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Contents

Publication 54 Important Change for 1998 ............... 1


Cat. No. 14999E
Department Important Reminders ......................... 2
of the
Treasury Tax Guide for Introduction ........................................ 2
Internal
Revenue
Service U.S. Citizens 1. Filing Information ..........................
Filing Requirements ........................
Nonresident Spouse Treated as a
2
3

and
Resident ................................... 5
Estimated Tax ................................. 6
Information Returns and Reports ... 6

Resident Aliens 2. Withholding Tax ...........................


Withholding ....................................
7
7
30% Flat Rate Withholding ............. 7

Abroad Social Security and Medicare Taxes

3. Self-Employment Tax ....................


9

9
Who Must Pay Self-Employment
Tax? ......................................... 10
For use in preparing Exemption From Social Security and
Medicare Taxes ....................... 10
1998 Returns
4. Foreign Earned Income and
Housing: Exclusion-Deduction .. 10
Who Qualifies for the Exclusions
and the Deduction? ................. 11
Requirements .................................. 11
Foreign Earned Income Exclusion . 18
Foreign Housing Exclusion or
Deduction ................................. 19
Form 2555 and Form 2555–EZ ...... 21

5. Exemptions, Deductions and


Credits .......................................... 27
Exclusion vs. Deduction ................. 27
Exemptions ..................................... 27
Contributions ................................... 27
Moving Expenses ........................... 27
Individual Retirement Arrangements 29
Taxes of Foreign Countries and U.S.
Possessions ............................. 29
How To Report Deductions ............ 30

6. Tax Treaty Benefits ....................... 31


The Purpose of Tax Treaties .......... 31
Common Benefits ........................... 31
Competent Authority Assistance .... 32
Obtaining Copies of Tax Treaties ... 32

7. How To Get More Information ..... 32


Services Only Available Outside the
United States ........................... 33
Problem Resolution Program ......... 33

Questions and Answers .................... 35

Index .................................................... 41

Important Change for


1998
Foreign earned income exclusion in-
creased. For 1998, the maximum amount
of foreign earned income that you may be
able to exclude from your U.S. gross income
has increased to $72,000.
• How to report your income if it is paid in How to get more information. Chapter 7 is
foreign currency, an explanation of how to get information (in-
Important Reminders • How to determine your filing status if your
cluding forms and publications) and assist-
ance from the IRS.
Social security numbers for dependents. spouse is a nonresident alien, and
You generally must list on Form 1040 or Form • Whether you must pay estimated tax. Questions and answers. Answers to fre-
1040A the social security number (SSN) of quently asked questions are presented in the
any person for whom you claim an exemption. If you own stock in a foreign corporation or back of the publication.
You do not need an SSN for a child who was have an interest in a foreign partnership, you
born in 1998 and died in 1998. Instead of an may have to file information returns. See the
SSN, attach a copy of the child's birth certif- instructions under Information Returns and
icate and write Died in column (2) of line 6c Reports in chapter 1.
of your Form 1040 or Form 1040A.
If your dependent does not have and is
not eligible to get an SSN, you must list the Withholding tax. Chapter 2 discusses the
withholding of income taxes and social secu-
1.
dependent's individual taxpayer identification
rity and Medicare taxes from the pay of U.S.
number (ITIN) instead of an SSN. See Social
security number under Exemptions in chapter citizens, resident aliens, and nonresident al-
iens. It will help you determine if the correct
Filing
5.
amounts of taxes are being withheld and how
to adjust your withholding if too much or too
Information
Form 2555–EZ. You may be able to file Form little is being withheld.
2555–EZ, Foreign Earned Income Exclusion,
if: Topics
Self-employment tax. If you are self- This chapter discusses:
• You had foreign earned income of employed, you generally are required to pay
$72,000 or less, and self-employment tax. Chapter 3 discusses • Whether you have to file a return,
who must pay self-employment tax and who
• Your return is not for a short year. may be exempt from self-employment tax. • When to file your return and pay any tax
due,
Form 2555–EZ has fewer lines than Form
2555, Foreign Earned Income. For more in- Foreign earned income exclusion and • How to treat foreign currency,
formation, see Form 2555–EZ in chapter 4. housing exclusion and deduction. There • Where to file your return,
are income tax benefits that might apply if you
Foreign income tax withheld. If a foreign meet certain requirements while living • When you can treat your nonresident
abroad. You may qualify to treat up to spouse as a resident,
employer withheld taxes from your pay and
did not pay those taxes to the U.S. Treasury, $72,000 of your income as not taxable by the • When you may have to make estimated
you cannot claim those taxes on your U.S. United States. You may also be able to either tax payments, and
income tax return as federal income tax deduct part of your housing expenses from
your taxable income or treat a limited amount • Information returns and reports you may
withheld. You cannot claim those taxes as have to file.
federal income tax withheld even if the of income used for housing expenses as not
amount is reported on your Form W–2, Wage taxable by the United States. These benefits
and Tax Statement. are called the foreign earned income exclu-
You may be able to claim a foreign tax sion and the foreign housing deduction and Useful Items
credit or a foreign tax deduction based on the exclusion. You may want to see:
amount withheld and paid to a foreign tax To qualify for either of the exclusions or
authority. See Taxes of Foreign Countries the deduction, you must have a tax home in Publication
and U.S. Possessions in chapter 5. a foreign country and earn income in a foreign
country. These rules are explained in chapter m 3 Armed Forces' Tax Guide
4.
Change of address. m 501 Exemptions, Standard Deduction,
If you are going to exclude or deduct your
income as discussed above, you must file and Filing Information
If you change your mailing address,
be sure to notify the Internal Revenue Form 2555 or Form 2555–EZ. You will find m 505 Tax Withholding and Estimated
Service using Form 8822, Change of an example with filled-in Forms 2555 and Tax
Address. Mail it to the Internal Revenue Ser- 2555–EZ in this publication.
m 519 U.S. Tax Guide for Aliens
vice Center for your old address (addresses
for the Service Centers are on the back of the Exemptions, deductions and credits. If you m 520 Scholarships and Fellowships
form). If you are changing both your home are a U.S. citizen or resident alien living out-
and business addresses, you only need to side the United States, you are generally al- Form (and Instructions)
complete one form. lowed the same exemptions, deductions and
credits as those living in the United States. m 1040–ES Estimated Tax for Individuals
However, if you choose to exclude foreign m 1040X Amended U.S. Individual Income
earned income or housing amounts, you Tax Return
cannot deduct or exclude any item or take
Introduction credit for any item that is related to the
amounts you exclude. Among the topics dis-
m 2350 Application for Extension of Time
To File U.S. Income Tax Return
This publication discusses the special tax cussed in chapter 5 are:
rules for U.S. citizens and resident aliens m 2555 Foreign Earned Income
who work abroad or who have income earned m 2555–EZ Foreign Earned Income Exclu-
in foreign countries. As a U.S. citizen or resi- • Exemptions you can claim,
sion
dent alien, your worldwide income generally • Contributions you can deduct,
is subject to U.S. income tax, regardless of m 2688 Application for Additional Exten-
where you are living. Also, you are subject • Moving expenses you can deduct, and sion of Time To File U.S. Indi-
to the same income tax filing requirements • Foreign taxes you can either deduct or vidual Income Tax Return
that apply to U.S. citizens or residents living take a credit for. m 4868 Application for Automatic Exten-
in the United States.
sion of Time To File U.S. Indi-
Tax treaty benefits. Chapter 6 discusses vidual Income Tax Return
Filing information. The publication begins
some benefits that are common to most tax m 5471 Information Return of U.S. Per-
with general filing information such as:
treaties and explains how to get help if you sons With Respect To Certain
think you are not getting a benefit to which
• Whether you must file a U.S. tax return, you are entitled. It also explains how to get
Foreign Corporations
• When and where to file your return, copies of tax treaties. m 8822 Change of Address

Page 2 Chapter 1 Filing Information


m SS–5 Application for a Social Security In general, the tax shown on your return United States and Puerto Rico, that extension
Card should be paid by the due date of the return, and the 4–month extension start at the same
without regard to any extension of time for time. You do not have to file Form 4868 until
m TD F 90–22.1 Report of Foreign Bank
filing the return. the new due date allowed by the first exten-
and Financial Accounts sion, but the total combined extension will still
m W–7 Application for IRS Individual only be 4 months from the regular due date.
Extensions Time to pay not extended. An extension
Taxpayer Identification Number
You can be granted an extension of time to of time to file is not an extension of time to
See chapter 7 for information about get- file your return. In some circumstances, you pay. You must make an accurate estimate of
ting these publications and forms. can also be granted an extension of time to your tax and send any necessary payment
file and pay any tax due. with your Form 4868. If you find you cannot
However, if you pay the tax due after the pay the full amount due with Form 4868, you
regular due date, interest will be charged from can still get the extension. You will owe in-
Filing Requirements the regular due date until the date the tax is terest on the unpaid amount.
paid. You also may be charged a penalty for
If you are a U.S. citizen or resident alien living
or traveling outside the United States, you paying the tax late unless you have reason-
generally are required to file income tax re- Automatic 2–month extension. You may able cause for not paying your tax when due.
turns, estate tax returns, and gift tax returns be allowed an automatic 2–month extension Interest and penalties are assessed (charged)
and pay estimated tax in the same way as to file your return and pay any federal income from the original due date of the return, which,
those residing in the United States. tax that is due. You will be allowed the ex- for most taxpayers, is April 15.
Your income, filing status, and age gen- tension if you are a U.S. citizen or resident
erally determine whether you must file a re- and on the regular due date of the return:
Extension beyond the 4 months. If you
turn. Generally you must file a return for 1998 qualify for the 4–month extension and you
if your gross income is at least the amount 1) You are living outside of the United
States and Puerto Rico, and your main later find that you are not able to file within the
shown for your filing status in the following 4–month extension period, you may be able
table: place of business or post of duty is out-
side the United States and Puerto Rico, to get 2 more months to file, for a total of 6
or months.
Filing Status Amount You can apply for an extension beyond
Single ....................................................... $6,950 2) You are in military or naval service on the 4–month extension either by sending a
65 or older ........................................... $8,000 duty outside the United States and letter to the IRS or by filing Form 2688. You
Head of household .................................. $8,950 Puerto Rico. should request the extension early so that, if
65 or older ........................................... $10,000
Qualifying widow(er) ................................ $9,800 refused, you still will be able to file on time.
If you use a calendar year, the regular due Except in cases of undue hardship, Form
65 or older ........................................... $10,650
date of the return is April 15. 2688 or a request by letter will not be ac-
Married filing jointly .................................. $12,500
Not living with spouse at end of year .. $2,700 Service in a combat zone. If you served cepted until you have first used Form 4868 to
One spouse 65 or older ...................... $13,350 in a combat zone or qualified hazardous duty get an automatic 4–month extension. Form
Both spouses 65 or older .................... $14,200 area, see Extension of deadline in Publication 2688 or your letter will not be considered if
Married filing separately .......................... $2,700 3. you file it after the extended due date.
If you are the dependent of another taxpayer, see Married taxpayers. If you file a joint re- To get an extension beyond the automatic
the instructions for Form 1040 for more information turn, either you or your spouse can qualify for 4–month extension, you must give all the fol-
on whether you must file a return. the automatic extension. If you and your lowing information.
spouse file separate returns, this automatic
extension applies only to the spouse who
Gross income. This includes all income you qualifies. • The reason for requesting the extension.
receive in the form of money, goods, property, How to get the extension. To use this • The tax year to which the extension ap-
and services that is not exempt from tax. automatic 2–month extension, you must at- plies.
In determining whether you must file a tach a statement to your return explaining
return, you must consider as gross income which situation (see the two listed earlier) • The length of time needed for the exten-
any income that you exclude as foreign qualified you for the extension. sion.
earned income or as a foreign housing Extensions beyond 2 months. If you are
amount. If you must file a return and you ex- unable to file your return within the automatic • Whether another extension for time to file
2–month extension period, you may be able has already been requested for this tax
clude all or part of your income under these
to get an additional 2–month extension of year.
rules, you must prepare Form 2555, dis-
cussed later. You may be able to file Form time to file your return, for a total of 4 months.
2555–EZ if you are claiming only the foreign This additional 2–month extension of time You can sign the request for this extension,
earned income exclusion. to file is not an extension of time to pay. See or it can be signed by your attorney, CPA,
Self-employed individuals. If you are Time to pay not extended, later. enrolled agent, or a person with a power of
self-employed, your gross income includes attorney. If you are unable to sign the request
the amount on line 7 of Schedule C (Form 4–month extension. If you are not able to because of illness or for another good reason,
1040), Profit or Loss From Business, or line file your 1998 return by the due date, you may a person in close personal or business re-
1 of Schedule C-EZ (Form 1040), Net Profit be able to get an automatic 4–month exten- lationship to you can sign the request.
From Business. sion of time to file. To get this automatic ex- Extension granted. If your application for
tension, you must file Form 4868. this extension is approved, you will be notified
If your net self-employment income is by the IRS. Attach the notice to your return
! $400 or more, you must file a return You may not be eligible. You cannot when you file it.
CAUTION even if your gross income is below the

amount for filing purposes listed above.


!
CAUTION
use the automatic 4–month extension
of time to file if:
If an extension is granted and the IRS later
determines that the statements made on your
request for this extension are false or mis-
65 or older. You are 65 on the day before • You want the IRS to figure your tax, or leading and an extension would not have
your 65th birthday. If your 65th birthday is on been granted at the time based on the true
January 1, you would be 65 on December 31
• You are under a court order to file by the
regular due date. facts, the extension is null and void. You will
of the previous year. have to pay the failure-to-file penalty.
Extension not granted. If your applica-
tion for this extension is not approved, you
When To File and Pay must file your return by the extended due date
If you file on the calendar year basis, the due When to file. Generally, you must file of the automatic extension. You may be al-
date for filing your return is April 15 of the Form 4868 by the regular due date for your lowed to file within 10 days of the date of the
following year. If you file on a fiscal year basis return. notice you get from the IRS if the end of the
(a year ending on the last day of any month 2–month extension. If you qualify for the 10–day period is later than the due date. The
except December), the due date is 3 months 2–month extension discussed above because notice will tell you if the 10–day grace period
and 15 days after the close of your fiscal year. your tax home and abode are outside the is granted.
Chapter 1 Filing Information Page 3
Further extensions. You generally cannot presence rules, you can file a claim for refund If you choose to postpone the reporting
get an extension of more than 6 months. of tax on Form 1040X. The refund will be the of the income, you must file an information
However, if you are outside the United States difference between the amount of tax already return with your tax return. For this informa-
and meet certain tests, you may be able to paid and the tax liability as figured after the tion return, you should use another Form
get a longer extension. See Bona fide resi- exclusion or deduction. 1040 labeled “Report of Deferrable Foreign
dence or physical presence test not yet met Income, pursuant to Rev. Rul. 74–351.” You
next. must declare on the information return that
Foreign Currency the deferrable income will be included in tax-
Bona fide residence or physical presence You must express the amounts you report on able income in the year that it becomes un-
test not yet met. You can get an extension your U.S. tax return in U.S. dollars. If you re- blocked. You also must state that you waive
of time to file your tax return if you need the ceive all or part of your income or pay some any right to claim that the deferrable income
time to meet either the bona fide residence or all of your expenses in foreign currency, was includible in income for any earlier year.
test or the physical presence test to qualify for you must translate the foreign currency into You must report your income on your in-
the foreign earned income exclusion and/or U.S. dollars. How you do this depends on formation return using the foreign currency in
the foreign housing exclusion or deduction. your functional currency. Your functional which you received that income. If you have
The tests, the exclusions, and the deduction currency generally is the U.S. dollar unless blocked income from more than one foreign
are explained in Chapter 4, Foreign Earned you are required to use the currency of a country, include a separate information return
Income and Housing: Exclusion-Deduction. foreign country. for each country.
You should request an extension if all You must make all federal income tax Income becomes unblocked and report-
three of the following apply. determinations in your functional currency. able for tax purposes when it becomes con-
The U.S. dollar is the functional currency for vertible, or when it is converted, into dollars
1) You are a U.S. citizen or resident. all taxpayers except some qualified business or into other money or property that is con-
units. A qualified business unit is a separate vertible into U.S. currency. Also, if you use
2) You expect to meet either the bona fide and clearly identified unit of a trade or busi- blocked income for your personal expenses
residence test or the physical presence ness that maintains separate books and rec- or dispose of it by gift, bequest, or devise, you
test, but not until after your tax return is ords. Unless you are self-employed, your must treat it as unblocked and reportable.
due. functional currency is the U.S. dollar. If you have received blocked income on
3) Your tax home is in a foreign country (or Even if you are self-employed and have which you have not paid the tax, you should
countries) throughout your period of a qualified business unit, your functional cur- check to see whether that income is still
bona fide residence or physical pres- rency is the dollar if any of the following apply. blocked. If it is not, you should take immediate
ence, whichever applies. steps to pay the tax on it, file a declaration
• You conduct the business in dollars. or amended declaration of estimated tax, and
Generally, if you are granted an extension, include the income on your tax return for the
• The principal place of business is located
it will be to 30 days beyond the date on which year in which the income became unblocked.
in the United States.
you can reasonably expect to qualify under If you choose to postpone reporting
either the bona fide residence test or the • You choose to or are required to use the blocked income and in a later tax year you
physical presence test. However, if you have dollar as your functional currency. wish to begin including it in gross income al-
moving expenses that are for services per- • The business books and records are not though it is still blocked, you must obtain the
formed in 2 years, you may be granted an kept in the currency of the economic en- permission of the IRS to do so. To apply for
extension to 90 days beyond the close of the vironment in which a significant part of permission, file Form 3115, Application for
year following the year of first arrival in the the business activities is conducted. Change in Accounting Method. You also
foreign country. must request permission from the IRS on
How to get extension. To obtain an ex- If your functional currency is the U.S. dol- Form 3115 if you have not chosen to defer the
tension, you should file Form 2350 with the lar, you must immediately translate into dol- reporting of blocked income in the past, but
Internal Revenue Service Center, Philadel- lars all items of income, expense, etc. (in- now wish to begin reporting blocked income
phia, PA 19255–0207, the local IRS repre- cluding taxes), that you receive, pay, or under the deferred method. See the in-
sentative, or other IRS employee. accrue in a foreign currency and that will af- structions for Form 3115 for information.
You must file Form 2350 by the due date fect computation of your income tax. Use the
for filing your return. Generally, if both your exchange rate prevailing when you receive, Fulbright grants. All income must be re-
tax home and your abode are outside the pay, or accrue the item. If there is more than ported in U.S. dollars. In most cases, the tax
United States and Puerto Rico on the regular one exchange rate, use the one that most must also be paid in U.S. dollars. If, however,
due date of your return and you file on a cal- properly reflects your income. You can gen- at least 70% of your entire Fulbright grant has
endar year basis, the due date for filing your erally get exchange rates from banks and been paid in nonconvertible foreign currency
return is June 15. An extension can be U.S. Embassies. (blocked income), you can use the currency
granted to a date after you expect to meet the If your functional currency is not the U.S. of the host country to pay part of the U.S. tax
time requirements. dollar, make all income tax determinations in that is based on the blocked income. To de-
What if tests not met. If you obtain an your functional currency. At the end of the termine the amount of the tax that you can
extension of time and unforeseen events year, translate the results, such as income pay in foreign currency get Publication 520.
make it impossible for you to satisfy either the or loss, into U.S. dollars to report on your in- Details of these arrangements may also be
bona fide residence test or the physical come tax return. obtained from the U.S. Educational Founda-
presence test, you should file your income tax tions or Commissions in foreign countries.
return as soon as possible because you must Blocked Income
pay interest on any tax due after the regular
due date of the return (even though an ex- You generally must report your foreign in- Where To File
tension was granted). come in terms of U.S. dollars and, with one
exception (see Fulbright grants, later), you If any of the following situations apply to you,
You should make any request for an must pay taxes due on it in U.S. dollars. you should file your return with the:
! extension early, so that if it is denied
CAUTION you still can file your return on time.
If, because of restrictions in a foreign
country, your income is not readily convertible Internal Revenue Service Center
into U.S. dollars or into other money or prop- Philadelphia, PA 19255–0207.
Otherwise, if you file late and additional tax
is due, you may be subject to a penalty. erty that is readily convertible into U.S. dol-
lars, your income is “blocked” or “deferrable” 1) You claim the foreign earned income
Return filed before test met. If you file income. You can report this income in one of exclusion.
a return before you meet the bona fide resi- two ways:
dence test or the physical presence test, you 2) You claim the foreign housing exclusion
1) Report the income and pay your federal or deduction.
must include all income from both U.S. and income tax with U.S. dollars that you
foreign sources and pay the tax on that in- have in the United States or in some 3) You claim the exclusion of income for
come. If you later qualify for the foreign other country, or bona fide residents of American Samoa.
earned income exclusion, the foreign housing
exclusion, or the foreign housing deduction 2) Postpone the reporting of the income 4) You live in a foreign country or U.S.
under the bona fide residence or physical until it becomes unblocked. possession and have no legal residence
Page 4 Chapter 1 Filing Information
or principal place of business in the you should file a return with the United States This means that neither of you can claim tax
United States. and pay your tax on income you have from treaty benefits as a resident of a foreign
all sources to the Internal Revenue Service country for a tax year for which the choice is
The exclusions and the deduction are ex- Center, Philadelphia, PA 19255–0207. in effect. You can file joint or separate returns
plained in chapter 4. See Publication 570, Tax Guide for Indi- in years after the year in which you make the
If you do not know where your legal resi- viduals With Income From U.S. Possessions, choice.
dence is and you do not have a principal for information about the filing requirements
place of business in the United States, you for residents of Guam. Example 1. Pat Smith has been a U.S.
can file with the Philadelphia Service Center. citizen for many years. She is married to
The address for the Philadelphia Service Resident of the Commonwealth of the Norman, a nonresident alien. Pat and Norman
Center is shown above. Northern Mariana Islands. make the choice to treat Norman as a resi-
However, you should not file with the dent alien by attaching a statement to their
Philadelphia Service Center if you are a bona If you are a resident of the Common- joint return. Pat and Norman must report their
fide resident of the Virgin Islands or a resident wealth of the Northern Mariana Is- worldwide income for the year they make the
of Guam or the Commonwealth of the North- lands on the last day of your tax year, choice and for all later years unless the
ern Mariana Islands on the last day of your you should file a return with the Northern choice is ended or suspended. Although Pat
tax year. Mariana Islands and pay your tax on income and Norman must file a joint return for the
you have from all sources to the: year they make the choice, they can file either
Resident of Virgin Islands. joint or separate returns for later years.
Division of Revenue and Taxation
If you are a bona fide resident of the Commonwealth of the Northern Mariana Example 2. Bob and Sharon Williams are
Virgin Islands on the last day of your Islands married and both are nonresident aliens. In
tax year (even if your legal residence P.O. Box 5234, CHRB June of last year, Bob became a resident al-
or principal place of business is in the United Saipan, MP 96950. ien and remained a resident for the rest of the
States), you must file your return with the year. Bob and Sharon both choose to be
Virgin Islands and pay your tax on income you treated as resident aliens by attaching a
have from all sources to the: However, if you are a resident of the statement to their joint return for last year.
United States on the last day of your tax year, Bob and Sharon must report their worldwide
Virgin Islands Bureau of Internal Revenue you should file a return with the United States income for last year and all later years unless
9601 Estate Thomas and pay your tax on income you have from the choice is ended or suspended. Bob and
Charlotte Amalie all sources to the Internal Revenue Service Sharon must file a joint return for last year,
St. Thomas, Virgin Islands 00802. Center, Philadelphia, PA 19255–0207. but they can file either joint or separate re-
See Publication 570 for information about turns for later years.
the filing requirements for residents of the
Non-Virgin Islands resident with Virgin Is- Commonwealth of the Northern Mariana Is-
lands Income. If you are a U.S. citizen or lands. Social Security Number
resident and you have income from sources
in the Virgin Islands or income effectively (SSN)
connected with the conduct of a trade or Terrorist or Military Action
If your spouse is a nonresident alien and you
business in the Virgin Islands, and you are U.S. income taxes are forgiven for U.S. Gov- file a joint or separate return, your spouse
not a bona fide resident of the Virgin Islands ernment military or civilian employees who must have either an SSN or an individual
on the last day of your tax year, you must file die as a result of wounds or injuries sustained taxpayer identification number (ITIN).
identical tax returns with the United States outside the United States in a terrorist or mil- To get a social security number for your
and the Virgin Islands. File the original return itary action directed against the United States spouse, apply at a social security office or
with the United States and file a copy of the or its allies. The taxes are forgiven for the U.S. consulate. You must complete Form
U.S. return (including all attachments, forms, deceased employee's tax years beginning SS–5, Application for a Social Security Card.
and schedules) with the Virgin Islands Bureau with the year immediately before the year in You must also provide original or certified
of Internal Revenue. which the injury or wounds were incurred and copies of documents to verify your spouse's
The amount of tax you must pay to the ending with the year of death. age, identity, and citizenship.
Virgin Islands is figured by the following If the deceased government employee If your spouse is not eligible to get an
computation: and the employee's spouse had a joint in- SSN, he or she can file Form W–7 with the
come tax liability for those years, the tax must IRS to apply for an ITIN.
be divided between the spouses to determine
Total tax on U.S. return V.I. AGI
(after certain adjustments) 3 the amount forgiven.
Worldwide A.G.I For more information on how to have the
tax forgiven or how to claim a refund of tax
How To Make the Choice
Form 8689, Allocation of Individual Income already paid, see Publication 559, Survivors, Attach a statement, signed by both spouses,
Tax to the Virgin Islands, is used for this Executors, and Administrators. to your joint return for the first tax year for
computation. You must complete this form which the choice applies. It should contain
and attach it to your return. You should pay the following:
any tax due to the Virgin Islands when you file
your return with the Virgin Islands Bureau of 1) A declaration that one spouse was a
Internal Revenue. Nonresident Spouse nonresident alien and the other spouse
You should file your U.S. return with the a U.S. citizen or resident alien on the last
Internal Revenue Service Center, Philadel- Treated as a Resident day of your tax year, and that you
phia, PA 19255–0207. If, at the end of your tax year, you are married choose to be treated as U.S. residents
and one spouse is a U.S. citizen or a resident for the entire tax year, and
Resident of Guam. alien and the other is a nonresident alien, you
2) The name, address, and social security
can choose to treat the nonresident as a U.S.
If you are a resident of Guam on the number (or individual taxpayer identifi-
resident. This includes situations in which one
last day of your tax year, you should cation number) of each spouse. (If one
of you is a nonresident alien at the beginning
file a return with Guam and pay your spouse died, include the name and ad-
of the tax year, but a resident alien at the end
tax on income you have from all sources to dress of the person making the choice
of the year, and the other is a nonresident
the: for the deceased spouse.)
alien at the end of the year.
If you make this choice, the following two You generally make this choice when you
Department of Revenue and Taxation
rules apply. file your joint return. However, you can also
Government of Guam
P.O. Box 23607 1) You and your spouse are treated, for make the choice by filing a joint amended
GMF, GU 96921. income tax purposes, as residents for return on Form 1040 or Form 1040A. Be sure
all tax years that the choice is in effect. to write the word “Amended” across the top
of the amended return. If you make the
However, if you are a resident of the 2) You must file a joint income tax return for choice with an amended return, you and your
United States on the last day of your tax year, the year you make the choice. spouse must also amend any returns that you
Chapter 1 Filing Information Page 5
may have filed after the year for which you 2) Death. The death of either spouse ends ever, if the actual amount of the exclusion or
made the choice. the choice, beginning with the first tax deduction is less than you estimate, you may
You generally must file the amended joint year following the year the spouse died. have to pay a penalty on the underpayment
return within 3 years from the date you filed However, if the surviving spouse is a of estimated tax.
your original U.S. income tax return or 2 years U.S. citizen or resident and is entitled to
from the date you paid your income tax for the joint tax rates as a surviving spouse,
that year, whichever is later. the choice will not end until the close of
the last year for which these joint rates
may be used. If both spouses die in the
Information Returns
Suspending the Choice same tax year, the choice ends on the
first day after the close of the tax year in
and Reports
The choice to be treated as a resident alien If you acquire or dispose of stock in a foreign
does not apply to any later tax year if neither which the spouses died.
corporation, own a controlling interest in a
of you is a U.S. citizen or resident alien at any 3) Legal separation. A legal separation foreign corporation, or acquire or dispose of
time during the later tax year. under a decree of divorce or separate any interest in a foreign partnership, you may
maintenance ends the choice as of the have to file an information return. You also
Example. Dick Brown was a resident al- beginning of the tax year in which the may have to file an information return if you
ien on December 31, 1995, and married to legal separation occurs. transfer property to a foreign trust, or if you
Judy, a nonresident alien. They chose to treat have transferred property to a foreign trust
Judy as a resident alien and filed joint 1995 4) Inadequate records. The Internal Rev-
with at least one U.S. beneficiary. You may
and 1996 income tax returns. On January 10, enue Service can end the choice for any
have to file reports if you ship currency to or
1997, Dick became a nonresident alien. Judy tax year that either spouse has failed to
from the United States or if you have an in-
had remained a nonresident alien throughout keep adequate books, records, and
terest in a foreign bank or financial account.
the period. Dick and Judy can file joint or other information necessary to determine
separate returns for 1997. However, since the correct income tax liability, or to
Form 5471. Form 5471, Information Return
neither Dick nor Judy is a resident alien at any provide adequate access to those rec-
of U.S. Persons With Respect to Certain
time during 1998, their choice is suspended ords.
Foreign Corporations, must generally be filed
for that year. If either has U.S. source income by certain U.S. shareholders of controlled
or foreign source income effectively con- If the choice is ended for any of these
reasons, neither spouse can make a choice foreign corporations and by certain share-
nected with a U.S. trade or business in 1998, holders, officers, and directors of foreign per-
they must file separate returns as nonresident in any later tax year.
sonal holding companies. Form 5471 must
aliens. If Dick becomes a resident alien again If you do not choose to treat your also be filed by officers, directors, and
in 1999, their choice is no longer suspended. TIP nonresident spouse as a U.S. resi- shareholders of U.S. entities that acquire,
For years their choice is not suspended, they dent, you may be able to use head dispose of, or are involved in the reorganiza-
must include income received from sources of household filing status. To use this status tion of a foreign corporation.
both in and outside the United States in their you must pay more than half the cost of If it is required, you must file Form 5471
income for each tax year. maintaining a household for certain depen- at the time you file your income tax return.
dents or relatives other than your nonresident More information about the filing of Form
alien spouse. For more information, see 5471 can be found in the instructions for this
Ending the Choice Publication 501. information return.
Once made, the choice to be treated as a
resident applies to all later years unless sus- Form 3520. Form 3520, Annual Return To
pended (as explained above) or ended in one Report Transactions With Foreign Trusts and
of the following ways. Receipt of Certain Foreign Gifts, is used to
1) Revocation. Either spouse can revoke
Estimated Tax report:
the choice for any tax year, provided he The requirements for determining who must • Certain transactions with foreign trusts,
or she makes the revocation by the due pay estimated tax are the same for a U.S. and
date for filing the tax return for that tax citizen or resident abroad as for a taxpayer in
year. The spouse who revokes must at- the United States. For current instructions on • Receipt of certain large gifts or bequests
tach a signed statement declaring that making your estimated tax payments, see from certain foreign persons.
the choice is being revoked. The state- Form 1040–ES.
It must be filed by:
ment must include the name, address, If you had a tax liability for 1998, you may
and social security number (or individual have to pay estimated tax for 1999. Gener- • U.S. persons that are treated as owners
taxpayer identification number) of each ally, you must make estimated tax payments of any portion of a foreign trust for U.S.
spouse. Include the name and address for 1999 if you expect to owe at least $1,000 income tax purposes under sections 671
of any person who is revoking the choice in tax for 1999 after subtracting your with- through 679 (the “grantor trust rules”) to
for a deceased spouse. The statement holding and credits, and you expect your report certain information,
also must include a list of any states, withholding and credits to be less than the
foreign countries, and possessions that smaller of: • U.S. persons to provide information about
have community property laws in which distributions received from foreign trusts,
either spouse is domiciled or where real 1) 90% of the tax to be shown on your 1999 and
property is located from which either tax return, or
• Other individuals as listed in the Form
spouse receives income. File the state- 2) 100% of the tax shown on your 1998 tax 3520 instructions.
ment as follows: return. (The return must cover all 12
months.) You must file the form with your income
a) If the spouse revoking the choice tax return by the due date (including exten-
must file a return, attach the state- If less than two thirds of your gross income sions) of your return. Also, send a copy of the
ment to the return for the first year for 1998 or 1999 is from farming or fishing form to the Internal Revenue Service Center,
the revocation applies, and your adjusted gross income for 1998 is Philadelphia, PA 19255–0207.
b) If the spouse revoking the choice more than $150,000 ($75,000 if you are
does not have to file a return, but married and file separately), substitute 105% Form 4790. Form 4790, Report of Interna-
does file a return (for example, to for 100% in (2) above. See Publication 505 tional Transportation of Currency or Monetary
obtain a refund), attach the state- for more information. Instruments, must be filed by each person
ment to the return, or The first installment of estimated tax is who physically transports, mails, ships, or
usually due on April 15 of the tax year. causes to be physically transported, mailed,
c) If the spouse revoking the choice When figuring your estimated gross in- or shipped, into or out of the United States,
does not have to file a return and come, subtract amounts you expect to ex- currency or other monetary instruments total-
does not file a claim for refund, clude under the foreign earned income ex- ing more than $10,000 at one time. The filing
send the statement to the Internal clusion and the foreign housing exclusion. In requirement also applies to any person who
Revenue Service Center where the addition, you can reduce your income by your attempts to transport, mail, or ship the cur-
last joint return was filed. estimated foreign housing deduction. How- rency or monetary instruments or attempts to
Page 6 Chapter 1 Filing Information
cause them to be transported, mailed, or thority for your employer to discontinue with-
shipped. See also Recipients, Shippers or holding. However, if your employer has rea-
mailers, and Travelers later.
The term “monetary instruments” includes 2. son to believe that you will not qualify for an
exclusion of income, your employer must
coin and currency of the United States or of disregard the statement and withhold the tax.
any other country, money orders, traveler's
checks, investment securities in bearer form Withholding Tax Your employer is not required to find out
about amounts you received from any other
or otherwise in such form that title passes source. But, if your employer has such infor-
upon delivery, and negotiable instruments mation, it must be considered in determining
(except warehouse receipts or bills of lading) Topics whether your earned income is more than the
in bearer form or otherwise in such form that This chapter discusses: limit on the exclusion.
title passes upon delivery. The term includes Your employer, however, should withhold
bank checks, and money orders that are • Withholding income tax from the pay of taxes from any wages you earn in the United
signed, but on which the name of the payee U.S. citizens, States.
has been omitted. The term does not include
bank checks, or money orders made payable • Withholding income tax from the pay of
to the order of a named person that have not nonresident aliens, and Foreign tax credit. If you plan to take a for-
been endorsed or that bear restrictive • Social security and Medicare taxes. eign tax credit, you may be eligible for addi-
endorsements. tional withholding allowances on Form W–4.
A transfer of funds through normal bank- You can take these additional withholding al-
ing procedures (wire transfer) which does not lowances only for foreign tax credits attribut-
involve the physical transportation of currency Useful Items able to taxable salary or wage income. See
or bearer monetary instruments is not re- You may want to see: Publication 505, for further information.
quired to be reported on Form 4790.
Filing requirements for Form 4790 are Publication
discussed in the following section. Withholding from pension payments. U.S.
Recipients. Each person who receives m 505 Tax Withholding and Estimated payers of benefits from employer deferred
currency or other monetary instruments from Tax compensation plans, individual retirement
a place outside the United States for which a plans, and commercial annuities generally
report has not been filed by the shipper must Form (and Instructions) must withhold income tax from the payments
file Form 4790. or distributions they make to you. Withholding
m 673 Statement for Claiming Benefits will apply unless you choose exemption from
It must be filed within 15 days after Provided by Section 911 of the withholding. You cannot choose exemption
receipt with the Customs officer in Internal Revenue Code unless you provide the payer of the benefits
charge at any port of entry or depar- with a residence address in the United States
ture, or by mail with the: m W–4 Employee's Withholding Allow-
ance Certificate or a U.S. possession, or unless you certify to
Commissioner of Customs the payer that you are not a U.S. citizen or
See chapter 7 for information about get- resident alien or someone who left the United
Attention: Currency Transportation
ting these publications and forms. States to avoid tax.
Reports
Washington, DC 20229.
Checking your withholding. Before you
Shippers or mailers. If the currency or Withholding report U.S. income tax withholding on your
tax return, you should carefully review all in-
other monetary instrument does not accom-
U.S. employers generally must withhold U.S. formation documents, such as Form W–2 and
pany a person entering or departing the
income tax from the pay of U.S. citizens per- Form 1099. Compare other records, such as
United States, Form 4790 can be filed by mail
forming services in a foreign country unless final pay records or bank statements, with
with the Commissioner of Customs at the
the employer is required by foreign law to Form W–2 or Form 1099 to verify the with-
above address. It must be filed by the date
withhold foreign income tax. holding on these forms. Check your U.S. in-
of entry, departure, mailing, or shipping.
Your employer, however, is not required come tax withholding even if you pay some-
Travelers. Travelers carrying currency
to withhold U.S. income tax from the portion one else to prepare your tax return. You may
or other monetary instruments with them must
of your wages earned abroad that are equal be assessed penalties and interest if you
file Customs Form 4790 with the Customs
to the foreign earned income exclusion and claim more than your correct amount of with-
officer in charge at any Customs port of entry
foreign housing exclusion if your employer holding.
or departure when entering or departing the
has good reason to believe that you will
United States.
qualify for these exclusions.
Penalties. Civil and criminal penalties are
provided for failure to file a report, supply in-
formation, and for filing a false or fraudulent Statement. You can give a statement to your
employer indicating that you will meet either
report. Also, the entire amount of the currency
or monetary instrument may be subject to the bona fide residence test or the physical 30% Flat Rate
presence test and indicating your estimated
seizure and forfeiture.
More information about the filing of Form housing cost exclusion. Withholding
4790 can be found in the instructions on the You can get sample copies of an ac- Generally, U.S. payers of income other than
back of the form. ceptable statement (such as Form wages, such as dividends and royalties, are
673) by writing to: required to withhold tax at a flat 30% (or lower
Form TD F 90–22.1. Form TD F 90–22.1, treaty) rate on payments of this income to
Report of Foreign Bank and Financial Ac- Internal Revenue Service nonresident aliens. If you are a U.S. citizen
counts, must be filed if you had any financial Assistant Commissioner (International) or resident and this tax is withheld in error
interest in, or signature or other authority Attn: CP:IN:D:CS from payments to you because you have a
over, a bank, securities, or other financial 950 L'Enfant Plaza South, SW foreign address, you should notify the payer
account in a foreign country. You do not have Washington, DC 20024. of the income to stop the withholding.
to file the report if the assets are with a U.S. Give the payer a written statement in du-
military banking facility operated by a U.S. fi- You do not have to use the form. You plicate stating that you are a citizen or resi-
nancial institution or if the combined assets can prepare your own statement. See the dent of the United States. If you are a resi-
in the account(s) are $10,000 or less during next page for a copy of Form 673. dent alien, you can claim U.S. residence by
the entire year. filing Form 1078, Certificate of Alien Claiming
You must file this form by June 30 each You must give the statement to your em- Residence in the United States, in duplicate
year with the Department of the Treasury at ployer and not to the IRS. with the payer.
the address shown on the form. Form TD F Generally, the receipt of a signed state- You can claim the tax withheld in error as
90–22.1 is not a tax return, so do not attach ment from you that includes a declaration a credit on your tax return if the amount is not
it to your Form 1040. under penalties of perjury is considered au- adjusted by the payer of the income.
Chapter 2 Withholding Tax Page 7
Form 673 Department of the Treasury – Internal Revenue Service
OMB No. 1545-1022
(Rev. March 1997)
Statement For Claiming Benefits Provided
by Section 911 of the Internal Revenue Code
(See Instructions on Reverse)

