By Gruv Editorial Team
Let’s set the scene. You’re living and working abroad, maybe in Lisbon or Tokyo, thousands of miles from the US. Life is good. Then, an email forward arrives from your stateside mail service, or a family member sends you a photo of an envelope. It’s formal. Official-looking. It’s from the IRS.
Your heart sinks. An audit.
It’s a moment that can make you feel completely isolated, questioning every single detail you put on your tax return. What did you do wrong? What happens now? The distance suddenly feels immense, and the problem feels insurmountable.
Okay, first things first: breathe. Receiving an audit notice for your Foreign Earned Income Exclusion (FEIE) claim is stressful, I get it. We’ve all heard the horror stories. But it is not a catastrophe. Think of it less as an accusation and more as a routine check-in. The FEIE offers a huge tax benefit, and the IRS simply wants to verify that you’ve met the strict criteria to claim it. It's a request for proof, not a guilty verdict.
By understanding why it likely happened, what you need to provide, and when to call for backup, you can navigate this process calmly and confidently. You can turn that initial wave of panic into a manageable, step-by-step task.
Before we get into the details, let's ground ourselves with a few core truths.
So, let’s get this out of the way first: an audit notice doesn’t mean you’re in trouble. It rarely means some agent in a windowless room has a personal vendetta against your freelance business in Lisbon.
Think of the IRS's initial review process less like a human detective and more like the automated checkout at the grocery store. It scans millions of returns, and its job is to beep when something doesn't match the expected pattern. Did you accidentally punch in the code for organic avocados when you bought conventional? Beep. Did you claim the Foreign Earned Income Exclusion but also have a W-2 from a U.S. company with a U.S. address? Beep.
The system flags a discrepancy. It doesn’t pass judgment. It just sets your return aside for a human to take a closer look. Most of the time, an audit is simply a request to explain the beep. Your return was flagged for a specific, identifiable reason—and understanding those reasons is the first step to taking the fear out of this process.
Here are the most common triggers we see that land an expat’s return in the review pile:
The reality is that government oversight on expat tax benefits has ramped up. Claims for the FEIE are under a bigger microscope today than they were a decade ago. Knowing where the IRS tends to focus helps you see your own return through their eyes and prepares you to answer the one question they’re really asking: “Can you please just prove it?”
The letter is in your hand. Your heart is doing a drum solo against your ribs and your mind is already jumping to worst-case scenarios. I get it. Before you frantically search for a phone number or start drafting a defensive email, just stop.
Take a deep breath.
How you react in the next 48 hours sets the tone for this entire process. Your first moves are your most important, and they have nothing to do with immediately responding. Think of it like a fire alarm going off. Your instinct might be to run around looking for the fire, but the correct procedure is to exit calmly, get to a safe place, and assess the situation. This is your safe place.
Let’s be clear: this isn’t an accusation. It’s a formal request for information. Your job is to provide it calmly and professionally. So, what do you do right now?
There are two golden rules: don't panic and don't ignore it.
Ignoring an IRS notice is the fastest way to turn a manageable request into a real nightmare. Deadlines are firm, and failing to respond just adds penalties and escalates the problem. So, you’re going to deal with this, but you’re going to do it on your terms.
Your first step is to become an expert on that single piece of paper. Read it. Then read it again. Pinpoint these three things:
Now, here’s the most important piece of advice I can give you: resist the urge to call the IRS right away. Calling them while you’re flustered and unprepared is like walking into a high-stakes negotiation without knowing what you want. You wouldn’t do that with a client, and you definitely shouldn't do it with a federal agency.
Your power right now is in preparation. Gather your thoughts, locate the documents they’re asking for, and seriously consider getting a tax professional involved before you ever pick up the phone. This isn’t admitting guilt; it’s being smart. It’s bringing a specialist in to handle a specialized problem so you can stay focused on your work and your life.
Remember that apartment lease you signed in Berlin? The residency visa you secured for Dubai? What about that folder of flight confirmations from your year of bouncing around Southeast Asia? They’re no longer just digital files or papers stuffed in a drawer. Right now, they are the core of your defense. They are your proof.
This is the part where you build your case. The IRS is asking you to prove your story, and your goal is to provide such clear, organized, and overwhelming evidence that you leave no room for doubt. You want the agent reviewing your file to see a complete picture of your life abroad—a picture that perfectly matches the test you claimed on your tax return.
It all comes down to which test you used.
If you claimed the Bona Fide Residence Test, the IRS wants to see that you didn't just visit a foreign country; you made it your home. They're looking for signs of integration and intent. A single passport stamp doesn't cut it. You need to show them the fabric of your daily life. Think about it: what do you have when you actually live somewhere? You have bills. You have commitments. You have a routine.
