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Tax Court Revisits Definition of "Abode" in Recent International Tax Case


In a recent case, the U.S. Tax Court ruled that a taxpayer was not eligible for the foreign earned income exclusion under Section 911. In  Evans v. Commissioner, TC Memo 2015-12 (full text at: , the Tax Court found the taxpayer ineligible for income exclusion under Section 911, concluding that the taxpayer's economic, family, and personal ties to the U.S. were sufficiently strong to create an “abode” in the U.S., rather than Russia, for purposes of Code Sec. 911.




A “U.S. Person” is generally taxable on their worldwide income. However, a U.S. Person living abroad may be able to reduce or eliminate their U.S. income tax obligation by making an election under either Section 911 (the “earned income tax exclusion” or EITE) or Sec. 901 (the “foreign tax credit”). The case at hand dealt with the EITE.  


Section 911 - Earned Income Tax Exclusion

Section 911 allows qualified individuals who meet specified requirements as to residency or physical presence in a foreign country to exclude from gross income all or a portion of their foreign earned income. To obtain the benefit of the exclusion, a qualified individual must make an election on Form 2555 or a comparable form filed with the individual's tax return.


The term “qualified individual” means an individual whose tax home is in a foreign country and who is:


  • a citizen of the United States and establishes to the satisfaction of the Secretary that he or she has been a “bona fide resident” of a foreign country or countries for an uninterrupted period which includes an entire taxable year; or


  • a citizen or resident of the United States, and who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in such period. 


Foreign earned income is defined as earned income from sources within a foreign country that is earned during a period for which an individual qualifies to make an election Section 911. Income is considered to be from sources within a foreign country if it is attributable to services performed by an individual in a foreign country or countries.


In order to receive the benefit of the foreign earned income exclusion a qualified individual must make a valid election. In order to make a valid election, the election must generally be made with a timely filed income tax return. However, the treasury regulations also allow application of the earned income tax exclusion where the an original tax return is filed within one year after the due date of the return determined without regard to any extensions.


The amount of the earned income exclusion is indexed to inflation. The maximum earned income exclusion for 2013 is $97,600.


Facts of the Case


Petitioner grew up and attended high school in West Monroe, Louisiana. As a youth he lived with his parents on Donna Drive in West Monroe (Donna Drive residence). His parents continue to occupy the Donna Drive residence.


Petitioner began working in the oil industry in 1988 and was regularly posted to drilling locations overseas. While overseas, he used the Donna Drive residence as his address for purposes of receiving mail. During such periods his mother generally managed his business affairs. She had signature authority over his checking account and paid his bills as they became due.


In 1997 petitioner began working for Parker Drilling Co. (Parker). During the early 2000s he worked for Parker in Kazakhstan. During breaks in his work shifts he usually returned to West Monroe and stayed with his parents at the Donna Drive residence.


Petitioner married his first wife in 2003, and they built a house on Pleasant Valley Drive in West Monroe (Pleasant Valley Drive residence). They had one child. After completion of the Pleasant Valley Drive residence petitioner returned to it, rather than to the Donna Drive residence, when he came back to the United States on home leave.


In 2006 petitioner was promoted to a management position at Parker's facilities on Sakhalin Island in Russia. In this capacity petitioner supervised both land and offshore rigs. Sakhalin Island is a remote location, and weather conditions there are harsh. Petitioner's base of operations was Yuzhno, a relatively large city. He continued working at this Sakhalin Island post through 2010.


Petitioner's work schedule during 2007-2010 consisted of alternating 30-day periods on and off duty. During his on-duty periods he lived in employer-provided housing. He lived initially in a four-bedroom apartment in Yuzhno provided by Parker, which he shared with several other Parker employees. He later lived in two other staff houses. Parker provided him with a car and a driver because his Russian visa did not permit him to drive.


Roughly three times a year petitioner spent one to three weeks on an off-shore drilling platform. During these periods he slept on the platform and ate employer-provided meals. When on land petitioner occasionally interacted with the local population of Sakhalin Island as time and circumstances allowed. He learned some basic Russian phrases but generally relied on translators provided by Parker. He and his first wife were divorced in 2007, and he sometimes dated Russian women after that time.