The following statement, when completed and furnished by a citizen of the United States to his or her employer, permits the employer to
exclude from income tax withholding all or a part of the wages paid for services performed outside the United States.

Name (please print) Social security number

I expect to qualify for the foreign earned income exclusion under either the bona fide residence or physical presence test for calendar
year or fiscal year beginning and ending .

Please check applicable box

Bona Fide Residence Test


I am a citizen of the United States. I have been a bona fide resident of and my tax home has been located in
(foreign country or countries) for an uninterrupted period which includes an entire
tax year that began on ,19 .
(date)
I expect to remain a bona fide resident and retain my tax home in a foreign country (or countries) until the end of the tax year for which
this statement is made. Or if not that period, from the date of this statement until , 19 .
(date within tax year)
I have not stated to the authorities of any foreign country named above that I an not a resident of that country. Or, if I made such a
statement, the authorities of that country thereafter made a determination to the effect that I am a resident of that country.
Based on the facts in my case, I have good reason to believe that for this period of foreign residence I will satisfy the tax home and the
bona fide foreign residence requirements prescribed by the section 911(d)(1)(A) of the Internal Revenue Code and qualify for the exclusion Code
section 911(a) allows.

Physical Presence Test


I am a citizen of the United States. Except for occasional absences that won’t disqualify me for the benefit of section 911(a) of the Internal
Revenue Code, I expect to be present in and maintain my tax home in (foreign country or countries) for
a 12-month period that includes the entire tax year . Or, if not the entire year, for the part of the tax year beginning on
,19 , and ending on , 19 .

Based on the facts in my case, I have good reason to believe that for this period of presence in a foreign country or countries, I will
satisfy the tax home and the 330 full-day requirements within a 12-month period under section 911(d)(1)(B).

Estimated Housing Cost


(1) Rent
(2) Utilities (other than telephone Charges)
(3) Real & Personal Property Insurance
(4) Occupancy tax not deductible under section 164
(5) Nonrefundable fees paid for securing a leasehold
(6) Household Repairs
(7) Add lines 1 through 6
(8) Estimated Base Housing Amount for my qualifying period is
(9) Subtract line 8 from line 7. This is your estimated housing cost amount

I understand that this total, plus the total reported on any other statements outstanding with other employers, should not be more than
my expected housing cost amount exclusion.
If I become disqualified for the exclusions, I will immediately notify my employer and advise what part, if any, of the period I am qualified
for.
I understand that any exemption form income tax withholding permitted by reason of furnishing this statement is not a determination by
the Internal Revenue that any amount paid to me for any services performed during the tax year is excludable form gross income under the
provisions of Code section 911(a).

Your Signature Date

Cat. No. 10183Y Form 673 Page 1 (Rev. 03-97)

Page 8 Chapter 2 Withholding Tax


Form 2032, Contract Coverage Under Ti- U.S. Social Security Administration
tle II of the Social Security Act, is used by Office of International Programs
Social Security American employers to extend social security Post Office Box 17741
coverage to U.S. citizens and residents Baltimore, MD 21235.
and Medicare Taxes working abroad for foreign affiliates of the
Social security and Medicare taxes may apply American employers. Coverage under an
to wages paid to an employee regardless of agreement in effect on or after June 15, 1989, Your employer should include the follow-
where the services are performed. cannot be terminated. ing information in the letter.
1) Your name.
Excludable meals and lodging. Social se-
General Information curity tax does not apply to the value of meals 2) Your U.S. social security number.
In general, U.S. social security and Medicare and lodging provided to you for the conven- 3) Your date and place of birth.
taxes apply to payments of wages for ser- ience of your employer and excluded from
vices performed as an employee: your income. 4) The country of which you are a citizen.
5) The country of your permanent resi-
1) Within the United States, regardless of dence.
the citizenship or residence of either the Binational Social Security
employee or the employer, 6) The name and address of your employer
(Totalization) Agreements in the United States and in the foreign
2) Outside the United States on or in con- The United States has entered into agree- country.
nection with an American vessel or air- ments with several foreign countries to coor-
craft, regardless of the citizenship or dinate social security coverage and taxation 7) The date and place you were hired.
residence of either the employee or the of workers who are employed in one of the 8) The beginning date and the expected
employer, provided that either: countries. These agreements are commonly ending date of your employment in the
a) The employment contract is entered referred to as totalization agreements. foreign country.
into within the United States, or Agreements are in effect with the following
countries. If you are permanently working in a foreign
b) The vessel or aircraft touches at a country with which the United States has a
U.S. port while the employee is • Austria. social security agreement and, under the
employed on it, agreement, your pay is exempt from U.S.
• Belgium. social security tax, you or your employer
3) Outside the United States, as provided should get a statement from the authorized
by an applicable binational social se-
• Canada.
official or agency of the foreign country veri-
curity agreement (discussed later), • Finland. fying that your pay is subject to social security
4) Outside the United States by a U.S. citi- • France. coverage in that country.
zen or a U.S. resident alien for an If the authorities of the foreign country will
• Germany. not issue such a statement, either you or your
American employer (defined later), or
• Greece. employer should get a statement from the
5) Outside the United States by a U.S. citi- U.S. Social Security Administration, Office of
zen or U.S. resident alien for a foreign • Ireland. International Programs, at the above address,
affiliate of an American employer under • Italy. that your wages are not covered by the U.S.
a voluntary agreement entered into be- social security system.
tween the American employer and the • Luxembourg. This statement should be kept by your
U.S. Treasury Department. • The Netherlands. employer because it establishes that your pay
is exempt from U.S. social security tax. Only
American vessel or aircraft. An American • Norway. wages paid on or after the effective date of
vessel is any vessel documented or num- • Portugal. the agreement can be exempt from U.S. so-
bered under the laws of the United States, cial security tax.
and any other vessel whose crew is employed • Spain.
solely by one or more U.S. citizens or resi- • Sweden.
dents or U.S. corporations. An American air-
craft is an aircraft registered under the laws • Switzerland.
of the United States. • The United Kingdom.

American employer. An American employer Under these agreements, dual coverage and
3.
includes any of the following employers. dual contributions (taxes) for the same work

1) The U.S. Government or any of its in-


are eliminated. The agreements generally
make sure that you pay social security taxes
Self-Employment
strumentalities.
2) An individual who is a resident of the
to only one country.
Generally, under these agreements, you Tax
will only be subject to social security taxes in
United States.
the country where you are working. However,
3) A partnership of which at least two-thirds if you are temporarily sent to work in a foreign Topics
of the partners are U.S. residents. country, and your pay would otherwise be This chapter discusses:
subject to social security taxes in both the
4) A trust of which all the trustees are U.S. United States and that country, you generally • Who must pay self-employment tax, and
residents. can remain covered only by U.S. social se- • Who is exempt from self-employment tax.
5) A corporation organized under the laws curity. You can get more information on any
of the United States, any U.S. state, or specific agreement by contacting the United
the District of Columbia, Puerto Rico, the States Social Security Administration. If you
have access to the internet, you can get more Useful Items
Virgin Islands, Guam, or American Sa- You may want to see:
moa. information at:

http://www.ssa.gov/international. Publication
Foreign affiliate. A foreign affiliate of an
American employer is any foreign entity in m 533 Self-Employment Tax
which the American employer has at least a To establish that your pay in a foreign
10% interest, directly or through one or more country is subject only to U.S. social m 517 Social Security and Other Infor-
entities. For a corporation, the 10% interest security tax and is exempt from for- mation for Members of the Clergy
must be in its voting stock, and for any other eign social security tax, your employer in the and Religious Workers
entity the 10% interest must be in its profits. United States should write to the:
Chapter 3 Self-Employment Tax Page 9
Form (and Instructions) earnings from nonfarm self-employment. You persons, contact the United States Social
cannot use the nonfarm optional method for Security Administration.
m Schedule SE Self-Employment Tax more than 5 tax years. Use Long Schedule If you are a U.S. citizen permanently
m Form 4361 Application for Exemption SE (Section B). For more details get Publi- working in a foreign country with which the
From Self-Employment Tax for cation 533. United States has a social security agreement
Use by Ministers, Members of and you are exempt under the agreement
Religious Orders and Christian Members of the clergy. Although members from U.S. self-employment tax, you should
Science Practitioners of the clergy may be employees in performing get a statement from the authorized official
their ministerial services, they are treated as or agency of the foreign country verifying that
m Form 1040–PR you are subject to social security coverage in
self-employed for self-employment tax pur-
m Form 1040–SS poses. Their U.S. self-employment tax is that country.
based upon net earnings from self- If the authorities of the foreign country
See chapter 7 for information about get-
employment figured without regard to the will not issue a statement, you should
ting these publications.
foreign earned income exclusion or the for- get a statement that your earnings are
eign housing exclusion. not covered by the U.S. social security sys-
Members of the clergy are covered auto- tem from the
matically by social security and Medicare.
Who Must Pay You can receive exemption from coverage for U.S. Social Security Administration
your ministerial duties if you conscientiously Office of International Programs
Self-Employment Tax? oppose public insurance due to religious rea- Post Office Box 17741
If you are abroad and you are a self-employed sons or if you oppose it due to the religious Baltimore, MD 21235.
U.S. citizen or resident, other than a U.S. cit- principles of your denomination. You must
izen employee of an international organiza- file Form 4361 to apply for this exemption.
tion, foreign government, or wholly owned in- This subject is discussed in further detail Attach a photocopy of either statement to
strumentality of a foreign government, you in Publication 517. your federal income tax return each year you
generally are subject to the self-employment are exempt. Also enter “Exempt, see attached
tax. This is a social security and Medicare tax Puerto Rico, Guam, Commonwealth of the statement,” on the line for self-employment
on net earnings from self-employment of $400 Northern Mariana Islands, American Sa- tax on your return.
or more a year. For 1998 the tax is on net moa, or Virgin Islands. If you are a U.S. If you believe that your self-employment
earnings of $400 or more up to $68,400 for citizen or resident and you own and operate earnings should be exempt from foreign so-
the social security portion. All net earnings a business in Puerto Rico, Guam, the Com- cial security tax and subject only to U.S.
are subject to the Medicare portion. Your net monwealth of the Northern Mariana Islands, self-employment tax, you should request a
self-employment income is used to figure your American Samoa, or the Virgin Islands, you certificate of coverage from the United States
net earnings from self-employment. Net must pay tax on your net earnings from self- Social Security Administration, Office of
self-employment income usually includes all employment (if they are $400 or more) from International Policy. The certificate will es-
business income less all business deductions those sources. You must pay the self- tablish your exemption from the foreign social
allowed for income tax purposes. Net employment tax whether or not the income is security tax.
earnings from self-employment is a portion exempt from U.S. income taxes (or whether
of net self-employment income. This amount or not you must otherwise file a U.S. income
is figured on Schedule SE (Short Schedule tax return). Unless your situation is described
SE (Section A), line 4, or Long Schedule SE below, attach Schedule SE (Form 1040) to
(Section B), line 6). The actual self- your U.S. income tax return.
employment tax is figured on net earnings
from self-employment.
If you do not have to file Form 1040 with
the United States and you are a resident of:
4.
Employed by a U.S. church. If you were
employed by a U.S. church or a qualified
• Guam, Foreign Earned
• American Samoa,
church-controlled organization that chose ex-
emption from social security and Medicare • The Virgin Islands, Income and
taxes and you received wages of $108.28 or
more from the organization, the amounts paid
to you are subject to self-employment tax.
• The Commonwealth of the Northern
Mariana Islands, or
Housing:
However, you can choose to be exempt from
social security and Medicare taxes if you are
• Puerto Rico, Exclusion -
a member of a recognized religious sect. See
Publication 533.
figure your self-employment tax on either
Form 1040–PR or Form 1040–SS, whichever
Deduction
applies.
Effect of exclusion. You must take all of You must file these forms with the Internal
your self-employment income into account in Revenue Service Center, Philadelphia, PA Topics
figuring your net earnings from self- 19255–0207. This chapter discusses:
employment, even income that is exempt
from income tax because of the foreign • Who qualifies for the foreign earned in-
earned income exclusion. come exclusion, the foreign housing ex-
clusion, and the foreign housing de-
Example. You are in business abroad as Exemption From duction,
a consultant and qualify for the foreign earned
income exclusion. Your foreign earned in- Social Security and • How to figure the foreign earned income
exclusion, and
come is $95,000, your business deductions
total $27,000, and your net profit is $68,000. Medicare Taxes • How to figure the foreign housing exclu-
You must pay social security tax and Medi- The United States may reach agreements sion and the foreign housing deduction.
care tax on your net earnings even though with foreign countries to eliminate dual cov-
you can exclude all of your earned income. erage and dual contributions (taxes) to social
security systems for the same work. See Useful Items
Optional method. You can use the nonfarm Binational Social Security (Totalization) You may want to see:
optional method if you are self-employed and Agreements in chapter 2 under Social Secu-
your net nonfarm profits are less than $1,733 rity and Medicare Taxes. As a general rule, Publication
and less than 72.189% of your gross nonfarm self-employed persons who are subject to
income. You must have had $400 of net dual taxation will only be covered by the so- m 519 U.S. Tax Guide for Aliens
self-employment earnings in at least 2 of the cial security system of the country where they
3 immediately preceding tax years. You can- reside. For more information on how any m 596 Earned Income Credit
not choose to report less than your actual net specific agreement affects self-employed
Page 10 Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction
Form (and Instructions) country because of war, civil unrest, or similar Shortly after moving, you bought a car,
adverse conditions in that country. See and you and your spouse got British driving
m 1040X Amended U.S. Individual Income Waiver of Time Requirements, later. licenses. Your entire family got library cards
Tax Return for the local public library. You and your
m 2555 Foreign Earned Income spouse opened bank accounts with a London
Tax Home bank and secured consumer credit. You
m 2555–EZ Foreign Earned Income Exclu- joined a local business league, and both you
sion in Foreign Country and your spouse also became active in the
To qualify for the foreign earned income ex- neighborhood civic association and worked
See chapter 7 for information about get-
clusion, the foreign housing exclusion, or the with a local charity. Your abode is in London
ting these publications and forms.
foreign housing deduction, your tax home for the time you live there, and you satisfy the
must be in a foreign country throughout your tax home test in the foreign country.
period of bona fide residence or physical
presence abroad. Bona fide residence and
Who Qualifies for the physical presence are explained later. Temporary or Indefinite
Assignment
Exclusions and the Tax Home The location of your tax home often depends
Deduction? Your tax home is the general area of your
on whether your assignment is temporary or
indefinite. If you are temporarily absent from
If you meet certain requirements, you may main place of business, employment, or post your tax home in the United States on busi-
qualify for the foreign earned income and of duty, regardless of where you maintain ness, you may be able to deduct your away-
foreign housing exclusions and the foreign your family home. Your tax home is the place from-home expenses (for travel, meals, and
housing deduction. where you are permanently or indefinitely lodging) but you would not qualify for the for-
If you are a U.S. citizen or a resident alien engaged to work as an employee or self- eign earned income exclusion. If your new
of the United States and you live abroad, you employed individual. Having a “tax home” in work assignment is for an indefinite period,
are taxed on your worldwide income. How- a given location does not necessarily mean your new place of employment becomes your
ever, you may qualify to exclude from income that the given location is your residence or tax home, and you would not be able to de-
up to $72,000 of your foreign earnings. In domicile for tax purposes. duct any of the related expenses that you
addition, you can exclude or deduct certain If you do not have a regular or main place have in the general area of this new work
foreign housing amounts. See Foreign of business because of the nature of your assignment. If your new tax home is in a for-
Earned Income Exclusion and Foreign Hous- work, your tax home may be the place where eign country and you meet the other require-
ing Exclusion or Deduction, later. you regularly live. If you have neither a regu- ments, your earnings may qualify for the for-
You may also be entitled to exclude from lar or main place of business nor a place eign earned income exclusion.
income the value of meals and lodging pro- where you regularly live, you are considered If you expect your employment away from
vided to you by your employer. See Exclusion an itinerant and your tax home is wherever home in a single location to last, and it does
of Meals and Lodging, later. you work. last, for 1 year or less, it is temporary unless
You are not considered to have a tax facts and circumstances indicate otherwise.
home in a foreign country for any period in If you expect it to last for more than 1 year
which your abode is in the United States. or you do not expect it to last for 1 year or
Requirements However, your abode is not necessarily in the
United States while you are temporarily in the
less, it is indefinite. If you expect it to last for
1 year or less, but at some later date you
To claim the foreign earned income exclusion, United States. Your abode is also not neces- expect it to last longer than 1 year, it is tem-
the foreign housing exclusion, or the foreign sarily in the United States merely because porary (in the absence of facts and circum-
housing deduction, you must have foreign you maintain a dwelling in the United States, stances indicating otherwise) until your ex-
earned income, your tax home must be in a whether or not your spouse or dependents pectation changes.
foreign country, and you must be one of the use the dwelling.
following: “Abode” has been variously defined as
one's home, habitation, residence, domicile, Foreign Country
• A U.S. citizen who is a bona fide resident or place of dwelling. It does not mean your To meet the bona fide residence test or the
of a foreign country or countries for an principal place of business. “Abode” has a physical presence test, you must live in or be
uninterrupted period that includes an en- domestic rather than a vocational meaning present in a foreign country. A foreign coun-
tire tax year, and does not mean the same as “tax home.” try usually is any territory (including the air
• A U.S. resident alien who is a citizen or The location of your abode often will depend space and territorial waters) under the sover-
national of a country with which the on where you maintain your economic, family, eignty of a government other than that of the
United States has an income tax treaty and personal ties. United States.
in effect and who is a bona fide resident The term “foreign country” includes the
Example 1. You are employed on an seabed and subsoil of those submarine areas
of a foreign country or countries for an
offshore oil rig in the territorial waters of a adjacent to the territorial waters of a foreign
uninterrupted period that includes an en-
foreign country and work a 28–day on/28-day country and over which the foreign country
tire tax year, or
off schedule. You return to your family resi- has exclusive rights under international law
• A U.S. citizen or a U.S. resident alien who dence in the United States during your off to explore and exploit the natural resources.
is physically present in a foreign country periods. You are considered to have an The term “foreign country” does not in-
or countries for at least 330 full days abode in the United States and do not satisfy clude Puerto Rico, Guam, the Commonwealth
during any period of 12 consecutive the tax home test in the foreign country. You of the Northern Mariana Islands, the Virgin
months. cannot claim either of the exclusions or the Islands, or U.S. possessions such as Ameri-
housing deduction. can Samoa. For purposes of the foreign
See Publication 519 to find out if you
qualify as a U.S. resident alien for tax pur- earned income exclusion, the foreign housing
Example 2. For several years, you were
poses and whether you keep that alien status exclusion, and the foreign housing deduction,
a marketing executive with a producer of
when you temporarily work abroad. the terms “foreign,” “abroad,” and “overseas”
machine tools in Toledo, Ohio. In November
If you are a nonresident alien married to refer to areas outside the United States,
of last year your employer transferred you to
a U.S. citizen or resident, and you both American Samoa, Guam, the Commonwealth
London, England, for a minimum of 18
choose to treat you as a resident, you are a of the Northern Mariana Islands, Puerto Rico,
months to set up a sales operation for
resident alien for tax purposes. For informa- the Virgin Islands, and the Antarctic region.
Europe. Before you left, you distributed busi-
tion on making the choice, see the discussion ness cards showing your business and home
in Chapter 1 under Nonresident Spouse addresses in London. You kept ownership of American Samoa,
Treated as a Resident. your home in Toledo and rented it to another Guam, and the
family. You placed your car in storage. In
Waiver of minimum time requirements. November of last year, you moved your
Commonwealth of the
The minimum time requirements for the bona spouse, children, furniture, and family pets to Northern Mariana Islands
fide residence test and the physical presence a home your employer rented for you in Residence or presence in a U.S. possession
test can be waived if you must leave a foreign London. does not qualify you for the foreign earned
Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction Page 11
Figure 4-A. Can I Claim the Exclusion or Deduction?

Start Here
Yes Yes No No
Do you have foreign ©
Is your tax home in a © ©
Are you a U.S. resident
Are you a U.S. citizen?
earned income? foreign country? alien?

No No Yes Yes

©
Were you a bona fide Are you a citizen or
resident of a foreign national of a country with
Yes
country or countries for © which the Unted States
an uninterrupted period has an income tax treaty
that includes an entire in effect?
tax year?

No Yes No

©
You CAN claim the
foreign earned income
exclusion and the
foreign housing
exclusion or the foreign
housing deduction.

©
©

Were you physically


present in a foreign
country or countries for Yes
at least 330 full days
during any period of 12 ©
consecutive months?

