jail Mrs. Snipes!

Funny, if you tell people from other countries, ie; Canada, Australia and England, that it's coming to their country they say NEVER! Guess what, it is! Governments are up turning rocks to find all sorts of bugs hiding.

You would be shocked at what some get away with and have for years.

Happy Holidays

The difference between the U.S. and other countries is that the U.S. is one of only two countries in the world that practices citizenship based taxation. The only other country is Eritrea in Africa. That means the U.S. taxes all of its citizens, regardless of place of residence, on their worldwide income. Yes there are some exclusions such as the Foreign Earned Income exclusion, and tax treaties that reduce some (but most definitely not all) double taxation. But the fact is if you are a U.S. citizen you are required to file a tax return to the IRS every year, regardless of where you live or where you earn your money.

Every other developed nation practices what is known as residence based taxation, meaning they only tax their established residents on their global income. Citizens who reside in other countries are not responsible to file income tax returns, or pay taxes to, their home country if they do not reside there. That is why places like Monaco and the UAE are so attractive to so many people. If the citizens of most countries take up residence in those places, all of their income becomes tax free. But the key is they have to be official and practical residents of those countries. Tennis star Boris Becker got caught cheating the German tax authorities by claiming he resided in Monaco, meaning he did not have to pay German taxes. But the German authorities were able to prove he spent more than 180 days per year at his residence in Munich, thus making him officially resident in Germany and responsible to pay German taxes.

So many of the methods the United States is using to go after tax cheats who hide money overseas (FATCA, FBAR, etc) are not really applicable to citizens of other countries because the way they practice taxation is different.

As a side note, the United States has criticised Eritrea's 2% citizenship based taxation system in its human rights reports. Meanwhile the United States hypocritically practices the same system with a significantly higher tax rate.

Typhoonpilot
12-07-2015, 11:48 PM
I am not claiming to be fully knowledgable about tax issues. But I do know there have been others on here who have claimed that the IRS has attempted to collect taxes from pilots (and flight attendants and sailors too) who spend much of their time in international airspace or waters, even if they are working for a foreign company. Not quite sure how or if the IRS is capable of tracking all of your international travel other than when you entered and departed the United States or how they can prove when or if you were in international airspace. But supposedly they have made attempts in the past to collect on that income.




It's not a claim. I know three pilots personally who have had that specific audit from the IRS.

Any pilot who files for the foreign earned income exclusion would be well advised to keep thorough records of all their flights (including any flight path maps) to be able to record, to the minute, their percentage of time in/over international waters. The IRS will want proof and they place the burden on you, the taxpayer, to prove your exact percentage of work time in international airspace. When you include ground duties, etc the actual percentage can be quite small.

As a result of those ongoing audits I actively bid to fly trips that kept me over land most of the time and kept all the flight path maps to prove it.


Typhoonpilot

NEDude
12-08-2015, 06:59 AM
It's not a claim. I know three pilots personally who have had that specific audit from the IRS.

Any pilot who files for the foreign earned income exclusion would be well advised to keep thorough records of all their flights (including any flight path maps) to be able to record, to the minute, their percentage of time in/over international waters. The IRS will want proof and they place the burden on you, the taxpayer, to prove your exact percentage of work time in international airspace. When you include ground duties, etc the actual percentage can be quite small.

As a result of those ongoing audits I actively bid to fly trips that kept me over land most of the time and kept all the flight path maps to prove it.


Typhoonpilot

Expats are an easy target. Politicians from both parties can make us out to be the bad guys, and for the most part they do not have to answer to us. Many of the laws tax laws targeting expats have very low overhead cost to the US government for implementation but according to CBO analysis have the potential for significant windfall. So these laws are often supported on a bi-partisan basis which means the chance for repealing them is extremely small. Also expats are the only group who has seen an increase in IRS audits in the past few years, so not only are politicians focusing on expats, the IRS is as well.

So again the point is made, if you work overseas, or are considering it, make sure you are 100% tax compliant (or if you have a second passport, use that for your overseas work so if the IRS takes your U.S. passport you can at least still work).

Probe
12-08-2015, 06:04 PM
It's not a claim. I know three pilots personally who have had that specific audit from the IRS.

