14,700 Total Offshore US Taxpayers Enter Voluntary Disclosure Program

The IRS has announced that 14,700 individual taxpayers filed by 10/15/09 to enter the Voluntary Offshore Disclosure Program. The filings disclosed bank accounts and other assets hidden in over 70 countries. The taxpayers entered the program in an attempt to reduce their penalties for failure to file certain forms with their tax returns to disclose their foreign bank accounts, foreign corporations, foreign trusts, etc.

New Tax Law Increases Penalties for Late Filing Partnership (1065) and Subchapter S Corporation Returns (1120S)

New High Cost Penalty  for Failure to File Partnership or S Corporation Returns on time!

Civil penalties apply for failure to file a partnership and S corporation returns. The penalty is $89 times the number of partners or shareholders for each month (or fraction of a month) that the failure continues, up to a maximum of 12 months for returns required to be filed after Dec. 31, 2008.

New law. Under the just enacted law, the base amount on which a penalty is computed for a failure with respect to filing either a partnership or S corporation return for a tax year beginning after Dec. 31, 2009, is increased to $195 per partner or shareholder. (Code Sec. 6698(b)(1) and Code Sec. 6699(b)(1), as amended by Act Sec. 16)
RIA observation: Over the fiscal period 2011 to 2019, this provision is projected to raise $642 million (partnership penalties) and $587 million (S corporation penalties).

Forbes Magazines 10 Best Places in World to Retire

Forbes has determined the 10 best places in the world to retire outside of the USA.  Factors they consider were not limited to taxes. They considered quality of life, health care, and other factors.  Some of the countries include France, Australia, Austria, Italy, Thailand, Malaysia,  Canada and Panama. Click here to read the article and more about their favorite countries.

Individual Income Tax Rates Around the World

We often are asked where is the best country to live and work in to reduce foreign taxes.  Wikepedia has a chart showing the various income tax rates for individuals and corporations in various countries. Check it out here.   Of course you can always consider Dubai which has no taxes.

Remember, so long as you are a US Citizen or permanent resident you still must file your US form 1040 with the IRS each year and report your worldwide income. Failure to file  timely special forms required for foreign financial accounts, foreign corporations, partnerships and trusts, and other related forms can also result in substantial penalties.

Mr. Schulman is pictured.  He is the Commissioner in charge at the INTERNAL REVENUE SERVICE and is primarily responsible for the dramatic  increase in international tax regulation at that agency.

RS Commissioner Doug Shulman's remarks before the AICPA's National Conference on Federal Taxation in Washington, D.C., on Oct. 26, 2009

In prepared remarks before the AICPA's National Conference on Federal Taxation on Oct. 26, IRS Commissioner Doug Shulman touched on a wide array of topics but the comments that will most likely attract the most interest involve what he called “the globa liz ation of tax administration.” Specifically, Shulman spoke of the dividends to be rea liz ed from the recently closed offshore settlement offer, and of the formation of a new Global High Wealth Industry group housed within its Large and Mid-Size Business (LMSB) operating division.

New IRS focus on global high wealth industry. Shulman announced that IRS was in the process of forming a Global High Wealth Industry group housed within its Large and Mid-Size Business (LMSB) operating division. This new unit will centra liz e and focus IRS compliance expertise involving high-wealth individuals and their related entities, which can often have an international component. Initially at least, IRS will be looking at individuals with “tens of millions of dollars of assets or income.”

A new unit was necessary, Shulman said, to properly deal with high wealth individuals' use of sophisticated financial, business, and investment arrangements with complicated legal structures and tax consequences. These may include trusts, real estate investments, royalty and licensing agreements, revenue-based or equity-sharing arrangements, private foundations, privately-held companies, and partnerships and other flow-through entities that require looking at the entire, and often huge, spectrum of transactions and entities. A single high wealth individual may have actual or ben eficial ownership of numerous related entities, sometimes alone and sometimes along with other family members or business associates. Shulman added that there are “other tax considerations regarding high wealth individuals, including international sourcing of income and tax residency, and offshore structures and bank accounts, to name just a few.”

