[Askme-Taxpayer]

Background – My son is a U. S. citizen and a full time college student. This past year he worked six months in Germany for a German firm on an internship (praktikum). He was paid in Euros (no surprise). Fortunately he returned with all his pay statements. It is his intention to convert his Euro payments into dollars using the prevailing exchange rate at the time he received his compensation; then to sum the amounts and include the total on line 7 of his Form 1040.

Since he will not receive a W-2 from the German firm, what type of documentation should be included with his tax return to explain the foreign income on line 7? I suspect that without some type of explanation, it will raise a red flag with the IRS. I’ve had three ideas, maybe there are more.

- Include a simple statement with the tax form package explaining the foreign income.

- Include a Form 4852 (substitute W-2). This form requires that the taxpayer attest that the IRS has been previously notified about the failure to receive a W-2 from an employer. This requirement doesn’t seem to fit the circumstances.

- Include Form 2555 (Foreign Earned Income). It seems to explain the income source, but I have found that Turbo Tax balks at completing the form if the taxpayer does not qualify for a foreign income exclusion or housing exclusion/deduction. My son doesn't qualify for these exclusions.


Any suggestions would be appreciated.


Also, does anyone have any idea as to what employee expense deductions might be available for my son? It would be great if the air fare to/from Europe would qualify.

[AtlantaTaxExpert]

Believe it or not, NO documentation is required. You CAN attach the statement, but it is likely the IRS will accept the return with the German wages added to Line #7 at face value.

Keep the pay statements on file in case the IRS queries about the source of the wages.

As for the employee expense deductions, he was working ina temporary job at a location away from his tax home. That being the case, and assuming he did NOT receive tax-free reimbursement for any of these expenses, he can claim:

- His airfare to and from Europe.
- His daily transportation costs, including the cost of a rental car.
- His lodging costs (be sure he has receipts).
- His daily meal costs.
- His incidental expense costs.

If he did not rent a car and did not keep receipts for daily transportation and meals, he can claim the per diem amount authorized by the GSA for the German locality where he worked and lived. You can find these per diem rates on the GSA website.

These deductions will be itemized deductions, so your son will have to file Form 1040 with a Schedule A and Form 2106.

If this seems a bit daunting to you, contact me at [email protected]. I prepare returns like these all the time.

[Askme-Taxpayer]

Thank you very much, AtlantaTaxExpert!

I am a little surprised that no additional documentation is required, but I'm certainly not disappointed.

Now I just hope he saved his airline receipts.

Thank you again.

[AtlantaTaxExpert]

Glad to help!

[IntlTax]

As I have indicated in prior posts, I only have so much time to provide my input on what I believe are incorrect posts on this forum.

In Hantizis v. Commissioner, 638 F.2d 248 (1st. Cir.), the First Circuit held that an unemployed full-time law student residing in Boston while attending Harvard Law School in Cambridge, MA who took a summer job in New York for only 10 weeks had a tax home only in New York because New York was the location of her employment. The fact of her unemployed full-time student status in Boston was not sufficient to establish her tax home in Boston. This meant that none of his travel, lodging, or meal expenses were deductible for tax purposes.

The activity of being a student does not constitute a trade or business, and thus, in and of itself, does not establish a tax home. In the absence of employment or trade or business activity, a taxpayer may have no tax home at all.

Unless your son had a regular or principal place of business in the U.S. it seems unlikely that any of his travel, lodging, or meal expenses would be deductible for U.S. tax purposes.

I don't get much positive feedback by providing answers such as these, but this is the law.

[AtlantaTaxExpert]

Noted!

However, if the student had a part-time job in the U.S. in 2008 other than the internship in Germany, or had part-time work in prior years in the United States for which he had filed an income tax return, would he not have established his tax home in the U.S.

[IntlTax]

It is a facts and circumstances determination.

If he is a full time student and he had full or part-time work prior to becoming a student, I very much doubt he would have a tax home while a student. If he had part-time work as a student, he might be okay, but I expect the IRS would challenge this.

[Askme-Taxpayer]

Thank you IntlTax and AtlantaTaxExpert for your insights into this matter.

Just for the record, although my son lives in the campus area, the university is local (within 20 miles) of our home where he grew up. He continues to work on an ad-hoc basis for the same small company he started working for while in high school. Essentially this translates to zero or just a few hours during a school session and to at least ¾ time during school breaks. He has had W-2 wages for many years now. In fact he will have W-2 wages in addition to the foreign income for the 2008 tax year.

[AtlantaTaxExpert]

Given these added facts, in my opinion, your son HAS established his tax home to be your home town.