foreign income

[gman]

Taxpayer worked in Afghanistan for 337 days according to his records. Does this qualify him to exclude up to 91,400. of his income. He would qualify under the physical presence test. I have read thru the pub, but wanted to make sure I was not missing anything. He made 100,000. So this amount would be tax free to him? Any information I would need to get from him?

[Burke]

Should qualify for Foreign Income Exclusion based on physical presence test as long as he was a civilian contractor or employee of a US or foreign business and was not an employee of the US government. See 2555-EZ.

[Kram BergGold]

1 year test

It is ny understanding that his period abroad must be 1 year or more. So if he was away only 337 days I don't think he qualifies.

[appelman]

330 days for Physical Presence Test

From 2555 instructions:

"Physical Presence Test
To meet this test, you must be a U.S. citizen or resident alien who is physically present in a foreign country, or countries, for at least 330 full days during any period of 12 months in a row. A full day means the 24-hour period that starts at midnight.

To figure 330 full days, add all separate periods you were present in foreign country during the 12-month period shown on line 16. The 330 full days can be interrupted by periods when you are traveling over international waters or are otherwise not in a foreign country. See Pub. 54 for more information and examples."

You will, however, have to pro rate the maximum exclusion by the actual number of days in the calender year that the taxpayer was there.

[travis bickle]

12 Month Period, Not Cy

From 2555 instructions:

"Physical Presence Test
To meet this test, you must be a U.S. citizen or resident alien who is physically present in a foreign country, or countries, for at least 330 full days during any period of 12 months in a row. A full day means the 24-hour period that starts at midnight.

To figure 330 full days, add all separate periods you were present in foreign country during the 12-month period shown on line 16. The 330 full days can be interrupted by periods when you are traveling over international waters or are otherwise not in a foreign country. See Pub. 54 for more information and examples."

You will, however, have to pro rate the maximum exclusion by the actual number of days in the calender year that the taxpayer was there.

PLEASE read the insturctions/forms/pubs carefully. The t/p need be out of the country for ANY 12 month period that includes the 330 days .......NOT necessarily a CY

[appelman]

Not for the PP Test

The taxpayer does NOT need to be out of the country for a full 12-month period, only for 330 full days DURING a 12-month period.

[travis bickle]

your last statement is incorrect

From 2555 instructions:

"Physical Presence Test
To meet this test, you must be a U.S. citizen or resident alien who is physically present in a foreign country, or countries, for at least 330 full days during any period of 12 months in a row. A full day means the 24-hour period that starts at midnight.

To figure 330 full days, add all separate periods you were present in foreign country during the 12-month period shown on line 16. The 330 full days can be interrupted by periods when you are traveling over international waters or are otherwise not in a foreign country. See Pub. 54 for more information and examples."

You will, however, have to pro rate the maximum exclusion by the actual number of days in the calender year that the taxpayer was there.

(my emphasis added)
The taxpayer is allowed to exclude all foreign earned income IF (s)he meets the various tests: not a US employee stationed overseas; out of country for 330 24-hour days during 12-month period [not counting travel days] etc, etc.

Here is a hypothetical situation - TP is in Ghana building bridges from Jan 1 to July 1, totals 181 days (non-leap year). In Aug TP goes to Egypt to build pyramids and works from Aug 2 to Dec 31, totals 154 days. Total days worked outside of US = 335; total days outside of US = 365 [assumes no travel back to US from July 2 to Aug 1]. The points are ... (a) does not have to work in ONE country for 330 days to qualify; (b) if TP earned all their money in ONE DAY and took a 329 day vacation outside of the US, TP can still exclude 100% of the allowed amount.

Your statement "You will, however, have to pro rate the maximum exclusion by the actual number of days in the calender year that the taxpayer was there" is completely erroneous

[David1980]

PLEASE read the insturctions/forms/pubs carefully. The t/p need be out of the country for ANY 12 month period that includes the 330 days .......NOT necessarily a CY

I believe he was saying in calculating the exclusion you need to look at the CY.

If the taxpayer is out of country for 330 days from July 1 - July 1, with exactly 165 of those days in 2010 and the other 165 in 2011, you would end up using the 165 days in the CY on 2555 line 38 in calculating how much of an exclusion the taxpayer gets for 2010.

