The Supreme Court Denies Certiorari for USC Taxpayer Who Claimed Foreign Earned Income Exclusion

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The U.S. Supreme Court only rarely takes tax cases for certiorari review. It is common that no more than one federal tax case is reviewed by the U.S. Supreme Court during their entire annual term.*8938*

Accordingly, it was not surprising that the U.S. Supreme Court refused to hear a decision of a Hong Kong-based flight attendant who as a U.S. citizen took the foreign earned income exclusion (“FEIE”) pursuant to IRC Section 911 on all of her income.  The  Treasury Regulations §1.911-3(a) have a specific rule regarding source of income and provides: “Earned income is from sources within a foreign country if it is attributable to services performed by an individual in a foreign country or countries.”

The IRS assessed tax and a 20% “negligence” penalty against the Hong Kong based flight attendant Ms. Yen-Ling K. Rogers.  Judge Cohen of the U.S. Tax Court wrote the 2013 opinion, Rogers vs. Commissioner, TC Memo. 2013-77 – U.S. Tax Court

The Court found the following facts and made the following legal determinations:
“Yen-Ling K. Rogers (petitioner) was a U.S. citizen and a bona fide resident of Hong Kong. She worked as a flight attendant for United Airlines (United) on international flights based out of Hong Kong International Airport. . . Section 61(a) specifies that “[e]xcept as otherwise provided”, gross income includes “all income from whatever source derived”. Although most countries employ territorial tax systems, the United States employs a worldwide tax system–it taxes its citizens on their income regardless of its geographic source.  See  Crow v. Commissioner, 85 T.C. 376, 380 (1985) (“The United States was historically, and continues to be, virtually unique in taxing its citizens, wherever resident, on their worldwide income, solely by reason of their citizenship.”) . . .” [emphasis added]
The Tax Court went on to find that the working time of the flight attendant over international waters could not be apportioned to or treated as “foreign earned income” as defined by the statute.  Accordingly, it said:
 –
“Consistent with this regulation, this Court has held that a U.S. taxpayer is allowed the foreign earned income exclusion only with respect to wages earned while in or over foreign countries and not for wages earned in international airspace or in or over the  United States.”

 

See prior posts on the FEIE; The Foreign Earned Income Exclusion is Only Available If a U.S. Income Tax Return is Filed, April 21, 2014.

See also USCs and LPRs Living Outside the U.S. – Key Tax and BSA Forms, dated March 17, 2014 that discusses in some detail IRS Form 2555.

The Court of Appeals for the District Of Columbia upheld the Tax Court and the Supreme Court let stand the Court of Appeals decision.

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