G8 Conference Folows US IRS Lead to Eliminate Tax Evaision and Investment Secrecy Abroad

 The world's rich economies said they would take a tougher stance on fighting money laundering and tax evasion but promised little in the way of specific new action at the end of a two-day summit on Tuesday.

The Group of Eight leaders signed up for a string of aims including improved transparency about who owns shell companies and more information-sharing between tax authorities.

Under pressure from austerity-weary voters, lawmakers have focused increasingly on tax dodges. More than 50 countries have agreed to a new protocol on tax data sharing since 2011.

Cameron said his proposal that firms report profits on a country-by-country basis could help expose corporate profit shifting into low-tax states.

The G8 leaders, meeting in Northern Ireland, said their governments would draw up action plans for collecting and sharing information on who really owns companies, making it harder to set up Russian-doll type structures.

The United States pledged to keep on pressing for legislation to cut down on the criminal use of shell companies.

"The credibility of this depends on the ability of the White House to advance legislation," said Gavin Hayman, director of campaigns at anti-corruption group Global Witness.

The United States pointed out it was planning to require banks to understand who their customers actually are and provide information for law enforcement and tax authorities.

A frequent critic of tax havens, the United States has come under fire from campaigners for the low transparency requirements around ownership of corporate entities registered in some U.S. states such as Delaware.

Tax campaigners had called for companies to be forced to make public their profits, revenues and tax payments for every country where they operate. That could deter accountants from building contrived arrangements to keep tax low. Business groups remained against such a move.

"We continue to have real doubts about the utility of any rules requiring the release of vast amounts of raw data to the public," Andrew Wilson, UK Director of the International Chamber of Commerce said in a statement.

The G8 leaders also called on the Organisation for Economic Co-operation and Development (OECD), which advises rich nations on economic policies, to come up with a way that could require multinational corporations to report profits and tax payments to authorities on a country-by-country basis

Some developing nations complain they struggle to get information about companies' operations in other countries, so the measure could help them cut profit shifting.

The OECD is working on a broader program  to tackle tax avoidance under the auspices of the Group of 20 comprising the leading developed and developing economies.

What is described above at the G8 is the wave of the future. All countries will within the next few years be sharing tax data, etc. with each other. Now is the time to get into legal compliance with your tax filings before it is too late.  If you need help email us at ddnelson@gmail.com .

FATCA, FBAR, 8938 and Foreign Financial Asset Reporting Seminar in Cabo San Lucas, Mexico on 6/21/13

FATCA and IRS Foreign Asset Reporting Seminar in Cabo San Lucas on 6/21/13 presented by Intercam and Don D. Nelson, Attorney and CPA - READ MORE

IRS Rules That Fideicomiso's Holding Title to Property in Mexico in most situations are not Foreign Trusts

After 10 years of controversy and refusals to make a ruling, the IRS has finally ruled that most Fideicomiso's in Mexico are not foreign trusts and are not required to file Forms 3520 and 3520A.

Revenue Ruling 2013-14 describes a typical fideicomiso or Mexican Land Trust (MLT) and concludes that the arrangement is not a trust within the meaning of § 301.7704-4(a)   You should read this ruling carefully since it only applies to the situations described therein. If you have Fideicomiso that falls outside the the ones described in this ruling, you may still be a foreign trust under US tax law and be required to file special forms.

Revenue Ruling 2013-14 will be in 2013-26, dated June 24, 2013.

FILE YOUR 2012 FBAR (TDF 90-22.1) ON BEFORE 6/28/13 ON LINE

You can file your FBAR form for 2012 on line in order to meet the 6/28/13 filing deadline. Got to  http://bsaefiling.fincen.treas.gov/Enroll_Individual.html to file it.  Print out a copy while there so you have proof it was filed.

The penalty for not filing  this Report of Foreign Bank and Financial Accounts can be $10,000 or more as well as the possibility of criminal prosecution in the event the IRS can show you intentionally did not file the form.  It is not a tax form, but a reporting form with tremendous penalties for not filing. 