Throughout the tax years in issue petitioner maintained his ownership of the Pleasant Valley Drive residence. At no time did he rent it out or attempt to rent it out. With his mother's assistance he made the monthly mortgage payments, kept the homeowner's insurance current, paid for all utilities, and had the exterior of the house and yard maintained. The house was available at all times for his use and that of his family.

Following the divorce, petitioner's ex-wife left the Pleasant Valley Drive residence and his daughter moved in with his parents. His mother generally cared for his daughter during 2007-2009. While he was overseas, his mother often took the daughter for overnight stays at the Pleasant Valley Drive residence to enable her to visit friends in that neighborhood.


During his 30-day off-duty periods petitioner usually returned to West Monroe in order to spend time with his family. Whenever he returned home Parker paid the cost of his flights to and from Russia. On average, he spent approximately 23 days of each off-duty period in West Monroe. For the duration of his home leave he stayed at the Pleasant Valley Drive residence and his daughter almost invariably joined him there.


No one lived full time in the Pleasant Valley Drive residence until September 2009, when petitioner married Donna Evans. At that time she moved into petitioner's home and lived there throughout the remainder of 2009 and 2010. After his remarriage petitioner spent virtually all his off-duty periods with his family at the Pleasant Valley Drive residence.


No family member ever accompanied petitioner to Russia. During the years in issue he held a Russian visa with a “resident work” permit. Although this visa allowed him to remain in Russia long term, it did not permit him to bring family members with him. He once tried to secure a visa for his daughter but was unable to do so.


Throughout the tax years in issue petitioner was registered to vote in Louisiana. He held a Louisiana driver's license, had bank and credit card accounts in Louisiana, and registered and maintained vehicles in Louisiana. His Federal in-come tax returns listed the Donna Drive address, where his mother resided, as his mailing address.


Petitioner timely filed individual income tax returns for 2007 and 2008, and he and Donna Evans timely filed joint tax returns for 2009 and 2010. His mother signed and submitted the 2007 and 2008 returns under a power of attorney; he and his wife personally signed the 2009 and 2010 returns. All four returns were prepared by Bradley Borden, a tax professional, using information that petitioner's mother supplied. On each of these tax returns petitioner took the position that his tax home was in Russia and accordingly excluded his wages earned in Russia from his gross income under section 911(a). The IRS determined that petitioner was not entitled to claim the foreign earned income exclusion and timely mailed separate notices of deficiency for 2007 and 2008 and for 2009 and 2010. Petitioners timely petitioned this Court, and the cases were consolidated for purposes of trial, briefing, and opinion.


Tax Court Finds Taxpayer’s Abode in U.S.


Tax Court finds that taxpayer's abode was in U.S. The Tax Court concluded that Evans' abode was in the U.S. and that therefore he did not qualify for the foreign earned income exclusion.


The tax court first considered whether petitioner's “tax home” during 2007-2010 was in Russia. Section 911(d)(3) defines the term “tax home” to mean, in the case of an individual, “such individual's home for purposes of section 162(a)(2).” Under section 162(a)(2), a person's home is generally considered to be the location of his regular or principal place of business. See Mitchell v. Commissioner, 74 T.C. 578, 581 (1980). However, section 911(d)(3) goes on to provide that “[an] individual shall not be treated as having a tax home in a foreign country for any period for which his abode is within the United States.” Thus, a person whose “abode” is within the United States cannot establish that his “tax home” is in a foreign country. See Jones v. Commissioner, 927 F.2d 849, 856.


The Tax Court then cited Bujol v. Commissioner, T.C. Memo. 1987-230, where the court considered the meaning of the word “abode” as used in section 911(d)(3). There the court stated:


“Abode” has been variously defined as one's home, habitation, residence, domicile, or place of dwelling. Black's Law Dictionary 7 (5th ed. 1979). While an exact definition of “abode” depends upon the context in which the word is used, it clearly does not mean one's principal place of business. Thus, “abode” has a domestic rather than vocational meaning, and stands in contrast to “tax home” as defined for purposes of section 162(a)(2).


