Discussion:Cruise Ship Income, Foreign income?
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Donniecastleman (talk|edits) said: | 2 October 2007 |
Hey all,
Have a tax client that is talking about the 330 day exclusion, but is working on an American cruise ship, paid in US dollars, and gets a 1099 at the end of the year. He is thinking that since he was on a cruise ship for the entire year, hence "out of the country" that he doesn't have to file a tax return, but I believe that he does because of these facts and others as well. Is there anything that I'm missing? | |
| October 2, 2007 | |
| I expect not only do you have to be out of the country but you must also be in another country for the exclusion to apply. Where is his tax home? If he's not physically present in a foreign country for the requisite number of days or a bonafide resident of a foreign country, the exclusion would be unavailable. | |
TheTinCook (talk|edits) said: | 2 October 2007 |
| It's the same reasoning in the Antartica cases. | |
Donniecastleman (talk|edits) said: | 2 October 2007 |
| Thanks, that's what I thought, somehow people that went over to Macau to work at the new Venetian hotel are getting sold on not having to pay US income tax on their earnings by being there for 9 months and paying only a 6% local rate, sounds good to me if it can be done. | |
| 2 October 2007 | |
| Really? I can bartend. Never been to Macau, saw a bird called a Macau once. | |
Donniecastleman (talk|edits) said: | 2 October 2007 |
| All of us should have pooled together some money to invest in the Venetian before all of this took off, we would have doubled or tripled our investment in 3 months, oops! | |
| 2 October 2007 | |
| Back to the original question: all you need to do, Donnie, is read the statute. (Which I tell my graduate students is always the FIRST STEP in tax research.)
IRC Sec 911(d)(1) defines a "qualified individual" as a person who has been (A) a bona fide resident of a FOREIGN COUNTRY OR COUNTRIES for an entire year, or who has been (B) PRESENT in a FOREIGN COUNTRY for 330 days. Your client may have been "out of the country" on a cruise ship, but he was not present in a foreign country, nor was he a bona fide resident of any foreign country. So by definition he is not eligible for the exclusion. | |
| 2 October 2007 | |
| It is indeed the first step in tax research, and often proves to be futile :). QUESTION: if it flies under a foreign flag, is that a foreign country? I'm walking onto a ship now as I type this on my Blackberry. [This question may hold some interest as it is my understanding that ships are being built as we speak that consist of condos. This becomes, or could become, your principal residence. | |
Donniecastleman (talk|edits) said: | 3 October 2007 |
| Oh com'on Katie, I'm from Tennessee! You know I can't read! Seriously I did scan over the publication dealing with foreign taxation but wanted to make darn sure of everything! | |
| 3 October 2007 | |
| But Donnie, IRS publications (and form instructions) are NOT AUTHORITY FOR ANYTHING. They are often vague or misleading, and occasionally even wrong. Often they go right up to the edge of your question but don't quite answer it. You cannot rely on them.
This is what we teach our master's degree students: IRS publications, form instructions, journal articles, CCH or RIA explanations, treatises, and other editorial commentary are useful information, but they are not authority. They can be very helpful, especially at the beginning and at the end of a research project. At the beginning, they can help you define your issue and identify the applicable authorities. Once you have a grip on the issue, the next place to go is the Code. If that doesn't give you the answer, go on to look at administrative (regs, rulings, etc.) and judicial (court cases) authorities. That's how you make "darn sure." And then you may find a journal article that helps solidify your results (or raises additional questions). But don't rely on IRS publications. They are just the IRS's interpretation, and are written in very general terms. | |
| 3 October 2007 | |
| I have a client that worked for Princess Cruise Lines last year for about two months. I'm not concerned about the foreign income exclusion, but he received a W2 (not 1099) that indicated he was exempt for social security and medicare. They withheld FIT, but not FICA/MC. Do you think he is actually exempt or should he be paying SE tax? | |
| 4 October 2007 | |
| Crow, while looking for something else I ran across some case law on your question about foreign flag ships. William M. Bebb (1961) 36 TC 170: presence on a Liberian registered ship did not satisfy the foreign presence requirement under Sec. 911(a). | |
| 4 October 2007 | |
| Without commenting on whether the taxpayer is entitled or not, the exclusion is an election that can only be made by filing the return. Therefore, there may be no tax due, but I do not think it eliminates the filing requirement for the first year the exclusion is sought. The election remains in effect for subsequent years until revoked. | |
| 5 October 2007 | |
| And cruise ships are in international waters...3 miles offshore in FL you are in int waters so what country then would be his home? I think this is getting convoluted...he is a US citizen, US resident but was in international waters on a cruise ship.... | |
| 13 April 2008 | |
| I just finished doing my daughter's taxes. She worked for Carnvial last year. Received a w-2 which they took federal withholding out of her check. From what I understand she is not required to pay ss or medicare. They were told they lived where the ship was registered. In her case, that was the Bahamas. I find all of this terribly confusing, is there some kind of publication that explains all this? | |
| 15 April 2008 | |
| Look at Pub. 54. If she performs services outside the U.S. as an employee of a foreign employer, then she should not owe social security or medicare taxes. | |
Ksnoopytax (talk|edits) said: | 15 April 2008 |
| Just did some backreading on this thread. Taking one class in international tax opened up my eyes so much on how international taxation worked and gave me a great background to answer general questions that clients may bring up and most importantly spot issues that may be trouble for my clients. It helped that my professor was an excellent teacher but I would highly recommend the class. So many clients these days are going global it is nice to be able to cite some of the ramifications of their actions and if needed forward them on to an international tax attorney...lol. | |