Need to remember that the days used in calculating the exclusion are not the same thing as the days used in qualifying for the exclusion.

[joanmcq]

I disagree. You are comparing two different situations. If the 330+ days occurs during two different calendar years, you do have to prorate the exclusion. The example is the job runs from July 1, 2010 to June 1, 2011. Assume the TP was working in the US until July 1, 2010. The exclusion for 2010 is not the full amount; it is prorated by the number of days in the year that he was in the foreign country.

The point is that the 330 days can straddle two different tax periods. You could work in 330 different countries during that period (would be a mess of a return trying to list 'em all but that is beside the point), but you won't get the full exclusion for any tax year if not out of the country for the full year.

[travis bickle]

Wrong

I disagree. You are comparing two different situations. If the 330+ days occurs during two different calendar years, you do have to prorate the exclusion. The example is the job runs from July 1, 2010 to June 1, 2011. Assume the TP was working in the US until July 1, 2010. The exclusion for 2010 is not the full amount; it is prorated by the number of days in the year that he was in the foreign country.

The point is that the 330 days can straddle two different tax periods. You could work in 330 different countries during that period (would be a mess of a return trying to list 'em all but that is beside the point), but you won't get the full exclusion for any tax year if not out of the country for the full year.

HYPOTHETICAL SITUATION -
TP works in FOREIGN COUNTRY on July 1 and earns $100,000 for that days work [wouldn't that be lovely]. TP then moves to Monte Carlo for 329 days and enjoys a nice vacation there. I am not even going to bother to count 330 days to find the end point, we all know it is sometime in 2011. TP MAY EXCLUDE 100% OF THE **ALLOWED** AMOUNT EARNED IN 2010 IN A FOREIGN COUNTRY.

The main problem you people are making is this -- YOU ARE ADDING INTO THE SITUATION ADDITONAL EXTRANEOUS DATA THAT DOES NOT APPLY.

For example, in the post I quoted above it reads .. As you stated, the [foreign] job runs from July 1, 2010 to July 1, 2011. BUT THEN YOU BLITHELY ADD .. ASSUME THE TP WAS WORKING IN THE US UNTIL JULY 1, 2010 .. Where did that "fact" come from? If you want, you can make all the assumptions you want to muddy the water all you wish. The fact of the matter is do the job you are given WITHOUT adding extraneous non-relevant "facts".

1. Read the pubs
2. Read the forms
3. Read the instructions
Repeat steps 1, 2, and 3.

[appelman]

C'mon, folks!

This is tax preparation 101! Look at part VII of the 2555 and follow it through. Joan has it right, and David's concluding remark is highly pertinent:

"Need to remember that the days used in calculating the exclusion are not the same thing as the days used in qualifying for the exclusion."

What is prorated is the maximum exclusion pre-entered on line 37.

(Travis seems to be assuming that the taxpayer lived abroad for all of the current year. This is possible, of course, and it would change the conclusion, but it doesn't seem evident from the problem as originally stated.)

[Burke]

This is tax preparation 101! Look at part VII of the 2555 and follow it through. Joan has it right, and David's concluding remark is highly pertinent:

"Need to remember that the days used in calculating the exclusion are not the same thing as the days used in qualifying for the exclusion."

What is prorated is the maximum exclusion pre-entered on line 37.

(Travis seems to be assuming that the taxpayer lived abroad for all of the current year. This is possible, of course, and it would change the conclusion, but it doesn't seem evident from the problem as originally stated.)

Therefore, if only (say) 90 days were in the prior year, then one could not actually file that year's return using the 330 day exclusion rule until he actually met the 330-day rule which would be 240 days into the following year, or almost the end of August. So extension?

[David1980]

Therefore, if only (say) 90 days were in the prior year, then one could not actually file that year's return using the 330 day exclusion rule until he actually met the 330-day rule which would be 240 days into the following year, or almost the end of August. So extension?

There's even a special form for that extension. Form 2350.

[Burke]

There's even a special form for that extension. Form 2350.

Well, knock me over with a feather. Just when you think you know everything about taxes........

[appelman]

Here are the details:

http://www.irs.gov/businesses/small/international/article/0,,id=96782,00.html