IRS's game plan will be to take a unified look at the entire web of business entities controlled by a high wealth individual, to better understand the entire economic picture of the enterprise controlled by him or her and to assess the tax compliance of that overall enterprise (transfer tax as well as income tax issues). Shulman revealed that IRS has already begun hiring some agents and specialists, such as flow-through specialists and international examiners, and will add over time individuals with specia liz ed skills and expertise, such as economists to identify economic trends, appraisal experts to advise on valuation issues, and technical advisors to provide industry or specia liz ed tax expertise. Shulman said IRS “will also build new risk assessment techniques to identify high-income and high-wealth individuals and their related enterprises that should be reviewed holistically.”

Offshore income settlement offer. Over 7,500 people came forward under IRS's special offshore voluntary compliance program that ended on Oct. 15 (see Federal Taxes Weekly Alert 09/24/2009 and 04/02/2009). Shulman wouldn't speculate on how much tax money would be salvaged from the initiative but stressed that the effort will continue to pay off as taxpayers who are now back in the U.S. tax system will continue to pay taxes on their offshore income in the years to come.

Shulman also revealed that IRS will be mining the voluntary disclosure information from people who have come forward to identify financial institutions, advisors, and others who promoted or otherwise helped U.S. taxpayers hide assets and income offshore and skirt their tax responsibilities at home. In addition, IRS will increase its scrutiny of annual FBARs (Report of Foreign Bank and Financial Accounts) or foreign bank and financial account reports. Current law requires that U.S. taxpayers file an FBAR if their foreign financial accounts total more than $10,000, but current rules make it difficult to catch all of those who do not, Shulman said. Aside from the President's proposal for legislation that would toughen the reporting rules, there is an active project at IRS working to update definitions and instructions under the current FBAR rules. Shulman also revealed that future offshore efforts would be focused on multiple points around the globe, and that IRS is opening international Criminal Investigation offices in several new locations around the world ( Beijing , Panama City and Sydney ).

7,500 Give Offshore Tax Data to I.R.S.

By BLOOMBERG NEWS
Published: October 14, 2009

More than 7,500 American taxpayers have voluntarily disclosed secret offshore accounts to the Internal Revenue Service, which is cracking down on overseas tax evasion, the agency said on Wednesday.

Those who have come forward have provided information about accounts holding from $10,000 to $100 million since the I.R.S. extended a Sept. 23 deadline for participating in the voluntary disclosure program, said Doug Shulman, the I.R.S. commissioner.

People who come forward voluntarily can avoid criminal prosecution and their identities will remain a secret under federal law requiring tax records to be kept confidential.

The partial amnesty ends Thursday and will not be extended a second time, he said.

Americans with undeclared offshore accounts have been under growing pressure since Switzerland agreed Aug. 19 to hand over data to the authorities in the United States on as many as 4,450 UBS accounts. The move was to settle a lawsuit in which the United States had sought information on as many as 52,000 accounts.

“We’re going to be scouring the 7,500 disclosures to identify financial institutions, advisers and others” who helped taxpayers skirt their obligations, Mr. Shulman said in a conference call. “This entire effort is not just about UBS and a single country.”

It is not yet known how much overlap might exist between the names that UBS will eventually provide and the 7,500 people who have come forward to the I.R.S., Mr. Shulman said.

The I.R.S. will open offices in Beijing, Panama City and Sydney in connection with the investigation, which has revealed accounts held in 70 countries and on every continent except Antarctica, he said. The agency also intends to add about 800 employees in the next year and add staff to eight existing overseas offices, including Hong Kong and Barbados.

Congressional report focuses on international tax avoidance and evasion:

  The annual cost to the federal government of offshore tax abuses may reach as high as $100 billion per year, according to a Congressional Research Service (CRS) report released on Sept. 18. (R40623 - Tax Havens: International Tax Avoidance and Evasion) The government loses income tax revenue from individuals and corporations when profits and income are shifted into low-tax countries known as tax havens. Multinational firms are adept at artificially shifting profits from high-tax to low-tax jurisdictions, the report noted. One such method is to shift debt to high-tax jurisdictions. “Since tax on the income of foreign subsidiaries (except for certain passive income) is deferred until repatriated, this income can avoid current U.S. taxes and perhaps do so indefinitely,” CRS said. Individuals can evade taxes on passive income, such as interest, dividends, and capital gains, by not reporting income earned outside the U.S. There are several legislative proposals that address the problem of tax havens and associated evasion issues, including the Stop Tax Haven Abuse Act (S. 506, H.R. 1265; draft proposals by the Senate Finance Committee; two other related measures, S. 386 and S. 569; and an Obama administration proposal. “Most provisions to address profit shifting by multinational firms would involve changing the tax law by repealing or limiting deferral, limiting the ability of foreign tax credit to offset income, addressing check-the-box [a regulation introduced in the late '90s with provisions that were originally intended to simplify questions of whether a firm was a corporation or a partnership and that had unintended consequences for foreign firms], or even formula apportionment,” the report said. The administration's proposals include one to disallow overall deductions and foreign tax credits for deferred income and restrictions on the use of hybrid entities. Individual evasion could be reduced by proposals to increase information reporting and expand enforcement by shifting the burden of proof to the taxpayer and increasing penalties.

