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Recent tax court litigation could affect many taxpayers

Many Massachusetts residents work outside the country. As such, they can take advantage of certain tax rules to save money, but it requires filing their personal income tax returns in a specific manner. However, without the proper assistance, it could be easy to make mistakes. The IRS may forgive certain inadvertent and/or immaterial errors, but recent tax court litigation could make it more of a challenge to make that claim.

In order to qualify for certain tax breaks while working outside the country, a Massachusetts resident must be a resident of the foreign country for at least 330 days, must earn income for personal services and have a home outside the U.S. Meeting these criteria may be the easy part of the process. Other qualifications include filing certain tax forms and involve either typing or handwriting a particular statement at the top of the personal income tax form.

Knowing that, a couple failed to put that statement on their 2006 tax return, and the IRS denied them the associated tax break. The case went to the U.S. Tax Court because the couple claimed it was an inadvertent and immaterial omission. The court disagreed. In its ruling, it said that the inclusion of that statement is vital and without, the tax break does not need to be granted.

The ruling from this tax court litigation could affect other taxpayers working outside the country. In order to avoid being denied the applicable tax break, income tax forms must include the relevant language. This simple omission could have a financially devastating effect otherwise. To avoid this happening, similarly situated taxpayers would more than likely benefit from working with an experienced tax attorney to help ensure everything goes as planned.

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