Accelerated FBAR Filing Deadline in 2013

In general, FBARs must be received by the U.S. Treasury Department by
June 30. Because June 30, 2013, falls on a Sunday, FBAR filers should
plan to have their 2012 FBARs received by Treasury by Friday, June 28,
2013. Unlike income tax filings, the FBAR due date is not extended to the
next business day when the deadline falls on a weekend. In addition,
unlike income tax filings, there is no “mailbox rule” with respect to
FBARs, so the deadline is measured by the date received, not the date
sent.

 The FBAR should be delivered to the address shown in the
instructions to the FBAR (Rev. January 2012). A street address is provided
in the FBAR instructions if an express delivery service is used. Although
paper filings still are acceptable for timely filed 2012 FBARs, filings made
after June 30, 2013, are required to be done electronically (using the BSA
E-Filing System). 

Will the IRS use the internet, linked in, facebook, etc. to locate expatriate and offshore tax cheaters?

Will the IRS copy the Swedish Tax Agency tactics to find US offshore tax cheaters? They found out about a Swedish taxpayers offshore activities on Linkedin and found  they owed $750,000 in back taxes on unreported income.  The IRS will certainly use this tactic soon, if they have not started already.  READ MORE HERE                             

Offshore Tax Fraud Criminal Captured

The IRS has a long standing policy that if a taxpayer comes forward first (prior to their discovery) and makes them self current with past unfiled returns and unreported income, they will almost always waive criminal prosecution (up to five years in jail). Therefore, based on the information out there on the internet, it is best to come forward before it is too late. We can help. We have advised or assisted hundreds of taxpayers catch up and correct past returns with great success.  Visit our website at www.TaxMeLess.com or email ddnelson@gmail.com.  We offer "attorney-client" privilege for total confidentiality and privacy.

Expatriate Tax Return Due Dates- Nonresident Tax Return Due Dates

 U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return, generally have an automatic two-month extension beyond the regular Apr. 15 deadline to file their returns. The June 15 deadline is extended this year to June 17 since the extended due date falls on a Saturday. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies.

Nonresident aliens who received income from U.S. sources in 2012 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be Apr. 15 or June 17 depending on sources of income.

U.S. citizens and resident aliens are legally required to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to fill out and attach Schedule B, Interest and Ordinary Dividends, to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Certain taxpayers may also have to fill out and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on Form 8938 if the aggregate value of those assets exceeds certain thresholds.

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2012 must file Treasury Department Form TD F 90-22.1. This is not a tax form and is due to the Treasury Department by June 30, 2013. Treasury encourages taxpayers to file it electronically.

June 17 soon approaching. IRS reminded taxpayers that the filing deadline is Monday, June 17, 2013, for U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due date of their tax return. Taxpayers are reminded to attach to their return the statement described above.

Need help with these filings?. Contact us at ddnelson@gmail.comm or www.TaxMeLess.com 

 

Expatriates Must Substantiate Travel Expenses in Writing to Get a tax Deduction

Many expats deduct travel and entertainment expenses for their businesses on their tax returns. You can only succeed in the event of an IRS audit (which are now becoming common with  respect to US expatriates), if you can prove the amount deducted and the relationship to your business with written records. The rules are simple:

Under Code Sec. 274, heightened substantiation requirements apply to: (1) any traveling expense, including meals and lodging away from home; (2) any item with respect to an activity in the nature of entertainment, amusement, or recreation; (3) any expense for gifts; or (4) the use of “listed property,” such as a passenger automobiles.

When you wish to deduct travel and entertainment expenses, you r must substantiate those deductions by adequate  written records or by sufficient evidence corroborating the taxpayer's own statement: (1) the amount of the expense; (2) the time and place of the travel, use of the property, etc.; (3) the business purpose of the expense, and (4) the business relationship to the taxpayer of the deduction . To do this, a taxpayer must maintain records and documentary evidence that in combination are sufficient to establish each element of an expenditure or use. (Reg. § 1.274-5T(c)(1) and Reg. § 1.274-5T(c)(2) 

We can help if you are audited or planning so you can deduct all of your business expenses. Let us do your expatriate tax return preparation. We have been doing expat returns for over 31 years.  WWW.TaxMeLess.com   or email ddnelson@gmail.com.