Your evidence file should be packed with documents like these:
If you qualified using the Physical Presence Test, your job is a bit more straightforward. It’s less about your intent and all about the math. You need to prove you were physically outside the U.S. for at least 330 full days during a 12-month period. Your most critical tool here is your travel log.
I’ve seen people get tripped up by providing a simple list of dates without backup. That’s not enough. You need to support your log with irrefutable proof of your movements.
Once you’ve gathered everything, organize it. Label each document clearly based on what the IRS asked for in their letter. Arrange it chronologically. And please, for your own sanity, only send copies. Never, ever mail your original passport, visa, or any other document you can’t easily replace. Your job is to make it easy for the agent to say "yes." Give them everything they need to do just that.
Look, you’re an expert in your field. You’re a world-class designer, a brilliant developer, a writer who can make words sing. But let’s be honest with each other—are you also an expert in navigating the labyrinth of the U.S. tax code from thousands of miles away?
Trying to face the IRS alone, especially on a complex issue like the FEIE, is like trying to perform your own surgery. Sure, you might have read a few articles online. You might even feel like you know what you’re doing. But the stakes are incredibly high, the tools are unfamiliar, and one wrong move can lead to a world of unnecessary pain. It’s a risk you simply don’t need to take.
While it’s tempting to try and handle a "simple" mail audit yourself to save a few bucks, engaging an expat tax professional is one of the most powerful strategic moves you can make. This isn't just about having someone fill out forms. It's about hiring an advocate. A translator. A shield. They step in and manage all communication, so you’re not anxiously checking your inbox or waiting for a dreaded phone call. They speak the IRS’s language fluently and ensure your rights are protected every step of the way.
I’ve seen this play out dozens of times. A freelancer gets their FEIE claim challenged and panics, thinking they’re about to face a massive tax bill. But a seasoned professional doesn’t panic. They pivot. If your claim is disallowed, they can often amend your return to claim the Foreign Tax Credit (FTC) instead. And here's the wild part: for many freelancers in high-tax countries, claiming the FTC can actually result in a lower overall tax liability than the FEIE would have. It’s a strategic option you might never have found on your own.
Let’s get one thing straight. Hiring help is not an admission of guilt. It doesn't mean you did something wrong. It’s a sign that you’re a serious professional who takes your financial obligations seriously and wants the matter resolved correctly and efficiently.
Here’s what a professional really brings to the table:
Look, nobody enjoys an audit. It can feel like a final exam you never studied for, a sudden pop quiz on your entire life abroad. But now that you're going through it, you have a choice. You can let the stress consume you, or you can use this as the single most valuable—if painful—lesson in your freelance career.
Think of it this way: the IRS just gave you a free, albeit terrifying, consultation on exactly what they look for. Your job now is to take that intel and build a system so robust that next year’s tax filing feels like an open-book test you’ve already aced. It’s about shifting from reactive panic to proactive confidence.
Here’s how you start.
Absolutely not. Take a deep breath on this one. An audit is not an accusation; it's a request for verification. Think of it less like a police interrogation and more like your credit card company calling to confirm a large purchase. They’re just doing their due diligence. The IRS simply wants you to prove what you claimed on your return.
If your paperwork is solid and you genuinely met the requirements for the Bona Fide Residence or Physical Presence Test, the best-case—and very common—outcome is a "no change" letter. It’s exactly what it sounds like: the IRS closes your case with no changes to your tax bill. Your goal is to give them the evidence they need to send you that letter.
Patience is your new best friend. This process moves at the speed of government bureaucracy, not the speed of an instant message. For most U.S. expats, these FEIE audits are conducted entirely by mail. You won't be getting surprise phone calls in the middle of the night in your time zone.
You'll send your package of documents, and then… you wait. It can take several months for the IRS to process your response and get back to you. It's a slow, methodical churn. Checking your mailbox obsessively will only drive you crazy. Send your response correctly, confirm it was received, and then try to put it out of your mind.
This is the big fear, but a denial is not the end of the road. It’s not even close. If the IRS determines you don't qualify for the FEIE, you have a fantastic backup plan: the Foreign Tax Credit (FTC).
Think of it as a strategic pivot. If Plan A (the FEIE) doesn't work, we move to Plan B. You can almost always amend your return to claim the FTC instead. The FTC allows you to claim a dollar-for-dollar credit for income taxes you've already paid to your host country. For many freelancers in high-tax countries, this can actually result in a lower U.S. tax bill than the FEIE would have. So, a denial isn't a dead end; it's just a detour to a different, and sometimes better, solution.