Sound crazy? Not in America.
On Wednesday, the Tax Court held that a flight attendant who was a resident of Hong Kong and a U.S. citizen could not claim 100% of her wages were excludable under the Sec. 911 foreign earned income exclusion (Rogers, T.C. Memo. 2013-77)…
The Tax Court held, therefore, that only her wages earned while in or flying over foreign countries qualify as foreign earned income, and wages earned while in international airspace or over the United States do not qualify.
In other words, a Chinese dual citizen living in Hong Kong, working for a Chinese employer and earning less than $10K per year, may be double-taxed on the same income by America simply because they work above the ground outside of America.
I’m failing to comprehend how one can determine when one worked in international airspace, or even US airspace, and for how long. Will one also be fined $10’000 for not knowing that one flew over a section of American Samoa, thinking that it was Samoa? Flight attendances have to carefully analyze the hours worked over the jurisdictions covered by each flight path throughout the entire year to ensure that their meager incomes will be taxed twice, if they wish to avoid massive fines. How much greater can tax insanity be more hell than that?
The U.S. position on the taxation of flight crews on international flights makes no moral sense at all. If you are working on an international flight the only portion that qualifies for special treatment under the tax code is that portion which is over international waters. Once you are on the final leg and over U.S. airspace then that segment comes under regular taxation rules. It is as if you didn’t need to land the plane, that part was optional and so you assume the taxation risk.
It seems to me that a flight that goes over international waters should qualify as international from beginning to end. That makes moral sense to any right thinking human being but not to politicians pencil pushers.
I also wondered how this affects people working on cruise ships. I took a Caribbean cruise a few years ago leaving from Florida and I was struck by the absence of any Americans among the staff. I imagine that the entire international staff don’t have to pay any taxes putting any Americans at a compettive disadvantage.
In Scandinavia, there are rules for taxation of Seamen. Probably slightly favorable verses land work, but doubtfully not by much. They would apply if the seaman maintains residence in Scandinavia. My guess is that the OECD countries all have similar setup.
However, most of those govts would not chase their citizens if they decided to have land residence in a favorable country. This is left exclusively to the exceptional country.
It was her employer–United, I think– that kept track of the time she was working over/in the US. Since this was reported as US-source income to the IRS, there was a discrepancy when she claimed all her wages were eligible for the FEIE.
Imagine the tedious work of trying to fill out the FEIE forms and calculating how much time was actually spent working in the US.!!!???
This is rediculous!!! How dare the United States of Arrogance take such a stance???
Stupid decision. Soon, this dual will dump his/her citizenship and pay not taxes at all to the US.
What is the benefit for America??
This is the insane and inane results of US arrogance and US citizenship-based extraterritorial taxation take to its natural conclusion.
Yet, Puerto Rico gets a much better deal.
The US could make this more rational, or less stupid if they wanted to, but apparently, they’ll go to any lengths to defend the indefensible.
Better to renounce if we can, than deal with the US as a citizen in shackles.
This is without a doubt the stupidest thing I have ever seen and is an argument for abolishing citizenship-based taxation. Leaving aside the:
– breath taking stupidity of the law
– the staggering “tunnel vision” of the people who wrote it
– the total waste of financial resources for all involved (including the taxpayers of the US)
it is just plain dumb.
There are two morals from the story:
1. Do NOT work for a US Airline if you live outside the US;
2. If you live outside the US, renounce US citizenship at your earliest convenience.
Dumb, dumb, dumb!
Re IRS and airspace concerns:
Some day, many many years from now, a book will be written….