IR-2009-84 - IRS ANNOUNCES EXTENSION OF OFFSHORE VOLUNTARY DISCLOSURE PROGRAM DEADLINE TO 10/15/09

IR-2009-84, Sept. 21, 2009

WASHINGTON ─ The Internal Revenue Service today announced a one-time extension of the deadline for special voluntary disclosures by taxpayers with unreported income from hidden offshore accounts. These taxpayers now have until Oct. 15, 2009.

 

Under special provisions issued in March, taxpayers with these hidden accounts originally had until Sept. 23, 2009 to come forward. Those taxpayers who do not voluntarily disclose their hidden accounts by the new deadline face much harsher civil penalties, where applicable, and possible criminal prosecution.

IRS officials decided to extend this deadline after receiving repeated requests from tax practitioners and attorneys around the country following an influx of taxpayer requests. By extending the deadline for a short period of time, the IRS is providing relief for those taxpayers who had intended to come forward prior to the deadline, but faced logistical and administrative challenges in meeting it. The extension will allow tax preparers and attorneys the necessary time to interview and advise their backlog of taxpayers with these hidden accounts, and prepare the necessary paperwork to qualify for the special penalty provisions.

The IRS also announced that there will be no further extensions.

BLOOMBERG, AP AND NY TIMES CLAIM IRS HAS EXTENDED OFFSHORE VOLUNTARY DISCLOSURE PROGRAM UNTIL 10/15/09

Though not yet confirmed in writing by the IRS, Bloomberg, the NY Times and AP have all released stories that the IRS has extended the IRS Voluntary Offshore Disclosure Program deadline for apply to October 15, 2009. The final application date was previously September 23, 2009.  The IRS stated that it has already received 3,000 applications whereas in all of 2008 it only received 80 disclosure filings.

TAX AGENCIES TRACING TAX DODGERS ON LINE

It has been released that many State tax agencies are using social media and other on line social sites to successfully track down individuals who owe taxes and have failed to pay or file their returns.  Though the IRS may not be doing this yet (they are often slow), the success various States have had with this technique will no doubt result in the IRS doing the same in the future.  The Wall Street Journal Article on the techniques used can be found here.

Taxpayers Struggle to Come Clean After IRS To Get Secret accounts of UBS

Taxpayers are starting to pay attention to the existing IRS Offshore Voluntary Disclosure Program described in earlier postings on this blog. The program expires on 9/23/09. Click on title to this piece and go to the most current article on Yahoo. Even if your undisclosed accounts are not with UBS, it is predicted many other offshore and foreign banks will start revealing their US account holders to the IRS soon. Failure to disclose your offshore activities, accounts, etc. can result in huge monetary and criminal penalties. One individual on the list from Malibu California just pleaded guilty for a Swiss account he slowly built up over the years without showing it on his tax return for FBAR annual report of only $ 1 million.

Swiss Reach Deal with IRS - How Many Accounts will be Revealed is Unknown

The Swiss Government reached a deal today with the IRS to reveal an unknown number of the secret bank accounts with UBS AG which are owned by US Citizens. Click on the title to this article to read further information. It is said they have approximately 52,000 Americans with Secret accounts held in that Swiss Bank. The IRS Offshore Voluntary Disclosure Amnesty Program ends 9/23/09.

IRS ANNOUNCES FURTHER CHANGES IN TDF 90-22.1 FILING REQUIREMENTS

On August 7, 2009, the IRS announced as follows:

1. Persons (individuals and entities) with signature authority over, but no financial interest in, a foreign account will have until June 30, 2010, to file IRS Form TD F 90-22.1 for 2008, 2009, and earlier years, with respect to those accounts.