IRS, Australia and United Kingdom Engaged in Cooperative Effort to Combat Offshore Tax Evasion

The tax administrations from the United States, Australia and the United Kingdom announced today a plan to share tax information involving a multitude of trusts and companies holding assets on behalf of residents in jurisdictions throughout the world. This trend is fast spreading around the world and in a few years will be the rule in a large number of other countries.

The three nations have each acquired a substantial amount of data revealing extensive use of such entities organized in a number of jurisdictions including Singapore, the British Virgin Islands, Cayman Islands and the Cook Islands.  The data contains both the identities of the individual owners of these entities, as well as the advisors who assisted in establishing the entity structure.

The IRS, Australian Tax Office and HM Revenue & Customs have been working together to analyze this data and have uncovered information that may be relevant to tax administrations of other jurisdictions. Thus, they have developed a plan for sharing the data, as well as their preliminary analysis, if requested by those other tax administrations.

“This is part of a wider effort by the IRS and other tax administrations to pursue international tax evasion,” said IRS Acting Commissioner Steven T. Miller. "Our cooperative work with the United Kingdom and Australia reflects a bigger goal of leaving no safe haven for people trying to illegally evade taxes.”

There is nothing illegal about holding assets through offshore entities; however, such offshore arrangements are often used to avoid or evade tax liabilities on income represented by the principal or on the income generated by the underlying assets. In addition, advisors may be subject to civil penalties or criminal prosecution for promoting such arrangements as a means to avoid or evade tax liability or circumvent information reporting requirements.

It is expected that this multilateral cooperation and coordinated effort will allow many countries to efficiently process this information and effectively enforce any laws that may have been broken.  Increasingly, tax administrations are working together in this way to assist one another in identifying non-compliance with the tax laws.

U.S. taxpayers holding assets through offshore entities are encouraged to review their tax obligations with respect to these holdings, seek professional advice if necessary, and to participate in the IRS Offshore Voluntary Disclosure Program where appropriate.  Failure to do so may result in significant penalties and possibly criminal prosecution.

If you have a problem and need help, please email us at ddnelson@gmail.com .  We have helped hundreds of expat and domestic taxpayers come into compliance with the complex US tax reporting requirements.

IRS Announces 2013 Foreign Earned Income Exclusion Amount and Foreign Housing exclusion amounts

The maximum foreign earned income exclusion that can be claimed for 2013 is $97,600. Remember if both you and your spouse live abroad and both work each of you gets to claim this offset against your respective foreign wages and self employment income.

The IRS new guidelines for the housing exclusion  or deduction for 2013 have also been released. This includes  foreign rent, utilities and maintenance expense that can be claimed in addition to the foreign earned income exclusion  has also been released. There is a minium amount of housing expenses that are not deductible is $15,616.  The maximum amount varies by country ( the charts shows amount before deducting the $15,616). Tokyo in the IRS's  opinion is now the most expensive city in the world since it has the highest maximum. of $117,100.  To see the Maximum amount allowed for your home country CLICK HERE.

Learn more at www.TaxMeLess.com or email us at ddnelson@gmail.com 

Two Sentenced for Not Disclosing Foreign Bank Accounts to IRS

Read about the Sentences received  by two taxpayers who thought they could hide their assets and income abroad from the IRS.   One is 79 years old. ARTICLE IN USA TODAY

Your FBAR (TDF 90-22.1) forms must be received by the IRS by 6/30/13 reporting your foreign financial assets (including foreign pension plans in many instances).  Penalties for filing late or not at all can be $10,000 or more per year including possible criminal prosecution similar two the two guilty taxpayers mentioned in the article above.

Where Are the Potential Tax Cheats - IRS List Communities Where The Cheats are Located

The National Taxpayer Advocate used confidential data from 2009 tax returns to identify clusters of potential tax cheats in more than 350 communities. The Internal Revenue Service assigns a score to each tax return rating the likelihood agents will collect additional tax money from an audit. The higher your score, the more likely you are to get audited.  If you live in one of the communities listed when you go to the attached link, it may significantly

increase your chances of aduit!

