Who can take the Foreign Earned Income Exclusion?
A US taxpayer who has foreign earned income such as salaries, wages, commissions, bonuses, or tips, may qualify to exclude some of that income from US taxation. This exclusion is only available if you are a qualified individual under one of the criteria of §911(d)(1):
- A U.S. citizen or a U.S. resident alien who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year (bona fide resident test), or
- A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months (physical presence test).
How much is the exclusion?
- Foreign Earned Income Exclusion amount: $108,700 (2021), ($107,600 in 2020; $105,900 in 2019)
The taxpayer resided in Thailand during the years in question of 2012, 2013 and 2014. He was a US citizen at all times and worked as a pilot for Omni Air International, a domestic company headquartered in Tulsa, OK. He flew internationally and domestic for Omni. During that period he married a woman with a daughter who resided in Thailand. Most of his days off were spent with his wife and stepdaughter in Thailand. In the years in question, Mr. Cutting spent 153, 171 and 114 days in Thailand and had no residence in the US. The court examined the facts to determine ‘where was the taxpayer’s tax home and bona fide residence’.
The court considered these factors in holding that the taxpayer was not qualified to take the foreign earned income exclusion:
1) The taxpayer relied on temporary transit and nonimmigrant visas and did not pursue residency, (2) he filed a statement with the Thailand Government that he was not a resident of Thailand, (3) he did not pay any taxes to Thailand, (4) he was not a tenant under the terms of his wife’s lease, and (5) his testimony contradicted his Forms 1040 where he answered “yes” to the question “Have you submitted a statement to the authorities of the foreign country where you claim bona fide residence that you are not a resident of that country?” and “no” to the question “Are you required to pay income tax to the country where you claim bona fide residence?”.
(Douglas H. Cutting v. Comm., TCM 2019-14)