Any pilot who files for the foreign earned income exclusion would be well advised to keep thorough records of all their flights (including any flight path maps) to be able to record, to the minute, their percentage of time in/over international waters. The IRS will want proof and they place the burden on you, the taxpayer, to prove your exact percentage of work time in international airspace. When you include ground duties, etc the actual percentage can be quite small.

As a result of those ongoing audits I actively bid to fly trips that kept me over land most of the time and kept all the flight path maps to prove it.


Typhoonpilot

I worked with about 30 american pilots at 2 different foreign airlines from 2008-2012. As far as I know, only a couple of us DIDN'T get audited. Several of us, including me, have been audited twice.

We had to provide copies of our logbooks, and calculate the overwater time for each leg. Luckily, there were only a few legs, and they were always the same amount.

Most of us also got hit with a claim that we were contractors and not employees, and owed self-employment tax. As far as I know, all of us won this as well. I am fighting this one for the second time. I should win as well this time

A few had their "bonifide residence" claim challenged, and they had to provide proof of apartment lease, drivers license, etc, to prove they passed that test.

Apparently the IRS doesn't like expat pilots. Here is the painful part. They don't audit you right away. They wait 3 years. Then, they apply a penalty starting 3 years ago, and charge 40% interest per year on the tax and penalty. Your bill gets really big, really quick.

NEDude
12-08-2015, 10:34 PM
I worked with about 30 american pilots at 2 different foreign airlines from 2008-2012. As far as I know, only a couple of us DIDN'T get audited. Several of us, including me, have been audited twice.

We had to provide copies of our logbooks, and calculate the overwater time for each leg. Luckily, there were only a few legs, and they were always the same amount.

Most of us also got hit with a claim that we were contractors and not employees, and owed self-employment tax. As far as I know, all of us won this as well. I am fighting this one for the second time. I should win as well this time

A few had their "bonifide residence" claim challenged, and they had to provide proof of apartment lease, drivers license, etc, to prove they passed that test.

Apparently the IRS doesn't like expat pilots. Here is the painful part. They don't audit you right away. They wait 3 years. Then, they apply a penalty starting 3 years ago, and charge 40% interest per year on the tax and penalty. Your bill gets really big, really quick.

Just curious, how does the auditing process work when you are resident overseas? Do they come to you, do you have to travel someplace to meet with them, or is it all done by email/snailmail?

Probe
12-09-2015, 01:06 AM
The IRS does not do email. Period. If you get an email, it is a phishing scam. That is the good news. The bad news is the IRS does not do email. Everything is snail mail. For me, I have a mail forwarding service. I pay all bills online, so sometimes I don't get mail for 3+ months.

The other thing I learned, is you are not dealing with the IRS. You are dealing with somebody that works for the IRS. They have different agendas, and different levels of knowledge and experience.

The worst I heard, the guy was a [email protected] They had to go to a meeting with their accountant with the the IRS. My first, the guy was friendly, scary knowledgeable (pilot stuff), and professional. Handled with a couple of mailings and phone calls. My current one is the second worst I have heard of. I am dealing with the village idiot at the wrong division of the IRS (ss-8). She dragged it out so long, I had to petition for the tax court. Now I am dealing with the IRS's lawyer, on her first case, I believe. The sister of the village idiot. I will win, even if I have to go to tax court. But it is still a pain in the a$$.

And I did everything correct, and above board. I owe nothing, legally.

NEDude
12-09-2015, 01:32 AM
The IRS does not do email. Period. If you get an email, it is a phishing scam. That is the good news. The bad news is the IRS does not do email. Everything is snail mail. For me, I have a mail forwarding service. I pay all bills online, so sometimes I don't get mail for 3+ months.

The other thing I learned, is you are not dealing with the IRS. You are dealing with somebody that works for the IRS. They have different agendas, and different levels of knowledge and experience.