No
©

©
You CANNOT claim the foreign earned income exclusion, the ©
foreign housing exclusion, or the foreign housing deduction.

income exclusion. You may, however, qualify Puerto Rico Bona fide residence. To see if you meet the
for the possession exclusion. test of bona fide residence in a foreign coun-
and Virgin Islands try, you must find out if you have established
Residents of Puerto Rico and the Virgin Is- such a residence.
American Samoa. There is a possession lands are not entitled to the possession ex- Your bona fide residence is not neces-
exclusion available to individuals who are clusion (discussed above) or to the exclusion sarily the same as your domicile. Your
bona fide residents of American Samoa for of foreign earned income or the exclusion or domicile is your permanent home, the place
the entire tax year. Gross income from deduction of foreign housing amounts under to which you always return or intend to return.
sources within American Samoa, Guam, or the bona fide residence or physical presence
the Commonwealth of the Northern Mariana rules discussed later. Example. You could have your domicile
Islands may be eligible for this exclusion. In- in Cleveland, Ohio, and a bona fide residence
come that is effectively connected with the in London if you intend to return eventually to
conduct of a trade or business within those Puerto Rico. Generally, if you are a U.S. Cleveland.
possessions also may be eligible for this ex- citizen who is a bona fide resident of Puerto The fact that you go to London does not
clusion. Use Form 4563, Exclusion of Income Rico for the entire tax year, you are not sub- automatically make London your bona fide
for Bona Fide Residents of American Samoa, ject to U.S. tax on income from Puerto Rican residence. If you go there as a tourist, or on
to figure the exclusion. sources. This does not include amounts paid a short business trip, and return to the United
for services performed as an employee of the States, you have not established bona fide
United States. However, you are subject to residence in London. But if you go to London
Guam and the Commonwealth of the U.S. tax on your income from sources outside to work for an indefinite or extended period
Northern Mariana Islands. New exclusion Puerto Rico. You cannot deduct expenses and you set up permanent quarters there for
rules will apply to residents of Guam and the allocable to the exempt income. yourself and your family, you probably have
Commonwealth of the Northern Mariana Is- established a bona fide residence in a foreign
lands if, and when, new implementation country, even though you intend to return
agreements take effect between the United eventually to the United States.
States and those possessions. Bona Fide Residence Test You are clearly a transient in the first in-
For more information, see Publication 570, The bona fide residence test applies to U.S. stance. However, in the second, you are a
Tax Guide for Individuals With Income From citizens and to any U.S. resident alien who is resident because your stay in London ap-
U.S. Possessions. a citizen or national of a country with which pears to be permanent. If your residency is
the United States has an income tax treaty in not as clearly defined as either of these illus-
effect. trations, it may be more difficult to decide

Page 12 Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction


whether you have established a bona fide length of your stay abroad that does not Example. You were a bona fide resident
residence. match the information you give for the bona of England from March 1, 1996, through
fide residence test, the information given in September 14, 1998. On September 15,
Determination. Questions of bona fide connection with absentee voting will be con- 1998, you returned to the United States.
residence are determined according to each sidered in determining your status, but will not Since you were a bona fide resident of a for-
individual case, taking into account such fac- necessarily be conclusive. eign country for all of 1997, you qualify as a
tors as your intention or the purpose of your bona fide resident from March 1, 1996,
trip and the nature and length of your stay through September 14, 1998.
abroad. Uninterrupted period including entire tax
You must show the Internal Revenue year. To qualify for bona fide residence, you Reassignment. If you are assigned from
Service (IRS) that you have been a bona fide must reside in a foreign country for an unin- one foreign post to another, you may or may
resident of a foreign country or countries for terrupted period that includes an entire tax not have a break in foreign residence be-
an uninterrupted period that includes an entire year. An entire tax year is from January 1 tween your assignments, depending on the
tax year. The IRS decides whether you qualify through December 31 for taxpayers who file circumstances.
as a bona fide resident of a foreign country their income tax returns on a calendar year
largely on the basis of facts you report on basis. Example 1. You were a resident of
Form 2555. File this form with your income During the period of bona fide residence France from October 1, 1997, through No-
tax return on which you claim the exclusion in a foreign country, you can leave the country vember 30, 1998. On December 1, 1998, you
of foreign earned income. IRS cannot make for brief or temporary trips back to the United and your family were returned to the United
this determination until you file Form 2555. States or elsewhere for vacation or business. States by your employer to wait for an as-
To keep your status as a bona fide resident signment to another foreign country. Your
Statement to foreign authorities. You are of a foreign country, you must have a clear household goods also were returned to the
not considered a bona fide resident of a for- intention of returning from such trips, without United States.
eign country if you make a statement to the unreasonable delay, to your foreign residence Your foreign residence ended on Novem-
authorities of that country that you are not a or to a new bona fide residence in another ber 30, 1998, and did not begin again until
resident of that country and the authorities foreign country. after you were assigned to another foreign
hold that you are not subject to their income country and physically entered that country.
tax laws as a resident. Example 1. You are the Lisbon repre- Since you were not a bona fide resident of a
If you have made such a statement and sentative of a U.S. employer. You arrived with foreign country for the entire tax year of 1997
the authorities have not made a final decision your family in Lisbon on November 1, 1996. or 1998, you do not qualify under the bona
on your status, you are not considered to be Your assignment is indefinite, and you intend fide residence test in either year. You may,
a bona fide resident of that foreign country. to live there with your family until your com- however, qualify for the foreign earned in-
pany sends you to a new post. You imme- come exclusion or the housing exclusion or
Special agreements and treaties. The in- diately established residence there. On April deduction under the physical presence test,
come tax exemption provided in a treaty or 1, 1997, you arrived in the United States to discussed later.
other international agreement will not in itself meet with your employer, leaving your family
prevent you from being a bona fide resident in Lisbon. You returned to Lisbon on May 1, Example 2. Assume the same facts as
of a foreign country. Whether a treaty pre- and continue living there. On January 1, in Example 1, except that upon completion
vents you from becoming a bona fide resident 1998, you completed an uninterrupted period of your assignment in France you were given
of a foreign country is determined under all of residence for a full tax year (1997), and you a new assignment to England. On December
provisions of the treaty, including specific may qualify as a bona fide resident of a for- 1, 1998, you and your family returned to the
provisions relating to residence or privileges eign country. United States for a month's vacation. On
and immunities. January 2, 1999, you arrived in England for
Example 2. Assume that in Example 1, your new assignment. Because you did not
Example 1. You are a U.S. citizen em- you transferred back to the United States on interrupt your bona fide residence abroad,
ployed in England by a U.S. employer under December 13, 1997. You would not qualify you qualify at the end of 1998 as a bona fide
contract with the U.S. Armed Forces. You do under the bona fide residence test because resident of a foreign country.
not qualify for special status under the North your bona fide residence in the foreign coun-
Atlantic Treaty Status of Forces Agreement. try, although it lasted more than a year, did
You are subject to United Kingdom income not include a full tax year. You may, however, Physical Presence Test
taxes and may qualify as a bona fide resident. qualify for the foreign earned income exclu- You meet the physical presence test if you
sion or the housing exclusion or deduction are physically present in a foreign country or
Example 2. You are a U.S. citizen in under the physical presence test discussed countries 330 full days during a period of 12
England who qualifies as an “employee” of later. consecutive months. The 330 qualifying days
an armed service or as a member of a “civil- do not have to be consecutive. The physical
ian component” under the North Atlantic Bona fide residence status not auto- presence test applies to both U.S. citizens
Treaty Status of Forces Agreement. You do matic. You do not automatically acquire and resident aliens.
not qualify as a bona fide resident. bona fide resident status merely by living in The physical presence test is concerned
a foreign country or countries for 1 year. only with how long you stay in a foreign
Example 3. You are a U.S. citizen em-
country or countries. This test does not de-
ployed in Japan by a U.S. employer under Example. If you go to a foreign country pend on the kind of residence you establish,
contract with the U.S. Armed Forces. You are to work on a particular construction job for a your intentions about returning, or the nature
subject to the agreement of the Treaty of specified period of time, you ordinarily will not and purpose of your stay abroad. However,
Mutual Cooperation and Security between the be regarded as a bona fide resident of that your intentions with regard to the nature and
United States and Japan. You do not qualify country even though you work there for one purpose of your stay abroad are relevant in
as a bona fide resident. tax year or longer. The length of your stay and determining whether you meet the tax home
Example 4. You are a U.S. citizen em- the nature of your job are only some of the test explained earlier under Tax Home in
ployed as an “official” by the United Nations factors to be considered in determining Foreign Country.
in Switzerland. You are exempt from Swiss whether you meet the bona fide residence
taxation on the salary or wages paid to you test. 12–month period. Your 12–month period
by the United Nations. This does not prevent can begin with any day of any calendar
you from qualifying as a bona fide resident if Bona fide resident for part of a year. Once month. It ends the day before the same cal-
you meet all the requirements for that status. you have established bona fide residence in endar day, 12 months later.
a foreign country for an uninterrupted period
Effect of voting by absentee ballot. If you that includes an entire tax year, you will Example. Your flight touches down in
are a U.S. citizen living abroad, you can vote qualify as a bona fide resident for the period London on June 13, 1998. Your 12–month
by absentee ballot in any elections held in the starting with the date you actually began the period ends on June 12, 1999.
United States without risking your status as residence and ending with the date you
a bona fide resident of a foreign country. abandon the foreign residence. You could Purpose of stay. You do not have to be in
However, if you give information to the qualify as a bona fide resident for part of a tax a foreign country only for employment pur-
local election officials about the nature and year. poses. You can be on vacation time.
Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction Page 13
Less than 330 full days. Generally, to meet before the same calendar day, 12 Country Time Periods
the physical presence test, you must be months later. Beginning Ending
physically present in a foreign country or Afghanistan April 23, 1979 (Still in effect)
countries for at least 330 full days during the 2) Your 12–month period must be made up
Albania March 12, 1997 (Still in effect)
12–month period. This means that if illness, of consecutive months. Any 12–month Algeria Dec. 10, 1993 March 10, 1994
family problems, a vacation, or your employ- period can be used if the 330 days in a Bosnia &
er's orders cause you to be present for less foreign country fall within that period. Herzegovina April 7, 1992 (Still in effect)
than the required amount of time, you cannot
meet the physical presence test. 3) You do not have to begin your 12–month Burundi April 8, 1994 Oct. 4, 1994
period with your first full day in a foreign Cambodia July 9, 1997 (Still in effect)
Exception. You can be physically present Central African
in a foreign country or countries for less than country or to end it with the day you
leave. You can choose the 12–month Republic May 21, 1996 Sept. 12, 1996
330 full days and still meet the physical March 28, 1997 (Still in effect)
presence test if you are required to leave a period that gives you the greatest exclu-
country because of war or civil unrest. See sion. Croatia April 7, 1992 (Still in effect)
Waiver of Time Requirements, later. Democratic Re-
4) In determining if the 12–month period public of the
falls within a longer stay in the foreign Congo
Full day. A full day is a period of 24 hours country, any 12–month period can over- (formerly Zaire) May 3, 1997 (Still in effect)
in a row, beginning at midnight. You must lap another. Former
spend each of the 330 full days in a foreign Yugoslav Re-
public of
country. When you leave the United States to Example 1. You are a construction Macedonia June 13, 1992 (Still in effect)
go directly to a foreign country or when you worker who works on and off in a foreign
return directly to the United States from a country over a 20–month period. You might Haiti Oct. 29, 1991 Jan. 18, 1994
foreign country, the time you spend on or over pick up the 330 full days in a 12–month period June 10, 1994 Oct. 7, 1994
international waters does not count toward only during the middle months of the time you Iran Sept. 1, 1978 (Still in effect)
the 330–day total. Lebanon Aug. 31, 1979 (Still in effect)
work in the foreign country because the first
few and last few months of the 20–month Montenegro * June 13, 1992 (Still in effect)
Example. You leave the United States for period are broken up by long visits to the Republic of the
France by air on June 10. You arrive in United States. Congo June 7, 1997 (Still in effect)
France at 9:00 a.m. on June 11. Your first full Rwanda April 8, 1994 July 6, 1994
day in France is June 12. Example 2. You work in Canada for a Serbia * June 13, 1992 (Still in effect)
20–month period from January 1, 1997, Sierra Leone May 28, 1997 (Still in effect)
Passing over foreign country. If, in through August 31, 1998, except that you Somalia Dec. 21, 1990 (Still in effect)
traveling from the United States to a foreign spend February 1997 and February 1998 on Sudan Aug. 21, 1993 Feb. 16, 1994
country, you pass over a foreign country be- vacation in the United States. You are pres- Tajikistan Nov. 26, 1997 (Still in effect)
fore midnight of the day you leave, the first ent in Canada 330 full days during each of the
day you can count toward the 330–day total following two 12–month periods. One Yemen May 5, 1994 Aug. 2, 1994
is the day following the day you leave the Zaire Sept. 24, 1991 Jan. 18, 1994
12–month period can begin January 1, 1997,
United States. and end December 31, 1997; the second pe- *Montenegro and Serbia, formerly part of the So-
cialist Federal Republic of Yugoslavia, have as-
riod can begin September 1, 1997, and end
Example. You leave the United States serted the formation of a joint independent state, but
August 31, 1998. By overlapping the this entity has not been formally recognized as a
by air at 9:30 a.m. on June 10 to travel to
12–month periods in this way, you meet the state by the United States.
Spain. You pass over a part of France at
physical presence test for the whole
11:00 p.m. on June 10 and arrive in Spain at The above list is effective up to and in-
20–month period. See Table 4–1.
12:30 a.m. on June 11. Your first full day in cluding July 6, 1998. See Publication 553,
a foreign country is June 11. Highlights of 1998 Tax Changes, for any ad-
ditions or changes to this list made after that
Foreign move. You can move about from Exceptions to Tests date. If, based on the above list, you are en-
one place to another in a foreign country or There are two exceptions to meeting the re- titled to a foreign earned income exclusion
to another foreign country without losing full quirements under the bona fide residence and or deduction for a prior year, you should file
days. But if any part of your travel is not within the physical presence tests. an amended return. If, based on a later list,
a foreign country or countries and takes 24 you find you are entitled to an exclusion or
hours or more, you will lose full days. deduction for this year, you should file an
Waiver of Time Requirements amended return.
Example 1. You leave London by air at
11:00 p.m. on July 6 and arrive in Stockholm Both the bona fide residence test and the
at 5:00 a.m. on July 7. Your trip takes less physical presence test contain minimum time U.S. Travel Restrictions
than 24 hours and you lose no full days. requirements. The minimum time require-
If you are present in a foreign country in vio-
ments can be waived, however, if you must
lation of U.S. law, you will not be treated as
Example 2. You leave Norway by ship leave a foreign country because of war, civil
a bona fide resident of a foreign country or
at 10:00 p.m. on July 6 and arrive in Portugal unrest, or similar adverse conditions in
as physically present in a foreign country
at 6:00 a.m. on July 8. Since your travel is that country. You also must be able to show
while you are in violation of the law. Income
not within a foreign country or countries and that you reasonably could have expected to
that you earn from sources within such a
the trip takes more than 24 hours, you lose meet the minimum time requirements if not for
country for services performed during a pe-
as full days July 6, 7, and 8. If you remain in the adverse conditions. Before you can qual-
riod of violation does not qualify as foreign
Portugal, your next full day in a foreign ify for the waiver, you must actually have your
earned income. Your housing expenses
country is July 9. tax home in the foreign country and be a bona
within that country (or outside that country for
fide resident of, or be physically present in,
housing your spouse or dependents) while
In U.S. while in transit. If you are in the foreign country.
you are in violation of the law cannot be in-
transit between two points outside the United cluded in figuring your foreign housing
States and are physically present in the Countries affected. The IRS has deter- amount.
United States for less than 24 hours, you are mined that adverse conditions existed in the Currently, the countries to which travel
not treated as present in the United States following countries during the periods shown. restrictions apply and the beginning dates of
during the transit. You are treated as traveling If you left one of these countries during the the restrictions are as follows:
over areas not within any foreign country. period shown, you can qualify for the bona
fide residence test or physical presence test • Cuba — January 1, 1987,
How to figure the 12–month period. There without meeting the minimum time require-
are four rules you should know when figuring ment. However, in figuring your exclusion, the
• Iraq — August 2, 1990,
the 12–month period. number of your qualifying days of bona fide • Libya — January 1, 1987.
residence or physical presence includes only
1) Your 12–month period can begin with days of actual residence or presence within The restrictions are still in effect in all three
any day of the month. It ends the day the country. countries.
Page 14 Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction
Table 4-1. How To Figure Overlapping 12-Month Periods
This Table illustrates Example 2 under How to figure the 12-month period.
First Full 12-Month Period

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
’97 ’97 ’97 ’97 ’97 ’97 ’97 ’97 ’97 ’97 ’97 ’97 ’98 ’98 ’98 ’98 ’98 ’98 ’98 ’98
* *

