Chronicles of Tax Advisors
In this case, we helped our client correct a mistake made by another firm. Our client worked overseas in the oilfield industry, so they had foreign earned income and could be eligible for Foreign Earned Income Exclusion or Foreign Tax Credit.
The Foreign Tax Credit can be used as a dollar for dollar reduction in taxes due if the taxpayer paid taxes to the foreign government and those taxes paid were included as part of their income. This was not the case here.
For the Foreign Earned Income Exclusion, the prior preparer only checked to see if our client met the Physically Present test for the exclusion. The preparer neglected to check if client met the Bona Fide Residence Test. The difference between the two is this. Physical presence requires that the taxpayer be out of the country for 330 days or more during a 12-month period. Bona Fide Residence does not have the 330-day requirement but does consider residency of taxpayer in foreign country and length of contract. So, if the taxpayer has a foreign resident card and their contract does not indicate a definite end to the contract they can subjectively be considered a Bona Fide resident. There are a few other requirements.
Due to IRS statute of limitations on refunds, we amended the last three years for our client yielding over $50,000 in refunds from the federal and state tax authorities.
Todd Ancona, EA
Licensed to practice before the Internal Revenue Service
An Enrolled Agent (EA) is a federal authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audit, collections and appeals.