TAX Time
 

Hello ALL.
On another thread; I was told if you fly another country aircraft registration, you can include the Foreign Earned Income Exclusion (FEIE) to that income while over International Water.
I have checked with two Tax accountants and the answer from both was NO.
Be careful; you are GUILTY until proven INNOCENT in regards to the IRS.
:eek:

If you take tax advice from anywhere on the "Internet", without checking with a competent tax advisor, you deserve to be found "guilty". Stupid is as stupid does, Forrest.

Also, you're guilty (for all practical purposes) until proven innocent in all administrative law - not just with IRS (and FAA).

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

Is there any time that an audit on this been challenged that hasn't been won? All the instances that I have heard off have been won by the pilots.

Hey guys, I want to beleive as much as you that this interpretation is wrong. I will attaché the relative IRS ruling as soon as I can.
Dont kill the messenger. Thank You, happy weekend.

thanks rotor, I agree. All should take care in this issue. That is the reason I post this.

U.S. Citizens Performing Services in Foreign and International Airspace

check this out.

Has anyone looked up the official definitions of "services" etc in the IRC? Scattered throughout the 70,000+ pages of their convoluted code are words and catch phrases that are defined into specific definitions that do not suggest the obvious, and most of us do not fit their definition to tax us. Without going into too much detail, I didnt know we were "officers of a corporation" or "employees of the federal government" among other phrases they use to trick everyone into handing over all their money, bla bla bla. It makes for an interesting read, yet there is not much anyone can do about it unless youre lucky.

I am going through this exact scenario about flight time over international water right now. Another pilot from my legacy US airline went through it last year. We both flew for an asian carrier for a couple of years. He won his battle.

We get a letter from the IRS stating that 100 percent of our foreign income exclusion was denied because we were flying over water. It was 2-3 years prior so they tacked on penalties and 40% interest per year.
They claim it was "just to get our attention.

I had never heard of this, but the info they gave me says that any flight over international waters, outside of 3 miles from land, is US earned income, even on a foreign flagged carrier. I had to copy my logbooks and calculate time spent over international water.

Luckily only a very small amount (2% and 7%) of the two years was over water. I made enough that I should not owe any additional tax.

IRS Pr&$%cks.

That is why is pays to have a good tax accountant/lawyer when doing expat work.
The guy I use has had to re-educated the IRS on their rules more than once.

Hope you all had a nice weekend.

You all above for the most part think that you are so smart and can get someone smarter to help you avoid the IRS.

I believe the current IRS position is wrong. Does this make it right? Thats a laugh!

The funny thing is Rotor; he was the first to call me "Forrest".... good luck bud.

The "Forrest" description applies only if you're filing returns based solely on internet advice. Eventually the term will be replaced by "convicted felon" and "bankrupt". You, HotPot, are apparently doing it right. :)

In fact the overwater argument applies only at the start and end of your 330 day absence; IRS interpretations of such forays during other periods have been problematic. Yes, appeals have been successful, but every other part of your exclusion must be proper. Get a competent and experienced tax guy/gal to check your data and file your return.

One question is how many people who are audited for this write "pilot" or "foreign pilot" as their job title on the 1040? I wouldn't, under any circumstances, write "pilot" as my job title. Make up something that keeps you under the radar.


TP

There is NO requirement in the statutes to list any occupation. I have always answered N/A. However, when the IRS decides to harass you, that line will only help them if collection or enforcement action is needed, so why give them a head start? Education is key!

When obtained from proper sources, absolutely! I've said it before and I'll say it again, these sites are good sources for interview tips, QOL questions, operational procedures etc. that is what we are knowledgable of, when it comes to taxes, talk to a tax professional.

Dude, care to share your CPA,s info?

Thanks in advance. If you're unable, no probs, I'm sure there is someone else that can help.

There are 5 of us that flew at the same legacy carrier and foreign carrier at the same time. Of the 5, 2 so far, have already been audited.

Luckily the overwater rule had very little effect on us. We flew almost exclusively over land.

The first one to go through it used a professional accounting firm that claimed expertise in expat tax law. They fought it and won, but he said it was painful.

I would not try to hide from the IRS these days. Not divulging your occupation is not going to help when they look at other inputs that can red flag your return.

I fly inside the Great Wall for a reason. NOT by choice, thats for sure.

I hope this info is useful. Again, I have confirmed this with the best tax accountants.

Anyone have advice on a good ex-pat tax adviser? Preferably one that specializes in airline pilots?

Turbo Tax works like a charm! You can complete your tax return for free, but you will have to pay the fee if you want to file.