The Tax Court continued by providing that a taxpayer's “abode” is generally in the country in which he has the strongest economic, family, and personal ties. Id. at 764. A taxpayer posted abroad will invariably have some connections with the foreign country in which he works, but if his ties to the United States are stronger, we have held that his “abode” remains in the United States.


The Court then considered similar facts presented in Lemay v. Commissioner, T.C. Memo. 1987-256. In that case, the court held that a taxpayer who worked alternating 28-day periods on and off duty for an oil company in Tunisia was ineligible for the section 911 foreign earned income exclusion. Like petitioner in this case, the taxpayer in Lemay was a resident of Louisiana, was registered to vote in Louisiana, possessed a Louisiana driver's license, and had a Louisiana bank account. He maintained a home in Louisiana, where his wife and daughter lived, and he spent roughly half his time in Louisiana with them. Id. at 864. In Lemay, the court concluded that the taxpayer's economic, family, and personal ties to the United States were sufficiently strong to create an “abode” in this country.


In this case, the Tax Court concluded that Taxpayer’s ties to Louisiana during 2007-2010 were at least as strong as, if not stronger than, those of the taxpayer in Lemay. Throughout this period petitioner owned a house in West Monroe that he had built. While he was overseas his first wife, his second wife, and his daughter lived in this house or in his parents' house, also in West Monroe. During his off-duty periods petitioner regularly returned to West Monroe for an average of 23 days per period to be with his family. His business affairs were generally handled by his mother, whose address in West Monroe he used as his mailing address. His driver's license, voter registration, bank accounts, and motor vehicles were all centered in Louisiana. His ties to Sakhalin Island, by contrast, were entirely transitory and did not extend much beyond the bare minimum required to perform his duties there. See Daly v. Commissioner, T.C. Memo. 2013-147.


The fact that Taxpayer’s ties to the U.S. were divided between two residences did not change the analysis of the court. As the court noted, Section 911(a) does not require that we determine which particular building in West Monroe constituted petitioner's “abode.” Rather, as applied here, the statute asks whether his “abode” was in the United States or in Russia. Because of petitioner's family situation, he necessarily had ties both to his own home and to his parents' home. These two residences, together with his other ties to Louisiana, gave rise to an “abode” within the United States.


In asserting that his “abode” was in Russia, taxpayer relied chiefly on the Jones case. In Jones, the taxpayer was a crew member for Japan Air Lines (JAL) who moved with his family to Japan upon commencing employment. 927 F.2d at 851-852. When JAL reassigned him to Alaska, its only U.S. base, his family moved there; when JAL reassigned him to Japan, his family could have joined him but decided not to. He paid for his own housing in Tokyo and lived there except when traveling for the airline or on vacation. Id. at 854. He paid for his own meals and for his vacation travel to the United States. The Court of Appeals concluded that the taxpayer intended to become a resident of Japan; that he planned to live and work there until his retirement; and that these facts collectively were sufficient to establish that his “abode” was in Japan rather than in Alaska. See id. at 854, 857.


In Jones, the Court of Appeals noted in Jones that Congress' purpose in adding the proviso concerning “abode” to section 911(d)(3) was to limit the benefits of the foreign earned income exclusion to taxpayers who actually incurred the duplicative costs of maintaining distinct U.S. and foreign households. See 927 F.2d at 856. The court found that the taxpayer in Jones did in fact incur the costs of maintaining two separate households. Id. at 857. Far from questioning its prior decisions involving oilfield workers, the court explicitly distinguished the Jones case from those earlier cases, where the taxpayers did not incur such duplicative costs:


The Tax Court found that the facts in this case can easily be distinguished from oil rig and compound worker cases, such as Lemay and Bujol. In those cases, when the taxpayers were on duty on oil rigs or in the oil field compounds, they slept in employer-provided housing, ate employer-provided meals and returned home to the United States after each work period on employer-provided flights. In addition, the taxpayer's family was not allowed to join him abroad. These taxpayers *** were essentially commuting on a regular basis from their homes in the United States. [Id. at 856-857.]


As the court finding provides, international tax attorneys and other practitioners must provide careful analysis when determining  whether an individual qualifies for the EITE. As always, the foreign tax credit must also be considered when an attorney is determininng the best tax strategy for a client.



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