2555 Foreign earned income exclusion

[Bonnie]

I think I need to reword my original question. I know I did not make it clear so I will try to do better. Taxpayer was in Kuwait from Oct 2004-Oct 2006. During 2006 he returned one time for vacation for 25 days in May. He qualifies for the exclusion based on physical presence test. My question has to do with section VII line 38 of the 2555 for number of days in his qualifying period. Do I include the 25 days he was back in the US in May in this total? It was during his qualifying period, but he was not present in Kuwait during those 25 days. I am confused. If he stayed for an entire calendar year as he did in 2005 he qualifies for 100% of the exclusion amount even tho he spent up to 35 days back in US. Seems he should be allowed the same for 2006 for time on vacation but I'm not sure. Any help would be appreciated.

Thanks
Bonnie

[jerome]

For the physical presence test, you need to know how many days in the qualifying period for the year, if the whole year is not a qualifying period. For example, say the taxpayer was present in a foreign country June 1, 2005 to June 1, 2006. For 2006, you only get to count 5 out of 12 months as a qualifying period, thus only 5/12ths of the exclusion applies for 2006.

The physical presence test, however, does allow the taxpayer to be back in the US for so many days during that period. So as long as the taxpayer meets the physical presence test because the taxpayer did not exceed the number of day limit allowed in the US, then the taxpayer is treated as being in that foreign country for all of the days of that period.

So to answer your question, you would consider the 25 days in the US during May as still being present in Kuwait since it is below the limit allowed to be in the US during the physical presence test period.

[JON]

2006

I thought it was all or nothing for the exclusion. You need 330 of 365 and 2005 works if you extend the tax return. Can you get a fraction of the exclusion in 2006-I did not think so. Now maybe those who know will respond.

[Bonnie]

I thought it was all or nothing for the exclusion. You need 330 of 365 and 2005 works if you extend the tax return. Can you get a fraction of the exclusion in 2006-I did not think so. Now maybe those who know will respond.

Yes you do get a fraction for the portion of the year you are there. This is providing you are there for a total of 365 days altogether even if some are in one calendar year and some in another calendar year. They only get the entire $82,400 exclusion if they are there for the entire calendar year. So if the time overseas overlaps two calendar years then they end up with a partial credit for both years. My customer has been there since Oct 2004 so he had a partial credit for 2004 and a full credit for 2005 and then back to a partial for 2006 since he returned to the US and stayed at the end of Oct 2006.

TB 14-12 to satisfy physical presence test must be in foreign country for 330 days in a period of 12 consecutive months.

Thanks Jerome for your answer.

Bonnie