The Nomad Audit File

The short version

The best digital nomad tax plan is not a slogan. It is a file. If a U.S. taxpayer abroad claims the Foreign Earned Income Exclusion, files as a state nonresident, reports digital assets, and reviews FBAR and Form 8938, the position should be supported by documents created during the year, not reconstructed from memory after a notice arrives.

Travel photos are not tax records. A passport stamp helps only if it connects to the tax rule being claimed. The audit file should prove where the taxpayer worked, what income was earned, what assets were sold or received, what accounts existed, what state ties changed, and what reporting forms were considered.

What the law actually says

The federal file starts with the Foreign Earned Income Exclusion, often called FEIE. The IRS says a U.S. citizen or resident alien living abroad is taxed on worldwide income. A qualifying taxpayer may be able to exclude foreign earned income, but the file must support foreign earned income, a foreign tax home, and either the bona fide residence test or the physical presence test.

The physical presence test is a document problem. The IRS says the taxpayer must be physically present in a foreign country or countries for 330 full days during a period of 12 consecutive months. The days do not have to be consecutive, but they have to be proved. A tax return number on Form 2555 is not the proof. The supporting file is the calendar, passport, flight records, leases, work records, and contemporaneous facts that make the return number defensible.

The state file is different. State residency does not automatically disappear because FEIE applies, and it does not automatically disappear because the taxpayer was outside the United States. California treats residency as a facts-and-circumstances question. New York and Connecticut use domicile concepts and permanent-place-of-abode rules. Virginia says an individual working overseas may still be a Virginia domiciliary resident unless the facts show abandonment of Virginia domicile and establishment of another legal domicile.

The crypto file is different again. The IRS treats digital assets as property and tells taxpayers to report digital asset income, gain, and loss. A taxpayer may receive Form 1099-DA for broker transactions, but the IRS also says taxpayers must report digital asset income, gains, and losses whether or not they receive the form. Digital asset records need to show what happened, when it happened, the value, the basis, and the character.

The foreign-account file is its own workstream. A U.S. person may have to file FBAR if the aggregate value of foreign financial accounts exceeded $10,000 at any time during the calendar year. Form 8938 is separate and may apply to specified foreign financial assets above applicable thresholds. Filing one does not automatically satisfy the other.

That is why a nomad needs an audit file, not a single folder called “tax stuff.”

How it works in practice

Assume a U.S. taxpayer spends the year between Argentina, Brazil, Colombia, and Uruguay. She claims a physical-presence FEIE position. She says she broke old-state domicile. She receives stablecoin consulting payments, sells investment crypto, earns staking rewards, uses a foreign bank account, and receives a Form 1099-DA from one platform.

The return may be right. But the audit file has to prove several things separately:

the 12-month qualifying period and the 330 full foreign days;
the foreign tax home and work location;
which income was compensation for services and which income was investment gain;
which digital asset transactions were sales, exchanges, transfers, rewards, or payments;
the basis and fair market value used for material digital asset positions;
the old-state exit and new permanent-home facts;
the foreign accounts, maximum values, ownership, and signature authority;
whether FBAR, Form 8938, or both were required;
whether any records are missing and how the position was reconstructed.

The goal is not to create a giant binder. The goal is to make each tax claim traceable to the documents that support it.

The numbers

These figures are not the whole audit file, but they are the numbers a digital nomad file should be able to support.

Workstream	Figure or threshold	What the file should prove	Source
FEIE physical presence	330 full days in a foreign country or countries during 12 consecutive months	Calendar, passport, flight records, and lodging records support the day count	IRS physical presence test
FEIE amount	$132,900 maximum exclusion for tax year 2026	Form 2555 workpapers do not claim more than the allowable exclusion	IRS Rev. Proc. 2025-32; IRS Figuring the Foreign Earned Income Exclusion
FBAR	Aggregate foreign financial accounts over $10,000 at any time during the calendar year	Account inventory, maximum values, ownership, and filing proof	IRS FBAR; FinCEN FBAR
New York statutory residency example	184 days or more plus a permanent place of abode maintained for substantially all of the taxable year	Old-state visit log and home-availability records	New York resident definitions
Digital asset reporting	Form 1099-DA gross-proceeds reporting starts for covered broker transactions effected on or after January 1, 2025; basis reporting applies to certain transactions effected on or after January 1, 2026	Platform forms are reconciled to the taxpayer’s full transaction records	IRS Digital Assets; IRS Understanding Your Form 1099-DA
Form 8938	Applies above applicable specified-foreign-financial-asset thresholds	Foreign financial asset inventory is reviewed separately from FBAR	IRS Form 8938 and Form 8938 versus FBAR comparison

The six folders a nomad should build

1. Federal FEIE file

The FEIE file should prove the exclusion before the return is prepared. It should include:

Form 2555 workpapers;
the 12-month qualifying period calculation;
a physical presence day log;
passport scans;
boarding passes and flight receipts;
lease, hotel, residence, or local lodging records;
employer letter, remote-work approval, client contracts, or project records;
invoices, work logs, and payment records;
a foreign tax home memo;
a bona fide residence memo, if that test is used;
proof of where the work was performed;
an earned-income classification memo;
self-employment tax analysis;
foreign housing support, if a housing exclusion or deduction is claimed.

