Tax Court Finds Oil Field Worker Cannot Exclude Income Earned in Russia
A recent Tax Court case, Joel B. Evans v. Commissioner illustrates some of the conditions the U.S. citizen must satisfy in order to claim the benefits of section 911 and exclude foreign earned income from U.S. tax.
Joel B. Evans (“Evans”), a U.S. citizen, grew up in West Monroe, Louisiana. In 1997, he began working for Parker Drilling Co. In 2006, Evans was promoted to a management position at Parker’s facilities on Sakhalin Island, Russia. During the period 2007-2010, the tax years at issue in the case, Evans was on and off duty for Parker during alternating 30-day periods. While on duty he lived in housing that Parker provided. In addition, approximately three times a year, Evans spent one to three weeks on an offshore drilling platform.
During the tax years at issue, Evans owned a house in his hometown of West Monroe. With the assistance of his mother, he maintained the house. During the years at issue Evans maintained other connections to Louisiana. He held a Louisiana driver’s license, had bank and credit card accounts in Louisiana and registered and maintain vehicles in Louisiana. His federal income tax returns listed his mother’s address as his mailing address.
Evans was divorced and had a daughter. During the period 2007-2009, his daughter lived with his mother at her house in West Monroe. During his off-duty periods, Evans returned to West Monroe and spent time with his daughter in his own house. In September 2009, Evans remarried, and his wife moved into his house in West Monroe. During his marriage, Evans continued to spend his off-duty time with his wife and daughter.
Evans’ accountant prepared his tax returns reporting that his “tax home” was in Russia. Section 911 allows a U.S. citizen who has a “tax home” in a foreign country and satisfies certain other conditions to exclude from income foreign earned income (subject to a cap) and a housing cost amount.” The main issue before the court was whether Evans had a “tax home” in Russia during 2007 - 2009.
The Tax Court’s Opinion
The law under section 911 is well settled, and the Evans case does not address any new legal issues. It is a memorandum opinion of the Tax Court.
Section 911 defines “tax home” to mean the mean an individual’s home for purposes of section 162(a)(2). Under section 162, an individual’s home is the location of his regular or principal place of business. In Evan’s case, this would be Russia for the tax years at issue.
Section 911(d)(3) adds an exception to this general rule. If an individual’s “abode” is in the United States, he is not treated as having a tax home in a foreign country. Under the case law, a person’s abode is the place where he has the strongest economic, personal and family ties. The Tax Court, in Lemay v. Commissioner, previously considered facts nearly identical to those in Evans. The court in Lemay concluded that the taxpayer had an abode in the United States. The Firth Circuit affirmed.
Evans sought to distinguish Lemay on the grounds that the taxpayer in Lemay worked on an offshore oil rig, while he worked on onshore and supervised land rigs. The Tax Court characterized this position as a distinction without a difference.
Evans also referred to the Fifth Circuit’s decision in Jones v. Commissioner. The taxpayer in Jones worked for Japan Airlines. He was assigned to Japan and moved his family there. He later was re-assigned to Alaska and moved his family to Alaska. Finally, he was assigned to Japan once more. The taxpayer in Jones paid for his own housing and his own meals. He also intended to live in Japan after his retirement. The Tax Court point out that Evans was in a situation that was different than the taxpayer in Jones. The Court notes that section 911 was meant to provide some relief for taxpayers who bore the cost of maintaining a domestic and a foreign household. Evans did not bear such duplicative costs.
Although Evans lost his case and so owed back taxes, the Tax Court did not impose the accuracy-related penalty of section 6662(a). The Tax Court found that Evans had relied upon professional advice (his accountant), and his mother, acting under a power of attorney, had fully disclosed all relevant facts concerning Evans’ employment in Russia.
 T.C. Memo 2015-12 (Jan. 20, 2015). Section 911(a). Section 162 provides a deduction for “ordinary and necessary” business expenses, including travel expenses. Travel is determined by reference to a taxpayer’s tax home. Bujol v. Commissioner, T.C. Memo 1987-230. T.C. Memo 1987-256, aff’d, 836 F.2d 681 (5th Coir. 1988) (Lemay). 927 F.2d 849 (5th Cir. 1991) (Jones).KEYWORD: Foreign Earned Income Exclusion
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