Second Full 12-Month Period

* 28-day vacation in the United States

Noncash income. The fair market value of tracting your vacation, you have a total of 240
Foreign Earned Income property or facilities provided to you by your workdays in the year. You worked in the
The foreign earned income exclusion, the employer in the form of lodging, meals, or use United States during the year for 6 weeks,
foreign housing exclusion, and the foreign of a car. which included 30 workdays. The following
housing deduction are based on foreign shows how to figure your wages paid for work
earned income. For this purpose, foreign Allowances or reimbursements. Earned done in the United States during the year.
earned income is income you receive for income includes amounts paid to you as al- Number of days worked in the United
services you perform in a foreign country lowances or reimbursements for the following States during the year (30) ÷ Number of days
during a period your tax home is in a foreign items. of work during the year for which payment
country and during which you meet either the was made (240) × Total pay ($66,800) =
bona fide residence test or the physical $8,350.
• Cost of living.
presence test, discussed earlier. Your U.S. source income is $8,350.
Foreign earned income does not include • Overseas differential.
the following amounts.
• Family. Earned and
1) The previously excluded value of meals • Education. Unearned Income
and lodging furnished for the conven- • Home leave. Earned income was defined earlier as pay for
ience of your employer. personal services performed. Some types of
• Quarters. income are not easily identified as earned or
2) Pension or annuity payments including unearned income. These types of income
social security benefits (see Pensions • Moving (unless excluded from income as
discussed later). —specifically, income from sole propri-
and annuities, later). etorships, partnerships, and corporations,
3) U.S. Government payments to its em- stock options, pensions and annuities, royal-
ployees (see U.S. Government Employ-
Source of Earned Income ties, rents, and fringe benefits—are further
ees, later). The source of your earned income is the explained here. Income from sole
place where you perform the services for proprietorships and partnerships generally is
4) Amounts included in your income be- which you received the income. Foreign treated one way, and income from corpo-
cause of your employer's contributions earned income is income you receive for rations is treated another way.
to a nonexempt employee trust or to a performing personal services in a foreign
nonqualified annuity contract. country. Where or how you are paid has no Trade or business—sole proprietorship or
effect on the source of the income. For ex- partnership. Generally, income from a
5) Recaptured unallowable moving ex- ample, income you receive for work done in business in which capital investment is an
penses (see Moving Expenses in chap- France is income from a foreign source even important part of producing the income is un-
ter 5). if the income is paid directly to your bank ac- earned income. However, if you are a sole
count in the United States and your employer proprietor or partner and your personal ser-
6) Payments received after the end of the
is located in New York City. vices are also an important part of producing
tax year following the tax year in which
If you receive a specific amount for work the income, part of it will be treated as your
you performed the services that earned
done in the United States, you must report pay (earned income).
the income.
that amount as U.S. source income. If you The amount treated as your pay cannot
cannot determine how much is for work done be more than the smaller of:
Earned income is pay for personal ser- in the United States, or for work done partly
vices performed, such as wages, salaries, in the United States and partly in a foreign 1) The value of your personal services to
or professional fees. The list that follows country, determine the amount of U.S. source the business, or
classifies many types of income into three income using the method that most correctly
categories. The column headed Variable lists 2) If there are net profits, 30% of your share
shows the proper source of your income. of the net profits of the business.
income that may fall into the category of In most cases you can make this deter-
earned, unearned, or partly into both. For mination on a time basis. U.S. source income
more information on earned and unearned Example 1. You are a U.S. citizen and
is the amount that results from multiplying meet the bona fide residence test. You invest
income, see Earned and Unearned Income, your total pay (including allowances, re-
later. in a partnership based in Italy that is engaged
imbursements other than for foreign moves, solely in selling merchandise outside the
Unearned
and noncash fringe benefits) by a fraction. United States. You perform no services for
Earned Income Income Variable The numerator (top number) is the number the partnership. At the end of the tax year,
of days you worked within the United States. your share of the net profits is $80,000. The
Salaries and Dividends Business
wages Interest profits
The denominator (bottom number) is the total entire $80,000 is unearned income.
Commissions Capital gains Royalties number of days of work for which you were
Bonuses Gambling Rents paid. Example 2. Assume that in Example 1
Professional fees winnings you spend time operating the business. Your
Tips Alimony Example. You are a U.S. citizen, a bona share of the net profits is $80,000, 30% of
Social security fide resident of Country A, and working as a your share of the profits is $24,000. If the
benefits mining engineer. Your salary is $56,800 per value of your services for the year is $15,000,
Pensions year. You also receive a $5,000 cost of living
Annuities your earned income is limited to the value of
allowance, and a $5,000 education allow- your services, $15,000.
In addition to the types of earned income ance. Your employment contract did not indi-
listed, the following noncash income and al- cate that you were entitled to these allow- No net profits. If you have no net profits,
lowances or reimbursements are considered ances only while outside the United States. the part of your gross profit that represents a
earned income. They must be included in the Your total pay is $66,800. You work a 5–day reasonable allowance for personal services
listing of earned income on Form 2555. week, Monday through Friday. After sub- actually performed is considered earned in-
Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction Page 15
come. Because you do not have a net profit, Rental income. Generally, rental income is 1) The expenses covered under the plan
the 30% limit does not apply. unearned income. If you perform personal must have a business connection.
If capital is not an income-producing services in connection with the production of
factor and personal services produce the rent, up to 30% of your net rental income can 2) The employee must adequately account
business income, the 30% rule does not ap- be considered earned income. to the employer for these expenses
ply. The entire amount of business income is within a reasonable period of time.
earned income. Example. Larry Smith, a U.S. citizen liv- 3) The employee must return any excess
ing in France, owns and operates a rooming reimbursement or allowance within a
Example. You and Lou Green are man- house in Paris. If he is operating the rooming reasonable period of time.
agement consultants and operate as an equal house as a business that requires capital and
partnership in performing services outside the personal services, he can consider up to 30% Reimbursement of moving expenses.
United States. Because capital is not an of net rental income as earned income. On Earned income may include reimbursement
income-producing factor, all the income from the other hand, if he just owns the rooming of moving expenses. You must include as
the partnership is considered earned income. house and performs no personal services earned income:
connected with its operation, except perhaps
Trade or business—corporation. Income making minor repairs and collecting rents, 1) Any reimbursements of, or payments for,
from a corporation is not treated the same as none of his net income from the house is nondeductible moving expenses;
income from a sole proprietorship or partner- considered earned income.
ship. The salary you receive from a corpo- 2) Reimbursements that are more than
ration is earned income only if it represents your deductible expenses and that you
Income of an artist. Income you receive do not return to your employer;
a reasonable allowance as compensation for
from the sale of paintings is earned income
work you do for the corporation. Any amount 3) Any reimbursements made (or treated
if you painted the pictures yourself.
over what is considered a reasonable salary as made) under a nonaccountable plan
is not earned income. (any plan that does not meet the rules
Use of employer's property or facilities. If listed above for an accountable plan),
Example 1. You are a U.S. citizen and you receive fringe benefits in the form of the even if they are for deductible expenses;
an officer and stockholder of a corporation in right to use your employer's property or facil- and
Canada. You perform no work or service of ities, you must add the fair market value of
any kind for the corporation. During the tax that right to your pay. Fair market value is 4) Any reimbursement of moving expenses
year you receive a $10,000 “salary” from the the price at which the property would change you deducted in an earlier year.
corporation. The $10,000 clearly is not for hands between a willing buyer and a willing
personal services and is not earned income. seller, neither being required to buy or sell, This section discusses reimbursements that
and both having reasonable knowledge of all must be included in earned income. Publica-
Example 2. You are a U.S. citizen and the necessary facts. tion 521, Moving Expenses, discusses addi-
devote full time as secretary-treasurer of your tional rules that apply to moving expense de-
corporation. During the tax year you receive Example. You are privately employed ductions and reimbursements.
$50,000 as salary from the corporation. If and live in Japan all year. You are paid a The rules for determining when the re-
$40,000 is a reasonable allowance as pay for salary of $4,000 a month. You live rent-free imbursement is considered earned or where
the work you did, then $40,000 is earned in- in a house provided by your employer that the reimbursement is considered earned may
come. has a fair rental value of $2,000 a month. The differ somewhat from the general rules previ-
house is not provided for your employer's ously discussed.
Stock options. You may have earned in- convenience. You report on the calendar Although you receive the reimbursement
come if you disposed of stock that you got year, cash basis. You received $48,000 sal- in one tax year, it may be considered earned
by exercising a stock option granted to you ary from foreign sources plus $24,000 fair for services performed, or to be performed, in
under an employee stock purchase plan. rental value of the house, or a total of another tax year. You must report the re-
If your gain on the disposition of option $72,000. imbursement as income on your return in the
stock is treated as capital gain, your gain is year you receive it, even if it is considered
not earned income. earned during a different year.
However, if you disposed of the stock less Reimbursement of employee expenses. If Move from U.S. to foreign country. If
than 2 years after you were granted the option you are reimbursed under an accountable you move from the United States to a foreign
or less than 1 year after you got the stock, plan (defined below) for expenses you incur country, your moving expense reimbursement
part of the gain on the disposition may be on your employer's behalf and you have ad- is considered pay for future services to be
earned income. It is considered received in equately accounted to your employer for the performed at the new location. The re-
the year you disposed of the stock and expenses, do not include the reimbursement imbursement is considered earned solely in
earned in the year you performed the services for those expenses in your earned income. the year of the move if your tax home is in a
for which you were granted the option. Any The expenses for which you are reim- foreign country and you qualify under the
part of the earned income that is due to work bursed are not considered allocable (related) bona fide residence test or physical presence
you did outside the United States is foreign to your earned income. If expenses and re- test for at least 120 days during that tax year.
earned income. imbursement are equal, there is nothing to If you do not qualify under either test for
See Publication 525, Taxable and Non- allocate to excluded income. If expenses are 120 days during the year of the move, the
taxable Income, for a discussion of treatment more than the reimbursement, the unreim- reimbursement is considered earned in the
of stock options. bursed expenses are considered to have year of the move and the year following the
been incurred in producing earned income year of the move. To figure the amount
and must be divided between your excluded earned in the year of the move, multiply the
Pensions and annuities. For purposes of
and included income in determining the reimbursement by a fraction. The numerator
the foreign earned income exclusion, the for-
amount of unreimbursed expenses you can (top number) is the number of days in your
eign housing exclusion, and the foreign
deduct. (See Chapter 5.) If the reimbursement qualifying period that fall within the year of the
housing deduction, amounts received as
is more than the expenses, no expenses re- move, and the denominator (bottom number)
pensions or annuities are not earned income.
main to be divided between excluded and in- is the total number of days in the year of the
cluded income and the excess must be in- move.
Royalties. Royalties from the leasing of oil cluded in earned income.
and mineral lands and patents generally are The difference between the total re-
These rules do not apply to straight- imbursement and the amount considered
not earned income. These royalties are a commission salespersons or other individuals
form of rent or dividends and are unearned earned in the year of the move is the amount
who are employees and have arrangements considered earned in the year following the
income. with their employers under which, for with-
Royalties received by a writer are earned year of the move. The part earned in each
holding tax purposes, their employers con- year is figured as shown in the following ex-
income if they are received: sider a percentage of the commissions to be ample.
1) For the transfer of property rights of the attributable to the expenses of the employees
writer in the writer's product, or and do not withhold taxes on that percentage. Example. You are a U.S. citizen working
Accountable plan. An accountable plan in the United States. You were told in October
2) Under a contract to write a book or series is a reimbursement or allowance arrangement of last year that you were being transferred
of articles. that includes all three of the following rules. to a foreign country. You arrived in the for-
Page 16 Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction
eign country on December 15 of last year, you were not allowed to deduct. Because you Panama Canal Commission and civilian em-
and you qualify as a bona fide resident for the were not a bona fide resident for at least 120 ployees of the Defense Department of the
remainder of last year and all of this year. days last year (the year of the move), the United States stationed in Panama can ex-
Your employer reimburses you $2,000 in includible reimbursement is considered pay clude certain foreign-area and cost-of-living
January of this year for the part of the moving for services performed in the foreign country allowances. See Publication 516, U.S. Gov-
expense that you were not allowed to deduct. for both last year and the year before last. ernment Civilian Employees Stationed
Because you did not qualify as a bona fide You figure the part of the moving expense Abroad, for more information.
resident for at least 120 days last year (the reimbursement for services performed in the These employees cannot exclude any
year of the move), the reimbursement is foreign country last year by multiplying the overseas tropical differential they receive.
considered pay for services performed in the total includible reimbursement by a fraction.
foreign country for both last year and this The fraction is the number of days of foreign American Institute in Taiwan. Amounts paid
year. residence during the year (90) divided by the by the American Institute in Taiwan are not
You figure the part of the moving expense number of days in the year (365 or 366). The considered foreign earned income for pur-
reimbursement for services performed in the remaining part of the includible reimburse- poses of the exclusion of foreign earned in-
foreign country last year by multiplying the ment is for services performed in the foreign come or the exclusion or deduction of foreign
total reimbursement by a fraction. The fraction country the year before last. You report the housing amounts. If you are an employee of
is the number of days during which you were amount of the includible reimbursement on the American Institute in Taiwan, allowances
a bona fide resident during the year of the your Form 1040 for last year, the tax year you you receive are exempt from U.S. tax up to
move divided by 365 (366 if it was a leap received it. the amount that equals tax-exempt allow-
year). The remaining part of the reimburse- ances received by civilian employees of the
ment is for services performed in the foreign In this example, if you qualify to ex- U.S. Government.
country this year. TIP clude income under the physical
This computation is used only to deter- presence test instead of the bona fide Allowances. Cost-of-living and foreign-area
mine when the reimbursement is considered residence test for last year, you may have had allowances paid under certain Acts of Con-
earned. You would report the amount you in- more than 120 qualifying days in the year of gress to U.S. civilian officers and employees
clude in income in this tax year, the year you the move because you can choose the stationed in Alaska and Hawaii or elsewhere
received it. 12–month qualifying period that is most ad- outside the 48 contiguous states and the
vantageous to you. (See Physical presence District of Columbia can be excluded from
Move between foreign countries. If you test, later under Part-year exclusion.) If so, gross income. See Publication 516 for more
move between foreign countries and you the moving expense reimbursement would be information. Post differentials are wages that
qualify for at least 120 days during the tax considered earned entirely in the year of the must be included in gross income, regardless
year under the bona fide residence test or the move (last year). of the Act of Congress under which they are
physical presence test, the moving expense paid.
reimbursement that you must include in in- Storage expense reimbursements. If
come is considered earned in the tax year of you are reimbursed for storage expenses, the
the move. reimbursement is for services you perform Exclusion of
Move to U.S. If you move to the United during the period you are in the foreign Meals and Lodging
States, the moving expense reimbursement country. You do not include in your income the value
that you must include in income is generally of meals and lodging provided to you and
considered to be U.S. source income. U.S. Government Employees your family by your employer at no charge if
However, if under either an agreement the following conditions are met.
between you and your employer or a state- For purposes of the foreign earned income
ment of company policy that is reduced to exclusion and the foreign housing exclusion 1) The meals are:
writing before your move to the foreign coun- or deduction, foreign earned income does not
include any amounts paid by the United a) Furnished on the business prem-
try, your employer will reimburse you for your ises of your employer, and
move back to the United States regardless States or any of its agencies to its employees.
of whether you continue to work for the em- Payments to employees of nonappropriated b) Furnished for the convenience of
ployer, the includible reimbursement is con- fund activities are not foreign earned income. your employer.
sidered compensation for past services per- Nonappropriated fund activities include the
following employers. 2) The lodging is:
formed in the foreign country. The includible
reimbursement is considered earned in the a) Furnished on the business prem-
1) Armed forces post exchanges.
tax year of the move if you qualify under the ises of your employer,
bona fide residence test or the physical 2) Officers' and enlisted personnel clubs.
b) Furnished for the convenience of
presence test for at least 120 days during that
3) Post and station theaters. your employer, and
tax year. Otherwise, you treat the includible
reimbursement as received for services per- 4) Embassy commissaries. c) A condition of your employment.
formed in the foreign country in the year of the (You are required to accept it).
move and the year immediately before the Amounts paid by the United States or its
year of the move. agencies to persons who are not their em- Amounts you do not include in income be-
See the discussion under Move from U.S. ployees may qualify for exclusion or de- cause of these rules are not foreign earned
to foreign country (earlier) to figure the duction. income.
amount of the includible reimbursement con- If you are a U.S. Government employee
sidered earned in the year of the move. The paid by a U.S. agency that assigned you to Family. Your family, for this purpose, in-
amount earned in the year before the year of a foreign government to perform specific ser- cludes only your spouse and your depen-
the move is the difference between the total vices for which the agency is reimbursed by dents.
includible reimbursement and the amount the foreign government, your pay is from the
earned in the year of the move. U.S. Government and does not qualify for the Lodging. The value of lodging includes the
exclusion or deduction. cost of heat, electricity, gas, water, sewer
Example. You are a U.S. citizen em- If you have questions about whether you service, and similar items needed to make the
ployed in a foreign country. You retired from are an employee or an independent contrac- lodging fit to live in.
employment with your employer on March 31 tor, get Publication 15–A, Employer's Sup-
of last year, and returned to the United States plemental Tax Guide. Business premises of employer. Gener-
after having been a bona fide resident of the ally, the business premises of your employer
foreign country for several years. A written Panama Canal Commission. U.S. employ- are wherever you work. For example, if you
agreement with your employer entered into ees of the Panama Canal Commission are work as a housekeeper, meals and lodging
before you went abroad provided that you employees of a U.S. Government agency and provided in your employer's home are pro-
would be reimbursed for your move back to are not eligible for the foreign earned income vided on the business premises of your em-
the United States. exclusion on their salaries from that source. ployer. Similarly, meals provided to cowhands
In April of last year, your former employer Furthermore, no provision of the Panama while herding cattle on land leased or owned
reimbursed you $2,000 for the part of the cost Canal Treaty or Agreement exempts their in- by their employer are considered provided on
of your move back to the United States that come from U.S. taxation. Employees of the the premises of their employer.
Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction Page 17
Convenience of employer. Whether meals 1) The period for which the payment is
or lodging are provided for your employer's
Limit on Excludable Amount made is a normal payroll period of your
convenience must be determined from all the You may be able to exclude up to $72,000 employer that regularly applies to you.
facts. Meals or lodging provided to you and of income earned in each year. See Table 4.2
your family by your employer will be consid- for the maximum dollar amount for specific 2) The payroll period includes the last day
ered provided for your employer's conven- years. of your tax year.
ience if there is a good business reason for 3) The payroll period is not longer than 16
providing the meals or lodging, other than to Limits. For 1998, you cannot exclude more days.
give you more pay. than the smaller of:
If your employer has a good business 4) The payday comes at the same time in
reason for providing the meals or lodging, do 1) $72,000, or relation to the payroll period that it would
not include their value in your income, even normally come and it comes before the
though your employer may also intend them 2) Your foreign earned income (discussed end of the next payroll period.
as part of your pay. You can exclude the earlier) for the tax year minus your for-
value of meals or lodging from your income eign housing exclusion (discussed later).
Income earned over more than 1 year.
even if a law or your employment contract Regardless of when you actually receive in-
says that they are provided as compensation. If both you and your spouse work abroad
come, you must credit it to the tax year in
On the other hand, if meals or lodging are and you each meet either the bona fide resi-
which you earned it in figuring your
provided to you or your family by your em- dence test or the physical presence test, you
excludable amount for that year. For example,
ployer as a means of giving you more pay, can each choose the foreign earned income
a bonus that you receive in 1 year may be
and there is no other business reason for exclusion. It is possible for a married couple
based on services you performed over sev-
providing them, their value is extra income to together to exclude as much as $144,000.
eral tax years. You determine the amount of
you. If you perform services one year but do
the bonus that is considered earned in a
not get paid for those services until the fol-
particular tax year by dividing the bonus by
lowing year, the income is generally consid-
the number of calendar months in the period
Condition of employment. Lodging is pro- ered earned in the year you performed the
when you performed the services that re-
vided as a condition of employment if you services. If you report your income on the
sulted in the bonus and then multiplying the
must accept the lodging to properly carry out cash basis, you report the income on your
result by the number of months you per-
the duties of your job. You must accept lodg- return for the year you receive it. You can
formed these services during the tax year.
ing to properly carry out your duties if, for exclude as much of the income in the year
This is the amount that is subject to the ex-
example, you must be available for duty at you receive it as you could have excluded in
clusion limit for that tax year.
all times. the year you performed the services had you
received the income that year.
Income received more than 1 year after it
Foreign camps. If you are provided lodging Example. You qualify as a bona fide was earned. You cannot exclude income
by or for your employer in a camp located in resident of a foreign country for all of last year you receive after the end of the tax year fol-
a foreign country, the camp is considered to and this year. You report your income on the lowing the tax year in which you perform the
be part of your employer's business premises. cash basis. You received $65,000 last year services that earned it.
For this purpose, a camp is lodging that is: for services you performed last year in the Example. You qualify as a bona fide
foreign country. You can exclude all of the resident of a foreign country for 1996, 1997
$65,000. and 1998. You report your income on the
1) Provided for your employer's conven- This year you will receive $85,000: cash basis. You received $60,000 for 1996
ience because the place where you work $10,000 for services performed in the foreign and $65,000 for 1997 for services performed
is in a remote area where satisfactory country last year and $75,000 for services in the foreign country. You excluded $60,000
housing is not available to you on the performed in the foreign country this year. on your 1996 federal income tax return and
open market within a reasonable com- You can exclude $5,000 of the $10,000 re- $65,000 for your 1997 return.
muting distance, ceived for services performed last year. This In 1998 you receive $74,000; $70,000 for
is the $70,000 maximum exclusion allowable services performed in the foreign country
2) Located as close as reasonably possible last year minus the $65,000 you excluded last during 1998, and $4,000 for services per-
in the area where you render services, year. You must include the remaining $5,000 formed in the foreign country in 1996. You
and in income (this year) because you could not cannot exclude any of the $4,000 received for
have excluded that income last year had you services performed in 1996 because it was
3) Provided in a common area or enclave received it then. You can also exclude received more than a year after it was earned.
that is not available to the general public $72,000 of the $75,000 received for services You must include the $4,000 in income. You
for lodging or accommodations and that performed during this year. can exclude the $70,000 received for services
normally houses at least ten employees. Your total foreign earned income excluded performed in 1998.
on your return for this year would be $77,000
($5,000 attributable to last year and $72,000 Community income. The maximum exclu-
attributable to this year). You would have sion applies individually to the earnings of a
$8,000 of includible income. husband and wife. Ignore any community
property laws when you figure your limit on
Table 4.2 The maximum dollar amount the foreign earned income exclusion.
Foreign Earned you can exclude depends on the calendar
year.
Income Exclusion Year Maximum
Part-year exclusion. If you qualify under
either the bona fide residence test or the
If your tax home is in a foreign country and Excludable Amount physical presence test for only part of the tax
you meet the bona fide residence test or the 1997 and earlier $70,000 year, you must adjust the maximum limit
physical presence test, you can choose to 1998 $72,000 based on the number of qualifying days in
exclude from your income a limited amount 1999 $74,000 your tax year. The number of qualifying days
2000 $76,000
of your foreign earned income. Foreign 2001 $78,000 in your tax year is the number of days within
earned income is defined earlier. You cannot 2002 and later $80,000 the period on which you both have your tax
deduct expenses directly connected with the home in a foreign country and meet either
earning of excluded income. See chapter 5. test.
You can also choose to exclude from your Year-end payroll period. There is an ex- For this purpose, you can count as quali-
income a foreign housing amount. This is ception to the rule that you exclude income fying days all days within a period of 12 con-
explained later. If you choose to exclude a in the year you earn it. If you are a cash basis secutive months once you are physically
foreign housing amount, you must figure the taxpayer, a salary or wage payment that you present and have your tax home in a foreign
foreign housing exclusion first. Your foreign receive after the end of the tax year in which country for 330 full days. To figure your
earned income exclusion is limited to your you perform the services is considered maximum exclusion, multiply the maximum
foreign earned income minus your foreign earned entirely in the year you receive it if dollar amount for the year by the number of
housing exclusion. all four of the following apply. your qualifying days in the year, and then di-
Page 18 Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction
vide the result by the number of days in your do this by requesting a ruling from the Internal
tax year.
Choosing the Exclusion Revenue Service.
The foreign earned income exclusion is vol-
untary. You can separately choose the foreign Mail your request for a ruling in du-
Example. You report your income on the plicate to:
calendar-year basis and you qualified under earned income exclusion and the foreign
the bona fide residence test for 75 days in housing exclusion by completing the appro-
1998. You can exclude a maximum of 75/365 priate parts of Form 2555. Your initial choice
Associate Chief Counsel (International)
of $72,000, or $14,795, of your foreign earned of the exclusions on Form 2555 or Form
Internal Revenue Service
income for 1998. If you qualify under the bona 2555–EZ generally must be filed with a timely
CC:DOM:CORP:T
fide residence test for all of 1999, you can filed return (including any extensions), a re-
P.O. Box 7604
exclude your foreign earned income up to the turn amending a timely filed return, or a late-
Ben Franklin Station
full $74,000 limit. filed return filed within 1 year from the original
Washington, DC 20044.
due date of the return (determined without
regard to any extensions).
Physical presence test. Under the
physical presence test, a 12–month period Because requesting a ruling can be com-
Date a return is considered to be plex, you may need professional help. Also,
can be any period of 12 consecutive months
that includes 330 full days. If you qualify un-
!
CAUTION
filed. If a return is delivered to Internal
Revenue Service by:
the IRS charges a fee for issuing these
der the physical presence test for part of a tax rulings. For more information, see Revenue
year, it is important to carefully choose the Procedure 98–1, which is published in I.R.B.
• The U.S. mail with a U.S. postmark, or 98–1.
12–month period that will allow the maximum
exclusion for that year. • A specified delivery service, In deciding whether to give approval, the
IRS will consider any facts and circumstances
the return is considered to have been filed on that may be relevant. These may include a
Example. You are physically present and period of residence in the United States, a
or before the due date if it is postmarked or
have your tax home in a foreign country for move from one foreign country to another
dated by the specified delivery service on or
a 16–month period from June 1, 1997 through foreign country with different tax rates, a
before that date. If a return is not timely filed
September 30, 1998, except for 15 days in substantial change in the tax laws of the for-
the postmark or date mark of the specified
December 1997 that you spend on vacation eign country of residence or physical pres-
delivery service date is not considered. A
in the United States. You figure the maximum ence, and a change of employer.
delinquent return is not considered to be filed
excludable amount for 1997 as follows: Foreign tax credit. Once you choose to
until it is received by IRS.
exclude either foreign earned income or for-
1) Beginning with June 1, 1997, count for- eign housing costs, you cannot take a foreign
ward 330 full days (disregarding the 15 tax credit for taxes on income you can ex-
days in the United States). The 330th clude. If you do take the credit, one or both
day, May 11, 1998, is the last day of a You can choose the exclusion on a return of the choices may be considered revoked.
12–month period. filed after the periods described above pro- See Credit for Foreign Income Taxes in
vided you owe no federal income tax after chapter 5 for more information.
2) Count backward 12 months from May taking into account the exclusion. If you owe
11, 1998, to find the first day of this federal income tax after taking into account Earned income credit. You will not qualify
12–month period, May 12, 1997. This the exclusion, you can choose the exclusion for the earned income credit if you claim the
12–month period runs from May 12, on a return filed after the periods described foreign earned income exclusion, the foreign
1997, through May 11, 1998. above provided you file before IRS discovers housing exclusion, or the foreign housing de-
that you failed to choose the exclusion. You duction for the year. For more information
3) Count the total days during 1997 that fall must type or legibly print at the top of the first on this credit, see Publication 596.
within this 12–month period. This is 234 page of the Form 1040 “FILED PURSUANT
days (May 12, 1997—December 31, TO SECTION 1.911–7(a)(2)(i)(D).” If you owe
1997). federal income tax after taking into account
4) Multiply $70,000 by the fraction 234/365
the foreign earned income exclusion and the
IRS discovered that you failed to choose the
Foreign Housing
to find your maximum exclusion for 1997
($44,877).
exclusion, you must request a private letter
ruling under Revenue Procedure 92–85 (as
Exclusion or
modified by Revenue Procedure 93–28). Deduction
You figure the maximum exclusion for Revenue procedures are published in the In addition to the foreign earned income ex-
1998 in the opposite manner: Internal Revenue Bulletin (I.R.B.) and in the clusion, you can also claim an exclusion or a
Cumulative Bulletin (C.B.), which are volumes deduction from gross income for your housing
1) Beginning with your last full day, Sep- containing official matters of the Internal amount if your tax home is in a foreign coun-
tember 30, 1998, count backward 330 Revenue Service. You can buy the C.B. con- try and you qualify under either the bona fide
full days (disregarding the 15 days in the taining a particular revenue procedure from residence test or the physical presence test.
United States). That day, October 21, the Superintendent of Documents, U.S. Gov- The housing exclusion applies only to
1997, is the first day of a 12–month pe- ernment Printing Office, Washington, DC amounts considered paid for with employer-
riod. 20402. provided amounts. The housing deduction
You may also be able to choose the for- applies only to amounts paid for with self-
2) Count forward 12 months from October eign earned income exclusion by completing employment earnings.
21, 1997, to find the last day of this Form 2555–EZ. If you are married and you and your
12–month period, October 20, 1998. Once you choose to exclude your foreign spouse each qualifies under one of the tests,
This 12–month period runs from October earned income or housing amount, that see Married Couples Living Apart, later.
21, 1997, through October 20, 1998. choice remains in effect for that year and all
later years unless you revoke it.
3) Count the total days during 1998 that fall Housing Amount
within this 12–month period. This is 293 Revocation. You can revoke your choice for Your housing amount is the total of your
days (January 1, 1998—October 20, any tax year. You do this by attaching a housing expenses for the year minus a base
1998). statement that you are revoking one or more amount.
previously made choices to the return or
4) Multiply $72,000, the maximum limit, by amended return for the first year that you do Base amount. The base amount is 16% of
the fraction 293/365 to find your maxi- not wish to claim the exclusion(s). You must the annual salary of a GS–14, step 1, U.S.
mum exclusion for 1998 ($57,797). revoke separately a choice to exclude foreign Government employee, figured on a daily
earned income and a choice to exclude for- basis, times the number of days during the
These are limits on the amount you eign housing amounts. year that you meet the bona fide residence
! can exclude. You can never exclude
CAUTION more pay than you actually earned
If you revoked a choice and within 5 tax
years again wish to choose the same exclu-
test or the physical presence test. The annual
salary is determined on January 1 of the year
during your qualifying period. sion, you must apply for IRS approval. You in which your tax year begins.
Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction Page 19
On January 1, 1998, the GS–14 salary dependents because living conditions near cannot take a foreign tax credit for taxes on
was $60,270 per year; 16% of this amount your tax home are dangerous, unhealthful, income you can exclude. If you do take the
comes to $9,643 or $26.42 per day. To figure or otherwise adverse, include the expenses credit, one or both of the choices may be
your base amount if you are a calendar-year for the second household in your reasonable considered revoked.
taxpayer, multiply $26.42 by the number of foreign housing expenses. You cannot in-
your qualifying days during 1998 (see Limit clude expenses for more than one second
on Excludable Amount, earlier). Subtract the foreign household at the same time.
result from your total housing expenses for If you maintain two households and you
1998 to find your housing amount. exclude the value of one because it is pro-
vided by your employer, you can still include
Foreign Housing Deduction
Example. You qualify under the physical the expenses for the second household in If you have no self-employment income, you
presence test for all of 1998. During the year, figuring a foreign housing exclusion or de- cannot take a foreign housing deduction.
you spend $12,500 for your housing. Your duction. How you figure your housing deduction
housing amount is $12,500 minus $9,643, or Adverse living conditions include a state depends on whether you have only self-
$2,857. of warfare or civil insurrection in the general employment income or both self-employment
area of your tax home and conditions under income and employer-provided income. In
which it is not feasible to provide family either case, the amount you can deduct is
U.S. Government allowance. You must re- housing (for example, if you must live on a subject to the limit explained below.
duce your housing amount by any U.S. Gov- construction site or drilling rig).
ernment allowances or similar nontaxable al- Self-employed — no employer-provided
lowances intended to compensate you or your amounts. If none of your housing amount is
spouse for the expenses of housing during Foreign Housing Exclusion considered paid for with employer-provided
the period for which you claim a foreign amounts, such as when all of your income is
housing exclusion or deduction. If you have no self-employment income, your
entire housing amount is considered paid for from self-employment, you can deduct your
with employer-provided amounts. This housing amount, subject to the limit below, in
Housing expenses. Housing expenses in- means that you can exclude (up to the limits) figuring your adjusted gross income.
clude your reasonable expenses paid or in- the entire amount. Take the deduction by including it in the
curred for housing in a foreign country for you Employer-provided amounts include any total on line 32 of Form 1040. Write the
and (if they live with you) for your spouse and amounts paid to you or paid or incurred on amount and “Form 2555” on the dotted line
dependents. your behalf by your employer that are taxable next to line 32.
Consider only housing expenses for the foreign earned income (without regard to the
part of the tax year that your tax home is in foreign earned income exclusion) to you for Self-employed and employer-provided
a foreign country and that you meet either the the tax year. This includes: amounts. If you are both an employee and
bona fide residence test or the physical a self-employed individual during the year,
presence test. 1) Your salary, you can deduct part of your housing amount
Housing expenses include rent, the fair and exclude part of it. To find the part that you
rental value of housing provided in kind by 2) Any reimbursement for housing ex- can take as a housing exclusion, multiply your
your employer, and other expenses for hous- penses, housing amount by the employer-provided
ing. Other expenses include repairs, utilities amounts (discussed earlier) and then divide
(other than telephone charges), real and per- 3) Amounts your employer pays to a third the result by your foreign earned income. The
sonal property insurance, nondeductible oc- party for your housing, balance of the housing amount can be de-
cupancy taxes, nonrefundable fees for se- 4) The fair rental value of company-owned ducted, subject to the limit below.
curing a leasehold, rental of furniture and housing furnished to you unless that
accessories, and residential parking. value is excluded from your income be- Example. Your housing amount for the
Housing expenses do not include ex- cause it is provided for your employer's year is $6,000. During the year, your total
penses that are lavish or extravagant under convenience, foreign earned income is $40,000, of which
the circumstances. They also do not include half ($20,000) is from self-employment and
deductible interest and taxes (including 5) Amounts paid to you by your employer half is from your services as an employee.
deductible interest and taxes of a tenant- as part of a tax equalization plan, and Half ($20,000/$40,000) of your housing
stockholder in a cooperative housing corpo- amount ($6,000/2) is considered provided by
ration) or the cost of buying property, includ- 6) Amounts paid to you or a third party by your employer. You can exclude $3,000 as a
ing principal payments on a mortgage. They your employer for the education of your housing exclusion. You can deduct the re-
do not include the cost of domestic labor dependents. maining $3,000 as a housing deduction sub-
(maids, gardeners, etc.), pay television sub- ject to the following limit.
scriptions, improvements and other expenses Your only earnings that are not employ-
that increase the value or appreciably prolong er-provided amounts are earnings from self-
the life of property, purchased furniture or employment. Limit
accessories, or depreciation or amortization Your housing deduction cannot be more than
of property or improvements. Choosing the exclusion. You can choose your foreign earned income minus the total
the housing exclusion by completing the ap- of:
No double benefit. You cannot in- propriate parts of Form 2555. Follow the rules
! clude in housing expenses any
CAUTION amounts that you exclude from gross
explained earlier in Choosing the Exclusion, 1) Your foreign earned income exclusion,
plus
under Foreign Earned Income Exclusion. You
income as meals or lodging provided for your cannot use Form 2555–EZ to claim the
employer's convenience on the business 2) Your housing exclusion.
housing exclusion.
premises (see Exclusion of Meals and Lodg- Your housing exclusion is the lesser of:
ing, earlier) or that you deduct as moving ex- You can carry over to the next year any part
penses. of your housing deduction that is not allowed
• That part of your housing amount paid for because of this limit.
with employer-provided amounts, or
• Your foreign earned income. Carryover. You are allowed to carry over
your excess housing deduction to the next
If you choose the housing exclusion, you year only. If you cannot deduct it in the next
Second foreign household. Ordinarily, must figure it before figuring your foreign year, you cannot carry it over to any other
if you maintain two foreign households, your earned income exclusion. You cannot claim year. You deduct the carryover in figuring
reasonable foreign housing expenses include less than the full amount of the housing ex- adjusted gross income. The amount of carry-
only costs for the household that bears the clusion to which you are entitled. over you can deduct is limited to your foreign
closer relationship (not necessarily ge- earned income for the year of the carryover
ographic) to your tax home. However, if you Foreign tax credit. Once you choose minus the total of your foreign earned income
maintain a second, separate household out-
side the United States for your spouse or
!
CAUTION
to exclude either foreign earned in-
come or foreign housing costs, you
exclusion, housing exclusion, and housing
deduction for that year.
Page 20 Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction
$3,619.54 ($26.42 × 137 days). Tom's hous-
Married Couples ing amount would be $9,380.46
Form 2555
Living Apart ($13,000–$3,619.54). If, instead, Jane claims If you claim exclusion under the bona fide
the housing exclusion, their housing ex- residence test, you should fill out Parts II, IV,
If you and your spouse live apart and maintain
penses would be limited to $10,500 ($7,500 and V of Form 2555 as well as Part I. In filling
separate households, you both may be able
+ $3,000) and their base amount, using out Part II, be sure to give your visa type and
to claim the foreign housing exclusion or the
Jane's period of residence (Sept. 15–Dec. the period of your bona fide residence. Fre-
foreign housing deduction. You can do this if
31,1998), would be $2,853.36 ($26.42 × 108 quently, these items are overlooked.
you have different tax homes that are not
days). Jane's housing amount would be If you claim exclusion under the physical
within reasonable commuting distance of
$7,646.64 ($10,500–$2,853.36). presence test, you should fill out Parts III, IV,
each other and neither spouse's residence is
If Tom and Jane choose to figure their and V of Form 2555 as well as Part I. When
within reasonable commuting distance of the
housing amounts separately, then Tom's filling out Part III, be sure to insert the begin-
other spouse's tax home. Otherwise, only you
separate base amount would be $3,619.54 ning and ending dates of your 12–month pe-
or your spouse can exclude or deduct a
and Jane's separate base amount would be riod and the dates of your arrivals and de-
housing amount.
$2,853.36. They could divide their total partures as requested in the travel schedule.
$13,000 housing expenses between them in Your attention is directed to these items in
If you both claim the housing exclu- any proportion they wished. particular because frequently they are omit-
TIP sion or the housing deduction, neither ted.
of you can claim the expenses for a In addition, you must fill out Part VI if you
qualified second foreign household main- Housing exclusion. Each spouse claiming are claiming an exclusion or deduction of
tained for the other. If one of you qualifies for a housing exclusion must figure separately foreign housing amounts. Also fill out Part IX
but does not claim the exclusion or the de- the part of the housing amount that is attrib- if you are claiming the foreign housing de-
duction, the other spouse can claim the ex- utable to employer-provided amounts, based duction. If you are claiming the foreign
penses for a qualified second household on his or her separate foreign earned income. earned income exclusion, fill out Part VII.
maintained for the first spouse. This would Finally, if you are claiming the foreign earned
usually result in a larger total housing exclu- income exclusion, the foreign housing exclu-
sion or deduction since you would apply only sion, or both, fill out Part VIII.
one base amount against the combined
housing expenses. Form 2555 and If you and your spouse each qualify under
the bona fide residence test or the physical
Form 2555–EZ presence test to claim the foreign earned in-
come exclusion, the foreign housing exclu-
If you and your spouse live together, both Form 2555 can be used to claim the foreign sion, or the foreign housing deduction, you
of you claim a foreign housing exclusion or a earned income exclusion. It must be used to must each file a separate Form 2555 to
foreign housing deduction, and you file a joint claim the foreign housing exclusion or de- claim these benefits. See the discussion ear-
return, you can figure your housing amounts duction. In some circumstances you can use lier under Married Couples Living Apart.
either separately or jointly. If you file separate Form 2555–EZ to claim the foreign earned
returns, you must figure your housing income exclusion.
amounts separately. In figuring your housing You must attach Form 2555 to your Form
amounts separately, you can allocate your 1040 or 1040X if you claim the foreign hous- Illustrated Example
housing expenses between yourselves in any ing exclusion or the foreign housing de-
proportion you wish, but each spouse must Jim and Judy Adams are married and have
duction. If you cannot use Form 2555–EZ, two dependent children. They are both U.S.
use his or her full base amount. you must attach Form 2555 if you claim the
In figuring your housing amount jointly, citizens and they file a joint U.S. income tax
foreign earned income exclusion. Form 2555 return. Each one has a tax home in a foreign
you can combine your housing expenses and shows how you qualify for the bona fide resi-
figure one base amount. If you figure your country and each meets the physical pres-
dence test or physical presence test, how ence test for all of 1998. They both can ex-
housing amount jointly, only one spouse can much of your earned income is excluded, and
claim the housing exclusion or housing de- clude their foreign earned income up to the
how to figure the amount of your allowable limit.
duction. Either spouse can claim the exclu- housing exclusion or deduction. Unless you
sion or deduction. However, if you and your Jim is a petroleum engineer. He works
completely and correctly provide all the infor- primarily in the Persian Gulf region. For 1998,
spouse have different periods of residence mation, there will be delays in processing
or presence and the one with the shorter pe- his salary, which was entirely from foreign
your original tax return or your claim for re- sources, amounted to $71,000. In addition,
riod of residence or presence claims the ex- fund (Form 1040X). Do not submit Form
clusion or deduction, you can claim as hous- his employer provided him an annual housing
2555 by itself. See the instructions for Form allowance of $18,000, which he used to
ing expenses only the expenses for that 2555 if you are not sure about the information
shorter period. maintain a rented apartment at his tax home
requested. in Country X for the period he was not work-
ing at remote drilling sites.
Example. Tom and Jane live together At various times during the year, Jim
and file a joint return. Tom was a bona fide Form 2555–EZ worked at remote oil drilling sites in nearby
resident of, and had his tax home in, a foreign countries. While he worked at these remote
country from August 17, 1998, through De- Form 2555–EZ is a form that has fewer lines
than Form 2555. You can use this form if all sites, his employer provided him lodging and
cember 31, 1999. Jane was a bona fide resi- meals at nearby camps. Satisfactory housing
dent of, and had her tax home in, the same seven of the following apply.
was not available on the open market near
foreign country from September 15, 1998, these drilling sites, and the lodging was pro-
through December 31, 1999. 1) Your total foreign earned income for the
year is $72,000 or less. vided in common areas that normally accom-
During 1998 Tom received $50,000 of modated 10 or more employees and were not
foreign earned income, and Jane earned and available to the general public. The fair mar-
2) All of your foreign earned income for the
received $25,000 of foreign earned income. ket value of the lodging he was provided in
year is reported on Form 1040, line 7.
Tom paid $10,000 for housing expenses in these camps was $2,000, and the value of the
1998, of which $7,500 was for expenses in- 3) You are filing a calendar year return that meals was $1,000.
curred from September 15 through the end covers a 12–month period. After he made an adequate accounting,
of the year. Jane paid $3,000 for housing Jim was reimbursed by his employer for part
expenses in 1998, all of which were incurred 4) You did not have any self-employment of his travel expenses and other employee
during her period of foreign residence. income for the year. business expenses. Jim had $2,500 of unre-
Tom and Jane can choose to figure their imbursed employee business expenses for
housing amount jointly. If they do so, and 5) You did not have any business or mov-
travel, meals, and lodging that were allocable
Tom claims the housing exclusion, their ing expenses for the year.
to his foreign earned income.
housing expenses would be $13,000 and their Because of adverse conditions in Country
base amount, using Tom's period of resi- 6) You are not claiming the foreign housing
exclusion or deduction. X, Judy and the children lived in Paris,
dence (Aug. 11–Dec. 31,1998), would be France, while Jim worked in the Middle East.
7) You do not have a housing deduction Judy had a job as an executive secretary with
carryover. a U.S. company in Paris. Her earnings from
Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction Page 21
this job were $25,000 in 1998. These exclusions. On Jim's Form 2555, Part IV, he foreign earned income minus his housing ex-
earnings were subject to French income tax. lists his salary on line 19, his housing allow- clusion is less than the maximum exclusion
The Adams family rented an apartment in ance on line 22e, and the fair market value of $72,000, Jim is only entitled to exclude
Paris during 1998 for Judy and the children. of meals and lodging provided in camps by $71,643 for 1998 (89,000–17,357=71,643).
They paid $750 a month rent, including utili- his employer on lines 21a and 21b. This last When Jim combines the exclusion of
ties, or $9,000 for the year. The Adamses item, totaling $3,000, is not shown as income $71,643 with his housing exclusion of
choose to treat the expenses for the Paris on Form 1040. Jim subtracts it on line 25 of $17,357 he comes up with a total exclusion
apartment as those for a qualified second Form 2555. of $89,000 in Part VIII.
foreign household, because conditions at Jim combines his housing expenses, None of his unreimbursed employee
Jim's tax home in Country X are considered $18,000, with the qualified expenses for the business expenses are allowable because
to be adverse. They include the $9,000 Paris second household that he maintains for his they are all allocable to excluded income.
housing expenses with Jim's $18,000 Country wife and children, $9,000, and enters total However, the Adamses are still entitled to the
X housing expenses and this results in a housing expenses of $27,000 on line 28, Part full standard deduction for a married couple
larger total housing exclusion. VI. He puts a base amount of $9,643 on line filing jointly.
Jim and Judy had taxable U.S. interest 30 and subtracts that amount to arrive at a Judy completes a Form 2555–EZ to figure
income of $7,500 in 1998. The Adamses had total foreign housing amount of $17,357 on her foreign earned income exclusion. Her
no other income for the year and do not line 31. He figures an exclusion of $17,357 foreign earned income is well below the
itemize deductions. (attributable to the amounts provided by his maximum excludable amount ($72,000). On
The Adamses report their income, figure employer) on line 34. Judy's Form 2555–EZ, Part IV, she lists her
their foreign earned income exclusions and salary on line 17. She figures an exclusion
foreign housing exclusion, and figure their tax
Although Judy could claim a separate of $25,000 on line 18.
as shown on the accompanying filled-in
TIP housing exclusion for the expenses The Adamses enter their combined ex-
forms.
of the Paris apartment rather than clusions of $114,000 on line 21, Form 1040.
First, they list their income on the front of
combining those expenses with Jim's housing They identify this item to the left of the entry
Form 1040. Their combined salaries, includ-
expenses, she does not do so because she space. Their adjusted gross income on line
ing Jim's $18,000 housing allowance, amount
would have to reduce her expenses by a 33 is $7,500, their interest income, which
to $114,000. They enter this on line 7 and
separate base housing amount. Also, her does not qualify for exclusion.
their interest income of $7,500 (including a list
foreign earned income is less than the After subtracting their standard deduction
of payers and amounts on Schedule B (Form
$72,000 maximum foreign earned income of $7,100 and $2,700 for each of their four
1040)—not illustrated) on line 8a.
exclusion, so claiming a separate housing exemptions, Jim and Judy arrive at a taxable
At this point, Jim will complete Form 2555
exclusion would not result in any tax benefit. income of zero on page 2 of Form 1040. They
and Judy will complete Form 2555–EZ to fig- Jim figures his foreign earned income ex- owe no tax for the year.
ure their foreign earned income and housing clusion in Part VII of Form 2555. Because his