The study focused on sole proprietorships, which account for two-thirds of all U.S. businesses. The median scores for sole proprietors in these cities, towns and neighborhoods were among the highest scores in the country:

LIST OF TOWNS AND STATES WHERE IRS STUDY SHOWS THE TAX CHEATS ARE LOCATED ( LOOK AT IT TO SEE IF YOUR TOWN IS INCLUDED)

President Obama and Vice President Biden’s 2012 Tax Returns

President Obama and Vice President Biden’s 2012 Tax Returns 

Today, the President released his 2012 federal income tax returns. He and the First Lady filed their income tax returns jointly and reported adjusted gross income of $608,611. The Obamas paid $112,214 in total tax. 

The President and First Lady also reported donating $150,034 – or about 24.6 percent of their adjusted gross income – to 33 different charities. The largest reported gift to charity was $103,871 to the Fisher House Foundation.

The President’s effective federal income tax rate is 18.4 percent. The President believes we must reform our tax system which is why he has proposed policies like the Buffett Rule that would ask the wealthiest Americans to pay their fair share while protecting families making under $250,000 from seeing their taxes go up. Under the President’s own tax proposals, including limitations on the value of tax preferences for high-income households, he would pay more in taxes while ensuring we cut taxes for the middle class and those trying to get in it.

The President and First Lady also released their Illinois income tax return and reported paying $29,450 in state income tax.

DOWNLOAD THE OBAMAS’ TAX RETURNS

The Vice President and Dr. Jill Biden also released their 2012 federal income tax returns, as well as state income tax returns for both Delaware and Virginia. The Bidens filed joint federal and combined Delaware income tax returns. Dr. Biden filed a separate non-resident tax return for the state of Virginia. Together, they reported adjusted gross income of $385,072. The Bidens paid $87,851 in total federal tax for 2012. They paid $13,531 in Delaware income tax and $3,593 in Virginia income tax. The Bidens contributed $7,190 to charity in 2012.

DOWNLOAD THE BIDENS’ TAX RETURNS

 

Tax Extensions, Penalties and Due Dates for US Expatriates

• Though expats get an automatic extension to file until June 15th, 2013, for their 2012 tax return, if any taxes are owed they must pay those in by April 15th, 2013 to avoid penalties and interest.
• Expats can get a further extension of time to file their 2012 return up to October 15th, 2013 by filing form 4868 prior to 6/15.
• Your FBAR (TDF 90-22.1) for required for reporting foreign financial accounts (including bank accounts, many foreign pension accounts, foreign stock brokerage accounts, and other various foreign financial accounts) must be received by the IRS by June 30th , 2013 for the 2012 year. It cannot be extended for any reason.  The penalty for late filing can be $10,000 or more.
• In most instances, if you need to amend an income tax  return to report unreported income or expenses it can be done up to three years from the date it was originally filed.
• The statute of limitations never runs out on any tax year until you file a tax return for that year. Best to always file a tax  return to cause this statute to run out.
• You have until 4/15 to open your IRA and fund it even though your tax return is extended for 2012. Remember you must have earned income in excess of the foreign earned income exclusion you take on Form 2555, in order to even be eligible to make a regular IRA or Roth IRA contribution.  You are also limited by your total income or if covered by a US corporate pension plan.
• Penalties:
• The late filing penalty is 5 percent per month of all unpaid taxes due with the return when finally filed up to a maximum of 25 percent.  If you file late, but have already paid in all taxes due, you will incur no penalty.
• The  Late payment of tax penalty is 1/2 percent per month and interest that is adjusted quarterly which has been running at 2 to 3 percent per annum.
• 
  

IRS Audits Drop, but Not on the Wealthy -Also more good news, Number of IRS Employees also drops

U.S. taxpayers were slightly less likely to face an IRS audit last year, according to an analysis issued Tuesday.

The IRS acknowledged that the number of audits of individuals dropped last year, but said examinations of taxpayers with incomes over $200,000 and over $1 million increased in fiscal 2012.