The important point is that FEIE is not only a day count. The taxpayer also needs a tax home, foreign earned income, and the right classification of income. A self-employed person should also remember that FEIE does not erase self-employment tax.

2. State domicile file

The state file should answer two questions: what old domicile was abandoned, and what new permanent home was established?

Useful records include:

an old-state exit timeline;
old home sale, lease termination, or rental-conversion records;
new domicile evidence;
driver license, voter registration, vehicle registration, and insurance changes;
mailing-address changes;
spouse, partner, and child relocation evidence;
changes in doctors, accountants, attorneys, and other professional services;
bank and brokerage address changes;
social, religious, and community ties;
personal-property and storage records;
old-state visit log;
state filing positions;
a written domicile memo.

This file should be state-specific. California, New York, Virginia, and Connecticut do not use one identical rule. The state exit memo should say which old state is being addressed, what facts matter under that state’s rules, and what evidence supports the position.

3. South America residence and local-facts file

The South America file is not a substitute for U.S. tax analysis. It is supporting evidence. It can help support where the taxpayer lived, where the taxpayer worked, and whether the return story matches the life story.

Useful records may include:

visa, permit, or immigration-status documents;
local tax ID or registration records, if any;
local lease or lodging records;
local bank records;
local tax filings, if any;
health insurance records;
local professional permits, if any;
country day-count log;
utility, phone, coworking, or local service records that support residence and work location.

Do not oversell these records. A Colombian lease does not automatically win a California domicile issue. A Brazilian visa does not automatically create FEIE. But local records can help show that the taxpayer did not merely take a long trip while leaving every permanent tie in the old state.

4. Digital asset file

The digital asset file should be transaction-level. Useful records include:

U.S. and foreign exchange exports;
wallet addresses;
transaction history;
cost-basis method and basis support;
missing-data log;
NFT records;
decentralized finance transaction records;
bridge and wrap records;
staking and reward records;
token compensation documents;
stablecoin payment records;
reconciliations to Forms 1099, including Form 1099-DA;
reconciliations to books, invoices, payroll, or client records;
taxable-event memo separating income at receipt, capital gain or loss, transfers, fees, and non-taxable movements.

The taxable-event memo matters because exchange exports are not the tax answer. They are evidence. The return still needs character, basis, fair market value, and timing.

5. Foreign account and asset file

The foreign-account file should be built before FBAR and Form 8938 decisions are made. Useful records include:

foreign bank statements;
foreign fintech, fiat, or custodial account statements;
foreign brokerage or securities account statements;
highest-balance calculations;
FBAR filing proof, if filed;
Form 8938 threshold and filing workpapers, whether or not filed;
account-opening documents;
ownership and signature-authority details;
foreign entity records, if any;
reasonable-cause memo if the taxpayer is late, incomplete, or reconstructing.

This file should be cautious with crypto. Do not assume every self-custody wallet is an FBAR account. Do not assume every foreign platform is harmless. Inventory the accounts, identify what each account held, and then apply FBAR and Form 8938 separately.

6. Employer, client, and business file

For a digital nomad, the work file ties everything together. It should include:

employment agreements;
remote-work authorization;
client contracts;
invoices;
payment records;
work logs;
entity records;
books and accounting exports;
payroll records;
proof of where services were performed;
correspondence showing assignment, project scope, or work location.

This file supports the FEIE position, the digital asset character analysis, the state source-income question, and the self-employment tax analysis.

If you are reconstructing after the fact

A clean audit file is built during the year. But many taxpayers come in after the fact. If records are already messy, start with an inventory and gap log. Do not guess first and gather proof later.

The reconstruction order is:

List every country, state, account, wallet, exchange, employer, client, DAO, entity, and platform used during the year.
Pull return transcripts, information returns, bank records, exchange exports, wallet histories, and travel records.
Separate income items from capital transactions.
Separate self-custody wallets from custodial accounts.
Identify foreign financial accounts and specified foreign financial assets.
Build maximum-value calculations for any foreign accounts.
Reconcile Forms 1099 to the complete digital asset file.
Write down what is missing and how it was reconstructed.

