Do You Owe Taxes for Income Earned Outside the U.S.?

Working in Foreign Country, U.S. Possessions or Territories Foreign income, overseas employment, Government Contractor Employment, or Expatriate

The IRS routinely scrutinizes the returns of persons who have foreign-based income. For example, if you worked at a location within a U.S. Possession, a U.S. Territory or in a foreign country; there may be a question as to whether or not the wages you earned in that foreign location are taxable within the United States.

There are a multiple overlapping laws and regulations that apply. Some taxpayers are misinformed and believe that mere residency outside the United States is sufficient to make their income tax-free. Each foreign country, U.S. Possession or Territory will have its own set of tax regulations and law. Layered on top of this are the tax treaties (Protocols) between the United States and a foreign country or the Territories or Possessions of the United States.

This can be a complex area of tax law. Generally, the IRS will flag and audit these returns one tax year at a time. If the IRS determines that in a given tax year income was earned outside the United States that was taxable but unreported or not paid; then you can expect subsequent year returns to also be flagged for audit. Therefore it is important to correctly handle and resolve the issue on the first examination of a return involving income earned outside of the United States.

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