Page 22 Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction


Page 23
Form 1040 (1998) Page 2
1040
Department of the Treasury—Internal Revenue Service
1998
Form

U.S. Individual Income Tax Return (99) IRS Use Only—Do not write or staple in this space. 34 Amount from line 33 (adjusted gross income) 34 7,500

Foreign Earned Income and Housing: Exclusion - Deduction


For the year Jan. 1–Dec. 31, 1998, or other tax year beginning , 1998, ending , 19 OMB No. 1545-0074
Tax and
35a Check if: You were 65 or older, Blind; Spouse was 65 or older, Blind.
Label Your first name and initial Last name Your social security number Credits Add the number of boxes checked above and enter the total here © 35a
(See L James M. Adams 1 1 1 00 1 1 1 1 b If you are married filing separately and your spouse itemizes deductions or
A
instructions If a joint return, spouse’s first name and initial Last name Spouse’s social security number you were a dual-status alien, see page 29 and check here © 35b
B Standard
on page 18.) E 36 Enter the larger of your itemized deductions from Schedule A, line 28, OR standard
L Judith E. Adams 222 00 2222 Deduction
Use the IRS for Most deduction shown on the left. But see page 29 to find your standard deduction if you
label. H
Home address (number and street). If you have a P.O. box, see page 18. Apt. no.
¶ IMPORTANT! ¶ People checked any box on line 35a or 35b or if someone can claim you as a dependent 36 7,100
Otherwise, E 21 Rue Reynaud You must enter Single: 37 Subtract line 36 from line 34 37 400
please print R
E City, town or post office, state, and ZIP code. If you have a foreign address, see page 18. your SSN(s) above. $4,250
or type. 38 If line 34 is $93,400 or less, multiply $2,700 by the total number of exemptions claimed on
Paris, France Yes No Note: Checking Head of 38 10,800
Presidential household: line 6d. If line 34 is over $93,400, see the worksheet on page 30 for the amount to enter
©
“Yes” will not
Election Campaign Do you want $3 to go to this fund? u change your tax or $6,250 39 Taxable income. Subtract line 38 from line 37. If line 38 is more than line 37, enter -0- 39 -0-
(See page 18.) If a joint return, does your spouse want $3 to go to this fund? u reduce your refund. Married filing 40 Tax. See page 30. Check if any tax from a Form(s) 8814 b Form 4972 © 40
jointly or
1 Single Qualifying 41 Credit for child and dependent care expenses. Attach Form 2441 41
Filing Status 2 u Married filing joint return (even if only one had income) widow(er): 42 Credit for the elderly or the disabled. Attach Schedule R 42
$7,100
3 Married filing separate return. Enter spouse’s social security no. above and full name here. © 43 Child tax credit (see page 31) 43
Married
4 Head of household (with qualifying person). (See page 18.) If the qualifying person is a child but not your dependent, filing 44 Education credits. Attach Form 8863 44
Check only separately:
one box. enter this child’s name here. © 45 Adoption credit. Attach Form 8839 45
$3,550
5 Qualifying widow(er) with dependent child (year spouse died © 19 ). (See page 18.) 46 Foreign tax credit. Attach Form 1116 if required 46
%
6a u Yourself. If your parent (or someone else) can claim you as a dependent on his or her tax No. of boxes 47 Other. Check if from a Form 3800 b Form 8396
Exemptions return, do not check box 6a checked on
6a and 6b 2 c Form 8801 d Form (specify) 47
b u Spouse No. of your 48 Add lines 41 through 47. These are your total credits 48
c Dependents: (3) Dependent’s (4) if qualifying children on 6c 49 Subtract line 48 from line 40. If line 48 is more than line 40, enter -0- © 49 -0-
(2) Dependent’s
relationship to child for child tax who:
(1) First name Last name social security number 50
you credit (see page 19)
● lived with you 2 Other 50 Self-employment tax. Attach Schedule SE
Chris T. Adams 333 00 3333 Daughter ● did not live with 51 Alternative minimum tax. Attach Form 6251 51
If more than six Stephen F. Adams 444 00 4444 Son you due to divorce
Taxes 52
52 Social security and Medicare tax on tip income not reported to employer. Attach Form 4137
dependents, or separation
see page 19. (see page 19) 53 Tax on IRAs, other retirement plans, and MSAs. Attach Form 5329 if required 53
Dependents on 6c 54 Advance earned income credit payments from Form(s) W-2 54
not entered above 55 Household employment taxes. Attach Schedule H 55
Add numbers 56 Add lines 49 through 55. This is your total tax © 56 -0-
entered on 4
d Total number of exemptions claimed lines above © 57 Federal income tax withheld from Forms W-2 and 1099 57
7 114,000 Payments 58
7 Wages, salaries, tips, etc. Attach Form(s) W-2 58 1998 estimated tax payments and amount applied from 1997 return
Income 8a Taxable interest. Attach Schedule B if required 8a 7,500 Attach 59a Earned income credit. Attach Schedule EIC if you have a qualifying
Forms W-2
child b Nontaxable earned income: amount ©

Chapter 4
Attach b Tax-exempt interest. DO NOT include on line 8a 8b and W-2G
Copy B of your 9 Ordinary dividends. Attach Schedule B if required 9 on the front. and type © 59a
Forms W-2, Also attach 60
10 Taxable refunds, credits, or offsets of state and local income taxes (see page 21) 10 Form 1099-R 60 Additional child tax credit. Attach Form 8812
W-2G, and if tax was 61
1099-R here. 11 Alimony received 11 61 Amount paid with Form 4868 (request for extension)
withheld. 62
12 Business income or (loss). Attach Schedule C or C-EZ 12 62 Excess social security and RRTA tax withheld (see page 43)
If you did not 13 63 Other payments. Check if from a Form 2439 b Form 4136 63
13 Capital gain or (loss). Attach Schedule D
get a W-2, 64 Add lines 57, 58, 59a, and 60 through 63. These are your total payments © 64 -0-
14 Other gains or (losses). Attach Form 4797 14
see page 20.
65
15a Total IRA distributions 15a b Taxable amount (see page 22) 15b Refund 65 If line 64 is more than line 56, subtract line 56 from line 64. This is the amount you OVERPAID
16a 16b 66a Amount of line 65 you want REFUNDED TO YOU © 66a
Enclose, but do 16a Total pensions and annuities b Taxable amount (see page 22) Have it
not staple, any 17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17 directly
payment. Also, deposited! © b Routing number © c Type: Checking Savings
18 Farm income or (loss). Attach Schedule F 18
please use See page 43
19 © d Account number
Form 1040-V. 19 Unemployment compensation and fill in 66b,
66c, and 66d. 67 Amount of line 65 you want APPLIED TO YOUR 1999 ESTIMATED TAX © 67
20a Social security benefits 20a b Taxable amount (see page 24) 20b
21 Other income. List type and amount—see page 24 Forms 2555 & 2555-EZ 21 (114,000) Amount 68 If line 56 is more than line 64, subtract line 64 from line 56. This is the AMOUNT YOU OWE.
22 Add the amounts in the far right column for lines 7 through 21. This is your total income © 7,500 For details on how to pay, see page 44 © 68
22 You Owe 69 Estimated tax penalty. Also include on line 68
23 69
23 IRA deduction (see page 25)
Adjusted 24 Student loan interest deduction (see page 27) 24 Sign Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and
belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Gross 25 Medical savings account deduction. Attach Form 8853 25 Here
©
Your signature Date Your occupation Daytime telephone
Income 26 Moving expenses. Attach Form 3903 26 Joint return?
See page 18.
number (optional)
27 James M. Adams 2-15-99 Engineer
27 One-half of self-employment tax. Attach Schedule SE Keep a copy
If line 33 is under Spouse’s signature. If a joint return, BOTH must sign. Date Spouse’s occupation
$30,095 (under 28 Self-employed health insurance deduction (see page 28) 28 for your
$10,030 if a child 29
records. Judith E. Adams 2-15-99 Secretary ( )
29 Keogh and self-employed SEP and SIMPLE plans
did not live with
you), see EIC
30 Penalty on early withdrawal of savings 30 Paid Preparer’s
signature © Date
Check if
self-employed
Preparer’s social security no.
31a Alimony paid b Recipient’s SSN © 31a Preparer’s
©
inst. on page 36. Firm’s name (or yours
-0- EIN
32
32 Add lines 23 through 31a
©
Use Only if self-employed) and
address ZIP code
33 Subtract line 32 from line 22. This is your adjusted gross income 33 7,500
For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 51. Cat. No. 11320B Form 1040 (1998) Printed on recycled paper
2555
OMB No. 1545-0067 Form 2555 (1998) Page 2
Form Foreign Earned Income
Department of the Treasury
© See separate instructions. © Attach to Form 1040.
1998
Attachment
Part III Taxpayers Qualifying Under Physical Presence Test (See page 2 of the instructions.)
Internal Revenue Service Sequence No. 34 16 The physical presence test is based on the 12-month period from © 1-1-98 through © 12-31-98
For Use by U.S. Citizens and Resident Aliens Only 17 Enter your principal country of employment during your tax year. © Country X
Name shown on Form 1040 Your social security number
18 If you traveled abroad during the 12-month period entered on line 16, complete columns (a)–(f) below. Exclude travel between
James M. Adams 1 1 1 00 1111 foreign countries that did not involve travel on or over international waters, or in or over the United States, for 24 hours or
more. If you have no travel to report during the period, enter “Physically present in a foreign country or countries for the entire
Part I General Information 12-month period.” Do not include the income from column (f) below in Part IV, but report it on Form 1040.
1 Your foreign address (including country) 2 Your occupation (a) Name of country (d) Full days (e) Number of (f) Income earned in U.S.
(including U.S.) (b) Date arrived (c) Date left present in days in U.S. on business (attach
10 Wadi Abu Hassan, City A, Country X Engineer country on business computation)
3 Employer’s name © Pan American Oil Company Physically present in foreign countries during entire 12 month period
4a Employer’s U.S. address © N/A
b Employer’s foreign address © 65 Sheik Hussein Street, City A, Country X
5 Employer is (check
any that apply): d©
a X A foreign entity
A foreign affiliate of a U.S. company
b
e
A U.S. company
Other (specify) ©
c Self
Part IV All Taxpayers
6a If, after 1981, you filed Form 2555 to claim either of the exclusions or Form 2555-EZ to claim the foreign earned income
exclusion, enter the last year you filed the form. © 1997 Note: Enter on lines 19 through 23 all income, including noncash income, you ear ned and actually or constructively received dur ing
b If you did not file Form 2555 or 2555-EZ after 1981 to claim either of the exclusions, check here © and go to line 7 now. your 1998 tax year for services you perfor med in a foreign country. If any of the foreign ear ned income received this tax year
c Have you ever revoked either of the exclusions? Yes u No was earned in a prior tax year, or will be ear ned in a later tax year (such as a bonus), see the instructions. Do not include
d If you answered “Yes,” enter the type of exclusion and the tax year for which the revocation was effective. © income from line 14, column (d), or line 18, column (f). Report amounts in U.S. dollars, using the exchange rates in effect
United States when you actually or constructively received the income.
of 8
7 Of what country are you a citizen/national? ©

Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction


If you are a cash basis taxpayer, report on Form 1040 all income you received in 1998, no matter when you performed
of 8
8a Did you maintain a separate foreign residence for your family because of adverse living conditions at your
u Yes the service.
as 99
tax home? See Second foreign household on page 3 of the instructions No
as 99
b If “Yes,” enter city and country of the separate foreign residence. Also, enter the number of days during your tax year that Amount
1998 Foreign Earned Income (in U.S. dollars)
of 5, 1 ge)
you maintained a second household at that address. © Paris, France 365 days
of 5, 1 ge)
9 List your tax home(s) during your tax year and date(s) established. © City A, Country X 6-9-93
19 Total wages, salaries, bonuses, commissions, etc. 19 71,000
Pro r 1 han
20 Allowable share of income for personal services performed (see instructions):
Pro r 1 han
Next, complete either Part II or Part III. If an item does not apply, write “NA.” If you do not give
a In a business (including farming) or profession 20a
the information asked for, any exclusion or deduction you claim may be disallowed.
b In a partnership. List partnership’s name and address and type of income. ©
e oc
20b
tob ct t e
Part II Taxpayers Qualifying Under Bona Fide Residence Test (See page 2 of the instructions.)
oc
tob ct t
21 Noncash income (market value of property or facilities furnished by employer—attach statement
10 Date bona fide residence began © , and ended © showing how it was determined):
Oc
11 Kind of living quarters in foreign country © a Purchased house b Rented house or apartment c Rented room a Home (lodging) 21a 2,000
bje Oc
d Quarters furnished by employer
bje
1,000
(su
12a Did any of your family live with you abroad during any part of the tax year? Yes No b Meals 21b
(su
b If “Yes,” who and for what period? ©
13a Have you submitted a statement to the authorities of the foreign country where you claim bona fide residence c Car 21c
that you are not a resident of that country? (See instructions.) Yes No d Other property or facilities. List type and amount. ©
b Are you required to pay income tax to the country where you claim bona fide residence? (See instructions.) Yes No 21d
If you answered “Yes” to 13a and “No” to 13b, you do not qualify as a bona fide resident. Do not complete the rest of 22 Allowances, reimbursements, or expenses paid on your behalf for services you performed:
this part. a Cost of living and overseas differential 22a
14 If you were present in the United States or its possessions during the tax year, complete columns (a)–(d) below. Do not b Family 22b
include the income from column (d) in Part IV, but report it on Form 1040. c Education 22c
(a) Date (b) Date left (c) Number of (d) Income earned in (a) Date (b) Date left (c) Number of (d) Income earned in 22d
days in U.S. U.S. on business days in U.S. U.S. on business d Home leave
arrived in U.S. U.S. arrived in U.S. U.S.
on business (attach computation) on business (attach computation) e Quarters 22e 18,000
f For any other purpose. List type and amount. ©
22f
g Add lines 22a through 22f 22g 18,000
15a List any contractual terms or other conditions relating to the length of your employment abroad. © 23 Other foreign earned income. List type and amount. ©
23
b Enter the type of visa under which you entered the foreign country. ©
c Did your visa limit the length of your stay or employment in a foreign country? If “Yes,” attach explanation Yes No 24 Add lines 19 through 21d, line 22g, and line 23 24 92,000
d Did you maintain a home in the United States while living abroad? Yes No
e If “Yes,” enter address of your home, whether it was rented, the names of the occupants, and their relationship 25 Total amount of meals and lodging included on line 24 that is excludable (see instructions) 25 3,000
to you. © 26 Subtract line 25 from line 24. Enter the result here and on line 27 on page 3. This is your 1998
foreign earned income © 26 89,000
For Paperwork Reduction Act Notice, see page 4 of separate instructions. Cat. No. 11900P Form 2555 (1998)

Page 24
Form 2555 (1998) Page 3
Part V All Taxpayers

27 Enter the amount from line 26 27 89,000


Are you claiming the housing exclusion or housing deduction?
Yes. Complete Part VI.
No. Go to Part VII.

Part VI For Taxpayers Claiming the Housing Exclusion AND/OR Deduction

28 Qualified housing expenses for the tax year (see instructions) 28 27,000
29 Number of days in your qualifying period that fall within your 1998 tax
year (see instructions) 29 365
30 Multiply $26.42 by the number of days on line 29. If 365 entered on line 29, enter $9,643.00 here 30 9,643
31 Subtract line 30 from line 28. If zero or less, do not complete the rest of this part or any of
Part IX 31 17,357
32 Enter employer-provided amounts (see instructions) 32 89,000
33 Divide line 32 by line 27. Enter the result as a decimal (to two places), but do not enter more
than “1.00” 33 3 1. 00
34 Housing exclusion. Multiply line 31 by line 33. Enter the result but do not enter more than the
amount on line 32. Also, complete Part VIII © 34 17,357
Note: The housing deduction is figured in Part IX. If you choose to claim the foreign ear ned

f 8
income exclusion, complete Parts VII and VIII before Part IX.

o
Part VII

35 Maximum foreign earned income exclusion


s
a %, 1 ) 9 9
For Taxpayers Claiming the Foreign Earned Income Exclusion
35 $72,000 00
36

o f
● If you completed Part VI, enter the number from line 29.
● All others, enter the number of days in your qualifying period that

5 e
36 365

37
r o
P er ch % 1 n g
fall within your 1998 tax year (see the instructions for line 29).
● If line 36 and the number of days in your 1998 tax year (usually 365) are the same, enter “1.00.”
a
● Otherwise, divide line 36 by the number of days in your 1998 tax year and enter the result
as a decimal (to two places).
37 3 1. 00

38
39
40
Multiply line 35 by line 37
Subtract line 34 from line 27

t o b t t o
Foreign earned income exclusion. Enter the smaller of line 38 or line 39. Also, complete Part VIII ©
38
39
40
72,000
71,643
71,643

c j e c
Part VIII

41 Add lines 34 and 40


O u
For Taxpayers Claiming the Housing Exclusion, Foreign Earned Income Exclusion, or Both
b
(s 41 89,000
42 Deductions allowed in figuring your adjusted gross income (Form 1040, line 33) that are allocable
to the excluded income. See instructions and attach computation 42
43 Subtract line 42 from line 41. Enter the result here and in parentheses on Form 1040, line 21.
Next to the amount write “Form 2555.” On Form 1040, subtract this amount from your income
to arrive at total income on Form 1040, line 22 43 © 89,000
For Taxpayers Claiming the Housing Deduction—Complete this part only if (a) line 31 is more than
Part IX
line 34 and (b) line 27 is more than line 41.

44 Subtract line 34 from line 31 44

45 Subtract line 41 from line 27 45

46 Enter the smaller of line 44 or line 45 46


Note: If line 45 is more than line 46 and you could not deduct all of your 1997 housing deduction
because of the 1997 limit, use the worksheet on page 4 of the instructions to figure the
amount to enter on line 47. Otherwise, go to line 48.
47 Housing deduction carryover from 1997 (from worksheet on page 4 of the instructions) 47
48 Housing deduction. Add lines 46 and 47. Enter the total here and on Form 1040 to the left of
line 32. Next to the amount on Form 1040, write “Form 2555.” Add it to the total adjustments
reported on that line © 48

Chapter 4 Foreign Earned Income and Housing: Exclusion - Deduction Page 25


OMB No. 1545-1326
Form 2555-EZ Foreign Earned Income Exclusion 1998
Form 2555-EZ (1998)

Part III Days Present in the United States—Complete this part if you were present in
Page 2

Department of the Treasury Attachment


Internal Revenue Service
© See separate instructions. © Attach to Form 1040. Sequence No. 34A the United States or its possessions in 1998.
Name shown on Form 1040 Your social security number (c) Number of days (d) Income earned in U.S.
12 (a) Date arrived in U.S. (b) Date left U.S.
Judith E. Adams 222 00 2222 in U.S. on business on business (attach computation)

● Are a U.S. citizen or a resident alien.


● Do not have self-employment income.
o f 8
s 199
● Earned wages/salaries in a foreign country.
You May Use ● Do not have business/moving expenses.
● Had total foreign earned income of
This Form
If You:
$72,000 or less.
● Are filing a calendar year return that
And You:
● Do not claim the foreign housing
exclusion or deduction. a
f 5,
covers a 12-month period.

o o g e)
Part I Tests To See If You Can Take the Foreign Earned Income Exclusion
Pr er 1 chan
1 Bona Fide Residence Test
o b to
(see page 2 of the instructions)?

of 8
a Were you a bona fide resident of a foreign country or countries for a period that includes an entire tax year
Yes u No

O ct ec t
b j
s 199
● If you answered “Yes,” you meet this test. Fill in line 1b and then go to line 3.

(su
● If you answered “No,” you do not meet this test. Go to line 2 to see if you meet the Physical Presence Test.

Foreign Earned Income and Housing: Exclusion - Deduction


b Enter the date your bona fide residence began © , and ended (see instructions) © .

2 Physical Presence Test

o f 5, e)
$1998, or o
a Were you physically present in a foreign country or countries for at least 330 full days during—

Pr er 1 % chan
g
any other period of 12 months in a row starting or ending in 1998?
u Yes No
Part IV Figure Your Foreign Earned Income Exclusion

13 $72,000 00
● If you answered “Yes,” you meet this test. Fill in line 2b and then go to line 3. 13 Maximum foreign earned income exclusion

ob
t jec
Bona Fide Residence Test above.
t to
● If you answered “No,” you do not meet this test. You cannot take the exclusion unless you meet the

c
b The physical presence test is based on the 12-month period from © 1-1-98 through © 12-31-98 . 14 Enter the number of days in your qualifying period that fall within 1998 14 365

3
O ub
Tax Home Test. Was your tax home in a foreign country or countries throughout your period of bona fide

(s
residence or physical presence, whichever applies?
● If you answered “Yes,” you can take the exclusion. Complete Part II below and then go to page 2.
u Yes No
15 ● If you entered 365 days on line 14, enter “1.000” here.
● Otherwise, divide line 14 by 365 and enter the result
here as a decimal (rounded to at least three places). % 15 3 . 1 00

● If you answered “No,” you cannot take the exclusion. Do not file this form.
16 Multiply line 13 by line 15 16 72,000
Part II General Information
17 Enter, in U.S. dollars, the total foreign earned income you earned and received in 1998 (see
4 Your foreign address (including country) 5 Your occupation instructions). Be sure to include this amount on Form 1040, line 7 17 25,000
21 Rue Reynaud
Paris, France Secretary 18 Foreign earned income exclusion. Enter the smaller of line 16 or line 17 here and in
parentheses on Form 1040, line 21. Next to the amount enter “2555-EZ.” On Form 1040, subtract
6 Employer’s name 7 Employer’s U.S. address (including ZIP code) 8 Employer’s foreign address this amount from your income to arrive at total income on Form 1040, line 22 © 18 25,000
2645 Pewter Place 40 Rue Royale Printed on recycled paper
A B Insurance Co., Inc. Anytown, Anystate, U.S.A. Paris, France

9 Employer is (check any that apply):


a A U.S. business u
b A foreign business
c Other (specify) ©
10a If you filed Form 2555 or 2555-EZ after 1981, enter the last year you filed the form. © 1997
b If you did not file Form 2555 or 2555-EZ after 1981, check here © and go to line 11a now.

Chapter 4
c Have you ever revoked the foreign earned income exclusion? Yes No
d If you answered “Yes,” enter the tax year for which the revocation was effective. ©
11a List your tax home(s) during 1998 and date(s) established. © Paris, France 6-1-93

b Of what country are you a citizen/national? © United States


For Paperwork Reduction Act Notice, see page 3 of separate instructions. Cat. No. 13272W Form 2555-EZ (1998)

