Fortunately there is a similar case that will let me exploit the celebrity connection provided by Sergio Garcia’s tax case. Unlike Sergio Garcia, Yen-Ling Rogers is a US citizen, a flight attendant and not famous. Her case is about how you apportion income to foreign countries versus the United States so that makes her just like Sergio Garcia – if you are a tax geek.
Ms. Rogers was a flight attendant for United Airlines based in Hong Kong and was a resident of Hong Kong. As a United States citizen, she is taxed on her world wide income. There is, however, a foreign earned income exclusion. It is a little complicated as you can see from this Form 2555. Given the level of her income, though, Ms. Rogers, if she were a bona-fide resident of Hong Kong, which the IRS admitted she was, would be able to exclude all of her foreign earned income. Being based in Hong Kong you might think that would be the end of the story, but it is not.
One of the routes Ms. Rogers worked was Hong Kong to San Francisco. So for at least some of the time she was actually working in or at least over the United States. The case gets into how flight attendants are paid. It is actually, somehow based on “flight time”, which commences when the pilot releases the brake so the jet can start being backed up from the gate. It does not include the schlepping that the attendants have to do before that and about half an hour of stuff they have to do after landing. So you wouldn’t think that Ms. Rogers had much work she was getting paid for in or over the United States when she was working the Hong Kong to San Francisco route.
Unfortunately, I am leading you down a fallacious path here. You are probably thinking that foreign income is income that you earn when you are not in the United States. That is what a large number of employees who were working for Raytheon thought according to this story. They were living, if you can call it that, and working in Antarctica. That seems beyond foreign, almost like living on another planet. They did not qualify for the foreign earned income exclusion, because “foreign”, for purposes of the exclusion has a particular meaning:
The term “foreign country” when used in a geographical sense includes any territory under the sovereignty of a government other than that of the United States. It includes the territorial waters of the foreign country (determined in accordance with the laws of the United States), the air space over the foreign country, and the seabed and subsoil of those submarine areas which are adjacent to the territorial waters of the foreign country and over which the foreign country has exclusive rights, in accordance with international law, with respect to the exploration and exploitation of natural resources.
There us no country that has sovereignty over Antarctica, so when you are there you are not in a foreign country. Same thing would be true if you were on the moon. There is another area that falls in the same category. That would be international airspace. Lots of international airspace between San Francisco and Hong Kong.
United had provided Ms. Rogers with an allocation of her income based on estimates of flight time over foreign countries. It is necessarily a matter of estimation which is explained in somewhat more excrutiating detail in this Tax Court decision from 2009. Depending on weather and the like the exact route can vary. The 2009 decision also concerned Ms. Rogers. When she filed her 2007 return, which is the subject of the most recent decision she did not know how that was going to turn out. Nonetheless, the Tax Court thought she should have been aware that there was a problem with trying to excluded 100% of income so they let the 20% accuracy penalty stand.
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Forbes.com Mar 21st, 2013