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February 9, 2016

Foreign Earned Income Exclusion (form 2555) for Pilots, Airline Crews and Sailors

Many US expatriates live abroad and work for international airlines or shipping companies.  If their planes and ships spend a lot of time traveling in International Waters (parts of the Ocean which do not belong to a country) when they attempt to claim the foreign earned income exclusion ($100,800) for their wages on their tax return they will have a surprise if they are audited.  It is probable they may get audited because the IRS makes them targets for audits when they show themselves as pilots, sailors, etc.

Time spend working on planes or ships while traveling across international waters does not count as working in a foreign country. Therefore the money earned while in International Waters is fully taxable the same as if you were living in the USA.  None of it is excludable.

If you are audited by the IRS they will want to see logs, and other proof showing how many hours were earned while over international waters and use those figures to pro-rate any exclusion you may be claiming between work in foreign countries and work over the ocean.  If you are not keeping such records you should since you as the taxpayer have the burden of proof.

Also, it would only be possible if you are a full time pilot or seaman to claim the exclusion for part of your income if you use the bonafide residence test on form 2555.  Need help with an audit or determining the rules that apply to your situation. Email us at and visit our website at  for more information.

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