Recall last year (2016), I explained, Gerencser v. IRS, TC Memo 2016-151 (Aug. 10) was the least significant of the Foreign Earned Income Exclusion cases for 2016 because the results were straightforward. That is, the IRS generally doesn’t let taxpayers double dip—you cannot deduct expenses you did not actually pay (because they were excluded from gross income under the Foreign Earned Income Exclusion).
Apparently, Mr. Gerencser disagreed. He appealed to the Ninth Circuit, which affirmed the Tax Court’s original denial on October 30, 2017. Docket No. 17-70134 (Unpublished) available at https://cdn.ca9.uscourts.gov/datastore/memoranda/2017/10/30/17-70134.pdf. In relevant part, the Circuit Court that heard the appeal held, “The Tax Court properly determined that Gerencser was not entitled to the foreign tax credit for tax years 2010 and 2011 because Gerencser had not paid any foreign taxes, and he failed to establish that he had accrued any foreign tax liability. See 26 U.S.C. §§ 901, 905 (explaining the foreign tax credit).” Note the foreign tax credit referenced is different from the Foreign Earned Income Exclusion.
So the $78,000 judgment against Mr. Gerencser was upheld. Fortunately, he did not spend money on an attorney to help with his appeal. He did, however, waste significant time and effort pursuing this frivolous appeal on his own. Perhaps a lawyer's consultation fee could have saved him this trouble.
As of this writing, it does not appear the other 2016 Foreign Earned Income Exclusion cases I reviewed last year have been appealed. It remains possible, however, as publication of a Federal Circuit Court’s opinion in a Tax Court appeal may take longer than one year.
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