Taking a Job Overseas When Your Spouse Remains Behind – Tax Planning

October 5, 2017
By S. John Kelly
Posted in Business Services

It is common when taking a foreign assignment for the employee to keep a US state issued driver’s license and voter registration.  However, those documents can complicate the employee’s US tax situation when the employee’s spouse has to stay behind in the US to care for a relative, to have a child complete school, or to keep a job.

Under the Tax Code, an employee can exclude from US tax a portion (up to $102,100 in 2017) of his compensation earned overseas if the employee meets the foreign residency or the foreign physical presence tests. In addition, to qualify for the exclusion the employee must not keep an “abode” inside the USA.  In a recent Tax Court case, the fact that the employee has kept a state issued driver’s license and voter registration was used by the IRS to argue that the taxpayer’s “abode” remained in the USA.  If the taxpayer’s “abode” remained in the USA, then the taxpayer would owe additional US tax on the compensation earned overseas.

This recent case shows how to avoid the “abode” issue when the spouse remains at home in the US and the employee retains a state issued driver’s license and voter registration.  The taxpayer, Mr. Linde, was a military contractor assigned to fly helicopters in Iraq.  Mrs. Linde remained at home in Alabama and cared for an injured relative.  The Tax Court found that Mr. Linde kept his “abode” in Iraq because: (1) he opened a bank account while in Iraq; (2) he had better job opportunities in Iraq because of his age; (3) he went to the local markets in Iraq to purchase food and construction materials for his apartment, and (4) he used his free time to socialize with Iraqi residents.  Linde v. Commissioner, T.C. Memo. 2017-180 (Sept. 18, 2017).  Therefore, Mr. Linde was able to exclude the compensation earned overseas from US tax.

Strassburger McKenna Gutnick & Gefsky can help you with your income tax planning.  Please contact John Kelly, jkelly@smgglaw.com  or Dave Pollack, dpollack@smgglaw.com  at (412) 281-5423 for help with tax matters.   This post is provided for informational purposes only. Nothing in this post creates an attorney client relationship.