IRS audits dropped 5.3% in federal fiscal year 2012 to 1,481,966 audits of individual tax returns, based on IRS data analyzed by the Transactional Records Access Clearinghouse, a data research and distribution organization based at Syracuse University.

                                                              Read More about this in USA Today

Read About How They Are Hiding Assets Offshore and Avoiding Taxes

• Government officials and their families and associates in Azerbaijan, Russia, Canada, Pakistan, the Philippines, Thailand, Mongolia and other countries have embraced the use of covert companies and bank accounts.
• 
  
• The mega-rich use complex offshore structures to own mansions, yachts, art masterpieces and other assets, gaining tax advantages and anonymity not available to average people.

  

  Gold Coins Hidden Abroad

• 
  
• Many of the world’s top’s banks – including UBS, Clariden and Deutsche Bank – have aggressively worked to provide their customers with secrecy-cloaked companies in the British Virgin Islands and other offshore hideaways.
• 
  
• A well-paid industry of accountants, middlemen and other operatives has helped offshore patrons shroud their identities and business interests, providing shelter in many cases to money laundering or other misconduct.
• 
  
• Ponzi schemers and other large-scale fraudsters routinely use offshore havens to pull off their shell games and move their ill-gotten gains.

Read More about Secrecy for Sale on the International Consortium of  Investigative Journalists Website.

ROTH IRAs ARE GREAT FOR US EXPATRIATES THAT QUALIFY - SEE THE RULES BELOW.

• Roth IRAs (if you qualify based on your income) are ideal for US expatriates because due to the foreign earned income exclusion and credits for foreign income taxes paid, they often owe little or no tax on their US tax return. A regular IRA results in a deduction an expatriate may not need in that situation.
• You cannot make Roth  IRA contributions unless your earned income for the tax year exceeds the foreign earned income exclusion taken in that year.  If your earned income does does exceed your foreign earned income exclusion, you can make a Roth IRA contribution limited only by the maximum allowed and the amount your earned income exceeds your foreign earned income exclusion if less than the maximum contribution allowed.
• You also cannot make an Roth IRA contribution if your  modified adjusted gross income exceeds a certain amount.  That amount  (which is lower if you are covered by a US pension plan and is  much higher if you are not covered by a US pension plan) is set forth in Publication 590 (on pages 62 and 63 )  which can be downloaded below.  If your modified adjusted gross income exceeds this maximum you cannot contribute to an IRA.  To determine that phase out amount you must add back the  foreign earned income exclusion you took on your tax return and use formula set forth in Publication 590.
• If you over contribute to an Roth IRA (more than is allowed under the law), you will not be penalized if you withdraw that contribution on or before  the due date of your tax return.                                You can also in most situations  notify the IRA administration  company to have that contribution re-designated to your subsequent tax year.
• The maximum contribution is $5000 for 2012, and $6,000 if you are over 50.  You may also be able to make a contribution for your spouse in the same amounts subject to certain limits.
• You must make the contribution and open the Roth IRA no later than April 15th following the end of the calendar year.
• Roth IRA contributions may be withdrawn at any time without taxes or penalties; earnings may be withdrawn tax-free and penalty-free once you reach age 59½ and the account has been open for at least five years.
• Roth IRA Earnings may be subject to taxes and penalties if distributed before age 59½ and before the the contributions included in the distribution are at least five years old.

• There is a 6 percent penalty per year for over contributions
• We have noted one of the biggest mistakes made by expatriates is contributing money to regular IRAs (deductible) or Roth IRAs  when they are eligible under the rules above. The penalties for these over contribution can become extreme.
• Publication 590 contains all of the IRA complex rules. Download it here.
  
  

Let us know if you need help with your 2012 expatriate or international taxes. Visit our website at www.TaxMeLess.com . Email us at ddnelson@gmail.com

Expats - Home Office Deduction

If are an expatriate employee (of a US or foreign company) or self employed abroad and  you use part of your home for your business, you may qualify to deduct expenses for the business use of your home. Here are six facts from the IRS to help you determine if you qualify for the home office deduction.

