Airline Pilot Central Forums - foreign earned income exclusion

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In terms of taxes.... Stay FAR away from pilot ***** boards and talk to a tax professional...., I can't tell you how many times I have seen bogus information on one of these sites that sounds educated or correct.

I know a number of guys at KAL who do indeed claim the foreign earned income exemption. They have a residence permit in Korea, but live in the company's hotel when there. When they return to the USA on days off, they come back on a Gen Dec so it is as if they are on a layover even though they are on days off. Their passport is not stamped on entry to the USA. It seems to me that this arrangement could land one in some hot water with the IRS because they do not have residence in Korea, just a residence permit. But it is being done by a lot of people and they are getting away with it so far.

Quote:

Originally Posted by Tax Pilot (Post 1883700)

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.

"There are efforts underway to 1) increase the foreign earned income exclusion and 2) to assert pressure on the IRS to back off on the bizarre interpretation ( apparently a leap of logic from cases against merchant seamen )."

It is not only bizarre TP..., it is outright elegal as per the international laws regarding vessel sovereignty after the Tokyo agreement that came to effect after 1969. I understand if you are aboard an "N" registered airplane..., but according to the IRS, if I'm on a Japanese registered A/C on my way to Singapore, I'm in the US (although I never leave territories defined by FIR's) but when I'm in JFK on my way to somewhere else therefore in "transit" for less than 24 hours I'm not in the US.....! Oh the brilliance of our government.

U.S. tax laws are some of the most oppressive on earth. The rates may not be anywhere near the highest, but the actual laws, policies and penalties are about the most oppressive.

Being an expat American can be tough, we have it far worse than expats from other parts of the world. One of the biggest arguments for the American global tax policy is that you get U.S. protection abroad. However there are some very high profile cases recently where the U.S. did far less to protect its citizens abroad than most other countries. Look at those who were stuck in Yemen, Nepal and those captured by ISIS. The U.S. government left its citizens high and dry (or headless in the ISIS case), while other governments worked successfully to rescue their citizens. Americans in Nepal were urged to contact the Australians, Indians and Chinese for help getting out. The Russians have rescued many Americans trapped in Yemen.

Quote:

Originally Posted by The Dominican (Post 1885307)

It is not only bizarre TP...,

Wait a second, there can only be one "TP" :)

TP

Quote:

Originally Posted by The Dominican (Post 1885307)

I believe the IRS is incorrect in how they are enforcing "on or over international waters" as well. I believe it should ONLY be in a US flagged vessel. In a different sent of instructions for a different form, I did run across a reference to being in a US flagged vessel or aircraft. I can't remember where it was.

Even a foreign vessel sitting in a US port is technically a foreign sovereignty, and vice versa.

I am not in a position to hire a lawyer to fight the IRS on this, but I am pretty sure they are wrong.

Just don't pay any taxes...I know guys who never filed taxes and were flying overseas for years...There is no way the IRS can prove if your working overseas or not...Just come back to the U.S every 3-4 months for a few days to make it look like your a traveller...depositing your salary to a bank account in the U.S, now that's a different story...you can still say you were selling your family owned property overseas and that's how you got some money...

Quote:

Originally Posted by A330Pilot (Post 1887308)

VERY, VERY (!!!!) dangerous move. Terrible advice. After the passage of FATCA the IRS has begun to crack down on foreign accounts and investments. FATCA requires foreign banks to report all of their dealings with 'U.S. persons' to the IRS or face a 30% withholding on all U.S. investments. Officially the threshold is accounts of $50,000 and higher, but most banks are not taking chances and reporting all accounts. Most countries have agreed to sign on to FATCA, including China. So the IRS will know about any accounts you open overseas and will know how much money you have in them. You are also required to file an FBAR annually if your overseas accounts have a total of $10,000 or more. If your bank files a FATCA report, but you did not file a FBAR account, well, say goodbye to all of your money and get ready for some prison time.

Think you can get away with holding on to your money and just making a large deposit when you return? Nope, the banks are required to report any large deposits. People have tried to sneak large deposits into their accounts in small amounts and have been caught as well. Trying to avoid the reporting threshold is also a crime and will result in forfeiting your money and most likely prison time. Think you can just claim you were selling family property overseas? Think again because you will owe big time capital gains taxes on the sale of foreign property. Just do a Google search on 'Boris Johnson U.S. taxes' to see how it works. Boris Johnson is the U.S. born (and thus U.S. citizen) mayor of London. He ran into major IRS issues when he sold his London home a few years ago but did not pay taxes.

A few years ago hiding your overseas money from the IRS may have been feasible, but after the Swiss banking scandals the laws are such that it is now virtually impossible and the laws are very harsh. IRS audits have dropped in all categories except for Americans who do, or are suspected of living, working or holding money overseas.

Quote:

Originally Posted by NEDude (Post 1887363)

VERY, VERY (!!!!) dangerous move. Terrible advice. After the passage of FATCA the IRS has begun to crack down on foreign accounts and investments. FATCA requires foreign banks to report all of their dealings with 'U.S. persons' to the IRS or face a 30% withholding on all U.S. investments. Officially the threshold is accounts of $50,000 and higher, but most banks are not taking chances and reporting all accounts. Most countries have agreed to sign on to FATCA, including China. So the IRS will know about any accounts you open overseas and will know how much money you have in them. You are also required to file an FBAR annually if your overseas accounts have a total of $10,000 or more. If your bank files a FATCA report, but you did not file a FBAR account, well, say goodbye to all of your money and get ready for some prison time. Think you can get away with holding on to your money and just making a large deposit when you return? Nope, the banks are required to report any large deposits. People have tried to sneak large deposits into their accounts in small amounts and have been caught as well. Trying to avoid the reporting threshold is also a crime and will result in forfeiting your money and most likely prison time. Think you can just claim you were selling family property overseas? Think again because you will owe big time capital gains taxes on the sale of foreign property. Just do a Google search on 'Boris Johnson U.S. taxes' to see how it works. Boris Johnson is the U.S. born (and thus U.S. citizen) mayor of London. He ran into major IRS issues when he sold his London home a few years ago but did not pay taxes. A few years ago hiding your overseas money from the IRS may have been feasible, but after the Swiss banking scandals the laws are such that it is now virtually impossible and the laws are very harsh. IRS audits have dropped in all categories except for Americans who do, or are suspected of living, working or holding money overseas.

While that's true about FATCA the IRS is not going to know how much you have in your account nor will they know you even have an account. All FBAR really does is try to scare taxpayers. The govt of China is not going to contact the IRS and even if the IRS was to ask I highly doubt they would even say as many accounts for employees here are opened by the company so the expat is technically not the owner.

While one should file about these accounts you don't need to worry about them knowing how much. The mayors property was too public. Stay quiet is the best way