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US expat helicopter pilot granted exclusion from foreign earned income tax
| Published: | 25 Oct at 6 PM |
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In a sudden departure from the usual result of cases relating to foreign earned income exclusion, an American helicopter pilot living and working in Iraq has been allowed to claim the exclusion.
The decision is considered to be notable not only for its taxpayer-friendly result, but also because the court failed to take into account certain facts which had proved fatal to many other similar exclusion claims. The basic rules involve either a bona fide residence test or a physical residence test confirming the expat’s presence overseas for no less than 330 full days in 12 consecutive months. In addition, the claimant must have established a tax residence in a foreign country.
In the unusual case of Linde versus the taxman, the army veteran began working for a government contractor based in Iraq as he was unable to find a suitable position in the USA. Whilst living overseas, he’d kept his home, car, voting registration and drivers’ license in the US, and his wife had stayed behind to look after her son in law who had special healthcare needs. Linde visited his wife and two adult children for around four months every year as bringing his family to Europe during his breaks from work was impossible due to his son-in-law’s heathcare requirements.
Linde paid Iraqi taxes on his wages, had a local bank account and led a comfortable, normal life in Iraq, thus claiming he was a bona fide Iraqi resident entitled to the foreign exclusion. Amazingly, the court agreed, reasoning his familial ties to his home country were caused by family healthcare requirements rather than a desire to stay in the USA. In other similar cases, the plaintiffs had not developed significant social and economic ties to Iraq, as had Linde.
The case and its surprising result may well give hope to other US citizens in similar situations as regards specific familial ties to relatives in the USA which prevent them leaving. Expat tax lawyers are watching with interest as well as reminding potential clients that solid justification is necessary before a case is brought before the courts.
The decision is considered to be notable not only for its taxpayer-friendly result, but also because the court failed to take into account certain facts which had proved fatal to many other similar exclusion claims. The basic rules involve either a bona fide residence test or a physical residence test confirming the expat’s presence overseas for no less than 330 full days in 12 consecutive months. In addition, the claimant must have established a tax residence in a foreign country.
In the unusual case of Linde versus the taxman, the army veteran began working for a government contractor based in Iraq as he was unable to find a suitable position in the USA. Whilst living overseas, he’d kept his home, car, voting registration and drivers’ license in the US, and his wife had stayed behind to look after her son in law who had special healthcare needs. Linde visited his wife and two adult children for around four months every year as bringing his family to Europe during his breaks from work was impossible due to his son-in-law’s heathcare requirements.
Linde paid Iraqi taxes on his wages, had a local bank account and led a comfortable, normal life in Iraq, thus claiming he was a bona fide Iraqi resident entitled to the foreign exclusion. Amazingly, the court agreed, reasoning his familial ties to his home country were caused by family healthcare requirements rather than a desire to stay in the USA. In other similar cases, the plaintiffs had not developed significant social and economic ties to Iraq, as had Linde.
The case and its surprising result may well give hope to other US citizens in similar situations as regards specific familial ties to relatives in the USA which prevent them leaving. Expat tax lawyers are watching with interest as well as reminding potential clients that solid justification is necessary before a case is brought before the courts.
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