1. Generally, in order to claim a deduction for a home office, you must use a part of your home exclusively and regularly for business purposes. In addition, the part of your home that you use for business purposes must also be:

• your principal place of business, or

• a place where you meet with patients, clients or customers in the normal course of your business, or

• a separate structure not attached to your home. Examples might include a studio, workshop, garage or barn. In this case, the structure does not have to be your principal place of business or a place where you meet patients, clients or customers.

2. You do not have to meet the exclusive use test if you use part of your home to store inventory or product samples. The exclusive use test also does not apply if you use part of your home as a daycare facility.

3. The home office deduction may include part of certain costs that you paid for having a home. For example, a part of the rent or allowable mortgage interest, real estate taxes and utilities could qualify. The amount you can deduct usually depends on the percentage of the home used for business.

4. The deduction for some expenses is limited if your gross income from the business use of your home is less than your total business expenses.

5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. Report your deduction on Schedule C, Profit or Loss From Business.

6. If you are an employee, you must meet additional rules to claim the deduction. For example, in addition to the above tests, your business use must also be for your employer’s convenience.

If you are an employee of a US or foreign corporation and qualify this deduction goes under miscellaneous deductions on Schedule A.  If you are self employed it goes on your schedule C. You can get more information in IRS Publication 587 which can be downloaded here.

As a US expat, there may be many deductions or other tax savings strategies you may not know about. Read more at www.TaxMeLess.com or at www.expatattorneycpa.com

International Flight Attendants & Pilots Use of Foreign Earned Income Exclusion is Limited

The Tax Court has held that an international flight attendant  (this ruling would apply to pilots also) could not use the foreign earned income exclusion to shield all of her wages from tax. Rather, she could only exclude that portion of her wages that was allocable to her flight time that occurred within or over foreign countries.

 A qualified individual may exclude foreign earned income from gross income. (Code Sec. 911(a)) Foreign earned income is earned income received by an individual from sources within a foreign country. (Code Sec. 911(b)(1)(A)) Code Sec. 911 does not define “foreign country.” But the regs provide that the term “foreign country” when used in a geographical sense includes any territory under the sovereignty of a government other than that of the U.S. They go on to provide that the term includes the territorial waters of the foreign country (determined in accordance with the laws of the U.S.), the air space over the foreign country, and the seabed and subsoil of those submarine areas which are adjacent to the territorial waters of the foreign country and over which the foreign country has exclusive rights, in accordance with international law, with respect to the exploration and exploitation of natural resources. (Reg. § 1.911-2(h))

Consistent with this reg, the Tax Court has held that a U.S. taxpayer is allowed the foreign earned income exclusion only for wages earned while in or over foreign countries and not for wages earned in international airspace or in or over the U.S. (LeTourneau, TC Memo 2012-45)

Facts. Yen-Ling K. Rogers was a U.S. citizen and a bona fide resident of Hong Kong. She worked as a flight attendant for United Airlines (United) on international flights based out of Hong Kong International Airport. Under an agreement between United and the union for flight attendants, (1) Yen-Ling accrued nonflight time, such as sick and vacation hours, based on the period of her flight attendant service; and (2) United compensated her for additional categories, such as required training and meetings and the performance incentive program.

United required Yen-Ling to perform preboarding and postarrival services on every flight on which she worked. She was required to report to work 1 hour and 45 minutes before the departure of a flight and to perform approximately 30 minutes of postarrival services. The flight time begins at “out time,” when the plane's brake is released and the plane pushes back from the airport. The flight time ends at “in time” when the plane's parking brake is set after landing. Yen-Ling was not separately compensated for the time spent performing preboarding and postarrival services.

In 2007, Yen-Ling worked the following flights: 16 flights between Hong Kong (HK) and San Francisco (SFO); 16 flights between SFO and HK; 14 flights between HK and Chicago (CHI); 14 flights between CHI and HK; 5 flights between HK and Ho Chi Minh City; 5 flights between Ho Chi Minh City and HK; 2 flights between SFO and Nagoya; and 2 flights between Nagoya and SFO.
The percentage of Yen-Ling's flight time within or over foreign countries during 2007 was as follows:

• HK-SFO-HK, 63.38% foreign flight time,
• HK-CHI-HK, 86.05% foreign flight time,
• HK-Ho Chi Minh City-HK, 100% foreign flight time, and
• SFO-Nagoya-SFO, 29.19% foreign flight time.