If the taxpayer is late or incomplete on FBAR, Form 8938, digital asset reporting, or foreign-income reporting, the file should not pretend otherwise. The records should show what was known, what was missing, what changed, and what support exists for the position taken.

What this means for you

If you are planning a South America move, build the file before the return. The strongest tax position is the one where the calendar, passport, contracts, invoices, wallet records, account statements, state exit file, and return all tell the same story.

The broader South America move file should also cover the foreign earned income exclusion, the state-residency problem, and the digital asset and foreign-account problem. Keep those as separate workstreams so one good record set does not hide a missing one.

How Sheepdog Tax can help

I am Noah Green, a CPA and Certified Fraud Examiner, and Sheepdog Tax is a veteran-owned practice. I help U.S. taxpayers with digital assets, foreign work, and cross-border filing facts build the tax file before the return locks in the position. For a South America move, that means organizing FEIE support, state exit evidence, digital asset records, Form 1099-DA reconciliation, FBAR, Form 8938, and record reconstruction before a notice or audit turns the file into an emergency. To request a South America digital nomad tax diagnostic, reach me at noah@sheepdogtax.com.

Sources (primary authority first, then secondary commentary)

IRS, Foreign Earned Income Exclusion. https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion
IRS, Revenue Procedure 2025-32, Section 3.39, 2026 foreign earned income exclusion amount. https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
IRS, Figuring the Foreign Earned Income Exclusion. https://www.irs.gov/individuals/international-taxpayers/figuring-the-foreign-earned-income-exclusion
IRS, Foreign Earned Income Exclusion, Physical Presence Test. https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-physical-presence-test
IRS, Foreign Earned Income Exclusion, Tax Home in Foreign Country. https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-tax-home-in-foreign-country
IRS, Foreign Earned Income Exclusion, What is foreign earned income? https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-what-is-foreign-earned-income
IRS, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. https://www.irs.gov/publications/p54
IRS, About Form 2555, Foreign Earned Income. https://www.irs.gov/forms-pubs/about-form-2555
IRS, 2025 Instructions for Form 2555. https://www.irs.gov/pub/irs-pdf/i2555.pdf
California Franchise Tax Board, Publication 1031, Guidelines for Determining Resident Status, 2025. https://www.ftb.ca.gov/forms/2025/2025-1031-publication.pdf
New York State Department of Taxation and Finance, Income tax definitions. https://www.tax.ny.gov/pit/file/pit_definitions.htm
New York State Department of Taxation and Finance, Permanent Place of Abode, TB-IT-690. https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/pit/permanent_place_of_abode.htm
Virginia Tax, Residency Status. https://www.tax.virginia.gov/residency-status
Connecticut Department of Revenue Services, Resident Income Tax Information. https://portal.ct.gov/drs/individuals/resident-income-tax/tax-information
IRS, Digital Assets. https://www.irs.gov/filing/digital-assets
IRS, Frequently Asked Questions on Digital Asset Transactions. https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-digital-asset-transactions
IRS, About Form 1099-DA, Digital Asset Proceeds From Broker Transactions. https://www.irs.gov/forms-pubs/about-form-1099-da
IRS, Understanding Your Form 1099-DA. https://www.irs.gov/businesses/understanding-your-form-1099-da
IRS, Notice 2014-21, IRS Virtual Currency Guidance. https://www.irs.gov/pub/irs-drop/n-14-21.pdf
IRS, Revenue Ruling 2023-14, staking rewards and dominion and control. https://www.irs.gov/pub/irs-drop/rr-23-14.pdf
IRS, Report of Foreign Bank and Financial Accounts, FBAR. https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar
FinCEN, Report Foreign Bank and Financial Accounts. https://www.fincen.gov/report-foreign-bank-and-financial-accounts
IRS, About Form 8938, Statement of Specified Foreign Financial Assets. https://www.irs.gov/forms-pubs/about-form-8938
IRS, Summary of FATCA Reporting for U.S. Taxpayers. https://www.irs.gov/businesses/corporations/summary-of-fatca-reporting-for-us-taxpayers
IRS, Comparison of Form 8938 and FBAR Requirements. https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements
IRS, Foreign Earned Income Exclusion, Bona Fide Residence Test. https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-bona-fide-residence-test
IRS, Self-Employment Tax for Businesses Abroad. https://www.irs.gov/individuals/international-taxpayers/self-employment-tax-for-businesses-abroad
IRS, Foreign Housing Exclusion or Deduction. https://www.irs.gov/individuals/international-taxpayers/foreign-housing-exclusion-or-deduction
IRS, Publication 5569, Report of Foreign Bank and Financial Accounts Reference Guide. https://www.irs.gov/pub/irs-pdf/p5569.pdf

Prepared by Noah Green, CPA, CFE.