The worst I heard, the guy was a [email protected] They had to go to a meeting with their accountant with the the IRS. My first, the guy was friendly, scary knowledgeable (pilot stuff), and professional. Handled with a couple of mailings and phone calls. My current one is the second worst I have heard of. I am dealing with the village idiot at the wrong division of the IRS (ss-8). She dragged it out so long, I had to petition for the tax court. Now I am dealing with the IRS's lawyer, on her first case, I believe. The sister of the village idiot. I will win, even if I have to go to tax court. But it is still a pain in the a$$.

And I did everything correct, and above board. I owe nothing, legally.

What a pain. I wonder how it works for people who have renounced their citizenship and the IRS decides to take a look at the filings from the period prior to the renunciation. I am not there yet, but I am considering it. I have been in Europe long enough and have zero plans on returning to the States to live. Due to the tax issue and now the banking and investment issues caused by FATCA, holding on the blue passport does not seem to make any logical sense.

Braniff DC8
12-09-2015, 10:21 PM
Just be careful how you give it back! You may never step in the states again and imagine if an employer needs you to! I think Tina Turner might not be coming back for her next world tour.

The U.S. is not perfect but again people do try and cheat. Me, never a problem, at least not yet. I contacted the IRS myself and they told me all is ok. It may seem silly but I'd rather know ahead of time. Now I keep everything and send it in with my taxes so, no questions.

If you in fact get audited it's because your tax return was flagged for some reason.

I know a guy that's been audited three times and owes 60,000$ plus USD. He says it's not right and is fighting. Of course he does not tell you all the details like some things I mentioned in a previous post. I know for a fact he's trying to cheat the system. I know another guy personally that uses a different passport to enter and leave the U.S. even though he was born in the U.S. and has a U.S. passport. He has not filed in years and says he won't get caught. You'd think he'd say nothing as one phone call would fix that. I am not so mean as I know someday he'll get caught and it will be bad. I've told him and when I do he gets angry with me. Some just never listen.

My point is, DO NOT try and cheat EVER. Have a good accountant and have a lawyer you either know or someone else does so if it comes up. There is also the advocate which is quite good. I used them and they sorted an issue out for me. Went all the way to Washington.

NEDude
12-10-2015, 12:25 AM
Just be careful how you give it back! You may never step in the states again and imagine if an employer needs you to! I think Tina Turner might not be coming back for her next world tour.

The U.S. is not perfect but again people do try and cheat. Me, never a problem, at least not yet. I contacted the IRS myself and they told me all is ok. It may seem silly but I'd rather know ahead of time. Now I keep everything and send it in with my taxes so, no questions.

If you in fact get audited it's because your tax return was flagged for some reason.

I know a guy that's been audited three times and owes 60,000$ plus USD. He says it's not right and is fighting. Of course he does not tell you all the details like some things I mentioned in a previous post. I know for a fact he's trying to cheat the system. I know another guy personally that uses a different passport to enter and leave the U.S. even though he was born in the U.S. and has a U.S. passport. He has not filed in years and says he won't get caught. You'd think he'd say nothing as one phone call would fix that. I am not so mean as I know someday he'll get caught and it will be bad. I've told him and when I do he gets angry with me. Some just never listen.

My point is, DO NOT try and cheat EVER. Have a good accountant and have a lawyer you either know or someone else does so if it comes up. There is also the advocate which is quite good. I used them and they sorted an issue out for me. Went all the way to Washington.

You MAY only be barred from entering the United States if the Department of Homeland Security has determined you renounced your citizenship for the purposes of avoiding U.S. taxes. The policy has been on the books since 1996 but has never been implemented and most legal experts question the legality of such a policy. Even though it has never been implemented, experts on renunciation advise people who are considering it to never mention taxes in the embassy/consulate interviews, and to make sure you are 100% tax compliant prior to renunciation.

Tina Turner did not renounce her citizenship, she relinquished it (big and very important difference) by virtue of obtaining Swiss citizenship with the purpose of relinquishing her U.S. citizenship. She has in fact made several trips back to the United States since relinquishing her citizenship.