Page 26
same deductions as citizens and residents apply for an ITIN, file Form W–7 with the IRS.
living in the United States. It usually takes 30 days to get an ITIN. Enter
5. If you choose to exclude foreign earned
income or housing amounts, you cannot de-
your dependent's ITIN wherever an SSN is
requested on your tax return.
duct, exclude, or claim a credit for any item Children. Children usually are citizens
Exemptions, that can be allocated to or charged against
the excluded amounts. This includes any ex-
or residents of the same country as their
parents. If you were a U.S. citizen when your
penses, losses, and other normally deductible child was born, your child may be a U.S. citi-
Deductions, and items that are allocable to the excluded in-
come. You can deduct only those expenses
zen. He or she may be a U.S. citizen even if
the child's other parent is a nonresident alien,
Credits connected with earning includible income.
These rules apply only to items definitely
the child was born in a foreign country, and
the child lives abroad with the other parent.
related to the excluded earned income and If you are a U.S. citizen living abroad and
they do not apply to other items that are not have a legally adopted child who is not a U.S.
Topics definitely related to any particular type of citizen or resident, you can claim an ex-
This chapter discusses: gross income. These rules do not apply to emption for the child as a dependent if your
items such as personal exemptions, qualified home is the child's main home and the child
• Items related to excluded income, retirement contributions, alimony payments, is a member of your household for your entire
• The exemption for a nonresident alien charitable contributions, medical expenses, tax year. For more information, see Publica-
spouse or dependent, mortgage interest, or real estate taxes on tion 501.
your personal residence. For purposes of
• Contributions to a foreign charitable or- these rules, your housing deduction is not
ganization, treated as allocable to your excluded income,
• Moving expenses, but the deduction for self-employment tax is.
• Contributions to individual retirement ar-
If you receive foreign earned income in a
tax year after the year in which you earned it,
Contributions
rangements (IRAs), you may have to file an amended return for If you make contributions directly to a foreign
• Taxes of foreign countries and U.S. pos- the earlier year to properly adjust the amounts church or other foreign charitable organiza-
sessions, and of deductions, credits, or exclusions allocable tion, you cannot deduct the contributions
to your foreign earned income and housing (unless you make them to certain Canadian
• How to report deductions. exclusions. or Mexican organizations). However, you can
deduct contributions to a U.S. organization
Example. If you excluded all of your that transfers funds to a charitable foreign
Useful Items $70,000 foreign earned income in 1997, you organization if the U.S. organization controls
You may want to see: the use of the funds by the foreign organiza-
would not have been able to claim any de-
ductions allocable to that excluded income. If tion, or if the foreign organization is just an
Publication you then receive a bonus of $10,000 in 1998 administrative arm of the U.S. organization.
for work you did abroad in 1997, you cannot Under the treaties with Canada and
m 501 Exemptions, Standard Deduction Mexico, you can deduct contributions to cer-
exclude it because it exceeds the $70,000
and Filing Information tain Canadian and Mexican charitable organ-
foreign earned income exclusion limit in effect
m 514 for 1997. (You have no housing exclusion.) izations. These organizations must meet the
Foreign Tax Credit for Individuals
But, you can file an amended return for 1997 qualifications that a U.S. charitable organiza-
m 521 Moving Expenses to claim the 10/80 of your allocable de- tion must meet under U.S. tax law. The or-
ductions that are now allowable ($10,000 in- ganization can tell you whether it qualifies.
m 523 Selling Your Home
cluded foreign earned income over $80,000 If you are unable to get this information from
m 590 Individual Retirement Arrange- total foreign earned income). the organization itself, contact IRS at the ad-
ments (IRAs) (Including Roth dress below.
IRAs and Education IRAs) You cannot deduct more than the per-
centage limit on charitable contributions ap-
m 597 Information on the United plied to your Canadian or Mexican source in-
States–Canada Income Tax come. If you or a member of your family is
Treaty enrolled at a Canadian college or university,
the limit does not apply to gifts to that school.
Form (and Instructions) Exemptions For additional information on the deduction
You can claim an exemption for your non- of contributions to Canadian charities, see
m 1116 Foreign Tax Credit (Individual, Publication 597.
Estate, Trust, or Nonresident Al- resident alien spouse on your separate return,
ien Individual) provided your spouse has no gross income
for U.S. tax purposes and is not the depend- For more information about the United
m 2106 Employee Business Expenses ent of another U.S. taxpayer. States–Mexico Income Tax Treaty,
You can also claim exemptions for de- write to:
m 2555 Foreign Earned Income
pendents who qualify under all the depend-
m 2555–EZ Foreign Earned Income Exclu- ency tests. The dependent must be a U.S. Internal Revenue Service
sion citizen or national, or must be a resident of Assistant Commissioner (International)
the United States, Canada, or Mexico for Attn: CP:IN:D:CS
m 3903 Moving Expenses some part of the calendar year in which your 950 L'Enfant Plaza South, SW
m Schedule A (Form 1040) Itemized De- tax year begins. Washington, DC 20024.
ductions Social security number. You must in-
clude on your return the social security num-
m Schedule C (Form 1040) Profit or Loss ber of each dependent for whom you claim
From Business an exemption. To get a social security num-
See chapter 7 for information about get- ber for a dependent, apply at a Social Secu-
ting these publications and forms. rity office or U.S. consulate outside the United
States. You must provide original or certified
copies of documents to verify the dependent's
age, identity, and citizenship and complete
Moving Expenses
Form SS–5. If you moved to a new home in 1998 because
Exclusion vs. If your dependent is a nonresident alien of your job or business, you may be able to
deduct the expenses of your move. To be
Deduction who is not eligible to get a social security
number, you must apply for an IRS Individual deductible, the moving expenses must have
U.S. citizens and resident aliens living outside Taxpayer Identification Number (ITIN). To been paid or incurred in connection with
the United States generally are allowed the starting work at a new job location.
Chapter 5 Exemptions, Deductions, and Credits Page 27
ments, as discussed in chapter 4 under Re-
Requirements Deductible Expenses imbursement of moving expenses) either en-
You may be able to deduct moving expenses You can only deduct certain expenses. tirely in the year of the move or in 2 years. It
if you meet the following requirements. is connected with earning the income entirely
Reasonable expenses. You can only deduct in the year of the move if you qualify under
expenses that are reasonable for the circum- the bona fide residence test or physical
Distance stances of your move. The cost of traveling presence test for at least 120 days during that
Your new job location must be at least 50 from your former home to your new one tax year.
miles farther from your former home than should be by the shortest, most direct route If you do not qualify under either the bona
your old job location was. If you did not have available by conventional transportation. fide residence test or the physical presence
an old job location, your new job location must test for at least 120 days during the year of
be at least 50 miles from your former home. Reimbursements. If you are reimbursed by the move, the expense is connected with
your employer for allowable moving ex- earning the income in 2 years. The moving
Time penses, these reimbursements may have expense is connected with the year of the
been excluded from your income. You cannot move and the following year if the move is
You must work full time for at least 39 weeks deduct moving expenses for which you were from the United States to a foreign country,
during the 12 months right after you move. reimbursed by your employer unless the re- or the year of the move and the preceding
In addition, if you are self-employed, you must imbursement was included in your income. year if the move is from a foreign country to
work full time for at least 78 weeks during the United States.
the 24 months right after you move. Deductible moving expenses. Some of the To figure the amount of your moving ex-
moving expenses that you may be able to pense that is allocable to your excluded for-
Retirees. You can deduct the cost of moving deduct include the reasonable costs of: eign earned income (and not deductible), you
to the United States when you permanently must multiply your total moving expense de-
retire if your principal place of work and for- 1) Moving household goods and personal duction by a fraction. The numerator (top
mer home were outside the United States and effects (including packing, crating, in- number) of the fraction is your total excluded
its possessions. You do not have to meet the transit storage, and insurance) of both foreign earned income and housing amounts
time test. The other requirements must be you and members of your household. for both years and the denominator (bottom
met. For foreign moves, costs of moving number) of the fraction is the total foreign
household goods and personal effects earned income for both years.
Survivors. You can deduct moving ex- include reasonable expenses of moving
penses for a move to the United States if you the items to and from storage and storing Example. You are transferred by your
are the spouse or dependent of a person them for part or all of the period your new employer as of November 1, 1998, to a for-
whose principal place of work at the time of place of work abroad continues to be eign country. Your tax home is in the foreign
death was outside the United States or its your principal place of work. country, and you qualify as a bona fide resi-
possessions. The move must begin within 6 2) Transportation and lodging for yourself dent for the entire tax year 1999. In 1998 you
months after the death of the decedent and and members of your household for one paid $6,000 for allowable moving expenses
must be from a home outside the United trip from your former home to your new for your move from the United States to the
States in which you lived with the decedent home (including costs of getting pass- foreign country. You were fully reimbursed
at the time of death. You are not required to ports). (under a nonaccountable plan) for these ex-
meet the time test. The other requirements penses in the same year. The reimbursement
must be met. Foreign move. A foreign move is a move is included in your income. Your only other
in connection with the start of work at a new income consists of $14,000 wages earned in
job location outside the United States and its 1998 after the date of your move, and
Closely Related to the Start of possessions. A foreign move does not include $80,000 wages earned in the foreign country
Work a move back to the United States or its pos- for the entire year 1999. You exclude the
Your move must be closely related, both in sessions. maximum amount under the foreign earned
time and in place, to the start of work at your Member of household. A member of income exclusion and have no housing ex-
new job location. your household includes anyone who has clusion.
both your former and new home as his or her Because you did not meet the bona fide
home. It does not include a tenant or em- residence test for at least 120 days during
Closely related in time. In general, moving 1998, the year of the move, the moving ex-
ployee unless that person is your dependent.
expenses incurred within one year from the penses are for services you performed in both
date you first reported to work are considered 1998 and the following year, 1999. Your total
closely related in time to the start of work at Allocation of Moving Expenses foreign earned income for both years is
the new location. Your deductible moving expenses must be $100,000, consisting of $14,000 wages for
If you do not move within one year, you incurred in connection with the start of your 1998, $80,000 wages for 1999, and $6,000
ordinarily cannot deduct the expenses unless work at a new job location. When your new moving expense reimbursement for both
you can show that circumstances existed that place of work is in a foreign country, your years.
prevented the move within that time. moving expenses are directly connected with Of this total, $86,033 is excluded, con-
the income earned in that foreign country. If sisting of the $74,000 full-year exclusion for
Example. Your family moved more than all or part of the income that you earn at the 1999 and a $12,033 part-year exclusion for
a year after you started work at a new lo- new location is excluded under the foreign 1998 ($72,000 times the fraction of 61 quali-
cation. Their move was delayed because you earned income exclusion or the housing ex- fying bona fide residence days over 365 total
allowed your child to complete high school. clusion, the part of your moving expense that days in the year). To find the part of your
You can deduct your allowable moving ex- is allocable to the excluded income is not moving expenses that is not deductible, mul-
penses. deductible. tiply your $6,000 total expenses by the frac-
Also, if you move from a foreign country tion $86,033 over $100,000. The result,
Closely related in place. A move is gener- to the United States and: $5,162, is your nondeductible amount.
ally considered closely related in place to the
start of work if the distance from your new • You are reimbursed for your move by You must report the full amount of the
your employer,
home to the new job location is not more than
the distance from your former home to the
! moving expense reimbursement on
CAUTION your 1998 return, the year in which
• You are able to treat the reimbursement
new job location. A move that does not meet as compensation for services performed you received the reimbursement. You attri-
this requirement may qualify if you can show in the foreign country, and bute the reimbursement to both 1998 and
that: 1999 only to figure the amount of foreign
• You choose to exclude your foreign earned income eligible for exclusion for each
1) A condition of employment requires you earned income,
year.
to live at your new home, or
you cannot deduct the part of the moving ex-
2) You will spend less time or money com- pense that is related to the excluded income. Move between foreign countries. If you
muting from your new home to your new The moving expense is connected with move between foreign countries and you
job. earning the income (including reimburse- qualified under the bona fide residence test
Page 28 Chapter 5 Exemptions, Deductions, and Credits
or the physical presence test for at least 120 lesser of $2,000 or your compensation that is rectly, by reference to the amount of tax, or
days during the year of the move, your mov- includible in your gross income for the tax to the base used to figure the tax.
ing expense is allocable to the income earned year. For example, do not take into account Some ways of providing a subsidy are
in the year of the move. compensation up to the amount of your for- refunds, credits, deductions, payments, or
eign earned income exclusion and foreign discharges of obligations. The credit is also
New place of work in U.S. If your new place housing exclusion, if any. Do not reduce your not allowed if the subsidy is given to a person
of work is in the United States, the deductible compensation by the foreign housing de- related to you, or persons who participated in
moving expenses are directly connected with duction. a transaction or a related transaction with
the income earned in the United States. If you If you are covered by an employer retire- you.
treat a reimbursement from your employer as ment plan at work, your deduction for your
foreign earned income (see the discussion in contributions to your traditional IRAs are
Foreign income taxes on U.S. return. For-
chapter 4), you must allocate deductible generally limited based on your modified ad-
eign income taxes can only be taken as a
moving expenses to foreign earned income. justed gross income. The adjusted gross in-
credit on Form 1116 or a deduction on
come shown on your return is modified by
Schedule A. These amounts cannot be in-
Storage expenses are attributable to ser- figuring it without regard to the foreign earned
cluded as withheld income taxes on Form
vices you perform during the year in which the income exclusion, the foreign housing exclu-
1040, line 57.
storage expenses are incurred. The amount sion, or the foreign housing deduction. Other
allocable to excluded income is not deduct- modifications are also required. For more in-
ible. formation on IRAs, see Publication 590. Foreign taxes paid on excluded income.
You cannot take a credit or deduction for for-
eign income taxes paid on income that is ex-
Recapture of Moving empt from tax under the foreign earned in-
come exclusion, the foreign housing
Expense Deduction Taxes of Foreign exclusion, or the possession exclusion. If your
If your moving expense deduction is
TIP attributable to your foreign earnings
Countries and wages are completely excluded, you cannot
deduct or take a credit for any of the foreign
in 2 years (the year of the move and
the following year), you should preferably re-
U.S. Possessions taxes paid on these wages.
If only part of your wages is excluded, you
quest an extension of time to file your return You can take either a credit or a deduction for cannot deduct or take a credit for the foreign
for the year of the move until after the end of income taxes imposed on you by a foreign income taxes allocable to the excluded part.
the following year. You should then have all country or a U.S. possession. Taken as a You find the taxes allocable to your excluded
the information needed to properly figure the deduction, foreign income tax reduces your wages by applying a fraction to the foreign
moving expense deduction. See Extensions taxable income. Taken as a credit, foreign taxes paid on foreign earned income received
under When To File and Pay, in chapter 1. income tax reduces your tax liability. You during the tax year. The numerator (top
must treat all foreign income taxes in the number) of the fraction is your excluded for-
same way. You generally cannot deduct eign earned income received during the tax
If you do not request an extension, you
some foreign income taxes and take a credit year minus deductible expenses allocable to
should figure the part of the entire moving
for others. See Deduction for Other Foreign that income (not including the foreign housing
expense deduction that is disallowed. You
Taxes, later. deduction). The denominator (bottom num-
do this by multiplying the moving expense by
There is no specific rule that will let you ber) of the fraction is your total foreign earned
a fraction, the numerator (top number) of
choose the more advantageous method. If income received during the tax year minus
which is your excluded foreign earned income
foreign income taxes were imposed at a high all deductible expenses allocable to that in-
for the year of the move, and the denominator
rate, and the proportion of foreign income to come (including the foreign housing de-
(bottom number) of which is your total foreign
U.S. income is small, a lower final tax may duction).
earned income for the year of the move. Once
result from taking the foreign income tax de- If foreign law taxes both earned income
you know your foreign earnings and exclusion
duction. In any event, you should figure your and some other amount (for example, un-
for the following year, you must either:
tax liability both ways and then use the one earned income, earned income from U.S.
1) Adjust the moving expense deduction that is better for you. In most cases, it is to sources, or a type of income not subject to
by filing an amended return for the year your advantage to take foreign income taxes U.S. tax), and the taxes on the other amount
of the move, or as a tax credit, which you subtract directly cannot be segregated, the denominator of the
from your U.S. tax liability, rather than as a fraction is the total amount of income subject
2) Recapture any additional unallowable deduction in figuring taxable income. to foreign tax minus deductible expenses
amount as income on your return for the You can make or change your choice allocable to that income.
following year. within 10 years from the due date for filing If you take a foreign tax credit for tax on
your U.S. tax return for the tax year for which income you could have excluded under your
If, after you make the final computation, you you make the claim. choice to exclude foreign earned income or
have an additional amount of allowable mov- The terms “foreign country” and “foreign your choice to exclude foreign housing costs,
ing expense deduction, you can claim this taxes” also refer to possessions of the United one or both of the choices may be considered
only on an amended return for the year of the States and the income taxes imposed by revoked.
move. You cannot claim it on the return for these possessions. See Foreign Country, in
the second year. chapter 4.
Forms to file. Report your moving expenses Credit for
Foreign income taxes. These are generally
on Form 3903. Report your moving expense income taxes you pay to any foreign country. Foreign Income Taxes
deduction on line 26 of Form 1040. If you The foreign income tax you can claim is If you take the foreign tax credit, you may
must reduce your moving expenses by the the amount of foreign income tax that is the have to file Form 1116 with Form 1040. Use
amount allocable to excluded income as ex- legal and actual tax liability you pay or accrue Form 1116 to figure the amount of foreign tax
plained later under How To Report De- during the year. The amount you claim is not paid or accrued that you can claim as a for-
ductions, attach a statement to your return necessarily the amount of tax withheld by the eign tax credit. Do not include the amount
showing how you figured this amount. foreign country. You cannot take a foreign tax of foreign tax paid or accrued as withheld
For more information about figuring mov- credit or deduction for income tax you paid to federal income taxes on Form 1040, line 57.
ing expenses, see Publication 521. a foreign country that would be refunded by
the foreign country if you made a claim for
refund. Limit
The foreign tax credit is limited to the part of
Individual Retirement Subsidies. If a foreign country returns your your total U.S. tax that is in proportion to your
foreign tax payments to you in the form of a taxable income from sources outside the
Arrangements subsidy, you cannot claim these payments United States compared to your total taxable
Contributions to your individual retirement ar- as taxes qualified for the foreign tax credit. income. The allowable foreign tax credit can-
rangements (IRAs) that are traditional IRAs This rule applies to a subsidy provided by any not be more than your actual foreign tax li-
or Roth IRAs are generally limited to the means that is determined, directly or indi- ability.
Chapter 5 Exemptions, Deductions, and Credits Page 29
Exemption from limit. You will not be sub- This is done by treating a part of your taxable the total amount for each of these items on
ject to this limit and will not have to file Form income from foreign sources in later years as the appropriate lines and schedules of Form
1116 if you meet the following requirements. U.S. source income. This reduces the nu- 1040. Figure the nondeductible part (the
merator of the limiting fraction and the result- amount related to the excluded income) on
1) Your only foreign source income for the ing foreign tax credit limit. Form 2555. Enter the amount from line 43 of
tax year is passive income (dividends, Form 2555 (or line 18 of Form 2555–EZ) in
interest, royalties, etc.) that is reported Foreign tax credit carryback and carry- parentheses on Form 1040, line 21. Next to
to you on a payee statement (such as a over. The amount of foreign income tax not the amount, write “Exclusion(s) from Form
Form 1099–Div or 1099–INT). allowed as a credit because of the limit can 2555” or “Exclusion from Form 2555–EZ,”
2) Your foreign taxes for the tax year that be carried back 2 years and carried forward whichever is applicable. Subtract the amount
qualify for the credit are not more than 5 years. on line 21 from your income.
$300 ($600 if filing a joint return) and are More information on figuring the foreign If you have expenses that would be item-
reported on a payee statement. tax credit can be found in Publication 514. ized deductions if they were not related to
excluded income, do not enter the part related
3) You elect this procedure for the tax year. to excluded income on Schedule A (Form
If you make this election, you cannot carry
Deduction for 1040). Enter only the part not related to ex-
cluded income. To avoid unnecessary corre-
back or carry over any unused foreign tax to Foreign Income Taxes spondence or contact with IRS, you should
or from this tax year. Instead of taking the foreign tax credit, you attach a statement showing how you figured
can deduct foreign income taxes as an item- the deductible amount.
Separate limit. You must figure the limit on ized deduction on Schedule A (Form 1040).
a separate basis with regard to each of the You can claim a deduction only for those Example 1. You are a U.S. citizen em-
following categories of income (see the in- foreign income taxes paid on income that is ployed as an accountant. Your tax home is in
structions for Form 1116). subject to U.S. tax. You cannot claim a de- a foreign country for the entire tax year. You
duction for foreign taxes paid on income you meet the physical presence test. Your foreign
• Passive income. exclude under the foreign earned income or earned income for the year was $100,000, of
• High withholding tax interest. housing exclusions. which you choose to exclude $72,000. You
have no housing exclusion. You had unreim-
• Financial services income. Example. You are a U.S. citizen and bursed business expenses of $1,500 for
qualify to exclude your foreign earned in- travel and entertainment in earning your for-
• Shipping income.
come. Your excluded wages in Country X are eign income, of which $500 were for meals
• Certain dividends from a domestic inter- $10,000 on which you paid income tax of and entertainment. These expenses are
national sales corporation (DISC) or for- $1,000. You received dividends from Country deductible only as miscellaneous deductions
mer DISC. X of $2,000 on which you paid income tax of on Schedule A (Form 1040). You also have
• Certain distributions from a foreign sales $600. $500 of miscellaneous expenses for manag-
corporation (FSC) or former FSC attrib- You can claim a deduction for the $600 tax ing investments that you enter on line 22 of
utable to foreign trade income. payment because the dividends relating to it Schedule A.
are subject to U.S. tax. Because the wages You must fill out Form 2106. On that form,
• Any lump-sum distributions from em- are exempt from U.S. tax, you cannot claim reduce your deductible meal and enter-
ployer benefit plans for which the 5– or a deduction for the income tax of $1,000. tainment expenses by 50% ($250). You must
10–year tax option is used to determine If only a part of your earnings are ex- reduce the remaining $1,250 of travel and
your tax. cluded, see the earlier discussion under For- entertainment expenses by 72% ($900) be-
• All other income not included above eign taxes paid on excluded income. cause you excluded 72% ($72,000/$100,000)
(general limitation income). of your foreign earned income. You carry the
remaining total of $350 to line 20 of Schedule
Figuring the limit. In figuring taxable income
Deduction for A. Add the $350 to the $500 that you have
in each income category, you take into ac- Other Foreign Taxes on line 22 and enter the total ($850) on line
count only the income that you must include 23.
You can deduct real property taxes you pay
in income on your federal income tax return. On line 25 of Schedule A, you enter $600,
that are imposed on you by a foreign country.
Do not take any excluded income into ac- which is 2% of your adjusted gross income
You take this deduction on Schedule A (Form
count. of $30,000 (line 33, Form 1040) and subtract
1040). You cannot deduct other foreign taxes,
To determine your taxable income in each it from the amount on line 23.
such as personal property taxes, unless you
category from sources outside the United Enter $250 on line 26 of Schedule A.
incurred the expenses in a trade or business
States, deduct expenses and losses that are or in the production of income.
definitely related to that income. Example 2. You are a U.S. citizen, have
On the other hand, you generally can de- a tax home in a foreign country, and meet the
Other expenses (such as itemized de- duct personal property taxes when you pay
ductions or the standard deduction) not defi- physical presence test. You are self-
them to U.S. possessions. But if you claim the employed and personal services produce the
nitely related to specific items of income must possession exclusion, see Publication 570,
be apportioned to the foreign income in each business income. Your gross income was
Tax Guide for Individuals With Income From $100,000, business expenses $60,000, and
category by multiplying them by a fraction. U.S. Possessions.
The numerator (top number) of the fraction is net income (profit) $40,000. You choose the
The deduction for foreign taxes other than foreign earned income exclusion and exclude
your gross foreign income in the separate foreign income taxes is not related to the for-
limit category. The denominator (bottom $72,000 of your gross income. Since your
eign tax credit. You can take deductions for excluded income is 72% of your total income,
number) of the fraction is your gross income these miscellaneous foreign taxes and also
from all sources. For this purpose, gross in- 72% of your business expenses are not
claim the foreign tax credit for income taxes deductible. Report your total income and ex-
come includes amounts that are otherwise imposed by a foreign country.
exempt or excluded. You must use special penses on Schedule C (Form 1040). On Form
rules for deducting interest expenses. For 2555 you will show the following:
more information on allocating and appor-
tioning your deductions, see Publication 514. 1) Line 20a, $100,000, gross income
Exemptions. Do not take the deduction How To Report 2) Lines 40 & 41, $72,000, foreign earned
for exemptions for yourself, your spouse, or
your dependents in figuring taxable income Deductions income exclusion
for purposes of the limit. How you show your deductions on your tax 3) Line 42, $43,200 (72% × 60,000) busi-
return and how you figure the amount ness expenses attributable to the exclu-
Recapture of foreign losses. If you have allocable to your excluded income depends sion.
an overall foreign loss and the loss reduces on whether the deductible expenses are used
your U.S. source income (resulting in a re- in figuring adjusted gross income (Form In this situation (Example 2), you
duction of your U.S. tax liability), you must 1040, line 33) or are itemized deductions. TIP would not use Form 2555–EZ since
recapture the loss in later years when you If you have expenses or other items used you had self-employment income and
have taxable income from foreign sources. in figuring adjusted gross income, enter business expenses.
Page 30 Chapter 5 Exemptions, Deductions, and Credits
Example 3. Assume in Example 2, In this situation (Example 5), you
above, that both capital and personal services TIP would not use Form 2555–EZ since
combine to produce the business income. No
more than 30% of your net income, or
you had earned income other than
salaries and wages and you had business
Common Benefits
$12,000, assuming that this amount is a rea- expenses. Some common tax treaty benefits are ex-
sonable allowance for your services, is con- plained below. The credits, deductions, ex-
sidered earned and can be excluded. Your emptions, reductions in rate, and other bene-
exclusion of $12,000 is 12% of your gross fits provided by tax treaties are subject to
income ($12,000/$100,000). Because you conditions and restrictions that vary from one
excluded 12% of your total income, $7,200, treaty to another. Also, benefits provided by
or 12% of your business expenses, are at- certain treaties are not provided by others.
tributable to the excluded income and are not 1) Personal service income. If you are
deductible. a U.S. resident who is in a treaty country for
a limited number of days in the tax year and
Example 4. You are a U.S. citizen, have you meet certain other requirements, any pay
a tax home in a foreign country, and meet the
physical presence test. You are self-
6. you receive for personal services performed
in that country may be exempt from that
employed and both capital and personal ser- country's income tax.
vices combine to produce business income.
Your gross income was $144,000, business
Tax Treaty 2) Professors and teachers. If you are
a U.S. resident, pay you receive for the first
expenses were $170,000, and your net loss
was $26,000. A reasonable allowance for the
Benefits 2 or 3 years that you are teaching or doing
research in a treaty country may be exempt
services you performed for the business is from that country's income tax.
$75,000. Because you incurred a net loss, the 3) Students, trainees, and apprentices.
earned income limit of 30% of your net profit Topics If you are a U.S. resident, amounts you re-
does not apply. The $75,000 is foreign earned This chapter discusses: ceive from the United States for study, re-
income. If you choose to exclude the maxi- search, or business, professional and techni-
mum $72,000, you exclude 50% of your gross cal training may be exempt from a treaty
• Some common tax treaty benefits,
income ($72,000/$144,000), and 50% of your country's income tax.
business expenses ($85,000) are attributable • How to get help in certain situations, and Some treaties exempt grants, allowances,
to that income and not deductible. Show your and awards received from governmental and
total income and expenses on Schedule C • How to get copies of tax treaties. certain nonprofit organizations. Also, under
(Form 1040). On Form 2555, exclude $72,000 certain circumstances, a limited amount of
and show $85,000 on line 42. Subtract line pay received by students, trainees, and ap-
42 from line 41, and enter the difference as prentices may be exempt from the income tax
a negative (in parentheses) on line 43. Be- Useful Items of many treaty countries.
cause this amount is negative, enter it as a You may want to see:
4) Pensions and annuities. If you are a
positive (no parentheses) on line 21, Form U.S. resident, any nongovernment pensions
1040, and combine it with your other income Publication and annuities you receive may be exempt
to arrive at total income on line 22 of Form from the income tax of treaty countries.
1040. m 597 Information on the United Most treaties contain separate provisions
States–Canada Income Tax for exempting government pensions and an-
In this situation (Example 4), you Treaty nuities from treaty country income tax, and
TIP would probably not want to choose some treaties provide exemption from the
the foreign earned income exclusion m 901 U.S. Tax Treaties treaty country's income tax for social security
if this was the first year you were eligible. If See chapter 7 for information about get- payments.
you had chosen the exclusion in an earlier ting these publications. 5) Investment income. If you are a U.S.
year, you might want to revoke the choice for resident, investment income, such as interest
this year. To do so would mean that you could and dividends, that you receive from sources
not claim the exclusion again for the next 5 in a treaty country may be exempt from that
tax years without IRS approval. See Choosing country's income tax or taxed at a reduced
the Exclusion, in chapter 4. Also, you would
not use Form 2555–EZ since self-
The Purpose of Tax rate.
Several treaties provide exemption for
employment income and business expenses Treaties capital gains (other than from sales of real
were involved. property in most cases) if specified require-
The United States has tax treaties or con-
ments are met.
ventions with many countries under which
6) Tax credit provisions. If you are a
citizens and residents of the United States
Example 5. You are a U.S. citizen, have U.S. resident who receives income from or
who are subject to taxes imposed by foreign
a tax home in a foreign country, and meet the owns capital in a foreign country, you may be
countries are entitled to certain credits, de-
bona fide residence test. You have been taxed on that income or capital by both the
ductions, exemptions, and reductions in the
performing services for clients as a partner in United States and the treaty country.
rate of taxes of those foreign countries. If a
a firm that provides services exclusively in a Most treaties allow you to take a credit
foreign country with which the United States
foreign country. Capital investment is not against or deduction from the treaty country's
has a treaty imposes a tax on you, you may
material in producing the partnership's in- taxes based on the U.S. tax on the income.
be entitled to benefits under the treaty. See
come. Under the terms of the partnership 7) Nondiscrimination provisions. Most
Table 6–1, Table of Tax Treaties, later.
agreement, you are to receive 50% of the net U.S. tax treaties provide that the treaty coun-
Treaty benefits generally are available to
profits. The partnership received gross in- try cannot discriminate by imposing more
residents of the United States. They generally
come of $200,000 and incurred operating burdensome taxes on U.S. citizens who are
are not available to U.S. citizens who do not
expenses of $80,000. Of the net profits of residents of the treaty country than it imposes
reside in the United States. However, certain
$120,000, you received $60,000 as your dis- on its own citizens in the same circum-
treaty benefits and safeguards, such as the
tributive share. stances.
nondiscrimination provisions, are available to
You choose to exclude $72,000 of your 8) Saving clauses. U.S. treaties contain
U.S. citizens residing in the treaty countries.
share of the gross income. Because you ex- saving clauses that provide that the treaties
U.S. citizens residing in a foreign country may
clude 72% ($72,000/$100,000) of your share do not affect the U.S. taxation of its own citi-
also be entitled to benefits under that coun-
of the gross income, you cannot deduct zens and residents. As a result, most of the
try's tax treaties with third countries.
$28,800, 72% of your share of the operating treaty benefits and safeguards with reference
expenses (72% × $40,000). Report $60,000, You should carefully examine the to a treaty country's taxes are available only
your distributive share of the partnership net TIP specific treaty articles that may apply to U.S. citizens who are not residents of the
profit, on Schedule E (Form 1040). On Form to find if you are entitled to a tax treaty country and to U.S. residents who are
2555, exclude $72,000 and show $28,800 on credit, tax exemption, reduced rate of tax, or not citizens of the treaty country.
line 42. other treaty benefit or safeguard.
Chapter 6 Tax Treaty Benefits Page 31
However, some treaties provide certain Additional details on the procedures
limited exceptions to saving clauses. It is im- for requesting competent authority
portant that you examine the applicable sav-
ing clause to determine if such an exception
assistance are included in Revenue
Procedure 96–13, 1996–1 C.B. You can ob- 7.
applies. tain copies of this procedure by writing to:

Internal Revenue Service


How To Get
Assistant Commissioner (International)
Attn: CP:IN:D:CS More
Competent Authority 950 L'Enfant Plaza South, SW
Assistance Washington, D.C. 20024. Information
If you are a U.S. citizen or resident, you can
request assistance from the U.S. competent
authority if you think that the actions of the More information on treaties and prob-
United States, a treaty country, or both, cause lems. You can get more information about
or will cause a tax situation contrary to the You can order free publications and forms,
the benefits and safeguards provided by U.S.
applicable treaty between the two countries. ask tax questions, and get more information
tax treaties or information concerning double
You should read any specific treaty articles, from the IRS in several ways. By selecting the
taxation problems by writing to the IRS As-
including the mutual agreement procedure method that is best for you, you will have
sistant Commissioner (International).
article, that apply in your situation. quick and easy access to tax help.
Publication 901 contains an explanation
If your request provides a basis for com- of treaty provisions that apply to amounts re-
petent authority assistance, the U.S. compe- Free tax services. To find out what services
ceived by teachers, students, workers, and
tent authority will consult with the treaty are available, get Publication 910, Guide to
government employees and pensioners who
country competent authority on how to re- Free Tax Services. It contains a list of free tax
are alien nonresidents or residents of the
solve the situation. publications and an index of tax topics. It also
United States. Since treaty provisions gener-
The U.S. competent authority cannot describes other free tax information services,
ally are reciprocal, you can usually substitute
consider requests involving countries with including tax education and assistance pro-
“United States” for the name of the treaty
which the United States does not have an grams and a list of TeleTax topics.
country whenever it appears, and vice versa
applicable tax treaty. when “U.S.” appears in the treaty exemption Personal computer. With your per-
It is important that you make your request discussions in Publication 901. sonal computer and modem, you can
for competent authority consideration as soon Publication 597 contains an explanation access the IRS on the Internet at
as you have been denied treaty benefits or of a number of frequently used provisions of www.irs.ustreas.gov. While visiting our Web
the actions of both the United States and the the United States–Canada income tax treaty. Site, you can select:
foreign country have resulted in double taxa-
tion or will result in taxation contrary to the • Frequently Asked Tax Questions to find
treaty. This is to provide the competent au- answers to questions you may have.
thorities adequate time to consult and arrive
at an agreement so that the final determi- • Fill-in Forms to complete tax forms on-
nation of liability can be made before any Obtaining Copies line.
procedural barriers are imposed under foreign • Forms and Publications to download
law or the particular treaty. of Tax Treaties forms and publications or search publi-
In addition to a timely request for assist- cations by topic or keyword.
ance, you should take the following measures Table 6–1, shown after chapter 7, lists those
countries with which the United States has • Comments & Help to e-mail us with
to protect your right to the review of your case comments about the site or with tax
by the competent authorities: income tax treaties.
You can get complete information about questions.
treaty provisions from the taxing authority in • Digital Dispatch and IRS Local News Net
1) File a timely protective claim for credit the country from which you receive income
or refund of U.S. taxes on Form 1040X to receive our electronic newsletters on
or from the treaty itself. The text of some of hot tax issues and news.
in the event you do not qualify for the the treaties can be obtained from:
treaty benefit in question and are entitled You can also reach us with your computer
to a foreign tax credit. using any of the following.
Department of Treasury
2) Take appropriate action under the pro- Office of Public Liaison
1500 Pennsylvania Ave. NW — Rm. 4418
• Telnet at iris.irs.ustreas.gov
cedures of the foreign country to avoid
the lapse or termination of your right of Washington, DC 20220. • File Transfer Protocol at
appeal under the foreign country's in- ftp.irs.ustreas.gov
come tax law. If you have specific questions about a treaty, • Direct dial (by modem) 703–321–8020
you can get this information from most Inter-
Your request for competent authority nal Revenue Service offices or from:
consideration should be addressed to:
Internal Revenue Service TaxFax Service. Using the phone
Attn: CP:IN:D:CS attached to your fax machine, you can
Internal Revenue Service 950 L'Enfant Plaza South, SW receive forms, instructions, and tax
Assistant Commissioner (International) Washington, DC 20024. information by calling 703–368–9694. Follow
Attn: CP:IN:D:CS the directions from the prompts. When you
950 L'Enfant Plaza South, SW order forms, enter the catalog number for the
Washington, DC 20024. form you need. The items you request will be
faxed to you.