United reported $41,762 of wages to Yen-Ling for 2007 on Form W-2, Wage and Tax Statement. United provided her a duty time apportionment for her flights during 2007 that apportioned the minutes of her flight times within or over the U.S., international waters, and foreign countries.

Yen-Ling excluded 100% of her United wages as “other” income on a joint return she filed with her husband for 2007. The “other” income reported on her Form 1040 was specified by reference to the attached Form 2555EZ, Foreign Earned Income Exclusion. On the Form 2555-EZ, she reported $41,762 as the total amount of foreign earned income she earned and received in 2007 and the same amount as their foreign earned income exclusion.


Exclusion limited. The Tax Court observed that even though Yen-Ling excluded wages as foreign earned income, she stipulated that only a percentage of her flight time occurred within or over foreign countries. Therefore, the Court concluded that only a percentage of her United wages qualified for the Code Sec. 911(a) exclusion.

The  Tax Court concluded that her stipulated flight time percentages applied to any of her wages that are allocable to nonflight time that was based on international flight attendant services she performed for United. The Court said that there was no rational basis for allocating these forms of compensation 100% to foreign earned income.

Visit our website at www.expatattorneycpa.com to learn more about IRS International Tax Rules that affect pilots, flight crews, and crew who work on ships, cruise lines, etc. Let us help you with your tax returns.

How Nonresidents can Obtain an IRS ITIN from Abroad

If you are a nonresident who needs to file a US nonresident tax return or you have a spouse who is a nonresident and wish to make the election to file a joint return with them (it can often reduce your US income taxes) you need to get an ITIN (Individual Taxpayer Identification Number) because they are not eligible to get a social security number. You must have this number to file a tax return, and many banks and others require it before you an open a US bank or financial account.

Effective January 1, 2013, new ITIN procedures took affect for the Individual Taxpayer Identification Number (ITIN) application process. Some of the information below, including the documentation requirements for individuals seeking an ITIN, has been superseded by these changes. Taxpayers and their representatives should review these changes, which are further explained in these Frequently Asked Questions, before requesting an ITIN.

Alien taxpayers who need an Individual Taxpayer Identification Number (ITIN) may be able to secure one from outside the United States.

The IRS has permanent staff available that is able to help process Forms W-7, IRS Application Number and Instructions (PDF) at the following U.S. embassies overseas: Beijing, Frankfurt, London, and Paris. The addresses and phone numbers of these overseas offices may be found a tContact My Local Office Internationally. In addition, there are public accounting firms overseas in certain countries which are Authorized Acceptance Agents for ITIN numbers. You will find their names and addresses at the Acceptance Agent Program page.

US Embassy Beijing, China - IRS has
agents in almost every US embassy.

The IRS also accepts a Form W-7 by mail accompanied by ORIGINAL documents or certified copy of the document from the issuing agency establishes the identity and foreign status of the ITIN applicant.

The Instructions for Form W-7 list 13 documents that can be used to prove foreign status and identity. A foreign passport is the only one that can stand alone (i.e., establishes both foreign status and identity). If a passport is submitted, there is no need to submit any other documents. If a passport is not submitted, a combination of at least two other documents, with at least one containing a photograph, must be submitted with the ITIN application. The IRS will accept copies of original documents, if the copies have been properly certified by:

1. the government agency (foreign or domestic) which issued the documents, or
2. employees of the U.S. State Department located in U.S. embassies and consulates abroad.

More Information:

• Taxpayer Identification Numbers (TIN)

If you need help filing your US nonresident tax return or filing an expat tax return with your nonresident spouse, we can help. We have been assisting US nonresident clients for over 30 years. Email us at ddnelson@gmail.com.  Skye: dondnelson or wisit our website at www.TaxMeLess.com

Thanks. KAUFFMAN NELSON LLP CERTIFIED PUBLIC ACCOUNTANTS, Don D. Nelson, Attorney CPA