The IRS does do random audits, it is quite possible to be audited even if your return is not flagged. That is part of the issue right now, the IRS has reduced the number of random audits for domestic returns, but it has significantly increased the random audits from overseas filers. So you can do everything 100% correctly, not have any red flags, and still get audited. This is part of the recent focus on expatriate Americans. Ever since the Swiss banking scandal the IRS and Treasury Department have been focusing on going after Americans overseas because the assumption is Americans overseas are hiding money. In many ways you are considered a tax cheat until proven otherwise. Your FBAR form has to be filed with the Financial Crimes Enforcement Network of the Department of the Treasury. So by virtue of having a bank account located overseas you are having to submit paperwork to a federal criminal investigation service.

Anyway I do agree you should do everything 100% above the board. But given the 80,000 pages of U.S. tax code, the target the federal government has put on your back by virtue of living/working overseas, the draconian penalties that can be assessed, and the many banking hassles those of us who permanently live overseas are now having to deal with, it makes renunciation much more attractive.

Braniff DC8
12-10-2015, 08:21 PM
The Tina Turner thing was joke. I do not agree though that the audits are completely random. Random is random and I find it odd that they seem to be a lot of pilots getting randomly targeted. I bring up again the NWA P.O. Box issue in Tokyo years ago. I also keep bringing up personal knowledge that I have of individuals. All of the people all know are trying to be sneaky and have things to hide. Again, read the tests for the exclusions. You MUST meet either of the tests, if you do not, you cannot claim an exemption. Look at the UAL F/A again. The fact that she is even trying is crazy.

I am not a tax expert but have been through enough with the IRS to have some decent knowledge.

Checked in
01-15-2016, 12:25 PM
I wouldn't expect that an employee working for a US airline would ever be eligible for the foreign tax break. The break is intended to be for people who work for foreign companies, and satisfy the physical presence test or have bonafide residence status outside the US.

Lucky8888
01-15-2016, 09:49 PM
Some of you guys/gals may find this interesting...

The IRS has a bold, brand new power. It can take away your passport | Fox News (http://www.foxnews.com/opinion/2016/01/06/irs-has-bold-brand-new-power-it-can-take-away-your-passport.html?intcmp=hplnws)

Probe
01-17-2016, 02:59 AM
I wouldn't expect that an employee working for a US airline would ever be eligible for the foreign tax break. The break is intended to be for people who work for foreign companies, and satisfy the physical presence test or have bonafide residence status outside the US.

My legacy airline used to have a TDY base in HKG for a number of years. I heard they used the exemption. I don't know if what legal or not.

iflysky
01-17-2016, 12:39 PM
This comes directly from IRS Pub. 54 (pg.34 QnA)

" 5) My U.S. employer pays my salary into my U.S. bank account. Is this income considered earned in the United States or is it considered foreign earned income?

If you performed the services to earn this salary outside the United States, your salary is considered earned abroad. It does not matter that you are paid by a U.S. employer or that your salary is deposited in a U.S. bank account in the United States. The source of salary, wages, commissions, and other personal service income is the place where you perform the services. "

However, despite the above provision, I still strongly recomend consulting a professional CPA or an attorney specializing in foreign taxes. Everyone's situation is different and can be interpreted differently by the IRS.

Lucky8888
01-17-2016, 05:41 PM
I wouldn't expect that an employee working for a US airline would ever be eligible for the foreign tax break. The break is intended to be for people who work for foreign companies, and satisfy the physical presence test or have bonafide residence status outside the US.

You don't have to work for a foreign company to be entitled to the Foreign Tax Credit but you do have to satisfy either the physical presence test or have a bonafide residence outside the U.S. like you said. In other words, a person could work for a U.S. company abroad and so long as the residence test are met, they would be entitled.

NEDude
01-18-2016, 07:11 AM
This comes directly from IRS Pub. 54 (pg.34 QnA)

" 5) My U.S. employer pays my salary into my U.S. bank account. Is this income considered earned in the United States or is it considered foreign earned income?

If you performed the services to earn this salary outside the United States, your salary is considered earned abroad. It does not matter that you are paid by a U.S. employer or that your salary is deposited in a U.S. bank account in the United States. The source of salary, wages, commissions, and other personal service income is the place where you perform the services. "

However, despite the above provision, I still strongly recomend consulting a professional CPA or an attorney specializing in foreign taxes. Everyone's situation is different and can be interpreted differently by the IRS.

