Short Summary: This case discusses the applicability of the foreign earned income exclusion (FEIE) for a U.S. citizen residing in Saudi Arabia deriving income in such jurisdiction.
Alfred Christopher Morgan (Mr. Morgan) a U.S. citizen and retired military, resided in Saudi Arabia during 2016. He worked there as a quality control manager for a Saudi Arabian’ company. He worked 9 hours per day, 5 days a week. During the weekends, he traveled to close foreign countries (Bahrain, Dubai, etc.) for recreational purposes. In Saudi Arabia, he was the president of a social club, the Worldwide Fraternity of Turtles. He lived in an employer-facility and he had obtained Saudi Arabian proof of residence (Iqama), medical insurance and a driver’s license in Saudi Arabia. Mr. Morgan also was engaged to a long-term resident of Saudi Arabia.
In the U.S., Mr. Morgan had a home where his daughter used to live. He was the sole financial responsible person for maintaining the property. Although Mr. Morgan had his family (mother, daughter, brother, and sisters) living in the U.S., he barely visited them. During 2016, he visited his mother and daughter for approximately two and one week respectively. He did not provide financial assistance to his immediate family. He did not visit any medical provider in the U.S., but he retained medical insurance provided to retired military and his driver’s license.
Mr. Morgan did not file his 2016 tax return. The IRS prepared a substitute for return including in his gross income the income he derived from Saudi Arabia. Mr. Morgan challenged the deficiency in the Tax Court and claimed that the FEIE applied and thus, his foreign earned income should be excluded under I.R.C. § 911(a)(1). The Court determined that his income should have been excluded as he met the requirements of the FEIE.
Key Issues: Whether Petitioner was entitled to exclude his income from Saudi Arabia under the FEIE § 911(a)(1) of the I.R.C.
Primary Holdings: Petitioner was entitled to exclude his foreign earned income as he met the FEIE requirements, because he met the “physical presence” test and his tax home was determined to be located in Saudi Arabia.
Key Points of Law: