International Taxes – In a Private Letter
Ruling (PLR), IRS has granted a taxpayer, who has resided outside the U.S.
since Year 1, the permission to re-elect the foreign earned income exclusion
under Code Sec. 911(a) for Year 4 and subsequent years. The taxpayer had
changed employers and moved from Country A to Country B in Year 3. However,
unlike Country A, Country B has no personal income tax.
Background. Code Sec.
911 allows qualified individuals, who meet requirements as to residency or
physical presence in a foreign country, to exclude from gross income all or a
portion of their foreign earned income and also to exclude or deduct certain
amounts related to foreign housing costs. To qualify, a qualified individual must
make an election.
According to Reg. §
1.911-7(a)(1), the election applies to the taxable year for which it is made
and for all subsequent years, unless revoked by the taxpayer. A taxpayer may
revoke an election to exclude foreign earned income, by filing a statement
revoking any previously made elections, under Reg. § 1.911-7(b)(1).
Code Sec. 911(e)(2)
provides, however, that once such election is revoked, it may not be made again
by the taxpayer until the sixth tax year after the year in which the revocation
was made, unless IRS consents to the reelection. According to Reg. § 1.911-7(b)(2),
if an individual revokes an election under Reg. § 1.911-7(b)(1) and desires to
re-elect the same exclusion within the next five years, the individual must
obtain permission by requesting a ruling.
IRS may permit the
taxpayer to re-elect the foreign earned income exclusion before the sixth year,
after considering any facts and circumstances that may be relevant to the
determination. Reg. § 1.911-7(b)(2) provides that relevant facts and
circumstances may include the following: (i) a period of U.S. residence, (ii) a
move from one foreign country to another foreign country with differing tax
rates, (iii) a substantial change in tax laws of the foreign country of
residence or physical presence, and/or a (iv) change of employer.
Facts. Taxpayer is a
U.S. citizen who has resided outside of the U.S. since Year 1. Taxpayer made a
Code Sec. 911(a) election but revoked the election in Year 2.
In Year 3, Taxpayer
changed employers and moved from Country A to Country B. Country B, unlike
Country A, has no personal income tax.
Taxpayer requested
permission to re-elect Code Sec. 911 with respect to Year 4 and subsequent tax
years.
Conclusion. IRS has
granted the taxpayer permission to re-elect Code Sec. 911 exclusion for Year 4
and all subsequent years.
IRS expresses no
opinions on whether the taxpayer satisfies the requirements of Code Sec. 911.
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