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PDtax
PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 1919
Experience:  32 years tax experience, including four years at a Big 4 firm.
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Im currently overseas and we lost our government contract.

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Im currently overseas and  have been since Jan 5th.  I'm a contractor and planned on staying here for a full year to earn the tax free benefit.    Just recently the government ended our contract early and we lost our government contract. I will miss the 330 day mark for the tax free year by 45-60 days. Someone told me that because of the contract loss I could still qualify as this was not because of my doing. I read this paragraph? However, the minimum time requirement can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. You must be able to show that you reasonably could have expected to meet the minimum time requirements if not for the adverse conditions, and that you had a tax home in the foreign country and were a bona fide resident of, or physically present in, the foreign country on or before the beginning date of the waiver. Do I qualify for this? the company is sending out letters to us stating we were let go do to our contract ending and not for our own personal choice. Would this work to get me tax free for part of thie year? http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---Physical-Presence-Test

Submitted: 10 months ago.
Category: Tax
Expert:  PDtax replied 10 months ago.

PDtax :

Welcome to the site. I'm PDtax, and will be helping you today.

PDtax :

The general rule is 330 days, but you don't have to be at your job for all of that time, just out of the USA to qualify. consider staying where you are, or going on a long vacation for the remaining days, to qualify for the exclusion.

PDtax :

from IRS: http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---Physical-Presence-Test:

PDtax :

330 Full Days

Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during the 12-month period. You can count days you spent abroad for any reason. You do not have to be in a foreign country only for employment purposes. You can be on vacation time.

You do not meet the physical presence test if illness, family problems, a vacation, or your employer's orders cause you to be present for less than the required amount of time. Also, if you are present in a foreign country in violation of U.S. law, you will not be treated as physically present in a foreign country while you were in violation of the law. Income that you earn from sources within such a country for services performed during a period of violation does not qualify as foreign earned income.

However, the minimum time requirement can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. You must be able to show that you reasonably could have expected to meet the minimum time requirements if not for the adverse conditions, and that you had a tax home in the foreign country and were a bona fide resident of, or physically present in, the foreign country on or before the beginning date of the waiver.

PDtax :

I see you have entered the chat. Given the short period you need to meet to qualify, that seems to me like a pretty good option.

PDtax :

Unless where you are working qualifies as an adverse condition, this may be the best you can do (other than getting another overseas assignment).

PDtax :

I also assume you are not a US government employee; these rules don't apply to you.

PDtax :

Thanks for asking at Just Answer. Ask any follow up you need, or leave positive feedback to close out your question. I'm PDtax.

Customer:

Before I rate this question and give you credit can you please just go over what qualifies as the waiver portion of the tax law? You basically stated word for word what the website already states and your advice of staying is not possible but also advice I already know of course. We are being FORCED TO LEAVE because the government terminated our contract earlier than expected. If this didnt happen we all would of completed our full year of service. Our company is providing a letter stating this and others have tax guys telling them they qualify for the waiver? The waiver portion if vague at best so I guess i'm asking more about that section? Staying in country without a contract is impossible. Staying in a foreign land for an extended vacation is possible but not if we are wanting to feed our families back home. Is there any work around to get a partial tax free year as per the waiver? Thanks. I'll rate your answer and get you credit for this but I did ask for HIGH DETAIL. Thank you very much in advance.

Expert:  PDtax replied 10 months ago.
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Expert:  PDtax replied 10 months ago.
The adverse condition is that your employment is being terminated, and that your permission to remain in that country rests on having employment. No job, no authority to stay in that country, eligible for waiver of physical presence test. That's the best option given your facts.

The letter from your employer could support the claim, and is attached to form 2555 to support your waiver request. Consider attaching a copy of your employment agreement/contract if it shows you would be there for the 330 days if not for the termination of the agreement. Mention the inability to remain in the country without employment. Not for financial reasons, but that your permission to be there terminates when you lose your job.

A taxpayer must meet all three requirements set forth in section 911(d)(4)(A)-(C) for IRS to consider waiver approval. To consider recent case law, consider Daly v. Commissioner, T.C. Memo. 2013-147 (http://www.ustaxcourt.gov/InOpHistoric/dalymemokerrigan.TCM.WPD.pdf). The Tax court was unmoved by taxpayer's work requirements, and required taxpayer to be resident in one of the IRS listed countries for adverse conditions to receive relief. Having a gig as an engineer in Mexico, for example, does not qualify for waiver relief if the contract can't be completed under your facts.

If I was advising you, I would recommend you find enough out-of-country days to have 330. You did not mention your tax home issues, but the Court in Daly was clear in its test of tax home which the 330 day physical presence waives. Not having banking, a driver's license, your own residence or other factors will work against you if you indeed did not.

I hope this is more specific for you. In the text of Daly, the Court lists several other cases that can support the court and IRS rationale which may be more directly on point with your facts.

Thanks again for asking at Just Answer. We offer a new service which allows an Expert to offer service specific to your position. I will offer that service if you wish research of your case. I'm PDtax.
PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 1919
Experience: 32 years tax experience, including four years at a Big 4 firm.
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