Alfred Christopher Morgan v. Comm., TCS 2022-10
This post is part of our series on recent important tax cases that may be of interest to accounting, tax, and finance professionals. For more like this, see our Federal Tax Update and California Federal Tax Update, which offer a comprehensive analysis of the year’s most pivotal tax developments.
Tax Court Agrees Taxpayer Was a Bona Fide Resident Eligible for Foreign Earned Income Exclusion (Alfred Christopher Morgan v. Comm., TCS 2022-10)
Alfred Morgan’s tax problems began when he failed to timely file his 2016 tax return. The IRS prepared a substitute return based on the information that they had. Mr. Morgan filed a return showing, in addition to the IRS income items, a Form 2555 claiming a foreign earned income exclusion as a bona fide resident of Saudi Arabia. When the IRS challenged the exclusion, they found fault with the fact that when asked to substantiate his dates of travel to the US during the period in question, the taxpayer’s information did not exactly match the dates reported on the Form 2555 filed. The IRS urged the court to hold this discrepancy against the taxpayer. The IRS also felt that the fact that Mr. Morgan had a US bank account, a current U.S. driver’s license, health insurance commonly used by retired US service members, and often referred to the US as “home,” all indicated Saudi Arabia was not his tax home so he should be denied the $94,412 exclusion.
The Tax Court agreed with the taxpayer. The court gave weight to the fact Mr. Morgan is engaged to a woman in Saudi Arabia, holds a Saudi driver’s license, a Saudi residency card, has health insurance in Saudi Arabia, and his employer gave him very favorable job reviews and his employment seemed permanent. The court also found that even though there were minor discrepancies in the dates on Form 2555 and the proof of travel, both the dates reported on Form 2555 and the actual dates of travel to the US met the time criteria to be eligible for the exclusion.
Also see.
Deborah Wood v. Comm., TCM 2021-103, where the Tax Court agreed that Ms. Wood was a bona fide resident of Afghanistan. Ms. Wood had not worked in the US since 2011 and had worked in Afghanistan for several years.
Joseph and Jacqueline Bellwood v. Comm., TCM 2019-135, where Joseph was found not to be a bona fide resident of Saudi Arabia. See this case for the 11 factors that courts use in determining if the taxpayer is a bona fide resident of a foreign country.