2. Persons (individuals and entities) with a financial interest in, or signature authority over, a foreign commingled fund (e.g. a mutual fund) will have until June 30, 2010, to file IRS Form TD F 90-22.1 for 2008, 2009, and earlier years, with respect to those accounts.

(See IRS Notice 2009-62).

For these two categories of persons, the June 30, 2010 filing deadline supplements the September 23, 2009 deadline for penalty free disclosure of foreign financial accounts established by the Internal Revenue Service for taxpayers who were unaware of the FBAR filing obligation and who did not have sufficient time to gather the information necessary to file by the annual June 30 deadline. All persons with an interest in a foreign financial account who are not covered by Notice 2009-62 must report such account by September 23, 2009.

The Treasury Department intends to issue regulations clarifying the FBAR filing requirements. The administrative relief granted by Notice 2009-62 provides time for the Treasury Department to consider comments, that are solicited in the Notice, on specific issues related to such filing requirements. Please access a copy of Notice 2009-62

OUR OBSERVATION: This would leave one to assume after that date if you have not filed your TDF forms for earlier years, the IRS may no longer accept a reasonable excuse and start imposing the $10,000 or more penalty per year for non-filing if they discover you have not filed. Therefore everyone has a short grace period to file all past unfiled TDF 90-22.1 forms.

IRS OFFSORE VOLUNTARY DISLCOSURE DEAL ENDS 9/23/09

More on the offshore disclosure program

A lot of Gringos living and working in Mexico have not been filing their US Income Tax Returns as required by U.S. Tax law. The Brits, Canadians and many those from many other countries in world, the U.S. Requires you file returns yearly no mater where you live or work in the world so long as you are a U.S. Citizen.

Some have put off their returns so long, that they are now afraid to surface and file them. Often that is an unfounded concern since due to the US foreign earned income exclusion and foreign tax credits, when many years past due returns are filed, no tax is found to be due anyway.

To try to bring U.S. Expatriates out of the closet, in March the IRS announced the Offshore Voluntary Disclosure Program which allows those who have not filed returns or who have filed returns and not included their foreign source income to correct these errors and have some certainty of what might happen when they do file those returns. Entering this program will avoid criminal action and will also set a predetermined limit on the amount of penalties which may be imposed.

Though the IRS envisions the program will mostly be used by wealthy taxpayers hiding assets and income abroad, unfortunately due to the its requirements it does immediately affect the average American working or operating a small business in Mexico.

The program is extremely complex and therefore cannot be fully explained with this article, but we will try to cover some of the major points. More details are available using the internet links set forth later below.

The general requirements:

 File last six years previously unfiled tax returns or amend your last six years tax returns to include all foreign source income.

 These returns should include all previously unfiled foreign tax forms required under us tax law such as those for foreign bank and financial accounts (TDF 90-22.1), foreign corporations (Form 5471), foreign partnerships, foreign LLCS, foreign investment companies, and foreign trusts or fideicomisos (Form 3520 and 3520A)(Mexican real estate trusts required by Mexican law). There are other US foreign tax forms too numerous to mention which also have high penalties for non filing.

 Pay all taxes, penalties and interest due on unpaid taxes

 Follow certain filing procedures requiring an anouncement you plan to participate in the program.

 In lieu of paying the extremely high penalties for failure to file the special foreign tax forms mentioned above, pay a penalty of 20% of the highest balance in all foreign bank and financial accounts during the year with the highest combined balances during that 6 year period. This is often much less than the year penalty for failing to file the form. For example the penalty for failure to file the foreign bank and financial account form (TDF 90-22.1) is $10,000 per year or more.

If you have reported all foreign income (including interest, dividends, corporate income, rents, etc) in your previously filed your tax returns for the past six years, but failed to include all of the special foreign forms (some of which are mentioned above) you are required to now file those forms with an amended return, and also include a reasonable excuse for your failure to file those forms and in most situations no penalties or additional taxes will be imposed. The IRS has failed to define what an acceptable reasonable excuse would be.

If your foreign activities have produced no taxable income during the past six years and you now file all required foreign forms that were previously omitted with amended returns for those years, no additional tax or penalties will be charged if you attach a reasonable excuse for failing to file the required foreign bank account report, foreign corporation report, foreign trust form (fideicomiso), etc.