The wording here is very interesting. It clearly states in this publication that if the money is earned outside the United States then it qualifies as foreign earned income. But the practice has been that only money earned in a foreign country counts. The difference being that in this publication you could make the case that money earned in international airspace should count for the foreign earned income exclusion because it is earned outside the United States. Of course this is the IRS/US government we are talking about here, so conflicting information should be no surprise..

Typhoonpilot
01-18-2016, 07:18 AM
The wording here is very interesting. It clearly states in this publication that if the money is earned outside the United States then it qualifies as foreign earned income. But the practice has been that only money earned in a foreign country counts. The difference being that in this publication you could make the case that money earned in international airspace should count for the foreign earned income exclusion because it is earned outside the United States. Of course this is the IRS/US government we are talking about here, so conflicting information should be no surprise..


"International waters" is not a foreign country. That is the IRS position that is causing so many audits of expat pilots. Truly petty and not in the spirit of the foreign earned income exclusion, but it's the U.S. government so I guess we shouldn't expect much else.


TP

NEDude
01-19-2016, 04:55 AM
"International waters" is not a foreign country. That is the IRS position that is causing so many audits of expat pilots. Truly petty and not in the spirit of the foreign earned income exclusion, but it's the U.S. government so I guess we shouldn't expect much else.


TP

But "International Waters" is "outside the United States". Like I said, the wording in the IRS publication contradicts the practice of the IRS.

iflysky
01-19-2016, 11:13 AM
But "International Waters" is "outside the United States". Like I said, the wording in the IRS publication contradicts the practice of the IRS.

Pg.13 same doc.

"To meet the bona fide residence test or the physical presence test, you must live in or be present in a foreign country. A foreign country includes any territory under the sovereignty of a government other than that of the United States.
The term “foreign country” includes the country's airspace and territorial waters, but not international waters and the airspace above."

Probe
01-19-2016, 07:36 PM
"International waters" is not a foreign country. That is the IRS position that is causing so many audits of expat pilots. Truly petty and not in the spirit of the foreign earned income exclusion, but it's the U.S. government so I guess we shouldn't expect much else.


TP

When I first heard about this (my first audit 3 years ago) I thought it was a mistake, and still do. I believe it should be "on or over international waters in a US flagged vessel or aircraft". Any flagged vessel or aircraft is legally a little slice of the home country, and has special rights, no matter where it sits in the world. I don't think being over international water in a Chinese or UAE flagged aircraft should count as US income.

My current audit did not include this. It is just a determination of whether I was a contractor or employee. But the instructions for a form I used includes the term US flagged vessel or aircraft. I will try to find it and post it.

I worked with about 30+ americans at two jobs. All but a couple have been audited. Some twice, including me. After the first one they sent me a check for 600 or 700 dollars. This time they will just owe me a bunch more in foreign tax credits. Still a PITA

whalesurfer
01-22-2016, 11:17 PM
There is no news here. You can live overseas, but if you are employed in the USA there is no foreign earned income exemption because it is not foreign earned income! I lived and worked overseas and had the foreign earned income exemption...
..There is no mystery here. Just follow the rules. Turbotax basic or H&R Block basic software or will keep you out of trouble.

Read the post again. Yes, there's definitely news here and your situation had nothing to do with what the flight attendant was trying to achieve.

"...The second issue at hand is that the Supreme Court refused to hear the case of an United flight attendant, who is an American citizen and based in Hong Kong, who attempted to claim the foreign income exclusion for all of her income.."

She merely wanted the US to treat foreign income the way most of of the world does. The US is one of very few countries where - as long as you're a citizen - you have to pay US income taxes (above the exclusion) no matter what. ..of course, since that person lives in another country, often permanently, he or she also pays taxes there..

For example - let's say you were born in the US and as a child moved to Canada, have lived there your entire life, paid taxes there, got married there, are a permanent resident ("green card" holder) or even a citizen there and have no plans of ever moving to the US - as long as you have a US passport - you have to pay US income tax (above the exclusion).
That's what this flight attendant was trying to challenge. Most countries allow you to keep your citizenship and won't charge you taxes even if you choose to live somewhere else permanently as long as you don't use their benefits (health care, pension, etc.) you shouldn't have to surrender your US passport to avoid paying US taxes.

