2024-03-21
Yesterday the IRS published Notice 2024-31 which provides adjustments to the limitation on housing expenses for specific locations in 2024.
Code §911(a) allows a qualified individual to elect to exclude from gross income an “Exclusion Amount” related to foreign earned income and a “Housing Cost Amount.” The Exclusion Amount for 2024 is $126,500.
The Housing Cost Amount is generally defined as an amount equal to the excess of (A) the “Housing Expenses” of an individual for the taxable year, over (B) 16% of the Exclusion Amount.
For example, if an individual had Housing Expenses during 2024 of $25,000, the Housing Cost Amount that could be excluded from that individual’s income would be 4,760 (25,000 - [126,500 X 16%]).
Housing Expenses, however, are generally limited to an amount equal to 30% of the Exclusion Amount in effect for the calendar year ($37,950 for 2024). Thus, the maximum Housing Cost Amount for 2024 which is excludible from income would generally be $17,710 ($37,950 - [126,500 X 16%]).
The IRS is authorized to issue guidance to adjust the limit on Housing Expenses based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the IRS published Notice 2024-26 to provide adjustments to the limitation on Housing Expenses for high cost locations.
For example, the limitation on Housing Expenses for 2024 in Seoul, Korea is $49,200. Therefore, an individual living in Seoul with housing expenses in 2024 of $49,200 or more could exclude from income an amount of $28,960 ($49,200 - [126,500 X 16%]).
An individual generally qualifies for Code §911 during the period which the individual meets the tax home requirement and either the bona fide residence requirement or the physical presence requirement. If it is the first year or the last year that an individual meets these requirements, the amounts above are prorated for the year accordingly.
2023-03-16
On Tuesday the IRS published Notice 2023-26 which provides adjustments to the limitation on housing expenses for specific locations in 2023.
Code §911(a) allows a qualified individual to elect to exclude from gross income an “Exclusion Amount” related to foreign earned income and a “Housing Cost Amount.” The Exclusion Amount for 2023 is $120,000.
The Housing Cost Amount is generally defined as an amount equal to the excess of (A) the “Housing Expenses” of an individual for the taxable year, over (B) 16% of the Exclusion Amount.
For example, if an individual had Housing Expenses during 2023 of $25,000, the Housing Cost Amount that could be excluded from that individual’s income would be 5,800 (25,000 - [120,000 X 16%]).
Housing Expenses, however, are generally limited to an amount equal to 30% of the Exclusion Amount in effect for the calendar year ($36,000 for 2023). Thus, the maximum Housing Cost Amount for 2023 which is excludible from income would generally be $16,800 ($36,000 - [120,000 X 16%]).
The IRS is authorized to issue guidance to adjust the limit on Housing Expenses based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the IRS published Notice 2023-26 to provide adjustments to the limitation on Housing Expenses for high cost locations.
For example, the limitation on Housing Expenses for 2023 in Bangkok, Thailand is $59,000. Therefore, an individual living in Bangkok with housing expenses in 2023 of $59,000 or more could exclude from income an amount of $39,800 ($59,000 - [120,000 X 16%]).
An individual generally qualifies for Code §911 during the period which the individual meets the tax home requirement and either the bona fide residence requirement or the physical presence requirement. If it is the first year or the last year that an individual meets these requirements, the amounts above are prorated for the year accordingly.
2022-03-09
Last week the IRS published Notice 2022-10 which provides adjustments to the limitation on housing expenses for specific locations in 2022.
Code §911(a) allows a qualified individual to elect to exclude from gross income an “Exclusion Amount” related to foreign earned income and a “Housing Cost Amount.” The Exclusion Amount for 2022 is $112,000.
The Housing Cost Amount is generally defined as an amount equal to the excess of (A) the “Housing Expenses” of an individual for the taxable year, over (B) 16% of the Exclusion Amount.
For example, if an individual had Housing Expenses during 2022 of $25,000, the Housing Cost Amount that could be excluded from that individual’s income would be $7,080 (25,000 - [112,000 X 16%]).
Housing Expenses, however, are generally limited to an amount equal to 30% of the Exclusion Amount in effect for the calendar year ($33,600 for 2022). Thus, the maximum Housing Cost Amount for 2022 which is excludible from income would generally be $15,680 ($33,600 - [112,000 X 16%]).
The IRS is authorized to issue guidance to adjust the limit on Housing Expenses based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the IRS published Notice 2022-10 to provide adjustments to the limitation on Housing Expenses for high cost locations.
For example, the limitation on Housing Expenses for 2022 in Tokyo, Japan is $92,400. Therefore, an individual living in Toyko with housing expenses in 2022 of $92,400 or more could exclude from income an amount of $74,480 ($92,400 - [112,000 X 16%]).
