IRS is Auditing Expats Claiming Foreign Earned Income Exclusion

We have recently learned the IRS office in Puerto Rico is conducting income tax audits of expatriates who claim the foreign earned income exclusion. To date it appears the tax audits may only be directed against those working on ships, pilots or oil platform workers. ..... but that is not clear. It is difficult for those living on ships, international pilots and those working on oil platforms to claim the foreign earned income exclusion since each 24 hour period spent on the high seas (outside of any country's territorial waters ) are not treated as time spent in a foreign country or as time spent in the U.S. They count for nothing and those working under these conditions must pay the entire tax bill and may not claim an exclusion.

The IRC Section 911 physical presence test requires that out of each 12 month fiscal year period, the taxpayer spends not more than 35 days in the U.S. and the rest of the time in a foreign country. Twenty four hour periods (ending at midnight) each day spent on the high seas counts as neither. The audit questionnaires used by the IRS in these audits are posted at www.taxmeless.com/irsaudits.htm

You should consider using these questionnaires as a guide to determine if you have adequate support if you are claiming the foreign earned income exclusion to win if audited by the IRS.