What is a tax home or abode, and how do they relate to each other?
Your tax home is one of the following-
1. Your regular or principal place of business, employment or duty post or,
2. Your abode in a real and substantial sense if you do not have a regular or principal place of business (traveling sales, for example). In this example, your tax home may be the place you live (your abode). Abode is defined below.
Also, your tax home does not necessarily define the location of your residence or domicile for tax purposes. These can be different places, and this in itself does not preclude you from the foreign earned income exclusion or foreign housing exclusion / deduction.
If you maintain an abode in the United States, you will instantly be ineligible for having a tax home in a foreign country. An abode has been loosely defined as one’s home, habitation, residence, domicile or place of dwelling (see the memorandum below).
However, if you maintain a dwelling (versus abode) in the United States whether or not that dwelling is used by your spouse and dependents, does not necessarily mean that your dwelling is your abode. Confused? It can be..
Here is a snippet from an IRS Memorandum AM2009-003 (insomnia relief)-
Therefore, in addressing the tax home requirement, the courts have focused on the requirement under IRC section 911(d)(3) that the taxpayer’s abode not be in the United States. For this purpose, the tax court and appellate courts have used the following definition of ‘abode’ found in the Bujol decision:
‘Abode’ has been variously defined as one’s home, habitation, residence, domicile, or place of dwelling. Black’s Law Dictionary 7 (5th ed. 1979). While an exact definition of ‘abode’ depends upon the context in which the word is used, it clearly does not mean one’s principal place of business. Thus, ‘abode’ has a domestic rather than vocational meaning, and stands in contrast to ‘tax home’ as defined for purposes of section 162(a)(2). Bujol, 53 T.C.M. at 763.
Using the above definition of abode, in most of the decisions, the courts have concluded, based upon the blocks of time spent in the United States and other factors, such as a U.S. bank account, U.S. driver’s license, and U.S. voter’s registration, that the taxpayers had strong familial, economic and personal ties in the United States and only transitory ties in the foreign country where the taxpayers worked, and thus, the taxpayers were held to have a U.S. abode. Accordingly, the taxpayers could not exclude their foreign earned income from gross income for U.S. tax purposes.
To recap, your abode can be anywhere except in the United States. Your tax home is not necessarily your abode unless you do not have a regular place of business (then your tax home equals your abode in terms of location). As the Tax Court mentions, abode is a domestic term while tax home is a vocational term, and both are independently important as they relate to the foreign earned income exclusion. Typically you live in your tax home, and therefore this minor distinction is not relevant.
There is a recurring theme in the foreign earned income exclusion- the spirit of your actions and the subsequent intentions will be the swing vote on many issues. The IRS does a decent amount of follow-up and even examinations of taxpayers claiming the exclusion- don’t try to pull a fast one, you will lose.
There are other considerations concerning temporary versus indefinite foreign assignments, and how they relate to your tax home location. Also the term foreign country includes any territory that is not under control of the United States. It also includes the country’s airspace and territorial waters, but not international waters and the airspace above them. Lastly, there are some unique exceptions for American Samoa, Guam and the Commonwealth of the Northern Mariana Islands.
As an interesting side note, there was a flight attendant for United Airlines who tried to claim the foreign earned income exclusion on income she earned in international airspace. Click here to read the Tax Court Summary 2012-12 (spoiler alert- she lost).