Fulbright, Foreign Earned Income Exclusion, foreign housing exclusion/deduction

[JBP]

A client is a Fulbright recipient teaching in Sweden currently (as a professor, not a student). He files MFJ with his wife (who is also in Sweden but not working). His US university is paying him a reduced salary.

I believe the Fulbright stipend is taxable on Schedule 1, 8r as a taxable fellowship. (The stipend is clearly broken out into payment for service, travel allowance and housing allowance)

They want to claim foreign earned income exclusion on form 2555. They meet the physical presence test, but they aren't being assessed any Swedish income tax. I thought FEIE was to avoid double taxation, so I'm not sure it applies to this situation.

They also want to claim the foreign housing exclusion (part of the Fulbright payment is designated for housing) -- but I read that they have to qualify for FEIE in order to qualify for the housing exclusion.

Questions:
Can they qualify for FEIE if they're not paying foreign tax on the Fulbright earnings?
Can they exclude the housing portion of the stipend by using the foreign housing exclusion and/or deduction, or in some other way?
Am I missing something in my thinking?

I've been an EA for a decade, but this is my first Fulbright or Foreign Earned Income Exclusion. Thanks in advance for any wisdom you can share.

[TaxGuyBill]

The stipend is clearly broken out into payment for service, travel allowance and housing allowance


Questions:
Can they qualify for FEIE if they're not paying foreign tax on the Fulbright earnings?
Can they exclude the housing portion of the stipend by using the foreign housing exclusion and/or deduction, or in some other way?
Am I missing something in my thinking?

I'm definitely not an expert in this area, but here are my thoughts:


Payment for services are the equivalent of wages. It would go on line 1h of the 1040. I think it the entire amount goes there.

Yes, they can qualify for FEIE even if they are not subject to foreign tax. The Fullbright is wages, so it is "earned" income that would qualify.

In my opinion, the Housing is also part of wages. Assuming that is the case, yes, that can be part of the exclusion.

[Dude]

I don't think they can claim the FEIE because a requirement is having a foreign tax home which in turn requires the position abroad to be an indefinite assignment. A Fulbright is normally for a specific period of time.


chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.irs.gov/pub/irs-pdf/p54.pdf

[TaxGuyBill]

a requirement is having a foreign tax home which in turn requires the position abroad to be an indefinite assignment.

Yes, but if it expected to be for more than one year, it is considered indefinite.

https://www.irs.gov/publications/p54#en_US_2022_publink100047405

I has assumed (perhaps wrongly) that it was for more than one year (you need almost a year to meet the Physical Presence Test).

[Dude]

Most scholars stay for 9-12 months but I do remember some, who I handled, extended their visa; but then again they were from abroad in the U.S. I bet each country has its own requirements on how long the visa will be issued. Here in the U.S., they come on a J visa and those have strict end dates. Extensions are possible but limited . Not an issue here since he is not paying taxes, but if he was it would be more likely he would utilize a tax treaty.

[Lion]

https://www.irs.gov/individuals/international-taxpayers/fulbright-grants

[JBP]

Thank you for the thoughts and the link. I had studied the page at that link earlier and still had questions about the deductions/exclusions.
Another issue I was hung up on was pointed out -- 330 days being required for the physical presence test, yet one needs to be there at least a year or have an 'indefinite' stay. This was a defined university residency of 10 months. I'll be cozying up with Pub 54 to sort out the details.
Thanks again everyone!

[TaxGuyBill]

This was a defined university residency of 10 months

Then did they move back to the US after that? Or were things extended?

At first glance, that 10 month thing may disqualify it on two accounts - they don't meet meet the 330 day test and their "tax home" may not have been in the foreign country (assignment of less than one year).

[Lion]

Fulbright put out a document revised February 2013 stating "Fulbright grants are subject to U.S. income taxes. (See IRS Publication 970 for details.)" and citing IRS Publications: Form 1040, Form 1040ES, Pub 970, Pub 54, Pub 463, Pub 901, Form 4868, and Form 2555 or 2555-EZ.

I've met Fulbright Scholars (although, not my tax clients) who interspersed overseas travel with their teaching &/or research activities to end up out of the US for more like 13 months instead of just the 10 months for their Fulbright assignment.

Rev. Rul. 62-2, 1962-1 CB 9 showed up in an NATP Q&A re Fulbright Scholars. If you have CCH AnswerConnect, you can search for that Rev. Rul. and other information.

TTB's WebLibrary comes up with 5 articles if you search on Fulbright:
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Deluxe & Deluxe Supplement - Children, College, and Family (Page 12-7)
scholarships fellowships and grants of all types including athletic scholarships scholarships won as prizes Fulbright

Publications - Publication 54 - Tax Guide for U.S. Citizens and Resident Aliens Abroad (Revision Year 2021)
Fulbright Grant | see Fulbright Grant in chapter | Frequently asked questions FAQs Fulbright grant | I am a Fulbright grantee What documentation must I attach to my return | You were a Fulbright grantee and were paid in nonconvertible foreign currency

Publications - Publication 4704-FS - Foreign Student and Scholar Test (Revision Year 2020)
married in June and they both entered the U S in F immigration status to complete their studies as Fulbright | married in June and they both entered the U S in F immigration status to complete their studies as Fulbright

Publications - Publication 970 - Tax Benefits for Education (Revision Year 2021)
Fulbright Grants | Glossary Graduate education tuition reduction Grants Fulbright Pell | A Fulbright grant is generally treated as a scholarship or fellowship grant in figuring how much of the | IRAs Form Form Coverdell ESA Early distributions from IRAs Qualified tuition program QTP Form Form WS Fulbright

Forms & Instructions - Form 6744 - VITA/TCE Volunteer Assistor's Test/Retest (Revision Year 2022)
March The next year they both entered the U S in F immigration status to complete their studies as Fulbright | March and the next year they both entered the U S in F immigration status to complete their studies as Fulbright

[Dude]

"Your Tax Home is a place where you are permanently or indefinitely engaged to work as an employee or self employed individual"

chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.irs.gov/pub/irs-pdf/p54.pdf

Seems if the Fulbright assignment was not extended then you would have to be engaged in some other kind of work