An individual generally qualifies for Code §911 during the period which the individual meets the tax home requirement and either the bona fide residence requirement or the physical presence requirement. If it is the first year or the last year that an individual meets these requirements, the amounts above are prorated for the year accordingly.
2021-03-02
Last week the IRS published Notice 2021-18 which provides adjustments to the limitation on housing expenses for specific locations in 2021.
Code §911(a) allows a qualified individual to elect to exclude from gross income an “Exclusion Amount” related to foreign earned income and a “Housing Cost Amount.” The Exclusion Amount for 2021 is $108,700.
The Housing Cost Amount is generally defined as an amount equal to the excess of (A) the “Housing Expenses” of an individual for the taxable year, over (B) 16% of the Exclusion Amount.
For example, if an individual had Housing Expenses during 2021 of $25,000, the Housing Cost Amount that could be excluded from that individual’s income would be $7,608 (25,000 - [108,700 X 16%]).
Housing Expenses, however, are generally limited to an amount equal to 30% of the Exclusion Amount in effect for the calendar year ($32,610 for 2021). Thus, the maximum Housing Cost Amount for 2021 which is excludible from income would generally be $15,218 ($32,610 - [108,700 X 16%]).
The IRS is authorized to issue guidance to adjust the limit on Housing Expenses based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the IRS published Notice 2021-18 to provide adjustments to the limitation on Housing Expenses for high cost locations.
For example, the limitation on Housing Expenses for 2021 in Bern, Switzerland is $72,900. Therefore, an individual living in Bern with housing expenses in 2021 of $72,900 or more could exclude from income an amount of $55,508 ($72,900 - [108,700 X 16%]).
An individual generally qualifies for Code §911 during the period which the individual meets the tax home requirement and either the bona fide residence requirement or the physical presence requirement. If it is the first year or the last year that an individual meets these requirements, the amounts above are prorated for the year accordingly.
2020-02-25
Last week the IRS published Notice 2020-13 which provides adjustments to the limitation on housing expenses for specific locations in 2020.
Code §911(a) allows a qualified individual to elect to exclude from gross income an “Exclusion Amount” related to foreign earned income and a “Housing Cost Amount.” The Exclusion Amount for 2020 is $107,600.
The Housing Cost Amount is generally defined as an amount equal to the excess of (A) the “Housing Expenses” of an individual for the taxable year, over (B) 16% of the Exclusion Amount.
For example, if an individual had Housing Expenses during 2020 of $25,000, the Housing Cost Amount that could be excluded from that individual’s income would be $8,056 (25,000 - [107,600 X 16%]).
Housing Expenses, however, are generally limited to an amount equal to 30% of the Exclusion Amount in effect for the calendar year ($32,280 for 2020). Thus, the maximum Housing Cost Amount for 2020 which is excludible from income would generally be $15,064 ($32,280 - [107,600 X 16%]).
The IRS is authorized to issue guidance to adjust the limit on Housing Expenses based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the IRS published Notice 2020-13 to provide adjustments to the limitation on Housing Expenses for high cost locations.
For example, the limitation on Housing Expenses for 2020 in Beijing, China is $69,000. Therefore, an individual living in Beijing with housing expenses in 2020 of $69,000 or more could exclude from income an amount of $51,784 ($69,000 - [107,600 X 16%]).
An individual generally qualifies for Code §911 during the period which the individual meets the tax home requirement and either the bona fide residence requirement or the physical presence requirement. If it is the first year or the last year that an individual meets these requirements, the amounts above are prorated for the year accordingly.
2019-04-17
Last week the IRS published Notice 2019-24 which provides adjustments to the limitation on housing expenses for specific locations in 2019.
Code §911(a) allows a qualified individual to elect to exclude from gross income an “Exclusion Amount” related to foreign earned income and a “Housing Cost Amount.” The Exclusion Amount for 2019 is $105,900.
The Housing Cost Amount is generally defined as an amount equal to the excess of (A) the “Housing Expenses” of an individual for the taxable year, over (B) 16% of the Exclusion Amount.
For example, if an individual had Housing Expenses during 2019 of $25,000, the Housing Cost Amount that could be excluded from that individual’s income would be $8,056 (25,000 - [105,900 X 16%]).
Housing Expenses, however, are generally limited to an amount equal to 30% of the Exclusion Amount in effect for the calendar year ($31,770 for 2019). Thus, the maximum Housing Cost Amount for 2019 which is excludible from income would generally be $14,826 ($31,770 - [105,900 X 16%]).
The IRS is authorized to issue guidance to adjust the limit on Housing Expenses based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the IRS published Notice 2019-24 to provide adjustments to the limitation on Housing Expenses for high cost locations.
For example, the limitation on Housing Expenses for 2019 in Beijing, China is $71,200. Therefore, an individual living in Beijing with housing expenses in 2019 of $71,200 or more could exclude from income an amount of $54,256 ($71,200 - [105,900 X 16%]).
