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IRS Steps Up Audits of U.S. Expatriates-Arbitrarily Denying FEIE to Civilian Workers in Iraq and Afghanistan-PART II-Is a person's abode in the U.S. if They Live and Work in a Foreign Country for 18 Months With Only 33 Days in the U.S.?

Well according to Taxpayer X it is official. He met with the Appeals Officer and they could not reach accord, so his next step is to tax this to Tax Court. The way this works is that anything that was put on the table by the AO is totally disregarded and the case will be based on the original findings and proposed assessments of the audit. As Taxpayer X is anxious to return to work as part of the 17,000 additional civilian workers that are now needed since the U.S. has withdrawn our combat troops he is hoping for a speedy hearing. Once again, this case will determine the true legislative definition of "abode" as used in the context of IRC Section 911(d)(3).

Once again IRC Sec. 911(d)(3) states that a person cannot have a foreign tax home if their abode is in the U.S. The example cited in the House Committee reports was a person living in Michigan who commuted daily to work in Canada and in such a situation would have a U.S. abode and U.S. tax home. In my humble opinion, this is clearly not the case of an American who resides in a foreign country and works in that country for a period of time otherwise not considered as being temporary for purposes of both Section 162 and 911(d)(3). Although facts and circumstances may prevent that person from being a bonafide resident of the foreign country if the person lives and works there for greater than a temporary stay, (IRS considers more than 12 months to be more than temporary for purposes of Section 911), I think it is difficult to argue that if the person satisfies the physical presence requirements of being outside the U.S. for 11 out of a consecutive 12 month period of time, that person's abode is in the U.S. However IRS Memorandum Number AM2009-003 that was released in February 2009 stated that civilian workers in Iraq and Afghanistan would be targeted for audit and that the IRS intended to claim that their abode was in the U.S. whenever possible.

More updates will be reported as they develop.



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