In an audit, how does the IRS verify the physical presence test?

Answer 1

The IRS doesn't verify the PP test. You have to prove it if challenged.

Having lived and worked overseas -- and surviving an audit where the number of days was very close and questioned by the IRS -- the best ways are to keep copies of both any travel documents and the stamps in your passport.

Keep copies of your travel itineraries and boarding passes to prove embarkation and debarkation dates. Make photo copies of the pages in your passport that show the dates of arrival in (and sometimes departure from) various countries and keep them with the travel documents. With this information, all nicely stapled together, I was able to prove 333 days of physical presence and kept the FEI exclusion.

What nearly derailed me was the fact that I'd spent quite a bit if time "in transit" over international waters during the year in question. Time spent over or upon international waters in transit between countries does NOT count towards the 330 days to satisfy the PP test!

Proof of income earned overseas will NOT help you in proving the PP test, by the way. I was paid for my entire year's worth of wages from an overseas location but that was worthless as far as proving the PP test requirements.

Answer 2

Physical Presence Test

Answer 3

In an audit, the IRS would verify your physical presence in a foreign country through validation of income earned and receipts of expense and they would I hope, count on most of us being honest people who may fudge just a little. Remember, you must spend 330 full days in a foreign country within a 12 month period, with each full day beginning at 12 midnight and ending at 12 midnight.

Refer to IRS Publication 54 for more answers on the physical presence test.