Three Tax Court cases addressed the issue of establishing a foreign tax home in 2017. Of these, the taxpayers in Acone v. IRS, T.C. Memo 2017-162 and Lock v. IRS, T.C. Summary Opinion 2017-10 failed to persuade the Court they had successfully established a foreign tax home. In the third, Linde v. IRS, T.C. Memo 2017-180, the taxpayer successfully established a foreign tax home. A taxpayer can improve planning for the Foreign Earned Income Exclusion deduction by comparing the legal analysis in these three cases is.
In Acone, the Tax Court summarized the facts and its holding as follows:
"Petitioner (Husband) flew airplanes for a South Korean airline company in 2011 and 2012, but he spent only about a third of each year in South Korea and more than 40% of each year in the United States. The Petitioner returned to his home in the United States frequently during those years and spent most of his days off in the United States, where his wife and house remained. He stayed in South Korea only when work required it, and stayed in the United States whenever he could. When Petitioner stayed in South Korea, he always stayed in the same hotel, provided to him at no cost by the airline, but stayed in various rooms in that hotel. Petitioner retained his U.S. citizenship, voting registration, driver’s license, bank accounts, and church membership. On their tax returns for 2011 and 2012, Petitioners (including the wife because it was a joint return) claimed an exclusion for “foreign earned income” under I.R.C. sec. 911(a)(1). The IRS disallowed the exclusions and determined tax deficiencies.
The Tax Court held, For 2011 and 2012, Petitioner (Husband) was not a “qualified individual” for purposes of the foreign earned income exclusion of I.R.C. Section 911(a), because his “abode” was “within the United States” for purposes of I.R.C. Section 911(d)(3) and because he was not a “bona fide resident” of South Korea for purposes of I.R.C. sec. 911(d)(1)(A)."
Many more specific factual details are available in the full opinion (available here https://scholar.google.com/scholar_case?case=8835087071946842576&q=T.C.+Memo+2017-162&hl=en&as_sdt=6,39). These are, however, of limited use for tax planning purposes because the Foreign Earned Income Exclusion was denied in these circumstances. Barring a successful appeal of this decision, a taxpayer should attempt to do more than Mr. Acone did to establish a foreign tax home in another country.
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