Abroad at Home

That Obliging Jurist, Judge David Gustafson, gets to pull into the Chevron station, and doesn’t hold the Mayo. And he needn’t invoke the canon expressio unius exclusio Altera. No, Congress clearly gave IRS the authority to make regulations about the Foreign Earned Income Exclusion (FEIE), and Nancy McDonald falls foul thereof in 2015 T. C. Memo. 169, filed 8/25/15.

I’m a wee bit late with my post tonight, getting used to the fresh air of the Berkshires, so I’ll get to the point.

Nancy failed to file for the year at issue, so IRS gave her a SFR and a SNOD gratis and for free. Nancy ripostes after the SOL has run on that year with a 1040 claiming the FEIE, and paying the balance due giving effect thereto. IRS closes the SNOD.

But Nancy isn’t home free, because IRS audits her and disallows the FEIE, claiming Nancy blew the Reg. Section 1.911-7(a)(2) requirement for electing to exclude. Nancy petitions, claiming the Reg is invalid as contradicting Section 911.

The basic test for the FEIE, like ancient Gaul, is divided into three parts: “(1) the taxpayer must be a U.S. citizen who is a bona fide resident of a foreign country for an entire taxable year or physically present in a foreign country during at least 330 days out of a 12-month period, (2) the taxpayer must have earned income from personal services rendered in a foreign country; and (3) the taxpayer’s tax home for the period must be outside of the United States.” 2015 T. C. Memo. 169, at p. 6. (Citations omitted).

IRS claims Nancy flunks the tests, but Judge Gustafson doesn’t have to go there.

The issue is whether Congress gave Treasury general or specific authority to regulate. The statute says the taxpayer must elect to take the FEIE. The statute gives Treasury authority. And Section 7805 gives authority to make regulartions concerning timeliness.

There is no specific deadline for election in the statute, but the Reg states election must be made on a timely filed return before IRS audits them.

And that’s reasonable. So Mayo and Altera are satisfied.

Nancy is too late. And the Reg stands.