Each year thousands of the US citizens and tax residents living overseas take advantage of the several tax breaks provided to them in the Internal Revenue Code. This article will focus on one of the more popular tax breaks, the foreign earned income exclusion ("FEIE") and how its requirements include more than just living overseas. We will use as an example the facts from the recently released Tax Court summary opinion Hirsch v. Commissioner, T.C. Summ. Op. 2016-37.
In Hirsch, the taxpayer represented himself in front of the Tax Court and unsuccessfully argued that he should be eligible for the FEIE. The FEIE allows United States citizens and resident aliens who work outside the United States to exclude all or part of their foreign income when filing their U.S. federal income tax return. In Hirsch, the taxpayer argued that because he resided in Israel, the FEIE should apply. However, as described in further detail below, the determinative factor for the FEIE is not the taxpayer's place of residence. Rather, section 911(d)(1) provides that a U.S. taxpayer may successfully claim the FEIE only if the taxpayer (i) is a bona fide resident of a foreign country or countries and (ii) has a tax home in a foreign country. In particular, a taxpayer's "tax home" may be completely different from the taxpayer's actual country of residence. This article will discuss the FEIE requirements in greater detail particularly with respect to a taxpayer's tax home and the application of the requirements to the taxpayer in Hirsch.