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Archive for January, 2015

A U.S. taxpayer was found ineligible for the foreign earned income exclusion under IRC section 911 with regard to his wages earned in Russia.  However, the U.S. Tax Court held that the taxpayer was not liable for accuracy-related penalties under IRC sections 6662 and 6664 with regard to the claimed exclusion.

The case involved a taxpayer who worked in the oil industry and was regularly posted to drilling locations overseas. During the years at issue, the taxpayer worked in Russia. When the taxpayer filed his U.S. tax returns, he excluded his wages earned in Russia from his gross income under IRC section 911(a).

IRC section 911(a) permits a “qualified individual” to exclude a limited amount of foreign earned income. Under IRC section 911(d)(1), a “qualified individual” must, among other requirements, maintain a tax home in a foreign country.

Under IRC section 911(d)(3), combined with IRC section 162(a)(2), an individual’s tax home is his principal place of employment. However, under IRC section 911(d)(3), an individual is not treated as having a tax home in a foreign country for any period during which the individual has his abode within the United States.

The U.S. Tax Court stated that a taxpayer’s abode is generally in the country in which the taxpayer has the strongest economic, family and personal ties, and in the present case, the taxpayer’s abode was in the United States. The U.S. Tax Court reached this conclusion on the grounds that:

  • the taxpayer owned a house in the United States;
  • while he was overseas, his first wife, his second wife and his daughter lived in the house or in his parent’s house located in the same city as his house;
  • the taxpayer regularly and frequently visited his family in the United States;
  • his business affairs were generally handled by his mother, whose address in the United States he used as his mailing address;
  • his driver’s license, voter registration, bank accounts and motor vehicles were all centered in the United States; and
  • his ties to Russia were entirely transitory and were not much beyond the minimum necessary to perform his duties there.

The U.S. Tax Court accordingly determined that the taxpayer was not eligible for the foreign earned income exclusion under IRC section 911.

However, the U.S. Tax Court declined to impose a 20% accuracy-related penalty under IRC section 6662(a) and (b)(1) because the taxpayer acted with reasonable cause and in good faith with regard to his underpayment of tax, which is an exception to the penalty under IRC section 6664(c)(1). The U.S. Tax Court found that the taxpayer reasonably relied on the advice of a competent tax professional, who advised that the taxpayer’s wages earned in Russia were eligible for the section 911 exclusion.

By Kimberlee Phelan, CPA, MBA, Practice Leader, WS+B’s International Services Group | 609.520.1188 | kphelan@withum.com

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sikora1This past August, I had the amazing opportunity to travel to Haiti and volunteer through an organization called Adventures in Missions (AIM). In my quest to make a lasting imprint on the hearts of orphaned children around the world, Haiti seemed like the perfect place for my next destination.

Haiti is not exactly your typical summer vacation spot. Although, it is ironically situated on the same island as the Dominican Republic, which is home to some of the world’s most beautiful and tropical beaches. Haiti is still very much suffering from the effects of the 2010 earthquake and also hurricane Sandy in 2012. It is amazing how a few hours of a terrible storm can lead to years of rebuilding.

I was part of a team of 11 people volunteering just outside of the capital of Haiti (Port-au-Prince), in a town called Merger. Fortunately for our group, AIM has wonderful contacts all over the globe and we were able to stay with a Haitian family and live the authentic Haitian lifestyle for a week. This meant — are you ready for it? — no electricity and no running water for an entire week. Call me crazy, but I actually enjoyed showering with a (very cold) bucket of water, brushing my teeth with a bottle of water (and no sink), pouring a bucket of water down the toilet in order to flush it, walking around with a flashlight glued to my head at night, and sleeping on the concrete roof of the house for a week. I also had the experience of being awoken by roosters every morning, witnessing some incredible sunrises, and being able to stare at a breathtaking rooftop view of the island of Haiti at my leisure. I can also confidently say that Haiti has some of the best food I’ve ever tasted!

sikora2We spent most of our time that week in a local nearby children’s orphanage. The orphanage is home to children ages infant to 18 years old, and it was an absolute joy to be able to spend time there. Unlike the orphanage in Africa that I know to have a complete random assortment of entertaining toys, this orphanage had next to nothing, and it was heartbreaking to see this. The children were ecstatic when we handed out toys and brought bubbles, coloring books, etc. The boys especially enjoyed watching this (All-)American girl showcase her skills with a soccer ball! [Editor’s note – I later schooled all the boys on the actual soccer field… here at WS+B, we work hard AND play hard!] Spending time with these children brought a lot of fun and laughter as well as some really awesome memories. The children loved more than anything to just sit next to you and hold your hand, and it brought me such joy to be able to give them that, if only for a few hours each day.

Outside of spending time in the orphanage, we also spent a lot of time out in the community of Merger and getting to know the locals. We met so many different people with so many inspiring stories. We were invited into many different homes and were offered an immense amount of hospitality by complete strangers. It is amazing how humble, gentle and genuine the people are in Haiti, and I was blown away by the respect and humility of their culture and people. I loved the time I was able to spend getting to know the people in Haiti for many reasons, but mainly because their happiness, contentment and joy are simply contagious.

sikora3My experience in Haiti was drastically different from any other experience I’ve ever had before, but to sum it all up, it was nothing short of amazing. Haiti is part of a beautiful island with a unique culture and some wonderful people! This was definitely one of those experiences where I feel as though I took away much more than I was able to give. Attitude of gratitude. Thanks Haiti! Hope to see you again very soon!

By Kathy Sikora, CPA | 609.520.1188 | ksikora@withum.com

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kangarooNo, I didn’t have any ‘shrimp on the barbie,’ or sparring sessions with any kangaroos…so what exactly did I do in Australia for three months?

The boring response would be that I audited different clients during their busy season. While this is true, I also had an amazing experience seeing many new sites, sounds and culture. A typical day in the office wasn’t much different then checking your mail in the morning, analytical procedures, making a client phone call to explain to a controller how to use the equity method of accounting, going through some lengthy yet necessary checklists and praying you can get a cash flow statement to reconcile at the first attempt. However, throughout the day you take notice of subtle things through conversing, such as learning that South Africans refer to traffic lights as robots or hear the gents bicker over last night’s rugby match. Even though English is their language, the Aussies have a tendency to truncate words and use lingo that can catch you off guard at times. Hint: thongs are flip-flops and Zed is just the letter “Z”. Also, I heard more Iggy music than I could put up with.

austraIt’s no surprise that Sydney is one of the most desirable places to live with the moderate winters, long summers, beaches and plenty of parks. The landscape and weather promotes outdoor activities like a walk through the ‘bush,’ a swim on a lunch-break or a game of netball (the most ridiculous knock-off of basketball ever {http://www.youtube.com/watch?v=bgr2zmq9CUk}). There are many waterways throughout the Sydney metro area which makes water transportation a means of commuting. I was one of approximately 4,000 people who took the Manly to Circular Quay service daily. I’d say the 30 minute ferry ride was one of the most memorable aspects because, aside from people watching, I got a daily dose of the Opera House and Harbour Bridge. Some days had high seas which was a thrill. Despite being a former penal colony where the British shipped, Sydney has a lot to offer which is why many British and other expatriates, relocate to the 6th largest country on Earth.

Oh, and they do say ‘mate’…excessively.

By Dan Richardson, CPA, MBA | 609.520.1188 | drichardson@withum.com

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