Also if you failed to file your tax returns, but need to file returns for the period you lived and or worked abroad, and due to the nature of your income and activities have none of the special foreign income tax forms previously mentioned or on the the complete list are required to be filed, you can now file without any fear of the 20% penalty. All that would be owed is any tax due plus normal penalties and interest on that tax due. Form 2555 (to claim the foreign earned income exclusion) and form 1116 (Foreign tax credits) do not trigger the 20% penalty if filed late. However, in certain situations, the IRS can disallow the foreign earned income exclusion if a tax return is filed more than 18 months late and taxes are due with that return.

The IRS has indicated that it is possible after the 9/23/09 deadline for the Program, it will impose all civil, monetary and full criminal penalties against those who have not filed the required foreign income forms or who have failed to report their foreign source income by that deadline. Anyone who thinks they might have problems with nonreported foreign source income, unfiled returns, or unfiled special foreign tax forms should immediately consult with their legal and tax advisors to determine whether they should be participating in the Voluntary Disclosure Program or to file all past unfiled returns.

It should be noted that the IRS has currently been very successful with their program to force foreign banks and other financial institutions to disclose the names, etc. and all US citizens who have accounts. It is presumed they will be matching that data against the tax returns filed by those citizens.

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Relevant Web Links:

Wall Street Journal Article:http://online.wsj.com/article/SB124804796387763807.html

IRS Information:http://www.irs.gov/newsroom/article/0,,id=105689,00.html

Frequently Asked Questions: http://www.taxmeless.com/IRS%20Disclosure.htm

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Don D. Nelson, Attorney, C.P.A has been assisting US Citizens living abroad with their U.S. Income taxes for the past 20 years. His email is donnelsonattycpa@yahoo.com. His website includes a lot more information on the Offshore Disclosure Program and is located at www.TaxMeLess.com . His blog which includes the most current expat developments is at www.usexpatriate.blogspot.com. US phone number is 949-481-4094.

IRS VOLUNTARY OFFSHORE DISCLOSURE PROGRAM - ADDITIONAL QUESTIONS ANSWERED ON 6/24/09

The IRS in late June released additional guidance and explanations of its Voluntary Offshore Disclosure Program for Taxpayers who have not reported offshore income or filed the proper offshore forms with their tax returns (or failed to file returns at all). For the FAQ on this program click here.

NEW IRS OFFSHORE VOLUNTARY DISCLOSURE PROGRAM

In late March, 2009 the IRS instituted an offshore voluntary disclosure program and procedures limiting penalties that may be imposed if you have failed to report your offshore corporation, bank accounts, financial accounts, offshore trusts, or other offshore activities that require the filing of special IRS forms. This program will only remain in effect until September 23, 2009 which gives expatriates and others who have not reported foreign income, or filed the necessary IRS forms, a chance to come out into daylight and pay their taxes. If taxpayer fails to follow this procedure they may be liable for much higher penalties, and potential criminal prosecution.

Further descriptions of this program and how to comply are included in the recently released IRS "Frequently asked questions". You must file the last six years tax returns or amend the existing past six years returns if you have failed to report any foreign income on the returns you did file. You must also file the applicable forms including 5471 (foreign corporation), TDF 90-22.1 (foreign financial accounts), Forms 3520 and 3520A (foreign trusts), 926 ( Transfers to foreign corporations) and other forms involved in foreign income.

When you file the amendments, unfiled tax returns and forms you must pay all taxes and penalties on the unreported income as well as a 20% penalty based on the highest value you had in your foreign bank accounts or assets in your foreign corporation.

IRS Determines Countries In Which Early Departure Will Not Cause Disallowance of Foreign Earned Income Exclusion

In Rev Proc. 2008-22, the IRS has determined that Chad, Serbia and Yemen have such dangerous conditions that if you are required to leave before your fully qualify for the foreign earned income exclusion, you may still take the exclusion since your departure is justified under tax law due to the perilous country in which you were living and working. Interesting to note that if you are in North Korea or  Somalia you will have to stay the required time or meet qualification standards or you will lose the expatriation earned income exclusion.

US Merchants and Others Using Offshore Credit Card Accounts - Department of Justice is Gunning for You.

The Justice Department has filed a “John Doe” summons with a federal court seeking the credit card records of U.S. merchants hiding money in offshore bank accounts.

The DOJ asked a Denver federal court to approve the summons on one of the nation’s largest payment card processors, First Data Corp. U.S. District Court Judge Robert Blackburn approved the request Wednesday. The Internal Revenue Service claims that First Data active marketed and sold the offshore services to U.S. merchants and their financial advisors to help them hide the proceeds of both brick-and-mortar and Internet sales in offshore bank accounts.

