U.S. abode binds Russian-employed taxpayer

A taxpayer’s strong ties to the United States led to denial of the foreign earned income exclusion despite his spending half his time living and working overseas.
By Maria M. Pirrone, CPA, LL.M.

The Tax Court denied the foreign earned income exclusion under Sec. 911 for a taxpayer who worked in Russia throughout the year but maintained his abode in the United States. According to the Tax Court, the taxpayer had stronger ties to the United States than to Russia.

Facts: Joel Evans, the taxpayer, lived and worked part of each year from 2007 to 2010 in Russia overseeing oil drilling operations. His work schedule consisted of alternating 30-day periods on and off duty. During his on-duty periods, he remained in employer-provided housing or on an offshore drilling platform in Russia. During his off-duty periods, Evans usually returned to Louisiana to spend time with his family. Throughout the years in issue, Evans held a Louisiana driver's license, had bank and credit card accounts in Louisiana, and maintained vehicles in Louisiana. His income tax returns and other mail listed his mother's home in Louisiana as his mailing address. On each of his tax returns for the years in question, Evans took the position that his tax home was in Russia and excluded his wages earned there from his gross income under Sec. 911(a).

The IRS determined that Evans was not entitled to claim the foreign earned income exclusion and mailed notices of deficiency for 2007—2010. Evans and his wife of the latter two years petitioned the Tax Court for relief.

Issues: Sec. 911 provides that to qualify for the foreign earned income exclusion, taxpayers must satisfy two requirements: First, they must have a tax home in a foreign country, and, second, they must be either a bona fide resident of one or more foreign countries or physically present in a foreign country during at least 330 days in a 12-month period. Sec. 911(d)(3) defines a "tax home" as the individual's home for purposes of travel away from home under Sec. 162(a)(2) and provides that an individual is not treated as having a foreign tax home for any period for which his or her abode is in the United States.

Additionally, Secs. 6662(a) and (b)(1) impose a 20% accuracy-related penalty upon the portion of any underpayment of tax that is attributable to (among other things) negligence or disregard of the tax rules or regulations.

Holding: The Tax Court held that during the time Evans worked in Russia, his tax home was in the United States. Citing Bujol, T.C. Memo. 1987-230, the court opined that a taxpayer's abode generally is in the country in which he or she has the strongest economic, family, and personal ties. According to the court, the taxpayer's ties to his home in Louisiana were stronger than his ties to Russia. The court described his ties to Russia as transitory, not extending beyond the minimum requirement to perform his duties. The court did not need to decide whether he met the second requirement for the exclusion by satisfying the bona fide residency requirement.

Additionally, the court refused to uphold the IRS's imposition of the 20% accuracy-related penalty since Evans had his returns prepared by a competent tax professional who was given full and accurate information but had advised him incorrectly. The court held that the taxpayer demonstrated reasonable cause and good faith by relying on the advice of a tax professional.

  • Evans, T.C. Memo. 2015-12

By Maria M. Pirrone, CPA, LL.M., assistant professor of taxation, St. John’s University, New York City


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