From the article below:
Unlike most countries, the U.S. taxes citizens on all income, no matter where it is earned or where they live..

http://money.cnn.com/2015/05/08/pf/taxes/american-expats-passports-renounce/

aupilot
01-23-2016, 12:50 AM
Out of curiosity, does there seem to be a region or airline where most of the IRS audits are focused? I have been working in Japan for 7 years and have not heard of too many guys here being audited.

Probe
01-23-2016, 06:19 PM
Read the post again. Yes, there's definitely news here and your situation had nothing to do with what the flight attendant was trying to achieve.

"...The second issue at hand is that the Supreme Court refused to hear the case of an United flight attendant, who is an American citizen and based in Hong Kong, who attempted to claim the foreign income exclusion for all of her income.."

She merely wanted the US to treat foreign income the way most of of the world does. The US is one of very few countries where - as long as you're a citizen - you have to pay US income taxes (above the exclusion) no matter what. ..of course, since that person lives in another country, often permanently, he or she also pays taxes there..

For example - let's say you were born in the US and as a child moved to Canada, have lived there your entire life, paid taxes there, got married there, are a permanent resident ("green card" holder) or even a citizen there and have no plans of ever moving to the US - as long as you have a US passport - you have to pay US income tax (above the exclusion).
That's what this flight attendant was trying to challenge. Most countries allow you to keep your citizenship and won't charge you taxes even if you choose to live somewhere else permanently as long as you don't use their benefits (health care, pension, etc.) you shouldn't have to surrender your US passport to avoid paying US taxes.

From the article below:
Unlike most countries, the U.S. taxes citizens on all income, no matter where it is earned or where they live..

Record 1,335 Americans give up their passports - May. 8, 2015 (http://money.cnn.com/2015/05/08/pf/taxes/american-expats-passports-renounce/)

Except for taxi time, almost of a HK based UA flight attendant would be "on over over international water".

whalesurfer
01-24-2016, 06:44 AM
Except for taxi time, almost of a HK based UA flight attendant would be "on over over international water".

What is your point? Did your read the article and the entire post? I think we're talking apples and oranges.. Simple put I'm not sure we're discussing the same issue here?

NEDude
01-24-2016, 06:58 AM
Read the post again. Yes, there's definitely news here and your situation had nothing to do with what the flight attendant was trying to achieve.

"...The second issue at hand is that the Supreme Court refused to hear the case of an United flight attendant, who is an American citizen and based in Hong Kong, who attempted to claim the foreign income exclusion for all of her income.."

She merely wanted the US to treat foreign income the way most of of the world does. The US is one of very few countries where - as long as you're a citizen - you have to pay US income taxes (above the exclusion) no matter what. ..of course, since that person lives in another country, often permanently, he or she also pays taxes there..

For example - let's say you were born in the US and as a child moved to Canada, have lived there your entire life, paid taxes there, got married there, are a permanent resident ("green card" holder) or even a citizen there and have no plans of ever moving to the US - as long as you have a US passport - you have to pay US income tax (above the exclusion).
That's what this flight attendant was trying to challenge. Most countries allow you to keep your citizenship and won't charge you taxes even if you choose to live somewhere else permanently as long as you don't use their benefits (health care, pension, etc.) you shouldn't have to surrender your US passport to avoid paying US taxes.

From the article below:
Unlike most countries, the U.S. taxes citizens on all income, no matter where it is earned or where they live..

Record 1,335 Americans give up their passports - May. 8, 2015 (http://money.cnn.com/2015/05/08/pf/taxes/american-expats-passports-renounce/)

It makes being an expat American very difficult. Throw in the FATCA issues (closed bank accounts, denied mortgages, limited investment options) and it can be virtually impossible to move your life overseas if you are an American. You will always need to keep one foot in the States, even if you never plan to return. Your only option to live a normal life outside of the States is to relinquish or renounce your U.S. citizenship.

whalesurfer
01-24-2016, 07:29 AM
It makes being an expat American very difficult. Throw in the FATCA issues (closed bank accounts, denied mortgages, limited investment options) and it can be virtually impossible to move your life overseas if you are an American. You will always need to keep one foot in the States, even if you never plan to return. Your only option to live a normal life outside of the States is to relinquish or renounce your U.S. citizenship.

