The Foreign Earned Income Exclusion is pretty simple to understand. An individual who is either a bona fide resident of a foreign country or is outside of the United States for 330 days out of a 365-day period can exclude about $99,000 of earned income from income tax. Seems fairly straightforward, right?
There is a codicil to the Exclusion. “This period can be waived when the Secretary of the Treasury determines, after consultation with the Secretary of State, that individuals were required to leave a foreign country due to war, civil unrest or other conditions that preclude the normal conduct of business, among other things.” A list of such countries is published each year. I prepare a lot of tax returns with the Exclusion. I have yet to prepare any with the Exclusion based on the waiver.
Sheila Bunting of North Las Vegas looked at that waiver list as a way to make her clients happy. She apparently repeatedly used the waiver clause of the Exclusion to get her clients a lower tax bill. Unfortunately, her clients weren’t in those countries. The IRS wasn’t amused, and Ms. Bunting found herself facing a lawsuit from the Department of Justice. She consented to a permanent injunction last week.
The DOJ press release notes, “The injunction requires Bunting to provide a list of customers that identifies by name, social security number, address, e-mail address, telephone number and tax periods, all persons for whom she has prepared federal tax returns or claims for refund since Jan. 1, 2012, that reference foreign earned income.” If you used butning’s 5 Star Tax LLC and have the Foreign Earned Income Exclusion (Form 2555) on your tax return, you can expect to receive a “Dear Soon to be Audited Taxpayer” letter from the IRS.
This is the second Las Vegas preparer who recently has been in hot water over the Exclusion. Earlier this year Harvey Cage was sued by the Department of Justice for the same thing. I’d say it was something in the water but Las Vegas is in a desert.