The request should contain all essential


items of information including the following: Phone. Many services are available
the facts from which the issue arises; the by phone.
amounts of income and tax involved; a de-
scription of the issue and identification of the
relevant treaty provisions; the respective po- • Ordering forms, instructions, and publi-
sitions taken by you and the foreign country; cations. Call 1–800–829–3676 to order
and copies of any protests, briefs, or other current and prior year forms, instructions,
pertinent documents. and publications.
Page 32 Chapter 7 How To Get More Information
• Asking tax questions. Call the IRS with • Current tax forms, instructions, and pub- You can get the package and additional
your tax questions at 1–800–829–1040. lications. assistance by writing to:
• TTY/TDD equipment. If you have access • Prior-year tax forms, instructions, and
to TTY/TDD equipment, call 1–800– publications. Internal Revenue Service
829–4059 to ask tax questions or to order Assistant Commissioner (International)
• Popular tax forms which may be filled-in
forms and publications. Attn: CP:IN:D:CS
electronically, printed out for submission,
• TeleTax topics. Call 1–800–829–4477 to and saved for recordkeeping. 950 L'Enfant Plaza South, SW
listen to pre-recorded messages covering Washington, DC 20024.
various tax topics.
• Internal Revenue Bulletins.
If you have a question about a return you
Evaluating the quality of our telephone The CD-ROM can be purchased from Na- have filed, write to the Internal Revenue Ser-
services. To ensure that IRS representatives tional Technical Information Service (NTIS) vice Center where you filed your return.
give accurate, courteous, and professional for $25.00 by calling 1–877–233–6767 or for
answers, we evaluate the quality of our tele- $18.00 on the Internet at www.irs.ustreas.
phone services in several ways. gov/cdorders. The first release is available
in mid-December and the final release is
• A second IRS representative sometimes available in late January.
monitors live telephone calls. That person
only evaluates the IRS assistor and does
not keep a record of any taxpayer's name
or tax identification number.
Problem Resolution
• We sometimes record telephone calls to Program (PRP)
evaluate IRS assistors objectively. We
hold these recordings no longer than one Services Only Most problems can be solved with one con-
tact by calling, writing, or visiting an IRS of-
week and use them only to measure the
quality of assistance. Available Outside the fice. But if you have tried unsuccessfully to
resolve a problem with the IRS, you should
• We value our customers' opinions. United States contact the Taxpayer Advocate's Problem
Resolution Program (PRP). Someone at PRP
Throughout this year, we will be survey-
During the filing period (January to mid-June), will assign you a personal advocate who is in
ing our customers for their opinions on
you can get the necessary federal tax forms the best position to try to resolve your prob-
our service.
and publications from U.S. Embassies and lem. The Taxpayer Advocate can also offer
consulates. you special help if you have a significant
Also during the filing season, the IRS hardship as a result of a tax problem.
Walk-in. You can pick up certain conducts an overseas taxpayer assistance You should contact the Taxpayer Advo-
forms, instructions, and publications program. To find out if IRS personnel will be cate if:
at many post offices, libraries, and in your area, you should contact the consular
IRS offices. Some libraries and IRS offices office at the nearest U.S. Embassy. • You have tried unsuccessfully to resolve
have an extensive collection of products Phone.You can also call your nearest your problem with the IRS and have not
available to print from a CD-ROM or photo- U.S. Embassy, consulate, or IRS of- been contacted by the date promised, or
copy from reproducible proofs. fice listed below to find out when and • You are on your second attempt to re-
where assistance will be available. These IRS solve a problem.
telephone numbers include the country and
city codes required if you are outside the local You may contact a Taxpayer Advocate by
Mail. You can send your order for
dialing area. calling a new assistance number, 1–877–
forms, instructions, and publications
to the Distribution Center nearest to Bonn, Germany (49) (228) 339-2119 777–4778. Persons who have access to
you and receive a response 7 to 15 workdays London, England (44) (171) 408-8077 TTY/TDD equipment can call 1–800–829–
after your request is received. Find the ad- Mexico City, Mexico (52) (5) 209-9100 4059 and ask for the Taxpayer Advocate. If
dress that applies to your part of the country. Ext. 3557 you prefer, you can write to the Taxpayer
Nassau, Bahamas (800) 829–1040 Advocate at the office that last contacted you.
• Western part of U.S.: or (809) 759–5100 If you are abroad, you can also write to
Paris, France (33) (1) 4312-2555
Western Area Distribution Center the Office of Taxpayer Advocate in the:
Ext. 1210
Rancho Cordova, CA 95743–0001 Rome, Italy (39) (6) 4674-2560
Singapore (65) 476–9413 Office of the Assistant Commissioner
• Central part of U.S.: (International)
Central Area Distribution Center Tokyo, Japan (81) (3) 3224-5466
950 L'Enfant Plaza South, SW
P.O. Box 8903 For questions of a technical nature or a Washington, DC 20024.
Bloomington, IL 61702–8903 specific account–related issue, call (787)
• Eastern part of U.S. and foreign ad- 759–5100 (not toll free). (You can also contact one of the IRS offices
dresses: If you received an IRS notice about your located abroad, listed earlier.)
Eastern Area Distribution Center account which asked you to call the IRS, use While Taxpayer Advocates cannot change
P.O. Box 85074 this new number: (787) 759–6262 (not toll the tax law or make a technical tax decision,
Richmond, VA 23261–5074 free). they can clear up problems that resulted from
previous contacts and ensure that your case
is given a complete and impartial review.
Taxpayer Advocates are working to put ser-
CD-ROM. You can order IRS Publi- Mail.Special forms and instructions vice first. For more information about PRP,
cation 1796, Federal Tax Products on as well as Publication 54 are com- get Publication 1546, The Problem Resolution
CD-ROM, and obtain: bined in Package 1040–7. Program of the Internal Revenue Service.

Chapter 7 How To Get More Information Page 33


Table 6-1. Table of Tax Treaties
Applicable Treasury
Official Text General Explanations or
1
Country Symbol Effective Date Citation Treasury Decision (T.D.)

Australia TIAS 10773 Dec. 1, 1983 1986-2 C.B. 220 1986-2 C.B. 246
Austria TIAS Jan. 1, 1999
Barbados TIAS 11090 Jan. 1, 1984 1991-2 C.B. 436 1991-2 C.B. 466
Protocol TIAS Jan. 1, 1994
Belgium TIAS 7463 Jan. 1, 1971 1973-1 C.B. 619
Protocol TIAS 11254 Jan. 1, 1988
2
Canada TIAS 11087 Jan. 1, 1985 1986-2 C.B. 258 1987-2 C.B. 298
Protocol TIAS Jan. 1, 1996
China, People’s Republic of TIAS Jan. 1, 1987 1988-1 C.B. 414 1988-1 C.B. 447
Commonwealth of
3
Independent States TIAS 8225 Jan. 1, 1976 1976-2 C.B. 463 1976-2 C.B. 475
Cyprus TIAS 10965 Jan. 1, 1986 1989-2 C.B. 280 1989-2 C.B. 314
Czech Republic TIAS Jan. 1, 1993
Denmark TIAS 1854 Jan. 1, 1948 1950-1 C.B. 77 T.D. 5692, 1949-1 C.B. 104;
T.D. 5777, 1950-1 C.B. 76
Egypt TIAS 10149 Jan. 1, 1982 1982-1 C.B. 219 1982-1 C.B. 243
Finland TIAS Jan. 1, 1991
France TIAS Jan. 1, 1996
4
Germany TIAS Jan. 1, 1990
Greece TIAS 2902 Jan. 1, 1953 1958-2 C.B. 1054 T.D. 6109, 1954-2 C.B. 638
Hungary TIAS 9560 Jan. 1, 1980 1980-1 C.B. 333 1980-1 C.B. 354
Iceland TIAS 8151 Jan. 1, 1976 1976-1 C.B. 442 1976-1 C.B. 456
India TIAS Jan. 1, 1991
Indonesia TIAS 11593 Jan. 1, 1990
Ireland TIAS Jan. 1, 1998
Israel TIAS Jan. 1, 1995
Italy TIAS 11064 Jan. 1, 1985 1992-1 C.B. 442 1992-1 C.B. 473
Jamaica TIAS 10207 Jan. 1, 1982 1982-1 C.B. 257 1982-1 C.B. 291
Japan TIAS 7365 Jan. 1, 1973 1973-1 C.B. 630 1973-1 C.B. 653
Kazakstan TIAS Jan. 1, 1996
Korea, Republic of TIAS 9506 Jan. 1, 1980 1979-2 C.B. 435 1979-2 C.B. 458
Luxembourg TIAS 5726 Jan. 1, 1964 1965-1 C.B. 615 1965-1 C.B. 642
Mexico TIAS Jan. 1, 1994 1994-2 C.B. 424 1994-2 C.B. 489
Protocol TIAS Oct. 26, 1995
Morocco TIAS 10195 Jan. 1, 1981 1982-2 C.B. 405 1982-2 C.B. 427
Netherlands TIAS Jan. 1, 1994
New Zealand TIAS 10772 Nov. 2, 1983 1990-2 C.B. 274 1990-2 C.B. 303
Norway TIAS 7474 Jan. 1, 1971 1973-1 C.B. 669 1973-1 C.B. 693
Protocol TIAS 10205 Jan. 1, 1982 1982-2 C.B. 440 1982-2 C.B. 454
Pakistan TIAS 4232 Jan. 1, 1959 1960-2 C.B. 646 T.D. 6431, 1960-1 C.B. 755
Philippines TIAS 10417 Jan. 1, 1983 1984-2 C.B. 384 1984-2 C.B. 412
Poland TIAS 8486 Jan. 1, 1974 1977-1 C.B. 416 1977-1 C.B. 427
Portugal TIAS Jan. 1, 1996
Romania TIAS 8228 Jan. 1, 1974 1976-2 C.B. 492 1976-2 C.B. 504
Russia TIAS Jan. 1, 1994
Slovak Republic TIAS Jan. 1, 1993
South Africa TIAS Jan. 1, 1998
Spain TIAS Jan. 1, 1991
Sweden TIAS Jan. 1, 1996
Switzerland TIAS Jan. 1, 1998
Thailand TIAS Jan. 1, 1998
Trinidad and Tobago TIAS 7047 Jan. 1, 1970 1971-2 C.B. 479
Tunisia TIAS Jan. 1, 1990
Turkey TIAS Jan. 1, 1998
United Kingdom TIAS 9682 Jan. 1, 1975 1980-1 C.B. 394 1980-1 C.B. 455

1
(TIAS)—Treaties and Other International Act Series.
2
Information on the treaty can be found in Publication 597, Information on the United States—Canada Income Tax Treaty.
3
The U.S.—U.S.S.R. income tax treaty applies to the countries of Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan,
Ukraine, and Uzbekistan.
4
The general effective date for the area that was the German Democratic Republic is January 1, 1991.

Page 34 Chapter 7 How To Get More Information


Questions and Answers

This section answers tax- a) You should file Form 2350 by United States, but I have sub- 10) I have met the test for
related questions commonly the due date of your return to stantial income from a foreign physical presence in a foreign
asked by taxpayers living request an extension of time to source. Am I required to file a country and am filing returns
abroad. file. Form 2350 is a special form U.S. income tax return? for 2 years. Must I file a sepa-
for those U.S. citizens or resi- rate Form 2555 (or Form
dents abroad who expect to 2555–EZ) with each return?
Filing Requirements— qualify under either the bona fide Yes. All U.S. citizens and resi-
Where, When, and How residence test or physical pres- dent aliens, depending on the
ence test and would like to have amount of the foreign source in- Yes. A Form 2555 (or Form
an extension of time to delay fil- come, are subject to U.S. tax on 2555–EZ) must be filed with
1) When are U.S. income tax ing until after they have qualified. their worldwide income. If you each Form 1040 tax return on
returns due? b) If the extension is granted, paid taxes to a foreign govern- which the benefits of income
you should file your return after ment on income from sources earned abroad are claimed.
you qualify, but by the approved outside the United States, you
Generally, for calendar year tax- extension date. may receive a foreign tax credit
payers, U.S. income tax returns against your U.S. income tax li- 11) Does a Form 2555 (or
c) You must file your Form
are due on April 15. If you are a ability for the foreign taxes paid. 2555–EZ) with a Schedule C
1040 with Form 2555 (or Form
U.S. citizen or resident and both Form 1116 is used to figure the or Form W–2 attached consti-
2555–EZ).
your tax home and your abode allowable credit. tute a return?
are outside the United States
and Puerto Rico on the regular 4) My entire income qualifies
7) I am a U.S. citizen who has No. The Form 2555 (or
due date, an automatic extension for the foreign earned income
retired, and I expect to remain 2555–EZ), Schedule C, and
is granted to June 15 for filing the exclusion. Must I file a tax re-
in a foreign country. Do I have Form W–2 are merely attach-
return. Interest will be charged turn?
any further U.S. tax obliga- ments and do not relieve you of
on any tax due, as shown on the the requirement to file a Form
return, from April 15. tions?
Maybe. Every U.S. citizen or 1040 to show the sources of in-
resident must file a U.S. income come reported and the exclu-
2) Where do I file my U.S. in- tax return if certain income levels Your U.S. tax obligation on your sions or deductions claimed.
come tax return? are reached. Income for filing income is the same as that of a
requirement purposes is figured retired person living in the United
without regard to the foreign States. (See the discussion in 12) On Form 2350, Application
earned income exclusion. The chapter 1 of this publication for for Extension of Time to File
If you claim the foreign earned U.S. Income Tax Return, I
income exclusion, the foreign income levels for filing purposes filing requirements.) U.S. payers
are discussed under Filing Re- of certain pension benefits must stated that I would qualify un-
housing exclusion, or the foreign der the physical presence test.
housing deduction on Form quirements in chapter 1. withhold tax from payments un-
less the recipient provides a If I qualify under the bona fide
2555, the foreign earned income residence test, can I file my
exclusion on Form 2555–EZ, or residence address in the United
5) I was sent abroad by my States or a U.S. possession. return on that basis?
an exclusion of income for bona
company in November of last
fide residents of American Sa-
year. I plan to secure an ex-
moa on Form 4563, you should Yes. You can claim the foreign
tension of time on Form 2350 8) I have been a bona fide
file your return with the Internal earned income exclusion and the
to file my tax return for last resident of a foreign country
Revenue Service Center, Phila- foreign housing exclusion or de-
year because I expect to qual- for over 5 years. Is it neces-
delphia, PA 19255–0207. duction under either test as long
ify for the foreign earned in- sary for me to pay estimated
If you are not claiming one as you meet the qualification re-
come exclusion under the tax?
of the exclusions or the de- quirements. You are not bound
physical presence test. How-
duction, but are living in a foreign by the test indicated in the ap-
ever, if my company recalls
country or U.S. possession and U.S. taxpayers overseas have plication for extension of time.
me to the United States before
have no legal residence or prin- the same requirements for pay- You must be sure, however, that
the end of the qualifying pe-
cipal place of business in the ing estimated tax as those in the you file the Form 1040 return by
riod and I find I will not qualify
United States, you should file United States. See the dis- the date approved on Form
for the exclusion, how and
your return with the Internal cussion under Estimated Tax in 2350, since a return filed after
when should I file my return?
Revenue Service Center, Phila- chapter 1. that date may be subject to a
delphia, PA 19255–0207. Overseas taxpayers should failure to file penalty.
If you are not sure of the If your regular filing date has not include in their estimated in- If you will not qualify under
place of your legal residence and passed, you should file a return, come any income they receive the bona fide residence test until
have no principal place of busi- Form 1040, as soon as possible that is, or will be, exempt from a date later than the extension
ness in the United States, you for last year. Include a statement U.S. taxation. granted under the physical pres-
also can file with the Philadelphia with this return noting that you Overseas taxpayers can de- ence rule, apply for a new ex-
Service Center. However, you have returned to the United duct their estimated housing de- tension to a date 30 days beyond
should not file with the Philadel- States and will not qualify for the duction in figuring their estimated the date you expect to qualify as
phia Service Center if you are a foreign earned income exclusion. tax. a bona fide resident.
bona fide resident of the Virgin You must report your worldwide The first installment of esti-
Islands or a resident of Guam or income on the return. If you paid mated tax is due on April 15 of
the Commonwealth of the a foreign tax on the income the year for which the tax is paid. 13) I am a U.S. citizen who
Northern Mariana Islands on the earned abroad, you may be able worked in the United States for
last day of your tax year. See the to either deduct this tax or claim 6 months last year. I accepted
discussion in chapter 1. it as a credit against your U.S. 9) Will a check payable in for- employment overseas in July
income tax. eign currency be acceptable in of last year and expect to
However, if you pay the tax payment of my U.S. tax? qualify for the foreign earned
3) I am going abroad this year due after the regular due date, income exclusion. Should I file
and expect to qualify for the interest will be charged from the a return and pay tax on the
foreign earned income exclu- regular due date until the date Generally, only U.S. currency is income earned in the United
sion. How can I secure an ex- the tax is paid. acceptable for payment of in- States during the first 6
tension of time to file my re- come tax. However, if you are a months and then, when I
turn, when should I file my Fulbright grantee, see the dis- qualify, file another return
return, and what forms are re- 6) I am a U.S. citizen and have cussion under Fulbright grants in covering the last 6 months of
quired? no taxable income from the chapter 1. the year?
Page 35
No. You have the choice of one whichever is later. For this pur- 1—December 31), but once you 6) Can a resident alien of the
of the following two methods of pose, a return filed before the meet this time requirement, you United States qualify under the
filing your return: due date is considered filed on figure the exclusions and the bona fide residence test or the
a) You can file your return the due date. deduction from the date the res- physical presence test?
when due under the regular filing idence actually began.
rules, report all your income Meeting the
without excluding your foreign Resident aliens of the United
Requirements 3) To meet the qualification of States can qualify for the foreign
earned income, and pay the tax “an uninterrupted period
due. After you have qualified for of Either the Bona Fide earned income exclusion, the
which includes an entire taxa- foreign housing exclusion, or the
the exclusion, you can file an Residence Test or the ble year” do I have to be foreign housing deduction if they
amended return, Form 1040X, Physical Presence Test physically present in a foreign
accompanied by Form 2555 (or meet the requirements of the
country for the entire year? physical presence test. Certain
2555–EZ), for a refund of any
excess tax paid. 1) I recently came to Country resident aliens can qualify under
b) You can postpone the filing X to work for the Orange No. Uninterrupted refers to the the bona fide residence test.
of your tax return by applying on Tractor Co., and I expect to be bona fide residence proper and
Form 2350 for an extension of here for 5 or 6 years. I under- not to the physical presence of 7) On August 13 of last year I
time to file to a date 30 days stand that upon the com- the individual. During the period left the United States and ar-
beyond the date you expect to pletion of 1 full year I will of bona fide residence in a for- rived in Country Z to work for
qualify under either the bona fide qualify under the bona fide eign country, even during the the Gordon Manufacturing
residence test or the physical residence test. Is this correct? first full year, you can leave the Company. I expected to be
presence test, then file your re- country for brief and temporary able to exclude my foreign
turn reflecting the exclusion of trips back to the United States earned income under the
Not entirely. The law provides or elsewhere for vacation, or
foreign earned income. This al- that to qualify under this test for physical presence test be-
lows you to file only once and even for business. To preserve cause I planned to be in
the foreign earned income ex- your status as a bona fide resi-
saves you from paying the tax clusion, the foreign housing ex- Country Z for at least 1 year.
and waiting for a refund. How- dent of a foreign country, you However, I was reassigned
clusion, or the foreign housing must have a clear intention of
ever, interest is charged on any deduction, a person must be a back to the United States and
tax due on the postponed tax returning from those trips, with- left Country Z on July 1 of this
“bona fide resident of a foreign out unreasonable delay, to your
return, but interest is not paid on country or countries for an unin- year. Can I exclude any of my
refunds paid within 45 days after foreign residence. foreign earned income?
terrupted period that includes an
the return is filed. (If you have entire taxable year.”
moving expenses that are for If, like most U.S. citizens, you 4) I am a U.S. citizen and dur-
services performed in two years, ing 1997 was a bona fide resi- No. You cannot exclude any of
file your return on a calendar the income you earned in Coun-
you can be granted an extension year basis, the taxable year re- dent of Country X. On January
to 90 days beyond the close of 15, 1998, I was notified that I try Z because you were not in a
ferred to in the law would be from foreign country for at least 330
the year following the year of first January 1 to December 31 of any was to be assigned to Country
arrival in the foreign country.) Y. I was recalled to New York full days as required under the
particular year. Unless you es- physical presence test.
tablished residence in Country X for 90 days orientation and
14) I am a U.S. citizen. I have on January 1, it would be more then went to Country Y, where
lived abroad for a number of than 1 year before you could I have been since. Although I Foreign Earned Income
years and have only recently qualify as a bona fide resident was not in Country X on Jan-
realized that I should have of a foreign country. Once you uary 1, I was a bona fide resi-
have completed your qualifying dent of Country X and was in 1) I am an employee of the U.S.
been filing U.S. income tax re- Government working abroad.
turns. How do I correct this period, however, you are entitled Country Y on December 31,
to exclude the income or to claim 1998. My family remained in Can all or part of my govern-
oversight in not having filed ment income earned abroad
returns for these years? the housing exclusion or de- Country X until completion of
duction from the date you estab- the orientation period, and my qualify for the foreign earned
lished bona fide residence. household goods were income exclusion?
File the late returns as soon as shipped directly to my new
possible, stating your reason for post. Can I qualify as a bona No. The foreign earned income
filing late. For advice on filing the 2) I understand the physical fide resident of a foreign
presence test to be simply a exclusion applies to your foreign
returns, you should contact the country for 1998, or must I wait earned income. Amounts paid
Internal Revenue Service repre- matter of being physically for the entire year of 1999 to
present in a foreign country by the United States or its agen-
sentative serving your area, or qualify? cies to their employees are not
the Internal Revenue official who for at least 330 days within 12
consecutive months; but what treated, for this purpose, as for-
travels through your area (details Since you did not break your eign earned income.
can be obtained from your near- are the criteria of the bona fide
residence test? period of foreign residence, you
est U.S. consulate or Embassy), would continue to qualify as a
or you can write to the: bona fide resident for 1998. 2) I qualify under the bona fide
Internal Revenue Service To be a bona fide resident of a residence test. Does my for-
Assistant Commissioner (Inter- foreign country, you must show eign earned income include
national) that you entered a foreign coun- 5) Due to illness, I returned to my U.S. dividends and the in-
Attn: CP:IN:D:CS try intending to remain there for the United States before I terest I receive on a foreign
950 L'Enfant Plaza South, SW an indefinite or prolonged period completed my qualifying pe- bank account?
Washington, DC 20024. and, to that end, you are making riod to claim the foreign
your home in that country. Con- earned income exclusion. Can
I figure the exclusion for the No. The only income that is for-
15) In 1992 I qualified to ex- sideration is given to the type of eign earned income is income
quarters occupied, whether your period I resided abroad?
empt my income earned from the performance of per-
abroad, but I did not claim this family went with you abroad, the sonal services abroad. Invest-
exemption on the return I filed type of visa, the employment No. You are not entitled to any ment income, including income
in 1993. I paid all outstanding agreement, and any other factor exclusion of foreign earned in- from foreign investments, is not
taxes with the return. Can I file pertinent to show whether your come since you did not complete earned income. However, you
a claim for refund now? stay in the foreign country is in- your qualifying period under ei- must include it in gross income
definite or prolonged. ther the bona fide residence test reported on your Form 1040.
To claim the foreign earned or physical presence test. If you
It is too late to claim this refund income exclusion or foreign paid foreign tax on the income
since a claim for refund must be housing exclusion or deduction earned abroad, you may be able 3) My company pays my for-
filed within 3 years from the date under this test, the period of for- to claim that tax as a deduction eign income tax on my foreign
the return was filed or 2 years eign residence must include 1 or as a credit against your U.S. earnings. Is this taxable com-
from the date the tax was paid, full tax year (usually January tax. pensation?
Page 36
Yes. The amount is compen- Foreign Earned sion. Do we each figure a bank. Is this income taxable to
sation for services performed. separate foreign earned in- her?
The tax paid by your company
Income Exclusion come exclusion and foreign
should be reported on Form housing exclusion?
1) I qualify for the foreign Your nonresident alien spouse's
1040 and in item 22(f) of Part IV,
earned income exclusion and bank deposit interest income is
Form 2555 (or Line 17 of Part IV, You can each claim a foreign
earned more than $72,000 not taxed by the United States
Form 2555–EZ). earned income exclusion since
during the year. Am I entitled unless it is effectively connected
you both have foreign earned with a U.S. trade or business.
to the maximum $72,000 ex-
income. The amount of the ex- The exclusion of interest on bank
4) I live in an apartment in a clusion?
clusion for each of you cannot deposits also applies to interest
foreign city for which my em-
exceed your separate foreign on deposits or withdrawable ac-
ployer pays the rent. Should I Not necessarily. Although you earned incomes. counts with savings and loan
include in my income the cost qualify for the foreign earned in- If you each have a housing associations, credit unions, mu-
to my employer ($1,200 a come exclusion, you may not amount, you can figure your tual savings banks, and similar
month) or the fair market value have met either the bona fide housing exclusion either sepa- institutions, and on amounts held
of equivalent housing in the residence test or the physical rately or jointly. See the dis- by insurance companies under
United States ($800 a month)? presence test for your entire tax cussion, Married Couples Living an agreement to pay interest.
year. If you did not meet either Apart, in chapter 4 for further Interest received by your
of these tests for your entire tax details. spouse from deposits in the for-
No. You must include in income
year, you must prorate the eign branches of U.S. banks is
the fair market value (FMV) of
$72,000 maximum exclusion from foreign sources and is not
the facility provided, where it is
based on the number of days
Exemptions and
provided. This will usually be the subject to U.S. tax.
that you did meet either test Dependency Allowances However, if you choose to
rent your employer pays. Situ-
during the year. treat your nonresident alien
ations when the FMV is not in-
cluded in income are discussed 1) I am a U.S. citizen married spouse as a U.S. resident as
in Chapter 4 under Exclusion of 2) How do I qualify for the for- to a nonresident alien who has explained in question 1, all of the
meals and lodging. eign earned income exclu- no income from U.S. sources. interest income is subject to tax
sion? Can I claim an exemption for and must be included on a U.S.
my spouse on my U.S. tax re- tax return.
5) My U.S. employer pays my turn?
To be eligible, you must have a
salary into my U.S. bank ac- tax home in a foreign country 4) I spend $375 a month to
count. Is this considered U.S. and you must be a U.S. citizen Yes. You can claim an ex- support my parents who live
income or foreign income? or a resident alien who is a citi- emption for your nonresident al- in Italy. I am sure this provides
zen or national of a country with ien spouse on your tax return if the bulk of their support. Can
which the United States has an your spouse has no income from I claim exemptions for them?
If you performed the services to income tax treaty in effect. You sources within the United States
earn this salary outside the must be a bona fide resident of and is not the dependent of an-
United States, your salary is It depends on whether they are
a foreign country or countries for other U.S. taxpayer.
considered earned abroad. It U.S. citizens or residents. If your
an uninterrupted period that in- You must use the married fil-
does not matter that you are paid parents are not U.S. citizens or
cludes an entire tax year, or you ing separately column in the Tax
by a U.S. employer or that your residents, you cannot claim ex-
must be a U.S. citizen or resident Table or the Tax Rate Schedule
salary is deposited in a U.S. emptions for them even if you
and be physically present in a for married individuals filing a
bank account in the United provide most of their support. To
foreign country or countries for separate return, unless you
States. The source of salary, qualify as a dependent, a person
at least 330 full days during any qualify as a head of household.
wages, commissions, and other generally must be either a citizen
period of 12 consecutive months. (Also see Question 12 under
personal service income is the or national of the United States
Your tax home must be in the General Tax Questions, later. )
place where you perform the or a resident of the United
foreign country or countries A U.S. citizen or resident
services. States, Canada, or Mexico for
throughout your period of resi- married to a nonresident alien
some part of the tax year. The
dence or presence. For this pur- also can choose to treat the
other tests of dependency also
pose, your period of physical nonresident alien as a U.S. res-
6) What is considered a for- must be met.
presence is the 330 full days ident for all federal income tax
eign country? purposes. This allows you to file
during which you are present in
a foreign country, not the 12 a joint return, but also subjects 5) Should I prorate my own
consecutive months during the alien's worldwide income to personal exemption and the
For the purposes of the foreign
which those days occur. U.S. income tax. exemptions for my spouse and
earned income exclusion and the
dependents, since I expect to
foreign housing exclusion or de-
exclude part of my income?
duction, foreign country means 3) Is it true that my foreign 2) What exemptions can be
any territory under the sover- earned income exclusion can- claimed by a U.S. citizen for a
eignty of a country other than the not exceed my foreign earned nonresident alien spouse who No. Do not prorate exemptions
United States. Possessions of income? was blind and 65 years of age? for yourself, your spouse, and
the United States are not treated The spouse did not have in- your dependents. Claim the full
as foreign countries. come from U.S. sources and amount for each exemption per-
Yes. The amount of the exclu-
was not a dependent of an- mitted.
sion is limited each year to the
other U.S. taxpayer.
amount of your foreign earned
7) What is meant by the source
of earned income?
income after reducing that in- Social Security Benefits
come by the foreign housing ex- A U.S. taxpayer can generally and
clusion. The foreign earned in- claim one exemption for his or
come must be earned during the her spouse. In addition, if the
Self-Employment Tax
The word “source” refers to the
place where the work or personal part of the tax year that you have U.S. taxpayer does not itemize
your tax home abroad and meet deductions on Schedule A (Form 1) Are U.S. social security
services that produce earned in-
either the bona fide residence 1040), the taxpayer may be en- benefits taxable?
come are performed. In other
words, income received for work test or the physical presence titled to a higher standard de-
in a foreign country has its test. duction if his or her spouse is Benefits received by U.S. citi-
source in that country. The for- age 65 or older or is blind at the zens and resident aliens may be
eign earned income exclusion 4) My wife and I are both em- end of the year. taxable, depending on the total
and the foreign housing exclu- ployed, reside together, and amount of income and the filing
sion or deduction are limited to file a joint return. We meet the 3) My wife is a nonresident al- status of the taxpayer.
earned income from sources qualifications for claiming the ien who receives interest in- Benefits similar to social se-
within foreign countries. foreign earned income exclu- come from deposits in a U.S. curity received from other coun-
Page 37
tries by U.S. citizens or residents bassy or consulate how to apply mated tax to cover the self- turn, or do I report the gross
may be taxable. U.S. social se- for a social security number. employment tax and any income amount and take credit for the
curity benefits are taxed by some tax that would be due after taking tax withheld?
foreign countries. (Refer to our 5) Do I need social security out the amount of excludable in-
tax treaties with various coun- numbers for my dependents? come. You must report the gross
tries for any benefit granted by amount of the income received
the treaty.) Problems on and take a tax credit for the tax
Yes. You generally must provide
a social security number on the Withholding withheld. This is to your advan-
2) As a U.S. citizen or resident, return for any dependent for tage since the tax withheld is
how do I figure the amount of whom you claim an exemption. deducted in full from the tax due.
1) How can I get my employer
my U.S. social security bene- You should apply for this number It is also advisable to attach a
to stop withholding federal in-
fits to include in gross in- early enough so that it can be statement to your return explain-
come taxes from wages while
come? assigned before your return is ing this tax credit so there will be
I am overseas and eligible for
due. Nonresident alien depen- no question as to the amount of
the foreign earned income ex-
dents are not exempt from this credit allowable.
See Publication 915, Social Se- clusion?
curity and Equivalent Railroad requirement. If your nonresident
Retirement Benefits, to figure if alien dependent is not eligible to
File a statement in duplicate with
Deductions
any of your benefits are get an SSN, you must apply for
your employer stating that with-
includible in income. an IRS individual taxpayer iden-
holding should be reduced be- 1) Not having many de-
tification (ITIN) for the depend-
cause you meet the bona fide ductions to itemize, how do I
ent. To apply for an ITIN file
3) How are railroad retirement residence test or physical pres- figure the standard de-
Form W–7 with the IRS. It usu-
benefits taxed? ence test. See also the following duction?
ally takes about 30 days to get
question.
an ITIN. Note. An ITIN is for tax
The part of a tier 1 railroad re- use only. It does not entitle a For 1998 the standard deduction
tirement benefit that is equivalent person to social security benefits 2) Does the Internal Revenue is $7,100 for married persons fil-
to the social security benefit you or change their employment or Service provide forms to be ing a joint return and for certain
would have been entitled to re- immigration status under U.S. used by employees requesting widows or widowers; $4,250 for
ceive if the railroad employee's law. employers to stop withholding a single person; $6,250 for a
work had been covered under income tax from wages they head of household; and $3,550
the social security system rather expect to be excluded as in- for a married person filing a
6) I know U.S. savings banks
than the railroad retirement sys- come earned abroad? separate return.
need my social security num-
tem is treated the same as a The standard deduction is
ber, but do the U.S. companies
social security benefit, discussed Yes. Form 673 is a sample higher if you are age 65 or older
in which I own stock require
above. statement that can be used by or blind, and different amounts
the number?
The other part of a tier 1 individuals who expect to qualify apply to dependents. See Publi-
benefit that is not considered a under the bona fide residence cation 501, Exemptions, Stand-
Yes. Corporations are required ard Deduction, and Filing Infor-
social security equivalent benefit test or the physical presence
to request your number and in- mation.
is treated like a private pension test. A copy of this form is dis-
clude it when reporting dividend
or annuity, as are tier 2 railroad played in chapter 2. You can get
payments to the IRS.
retirement benefits. Pensions this form by writing to the: 2) My wife and I are consider-
and annuities are explained in Internal Revenue Service ing filing separate returns.
chapter 4 under Earned and Un- 7) I am a minister with earned Assistant Commissioner (Inter- Can I itemize deductions while
earned Income. Vested dual income from abroad and ex- national) she figures her tax using the
benefits and supplemental an- pect to qualify for the foreign Attn: CP:IN:D:CS standard deduction?
nuities are also treated like pri- earned income exclusion. How 950 L'Enfant Plaza South, SW
vate pensions but are fully taxa- do I pay the self-employment Washington, DC 20024.
tax that results from social Yes. However if you itemize de-
ble. ductions, your wife's standard
The proper amounts of the security coverage?
3) I am a U.S. citizen residing deduction is zero, therefore your
social security equivalent part of overseas, and I receive divi- wife should also itemize.
tier 1 benefits and any special File a Form 1040 accompanied dend and interest income from
guaranty benefits are shown on by a Schedule SE and Form U.S. sources from which tax is
the Form RRB–1099, Payments 2555. Figure your self-employ- being withheld at a rate of 3) Can I claim a foreign tax
by the Railroad Retirement ment tax on Schedule SE and 30%. How can I have this situ- credit even though I do not
Board, that you receive from the enter it on Form 1040 as the tax ation corrected? itemize deductions?
Railroad Retirement Board. The due with the return.
taxable amounts of the non- Yes. You can claim the foreign
social security equivalent part of Write a letter in duplicate to the
8) Because I expect to qualify withholding agents who are pay- tax credit even though you do not
tier 1, tier 2, vested dual benefits, itemize deductions.
and supplemental annuities are for the foreign earned income ing you the dividends and inter-
shown on the Form RRB– exclusion, I have requested est and inform them you are a
1099–R, Annuities or Pensions and received an extension of U.S. citizen residing abroad and 4) I had to pay customs duty
by the Railroad Retirement time until January 30, 2000, to are not subject to the withholding on a few things I brought back
Board, that you receive from the file my 1998 return. However, at source rules that apply to with me from Europe last
Railroad Retirement Board. since I will be paying self- nonresident aliens. This letter is summer. Can I include cus-
employment tax on my their authority to stop withholding toms fees with my other
spouse's income, should I file the 30% income tax at the deductible taxes?
4) How do I get a social secu- a 1998 return when due, pay source on payments due you.
rity number when I am over- the self-employment tax, and They must withhold this tax on
seas? No. Customs duties, like federal
then file another return when I any payment of income going
excise taxes, are not deductible.
qualify for the exclusion? outside the United States unless
If you are 18 years of age or they have the authority to do
older, you must apply in person No. You do not need to file a otherwise. 5) Some taxes paid in the
at a U.S. Embassy, consulate, 1998 Form 1040 (the regular in- United States are not deduct-
or military installation. During come tax return) when due if you 4) As a U.S. citizen receiving ible if I itemize my deductions.
your interview, you will be asked have received an extension to dividend and interest income Which ones are they?
to show evidence of your iden- file it by January 30, 2000. To from the United States from
tity, age, and citizenship. If you stop interest from accruing on which tax has been withheld, Sales taxes, as well as the state
are under 18 years old, you the self-employment tax due for do I report the net dividend and local taxes levied specifically
should ask your local U.S. Em- 1998, you can pay enough esti- and interest income on my re- on cigarettes, tobacco, and al-
Page 38
coholic beverages are not You may be able to deduct your most common causes of delay in 8) With which countries does
deductible. In addition, no de- travel, meals, and lodging ex- receiving refunds are unsigned the United States have tax
duction can be taken for drivers' penses if you are temporarily returns and incorrect social se- treaties?
licenses or gasoline taxes. Auto absent from your regular place curity numbers.
registration fees cannot be de- of employment. For more infor-
Table 6–1, List of Tax Treaties,
ducted except when they qualify mation about deducting travel,
4) I have not received my re- earlier in this publication lists
as personal property taxes. To meals, and lodging expenses,
fund from last year's return. those countries with which the
qualify as personal property get Publication 463.
Can I claim the credit against United States has income tax
taxes they must be based on the
this year's tax? treaties.
value of the auto.
Some state and local taxes 3) I am a professor who is
are deductible, such as those on teaching abroad while on sab- 9) I am a retired U.S. citizen
batical leave from my position No. That would cause problems
personal property, real estate, to both years' returns. If your last living in Europe. My only in-
and income. in the United States. What come is from U.S. sources on
records am I required to keep year's refund is overdue, write to
the Internal Revenue Service which I pay U.S. taxes. I am
to prove my expenses? How taxed on the same income in
do I allocate my meals and Center where you filed your re-
6) What types of foreign taxes the foreign country where I
lodging if my wife and children turn and ask about the status of
are deductible? reside. How do I avoid double
live with me in an apartment the refund. Be sure to include
your social security number (or taxation?
and my wife does the cook-
Generally, real estate and for- ing? individual taxpayer identification
eign income taxes are deductible number) in the letter. If you reside in a country that has
as itemized deductions. Foreign an income tax treaty with the
income taxes are deductible only Keep a day-to-day record of ex- United States, that country may
penses, with receipts where 5) I forgot to include interest allow a credit against the tax you
if you do not claim the foreign tax income when I filed my return
credit. Foreign income taxes paid possible. Allocate meals by di- owe them for the U.S. tax paid
viding the total expense by the last week. What should I do? on U.S. source income. Non-
on excluded income are not
deductible as an itemized de- number in your family and take treaty countries, depending on
duction. your proportionate share. Gen- To correct a mistake of this sort their laws, may give the same
Note. Foreign income taxes erally, your deduction for rent will you should prepare Form 1040X. type of credit against the tax you
are usually claimed under the be limited to the amount you Complete this form, including the owe them for the U.S. tax paid
credit provisions, if they apply, would have paid had you been omitted interest income, refigure on U.S. source income.
because this is more advanta- abroad alone. the tax, and send the form as If double taxation exists and
geous in most cases. soon as possible along with any you cannot resolve the problem
General Tax Questions additional tax due to the Internal with the tax authorities of the
Revenue Service Center where foreign country, you can contact
7) I rented an apartment in the you filed your return. Form the:
United Kingdom and had to 1) Will the Internal Revenue 1040X can be used to correct an Internal Revenue Service
pay a local tax called a “gen- Service representatives at the individual Form 1040 income tax Assistant Commissioner (Inter-
eral rates” tax, which is based Embassies and those who return filed for any year for which national)
on occupancy of the apart- provide taxpayer assistance the period of limitation has not Attn: CP:IN:D:CS
ment. Can I deduct this tax as answer questions about tax expired (usually 3 years after the 950 L'Enfant Plaza South, SW
a foreign real estate tax? laws of our home state and the due date of the return filed, or 2 Washington, DC 20024.
laws of the foreign country years after the tax was paid,
where we reside as well as whichever is later).
No. This tax does not qualify as U.S. federal income tax laws? 10) My total income after
a real estate tax since it is levied claiming the foreign earned
on the occupant of the premises 6) I am a U.S. citizen and, be- income and housing exclu-
rather than on the owner of the No. The IRS representatives are cause I expect to qualify for sions consists of $5,000 taxa-
property. authorized only to answer tax the foreign earned income ex- ble wages. Am I entitled to
questions on U.S. federal income clusion, all my foreign income claim the refundable earned
tax. You should write your home (which consists solely of sal- income credit?
Scholarship and state's tax office for state tax in- ary) will be exempt from U.S.
Fellowship Grantees formation and contact the tax of- tax. Do I get any tax benefit No. If you claim the foreign
ficials of the country where you from income tax I paid on this earned income exclusion, the
reside for information regarding salary to a foreign country foreign housing exclusion, or the
1) I am a Fulbright grantee. their taxes.
What documentation must I during the tax year? foreign housing deduction, you
attach to my return? cannot claim the earned income
2) Can Internal Revenue Ser- credit.
No. You cannot take either a tax
vice personnel recommend tax
credit or a tax deduction for for-
a) There are no special tax forms practitioners who prepare re- 11) Last May my employer
eign income taxes paid on in-
for Fulbright grantees. File on a turns? transferred me to our office in
come that is exempt from U.S.
regular Form 1040. tax because of the foreign Puerto Rico. I understand that
b) If you claim exemption as earned income exclusion. my salary earned in Puerto
a scholarship or fellowship No. IRS employees are not per-
mitted to recommend tax practi- Rico is tax exempt. Is this
grantee, submit brochures and correct?
correspondence describing the tioners who prepare income tax
7) I am a U.S. citizen stationed
grant and your duties. returns.
abroad. I made a personal loan
c) If you are located in a for- to a nonresident alien who As long as your employer is not
eign country and wish to pay tax 3) I just filed my return. How later went bankrupt. Can I the U.S. Government, all income
in foreign currency, you should long will it take to get my re- claim a bad debt loss for this from sources within Puerto Rico
submit a certified statement fund? money? is exempt from U.S. tax if you
showing that you were a are a bona fide resident of
Fulbright grantee and at least Puerto Rico during the entire tax
70% of the grant was paid in It may take up to 10 weeks to Yes. The loss should be reported year. The income you received
nonconvertible foreign currency issue a refund on a return that is as a short-term capital loss on from Puerto Rican sources the
(see Publication 520). properly made out. A refund may Schedule D (Form 1040). You year you moved to Puerto Rico
take longer than that if the return have the burden of proving the is not exempt. The tax paid to
is filed just before the filing validity of the loan, the subse- Puerto Rico in the year you
2) I taught and lectured abroad deadline. quent bankruptcy, and the re- moved to Puerto Rico can be
under taxable grants. What An error on the return will covery or nonrecovery from the claimed as a foreign tax credit
expenses can I deduct? also delay the refund. Among the loan. on Form 1116.
Page 39
12) I am a U.S. citizen married child for whom you can claim eligible to file as head of house- should be included in your pay-
to a nonresident alien. I be- an exemption, or for whom hold. You can use the head of ment.
lieve I qualify to use the head you could claim an ex- household column in the Tax
of household tax rates. Can I emption except that you Table or the head of household
use the head of household tax signed a statement allowing Tax Rate Schedule. 2) If I wait to file my return until
rates? the noncustodial parent to It may be advantageous to I qualify for the foreign earned
claim the exemption, or the choose to treat your nonresident income exclusion, I will be
noncustodial parent provides alien spouse as a U.S. resident charged interest on the U.S.
Yes. Although your nonresident
at least $600 support and and file a joint income tax return. tax I will owe. To avoid being
alien spouse cannot qualify you
claims the exemption under Once you make the choice, charged interest, can I file my
as a head of household, you can
a pre–1985 agreement. however, you must report the return on time, reporting only
qualify if (a) or (b) applies:
worldwide income of both your- my taxable income, excluding
a) You paid more than half • Any relative listed below for self and your spouse. my salary for services abroad
the cost of keeping up a home whom you can claim an ex- that will be exempt after I have
that was the principal home for emption. met the qualifications?
the whole year for your mother
or father for whom you can claim Parent Father-in-law
Penalties and Interest
an exemption (your parent does Grandparent Brother-in-law No. If you file a return before you
not have to have lived with you), Brother Sister-in-law qualify for the exclusion, you
Half-brother Half-sister 1) Does the June 15 extended
or due date for filing my return must report all income, including
Sister Son-in-law
b) You paid more than half Stepbrother Daughter-in-law, or because both my tax home all income for services performed
the cost of keeping up the home Stepsister If related by blood: and my abode are outside the abroad, and pay tax on all of it.
in which you lived and in which Stepmother —Uncle United States and Puerto Rico After you meet the qualifications,
one of the following also lived for Stepfather —Aunt on the regular due date relieve you can file a claim for refund by
more than half the year: Mother-in-law —Nephew
me from having to pay interest excluding the income earned
—Niece abroad. If you defer the filing of
on tax not paid by April 15?
• Your unmarried child, If your spouse was a nonres- your return, you can avoid inter-
grandchild, stepchild, foster ident alien at any time during the est on tax due on your return to
child, or adopted child. A year and you do not choose to No. An extension, whether an be filed by paying the tax you
foster child will qualify you treat your nonresident spouse as automatic extension or one re- estimate you will owe with your
for this status only if you can a resident alien, then you are quested in writing, does not re- request for an extension of time
claim an exemption for the treated as unmarried for head of lieve you of the payment of in- to file on Form 2350, or by pay-
child. household purposes. You must terest on the tax due as of April ing enough estimated tax to
• Your married child, grand- have another qualifying relative 15 following the year for which cover any tax that you expect
child, stepchild, or adopted and meet the other tests to be the return is filed. The interest will be due on the return.