You're absolutely correct. ..and that's exactly why this flight attendant was trying to challenge the IRS. She was NOT trying to argue if this or that should qualifies as overseas income. She was arguing that income taxes should be assessed based on ones residency and not ones passport. That's how the entire world, except the US and Eritrea, does it.

Here's an excellent article which explains the differences between the US and the rest of the world when it comes to taxation..

"...The U.S. is the only country that taxes its citizens on their world-wide income, no matter where they live.
OK, there’s also Eritrea. It imposes what is derisively termed a “diaspora tax” on its citizens.
Otherwise, though, the basic rule is that countries impose their taxes on individuals based on their residency, not their citizenship..."

Tax History: Why U.S. Pursues Citizens Overseas - Washington Wire - WSJ (http://www.wsj.com/articles/BL-WB-34630)

NEDude
01-24-2016, 08:07 PM
You're absolutely correct. ..and that's exactly why this flight attendant was trying to challenge the IRS. She was NOT trying to argue if this or that should qualifies as overseas income. She was arguing that income taxes should be assessed based on ones residency and not ones passport. That's how the entire world, except the US and Eritrea, does it.

Here's an excellent article which explains the differences between the US and the rest of the world when it comes to taxation..

"...The U.S. is the only country that taxes its citizens on their world-wide income, no matter where they live.
OK, there’s also Eritrea. It imposes what is derisively termed a “diaspora tax” on its citizens.
Otherwise, though, the basic rule is that countries impose their taxes on individuals based on their residency, not their citizenship..."

Tax History: Why U.S. Pursues Citizens Overseas - Washington Wire - WSJ (http://www.wsj.com/articles/BL-WB-34630)

There is a group based in Canada called the Isaac Brock Society that is focused on all things dealing with American expats when it comes to citizenship based taxation, FATCA, FBAR and other requirements American expats have to deal with. A lot of good resources and information.

The Isaac Brock Society | Liberty and justice for all United States persons abroad (http://isaacbrocksociety.ca)

pierre66
01-28-2016, 05:27 PM
Haven't been on APC for a while but want to add to this post.

I'm an American that has had bona fide residence in China for the past 6 years, flying for a Chinese airline. Knew I was likely to get audited and thus kept thorough records all this time. Plus I got international tax attorney advice before even moving offshore.

Well, of course, last year they decided to take a shot at me. They audited my first and second year in China, both were flying 744's internationally. The examiner in Puerto Rico was completely invasive and relentless - after I snail mailed him 5 inches of documents he wanted, he began to nit-pick. I wanted to choke the fxxxxer but of course you have to bend over and take it or no doubt get placed on some list!

Anyhow, after proving my Chinese residence 3 different ways, one that required a special trip to Shanghai and obtaining police residence records, I won - as I knew I would from the outset. That was only the final part of the incessant and ridiculous demands this guy had.

The guy never said "okay" at the end, I just received a refund due notice in my USA snail mail. That was nearly 5 months ago and the $2,500 they owe me has still not shown up......

We were lucky enough to receive passports from a criminal, bankrupt and predatory government. They are scraping the barrel and we are easy, defenseless targets. The price we pay just to have the little blue travel document......:mad:

If I had been 5 years younger when I came over here I would have bought an economic citizenship from Dominica and renounced.

Starlifter
01-29-2016, 10:57 AM
Yes, they are after the small fish. Got a notice from my Austrian bank today with regards to FACTA. I received this same notice from my Slovak bank last Summer. Thank goodness I have been keeping thorough records for years...

Probe
02-04-2016, 05:42 PM
Here is from the IRS website:


https://www.irs.gov/Businesses/U.S.-Citizens-Performing-Services-in-Foreign-and-International-Airspace

Probe
02-04-2016, 05:43 PM
This one is good as well. It is from KPMG, and is written in plain language instead of the gibberish that is IRS forms and instructions.

http://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/USTAA_2013.pdf



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