"John Doe" summonses allow the IRS to obtain information about U.S. taxpayers whose identities are not yet known. The information expected in response to the summons will be used by the IRS to identify merchants who use offshore accounts to evade their U.S. tax liabilities.

The petition alleges that the merchants have opened bank accounts in offshore jurisdictions and directed their payment card processor, in this instance First Data, to deposit the proceeds from their debit or credit card transactions directly into the offshore accounts.

The courts have previously approved numerous John Doe summonses on credit card companies and third-party credit card processors, allowing the IRS to identify individuals who were using debit and credit cards issued by offshore banks to evade their taxes. The IRS is also using John Doe summonses to get information on tens of thousands of customers of Swiss bank UBS.

SETTLEMENT OFFER FOR THOSE YOU VOLUNTARILY DISCLOSE PAST OFFSHORE INCOME

IRS Commissioner Doug Shulman has announced what is in effect a settlement offer for those that voluntarily and timely disclose unreported offshore income. Those meeting the terms of the offer will have to pay back-taxes and interest for six years, and pay either an accuracy or delinquency penalty on all six years. They will also pay a penalty of 20% of the amount in the foreign bank accounts in the year with the highest aggregate account or asset value. In other words, 20% of the highest asset value of an account anytime in the past six years. However, those who come forward on a timely basis will not face criminal prosecution.

Highlights of the offer. As explained in a memorandum written by Linda E. Stiff, Deputy Commissioner for Services and Enforcement and addressed to the Commissioners for the Large and Mid-Size (LMSB) and Small Business/Self-Employed (SBSE) Divisions, the tax liabilities related to offshore issues of taxpayers that make “voluntary disclosure requests'” will be settled as follows:

... Taxes and interest due going back 6 years will be assessed. The taxpayer must file or amend all returns, including information returns, and Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts (FBAR)).

... IRS will assess either an accuracy or delinquency penalty for all years (no reasonable cause exception will be applied).

... In lieu of all other penalties that may apply (including FBAR and information return penalties), IRS well assess a penalty equal to 20% of the amount in foreign bank accounts/entities in the year with the highest aggregate account/asset value. The penalty is reduced to 5% if, with respect to the accounts or entities formed: (a) the taxpayer did not open them or cause them to be opened or formed; (b) there has been no activity during the period the accounts/entities were controlled by the taxpayer; and (c) all applicable U.S. taxes have been paid on the funds in the accounts/entities (where only the earnings have escaped U.S. taxes).
The above terms will apply only to taxpayers that “fully cooperate with the IRS both civilly and criminally,” for all voluntary disclosure requests that are submitted to IRS, and are not yet resolved. The terms will remain in effect only for six months from Mar. 23, 2009 (the date that the Deputy Commissioner for Services and Enforcement released the memorandum on voluntary disclosure requests). IRS Commissioner Doug Shulman says that after that time, IRS will reevaluate all of its options, and warned that for those “who continue to hide their heads in the sand, the situation will only become more dire.”

Related memoranda to the SBSE and LMSB Directors describe various penalties that may apply in offshore cases, revoke the “Last Chance Compliance Initiative” as of Mar. 23, 2009, and explain how voluntary disclosure cases are to be routed within IRS.

Those coming forward will avoid criminal prosecution. IRS Commissioner Doug Shulman's Statement on Offshore Income says that those taxpayers who hid money offshore can avoid criminal prosecution by timely complying with the terms of the offer.

BAD NEWS FOR CIVILIANS WORKING FOR PRIVATE CONTRACTORS IN COMBAT ZONES

The IRS office of chief counsel has held that private citizens working for contractors in a Combat Zone must pay taxes on all of their income. The income tax exclusion for combat pay only applies to members of the Armed Forces and not to civilian contractors and employees.

They can qualify for the physical presence foreign earned income exclusion of $91,400 (for 2009) if the live and work in the foreign country for a full 12 month fiscal year and are present in that foreign country for 330 days out of that 12 month fiscal year period. This is called the "physical presence test." It is almost impossible for a private employee or contractor working in a combat zone such as Iraq or Afghanistan to qualify as a bonafide resident in order to secure the foreign earned income exclusion. AM2009-003