In a procedure issued at the same time as one giving relief for individuals trapped in the United States due to travel restrictions who might inadvertently become U.S. residents for tax purposes (Revenue Procedure 2020-20), the IRS released a similar relief procedure for taxpayers who will be unable to meet the tests to qualify for the foreign earned income exclusion due to the COVID-19 emergency in Revenue Procedure 2020-27.[1]

In the case of Redfield v. Commissioner, TC Memo 2017-71 the Tax Court was presented with a taxpayer that the Court clearly respected.  Mr. Redfield had served as a Marine, with tours of duty in Afghanistan, tours from which, in the words of the Court, “he emerged far from unscathed…”  But, unfortunately for Mr. Redfield, these considerations did not change the application of the rules regarding the time by which a taxpayer must file an election to claim the foreign earned income exclusion under IRC §911(a)(1).

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A taxpayer found that he could not take advantage of the foreign earned income exclusion found at IRC §911 because he failed the “abode” test in the case of Lock II v. Commissioner, TC Summary Opinion 2017-10.

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Wendell Wilson lived in Mexico and was an engineer on ocean going container ships during the years in question.  In the case of Wilson v. Commissioner, TC Summary Opinion 2016-19 the issue was whether and to what extent Mr. Wilson was eligible for the foreign earned income exclusion under IRC §911(a)(1)

An important fact in dealing with the foreign earned income exclusion is that, per Reg. §1.911-7(a)(2)(i)(D), a taxpayer who fails to file his/her return more than one year after the original due date is risking the loss of the ability to exclude that income if the IRS discovers the fact that no election was made.  In the case of McDonald v. Commissioner, TC Memo 2015-169 the taxpayer discovered she had made this costly mistake.

Does the fact that the IRS dropped an issue for an earlier year preclude them from raising the same issue in a later year?  And does it make a difference if the Tax Court entered a decision after the parties had come to an agreement that no tax was due outside the Tax Court? 

These issues were important in the case of Dinger v. Commissioner, TC Memo 2015‑145.  Ms. Dinger was a German citizen who was married to a United States citizen for 50 years.  She and her husband had made a §6013(g)(1) election to treat Ms. Dinger as a United States resident.