Explosive growth in emerging markets has created a significant demand for companies to move workers around the globe to explore and seize new opportunities. At the same time, there has been an equally significant demand for companies to reduce their mobility costs. As a result, traditional employees are now more likely to be sent on short trips to fill specific business or customer needs, and project-based assignments are often more likely to be filled by a modern workforce that includes a variety of nonemployees.

A large majority of companies have seen an increase in these new types of assignments. Nevertheless, many still do not have formal guidelines for managing frequent crossborder travelers, and they admittedly fall short of properly educating their managers and mobile workers on the potential risks of these arrangements. Consequently, many vulnerabilities and misconceptions persist. Additionally, the growing prevalence of accidental expats has led to heightened scrutiny, incentivizing governments to crack down on business travelers and, with the assistance of technology, to become more adept at catching transgressions.


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Since many Texas companies send employees on international assignment, they should be mindful that the U.S. federal income tax rules don’t apply to everyone in the same way.  A case in point is a recent Tax Court Memorandum decision, Qunell v. Commissioner of Internal Revenue.  In that case, the Tax Court held that even though the taxpayer was employed in Afghanistan for 16 months, he was not entitled to exclude his income earned in Afghanistan for 2011 from U.S. tax because he was deemed to have a U.S. abode.  For those who have only a high-level understanding of the foreign earned income exclusion under Section 911 of the Internal Revenue Code (see previous post here), this result may not be obvious.  But the statute is clear that even if a taxpayer otherwise qualifies to exclude foreign earned income under Section 911, that exclusion is not available if the taxpayer has an abode within the United States.

So, what is an “abode”?
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Texas companies that send their employees on international assignment shouldn’t let their employees figure out their US federal income taxes by themselves. A case in point is a recent Tax Court Memorandum decision, Gerencser v. Commissioner of Internal Revenue, where the taxpayer not only lost to the IRS but was assessed with penalties as well. A well-written global mobility policy that requires expats to use the company’s designated tax return preparer is best practice, but surprisingly not all companies take this approach. Because a failure by the expat to properly compute taxes could, in fact, subject the employer to liability, it is important that companies review their global mobility policies.
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As companies today look for ways to reduce their costs, it is inevitable that they will look at their expat population.  Expatriate costs, such as premiums, assignment allowances, subsidies, tax assistance, family support, travel, shipping, and housing, are necessary, but quickly add up.  Expatriate costs can often be four times what they are for employees who work in their home country.

It is not surprising, then, that companies ask if there are savings to be garnered if long-term expatriates are brought home before the original term of their assignment ends.  When a company needs to “pull the plug” and find a way to bring the expatriate home as soon as possible, there are five things to consider.
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The shift toward shorter, project-based international assignments and the explosive growth of emerging markets have created a new breed of workers: the accidental expat.  Also called the extended business traveler and short-term assignee, accidental expats engage in many of the same activities as traditional expatriates, but they represent the highest compliance exposure.  Texas-based energy companies