Page 40
Index

Foreign housing exclusion or de- Rental ................................... 16 Reimbursement of moving ex-


A duction .................................. 19 Royalties ............................... 16 penses .................................. 16
American Samoa, residents of .. 11 Foreign taxes: Source of .............................. 15 Revocation of choice to exclude 19
Assistance ................................. 32 Credit ................................ 7, 29 Stock options ........................ 16
Deduction ............................. 30 Students ............................... 31
Paid on excluded income ..... 29 Trade or business ................ 15
Form: Unearned .............................. 15 S
B 673 ................................... 7, 38 Indefinite assignment ................ 11 Scholarship and fellowship
Binational social security agree- grants ................................... 39
1040 ............................... 22, 38 Individual retirement arrange-
ments ...................................... 9 Second foreign household ........ 20
1040X ................... 4, 32, 36, 39 ments .................................... 29
Blocked income ........................... 4 Self-employment tax ........ 9, 10, 37
1040–ES ................................. 6 Individual taxpayer identification
Bona fide residence test ..... 12, 13 Exemption from .................... 10
1078 ....................................... 7 number (ITIN) ....................... 27
Part of a year ....................... 13 Who must pay ...................... 10
1116 ............................... 29, 39 Information returns ...................... 6
Special agreements and trea- Social security and Medicare
2032 ....................................... 9 Investment income .................... 31
ties ................................... 13 taxes ....................................... 9
2106 ..................................... 30
Voting by absentee ballot .... 13 Social security benefits ............. 37
2350 ........................... 4, 35, 40
2555 ............ 13, 15, 19, 21, 22, Social security number:
30, 35, 38 L Dependents ............................ 2
Limit on excludable amount ...... 18 Nonresident spouse ............... 5
C 2555–EZ ...... 15, 19, 21, 22, 30,
Social security numbers for depen-
Camps, employees living in ...... 17 35
3115 ....................................... 4 dents ....................................... 2
Carryover of housing amount de- Source of earned income .......... 15
duction .................................. 20 3903 ..................................... 29 M Special agreements and treaties 13
Choosing the exclusion ............. 19 4361 ..................................... 10 Married couples living apart ...... 21
4563 ............................... 12, 35 Students .................................... 31
Clergy, self-employment tax on 10 Meals and lodging, exclusion of 17
Community income .................... 18 4790 ....................................... 6 More information ....................... 32
Competent authority assistance 32 4868 ....................................... 3 Moving expenses ...................... 27
Contributions ............................. 27 5471 ....................................... 6 T
Controlled foreign corporations ... 6 8689 ....................................... 5 Taiwan, American Institute in .... 17
Conventions, income tax ........... 31 8822 ....................................... 2 Tax help ..................................... 32
Currency ...................................... 4 RRB–1099 ............................ 38 N Tax home .................................. 11
RRB–1099–R ....................... 38 Nonresident spouse .................... 5 Tax treaty benefits ..................... 31
Schedule SE ........................ 10 Northern Mariana Islands, resi- Taxpayer Advocate,see Problem
TD F 90–22.1 ......................... 7 dents of ............................ 5, 11 Resolution Program (PRP) .. 33
D W–4 ........................................ 7 Taxpayer assistance ................. 39
Deductions ........................... 27, 38 Free tax services ....................... 32 Teachers .................................... 31
Contributions ........................ 27 Fulbright grants ........................... 4
Moving expenses ................. 27 O Temporary assignment .............. 11
Optional method for self- Terrorist or military action ........... 5
Deductions and credits .............. 27 Totalization agreements .............. 9
Dependents: employment tax .................... 10
Exemption for ....................... 27 G Travel restrictions, U.S. ............. 14
General tax questions ............... 39 Treaties, income tax .................. 32
Individual taxpayer identification TTY/TDD information ................ 32
Guam, residents of ................ 5, 11
number .............................. 2 P
Social security number ........... 2 Panama Canal Commission, U.S.
employees of ........................ 17
H Part-year exclusion .................... 18 U
Head of household status ......... 40 Pay for personal services .... 15, 31 U.S. Government allowance ..... 20
E Help ........................................... 32 Payment of tax ............................ 3 U.S. Government employees .... 17
Earned income credit ................ 39 Housing amount ........................ 19 Penalties and interest ................ 40
Earned income: Housing deduction ..................... 20 Pension payments, withholding
Source of .............................. 15 Housing exclusion ..................... 20 from ........................................ 7 V
Types of ............................... 15
Pensions and annuities ....... 16, 31 Virgin Islands:
Estimated tax ............................... 6
Physical presence test .. 13, 14, 19 Nonresident ............................ 5
Exemptions and dependency
allowances ...................... 27, 37 I 12–month period .................. 14 Resident ................................. 5
Illustrated example .................... 21 Full day ................................. 14 Where to file ........................... 5
Extension of time to file income tax
Income: Problem Resolution Program
return ...................................... 3
Artist ..................................... 16 (PRP) .................................... 33
Blocked income ...................... 4 Professors and teachers ........... 31
Community ........................... 18 Publications ............................... 32 W
F Corporation ........................... 16 Puerto Rico, residents of ........... 12 Waiver of time requirements ..... 14
Filing information ................. 2, 3, 6 Earned .................................. 15 When to file and pay ............. 3, 35
Filing requirements ................. 3 Employer's property or Where to file ...................... 4, 5, 35
Information returns and reports 6 facilities ........................... 16 Commonwealth of the Northern
Filing requirements ............ 3, 4, 35 Investment ............................ 31
Q Mariana Islands, resident of 5
Qualified second household ...... 20 Resident of Guam .................. 5
When to file and pay ........ 3, 35 Pensions and annuities .. 16, 31 Questions and answer .............. 35
Where to file ..................... 4, 35 Personal service ................... 31 Virgin Islands resident, nonresi-
Foreign country, defined ........... 11 Professors and teachers ...... 31 dent ................................... 5
Foreign currency ......................... 4 Reimbursement of employee Withholding .................................. 7
Foreign earned income ............. 15 expenses ......................... 16 R Withholding tax ...................... 7, 38
Foreign earned income exclu- Reimbursement of moving ex- Railroad retirement benefits ...... 38 
sion ................................. 18, 37 penses ............................. 16 Recapture of moving expenses 29

Page 41
See How To Get More Information for a variety of ways to get publications,
Tax Publications for Individual Taxpayers including by computer, phone, and mail.

General Guides 530 Tax Information for First-Time 901 U.S. Tax Treaties
Homeowners 907 Tax Highlights for Persons with
1 Your Rights as a Taxpayer 531 Reporting Tip Income Disabilities
17 Your Federal Income Tax (For 533 Self-Employment Tax 908 Bankruptcy Tax Guide
Individuals) 534 Depreciating Property Placed in 911 Direct Sellers
225 Farmer’s Tax Guide Service Before 1987 915 Social Security and Equivalent
334 Tax Guide for Small Business 537 Installment Sales Railroad Retirement Benefits
509 Tax Calendars for 1999 541 Partnerships 919 Is My Withholding Correct for 1999?
553 Highlights of 1998 Tax Changes 544 Sales and Other Dispositions of 925 Passive Activity and At-Risk Rules
595 Tax Highlights for Commercial Assets 926 Household Employer’s Tax Guide
Fishermen 547 Casualties, Disasters, and Thefts 929 Tax Rules for Children and
910 Guide to Free Tax Services (Business and Nonbusiness) Dependents
550 Investment Income and Expenses 936 Home Mortgage Interest Deduction
Specialized Publications 551 Basis of Assets 946 How To Depreciate Property
552 Recordkeeping for Individuals 947 Practice Before the IRS and Power
3 Armed Forces’ Tax Guide 554 Older Americans’ Tax Guide of Attorney
378 Fuel Tax Credits and Refunds 555 Community Property 950 Introduction to Estate and Gift Taxes
463 Travel, Entertainment, Gift, and Car 556 Examination of Returns, Appeal 967 IRS Will Figure Your Tax
Expenses Rights, and Claims for Refund 968 Tax Benefits for Adoption
501 Exemptions, Standard Deduction, 559 Survivors, Executors, and
and Filing Information 970 Tax Benefits for Higher Education
Administrators 971 Innocent Spouse Relief
502 Medical and Dental Expenses 561 Determining the Value of Donated
503 Child and Dependent Care Expenses 1542 Per Diem Rates
Property 1544 Reporting Cash Payments of Over
504 Divorced or Separated Individuals 564 Mutual Fund Distributions $10,000
505 Tax Withholding and Estimated Tax 570 Tax Guide for Individuals With 1546 The Problem Resolution Program
508 Educational Expenses Income From U.S. Possessions of the Internal Revenue Service
514 Foreign Tax Credit for Individuals 575 Pension and Annuity Income
516 U.S. Government Civilian Employees 584 Nonbusiness Disaster, Casualty, and
Stationed Abroad Theft Loss Workbook Spanish Language Publications
517 Social Security and Other 587 Business Use of Your Home
Information for Members of the (Including Use by Day-Care 1SP Derechos del Contribuyente
Clergy and Religious Workers Providers) 579SP Cómo Preparar la Declaración de
519 U.S. Tax Guide for Aliens 590 Individual Retirement Arrangements Impuesto Federal
520 Scholarships and Fellowships (IRAs) (Including Roth IRAs and 594SP Comprendiendo el Proceso de Cobro
521 Moving Expenses Education IRAs) 596SP Crédito por Ingreso del Trabajo
523 Selling Your Home 593 Tax Highlights for U.S. Citizens and 850 English-Spanish Glossary of Words
524 Credit for the Elderly or the Disabled Residents Going Abroad and Phrases Used in Publications
525 Taxable and Nontaxable Income 594 Understanding the Collection Process Issued by the Internal Revenue
526 Charitable Contributions 596 Earned Income Credit Service
527 Residential Rental Property 721 Tax Guide to U.S. Civil Service 1544SP Informe de Pagos en Efectivo en
529 Miscellaneous Deductions Retirement Benefits Exceso de $10,000 (Recibidos en
una Ocupación o Negocio)
See How To Get More Information for a variety of ways to get forms, including by computer,
Commonly Used Tax Forms fax, phone, and mail. For fax orders only, use the catalog numbers when ordering.

Catalog Catalog
Form Number and Title Number Form Number and Title Number
1040 U.S. Individual Income Tax Return 11320 2106 Employee Business Expenses 11700
Sch A & B Itemized Deductions & Interest and 11330 2106-EZ Unreimbursed Employee Business 20604
Ordinary Dividends Expenses
Sch C Profit or Loss From Business 11334 2210 Underpayment of Estimated Tax by 11744
Sch C-EZ Net Profit From Business 14374 Individuals, Estates and Trusts
Sch D Capital Gains and Losses 11338 2441 Child and Dependent Care Expenses 11862
Sch E Supplemental Income and Loss 11344 2848 Power of Attorney and Declaration 11980
Sch EIC Earned Income Credit 11339 of Representative
Sch F Profit or Loss From Farming 11346 3903 Moving Expenses 12490
Sch H Household Employment Taxes 12187 4562 Depreciation and Amortization 12906
Sch J Farm Income Averaging 25513 4868 Application for Automatic Extension of Time 13141
Sch R Credit for the Elderly or the Disabled 11359 To File U.S. Individual Income Tax Return
4952 Investment Interest Expense Deduction 13177
Sch SE Self-Employment Tax 11358
1040A U.S. Individual Income Tax Return 11327 5329 Additional Taxes Attributable to IRAs, Other 13329
Qualified Retirement Plans, Annuities,
Sch 1 Interest and Ordinary Dividends for 12075 Modified Endowment Contracts, and MSAs
Form 1040A Filers
Sch 2 Child and Dependent Care 10749 6251 Alternative Minimum Tax–Individuals 13600
Expenses for Form 1040A Filers 8283 Noncash Charitable Contributions 62294
Sch 3 Credit for the Elderly or the 12064 8582 Passive Activity Loss Limitations 63704
Disabled for Form 1040A Filers 8606 Nondeductible IRAs 63966
1040EZ Income Tax Return for Single and 11329 8812 Additional Child Tax Credit 10644
Joint Filers With No Dependents 8822 Change of Address 12081
1040-ES Estimated Tax for Individuals 11340 8829 Expenses for Business Use of Your Home 13232
1040X Amended U.S. Individual Income Tax 11360 8863 Education Credits 25379
Return

Page 42
See How To Get More Information for a variety of ways to get publications,
Tax Publications for Business Taxpayers including by computer, phone, and mail.

General Guides 463 Travel, Entertainment, Gift, and Car 597 Information on the United States-
Expenses Canada Income Tax Treaty
1 Your Rights as a Taxpayer 505 Tax Withholding and Estimated Tax 598 Tax on Unrelated Business Income
17 Your Federal Income Tax (For 510 Excise Taxes for 1999 of Exempt Organizations
Individuals) 515 Withholding of Tax on Nonresident 686 Certification for Reduced Tax Rates
225 Farmer’s Tax Guide Aliens and Foreign Corporations in Tax Treaty Countries
334 Tax Guide for Small Business 517 Social Security and Other 901 U.S. Tax Treaties
509 Tax Calendars for 1999 Information for Members of the 908 Bankruptcy Tax Guide
553 Highlights of 1998 Tax Changes Clergy and Religious Workers 911 Direct Sellers
595 Tax Highlights for Commercial 527 Residential Rental Property 925 Passive Activity and At-Risk Rules
Fishermen 533 Self-Employment Tax 946 How To Depreciate Property
910 Guide to Free Tax Services 534 Depreciating Property Placed in 947 Practice Before the IRS and Power
Service Before 1987 of Attorney
Employer’s Guides 535 Business Expenses 953 International Tax Information for
536 Net Operating Losses Businesses
15 Employer’s Tax Guide (Circular E) 537 Installment Sales 1544 Reporting Cash Payments of Over
15-A Employer’s Supplemental Tax Guide 538 Accounting Periods and Methods $10,000
51 Agricultural Employer’s Tax Guide 541 Partnerships 1546 The Problem Resolution Program
(Circular A) 542 Corporations of the Internal Revenue Service
80 Federal Tax Guide For Employers in 544 Sales and Other Dispositions of
the U.S. Virgin Islands, Guam, Assets
American Samoa, and the Spanish Language Publications
Commonwealth of the Northern 551 Basis of Assets
Mariana Islands (Circular SS) 556 Examination of Returns, Appeal
Rights, and Claims for Refund 1SP Derechos del Contribuyente
179 Guía Contributiva Federal Para 579SP Cómo Preparar la Declaración de
Patronos Puertorriqueños 560 Retirement Plans for Small Business
(SEP, SIMPLE, and Keogh Plans) Impuesto Federal
(Circular PR)
561 Determining the Value of Donated 594SP Comprendiendo el Proceso de Cobro
926 Household Employer’s Tax Guide
Property 850 English-Spanish Glossary of Words
583 Starting a Business and Keeping and Phrases Used in Publications
Records Issued by the Internal Revenue
Specialized Publications Service
587 Business Use of Your Home
(Including Use by Day-Care 1544SP Informe de Pagos en Efectivo en
378 Fuel Tax Credits and Refunds Exceso de $10,000 (Recibidos en
Providers)
594 Understanding the Collection Process una Ocupación o Negocio)

Commonly Used Tax Forms See How To Get More Information for a variety of ways to get forms, including by computer, fax,
phone, and mail. Items with an asterisk are available by fax. For these orders only, use the catalog
numbers when ordering.

Catalog Catalog
Form Number and Title Number Form Number and Title Number
W-2 Wage and Tax Statement 10134 1120S U.S. Income Tax Return for an S Corporation 11510
W-4 Employee’s Withholding Allowance Certificate* 10220 Sch D Capital Gains and Losses and Built-In Gains 11516
940 Employer’s Annual Federal Unemployment 11234 Sch K-1 Shareholder’s Share of Income, Credits, 11520
(FUTA) Tax Return* Deductions, etc.
940EZ Employer’s Annual Federal Unemployment 10983 2106 Employee Business Expenses* 11700
(FUTA) Tax Return* 2106-EZ Unreimbursed Employee Business 20604
941 Employer’s Quarterly Federal Tax Return 17001 Expenses*
1040 U.S. Individual Income Tax Return* 11320 2210 Underpayment of Estimated Tax by 11744
Sch A & B Itemized Deductions & Interest and 11330 Individuals, Estates, and Trusts*
Ordinary Dividends* 2441 Child and Dependent Care Expenses* 11862
Sch C Profit or Loss From Business* 11334 2848 Power of Attorney and Declaration of 11980
Representative*
Sch C-EZ Net Profit From Business* 14374
Sch D Capital Gains and Losses* 11338 3800 General Business Credit 12392
Sch E Supplemental Income and Loss* 11344 3903 Moving Expenses* 12490
Sch F Profit or Loss From Farming* 11346 4562 Depreciation and Amortization* 12906
Sch H Household Employment Taxes* 12187 4797 Sales of Business Property* 13086
4868 Application for Automatic Extension of Time To 13141
Sch J Farm Income Averaging* 25513 File U.S. Individual Income Tax Return*
Sch R Credit for the Elderly or the Disabled* 11359
5329 Additional Taxes Attributable to IRAs, Other 13329
Sch SE Self-Employment Tax* 11358 Qualified Retirement Plans, Annuities, Modified
1040-ES Estimated Tax for Individuals* 11340 Endowment Contracts, and MSAs*
1040X Amended U.S. Individual Income Tax Return* 11360 6252 Installment Sale Income* 13601
1065 U.S. Partnership Return of Income 11390 8283 Noncash Charitable Contributions* 62299
Sch D Capital Gains and Losses 11393 8300 Report of Cash Payments Over $10,000 62133
Sch K-1 Partner’s Share of Income, 11394 Received in a Trade or Business*
Credits, Deductions, etc. 8582 Passive Activity Loss Limitations* 63704
1120 U.S. Corporation Income Tax Return 11450 8606 Nondeductible IRAs* 63966
1120-A U.S. Corporation Short-Form 11456 8822 Change of Address* 12081
Income Tax Return 8829 Expenses for Business Use of Your Home* 13232

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