Can FEIE- Physical Presence Test be prorated?

[Tax411]

This is my client's question: I'm currently in Iraq, I would meet the 330 days out of the country but needed to go back to the states to defend myself in court. The court adjourned twice, before awarding in my favor. However; it took 7 weeks. The only reason for returning to the states was the court case.

I left for Iraq December 20th, 2017 and I'm scheduled to return to the US November 30th.

Would the prorated portion work?

An Expat Tax Pro said it could be, I don't agree as the test isn't met. What am I missing?

[itonewbie · Accepted solution]

"I would meet the 330 days out of the country but needed to go back to the states to defend myself in court"

I saw your question also in the PTO FB group.  My first question is whether you have qualified that statement.  330-day count (which btw, is based on any 12-month period instead of calendar year as your question seems to imply) is not the only criterion for §911.  You need to review his underlying contract (e.g. long term assignment/employment, military contractors, rotational schedules, etc.) and other relevant facts and circumstances to establish not only his tax home but also his abode (which has been a point of contention in recent cases).

Unless the year in question is your client's first year overseas or he's a green card holder, assuming all the other conditions for §911 are met, you should use BFR instead.

[Edited: Your question was posted on the FB group instead of NAEA webboard]

[TaxGuyBill]

The client said "I left for Iraq December 20th, 2017 and I'm scheduled to return to the US November 30th."

To me, the indicates the client was only out of the US for a total of less than one year (minus the 7 weeks) it is unlikely the client qualifies for the Bona Fide Resident either.

[itonewbie]

Ah, I missed that.  In the first place, if the assignment was to last no more than 12 months, the tax home would not have moved and your client should not be eligible for the exclusion regardless.  Per diem allowances and housing provided by the employer, however, may not be taxable so long as the relevant conditions are met.

[Tax411]

Client works for a CA company that supports gov contracts. He is in and out of the country on a regular basis, but only this current year did he get close to the 330 days. I do know that we would use a special tax year, not calendar year. Anyway, all the way around I think that he doesn't qualify (definitely not BFR). I was just surprised that this Expat pro said he would...

[sjrcpa]

For physical presence your guy needs 330 days out a 365 day period. With 7 weeks back in the US During Dec 2017 - Nov 2018 he won't make it.

[itonewbie]

"Client works for a CA company that supports gov contracts."
For what period?  What type of visa?
Even if he qualifies for §911, you would still need to consider whether he meets the safe harbor rule for CA tax purposes since CA does not conform to §911.

"He is in and out of the country on a regular basis"
Rotational assignment or just frequent business travel back to the states?

"only this current year did he get close to the 330 days"
Meaning his assignment began before TY2017 and he was in Iraq for at least one full calendar year?

One more note... PPT can count both backward and forward.