An individual generally qualifies for Code §911 during the period which the individual meets the tax home requirement and either the bona fide residence requirement or the physical presence requirement. If it is the first year or the last year that an individual meets these requirements, the amounts above are prorated for the year accordingly.
2018-02-01
Today we published a video discussing Form 2555, which is used to claim the foreign earned income exclusion. In the video, we discuss the general requirements for qualifying for the foreign earned income exclusion and go through the completion of Form 2555 line-by-line.
You can view these videos and many others on our YouTube channel Andrew Mitchel Tax.
2014-12-23
Last week the I.R.S. published 46 International Practice Units. The Practice Units provide I.R.S. staff with explanations of general international tax concepts as well as information about specific types of transactions. The 46 topics covered in the Practice Units are shown below. In addition, we have added a link to the Practice Units in our “Resources” section in the right column.
2014-07-04
In the past the I.R.S. has written several internal memoranda on the taxation of contributions into the Singapore Central Provident Fund (the “Fund”). The issue in the memoranda was whether an employee could exclude from income (under the Code §911 foreign earned income exclusion) contributions made into the Fund.
In 1988, the I.R.S. concluded that the amount paid by an employer out of the employer’s own funds was taxable under Code §402(b) and that the amount withheld from the employee’s wages was taxable under Code §61(a). The portion of the contributions taxable to the employee under Code §61(a) could be excluded, but the portion that was taxable under Code §402(b) could not be excluded. See Code §911(b)(1)(B)(i).
In 1996 and 1997, the I.R.S. concluded that all of the contributions (including the amount withheld from the employee’s wages) was taxable under Code §402(b). Thus, the I.R.S. concluded that none of the contributions into the Fund could be excluded from income under the foreign earned income exclusion.
Below are selected excerpts from the memoranda.
Under Singapore law, an employer is required to make contributions on behalf of the employee, but the employer is entitled to deduct from the employee’s monthly wages 50 percent of the total amount required to be distributed.
* * *
The “employee’s contributions” (the amounts contributed by the employer that are withheld from the employee’s wages at the employer’s election) to the Fund are withheld by the employer each pay period and, together with the employer’s contributions, are paid over to the Singapore government each month. The total amount contributed is held by the government in trust for the employee.
* * *
The amounts contributed to the Fund on behalf of an employee that are employer contributions are includible in the employee’s gross income by reason of section 402(b) of the Code. * * * The amounts withheld from the employee’s salary and contributed to the Fund as employee contributions are includible in the employee’s gross income pursuant to section 61(a).
1996 memorandum from Bernard T. Bress to Robert Uhar
* * * [A]mounts withheld from an employee’s wages and contributed to the Fund can be treated as employer contributions that are includible in the employee’s gross income by reason of section 402(b) (rather than section 61(a)). * * *
[W]e have concluded that the Fund is a nonexempt employees’ trust described in § 402(b). It appears that contributions to the Fund generally are made as a uniform percentage of salary for the vast majority of each employer's employees. Thus, for most employers, Fund benefits of highly compensated employees would not be subject to the rules of § 402(b)(4)(A). * * *
For an employee who is taxed under the rules of 402(b)(1), contributions paid by the employer to Fund are taxable pursuant to § 402(b)(1). Because nonelective contributions withheld from an employee’s salary are not withheld at the election of the employee and are not constructively received by the employee, those contributions are considered employer contributions and are taxable pursuant to § 402(b)(1). See Hicks v. United States, 205 F.Supp. 343 (W.D. Va. 1962), aff’d, 314 F.2d 180 (4th Cir. 1963); Rev. Rul. 63-180, 1963-1 C.B. 189. But cf. Rev. Rul. 56-473, 1956-2 C.B. 22; Rev. Rul. 57-326, 1957-2 C.B. 42; Rev. Rul. 72- 250, 1972-1 C.B. 22 (contrary pre-ERISA precedents that are superseded by § 414(h)). Additional contributions to the Fund made at the election of the employee are employee contributions that are taxed pursuant to § 61. As long as these additional elective contributions to an employee’s account do not exceed employer contributions to the employee’s account, no portion of the Fund will be considered owned by the employee under the grantor trust rules pursuant to § 402(b)(3) and § 1.402(b)-1(b)(6).
October 10, 1997 memorandum from Barbara Felker to Robert Uhar (two memoranda in the same PDF)
[N]onelective amounts withheld from an employee’s wages and contributed to the Fund are includible in the employee’s gross income by reason of section 402(b) (rather than section 61) * * *. Consequently, such amounts are not excludible from the employee’s gross income under section 911.
2014-04-15
Yesterday the IRS published Notice 2014-29 which provides adjustments to the limitation on housing expenses for specific locations in 2014.
Code §911(a) allows a qualified individual to elect to exclude from gross income an “Exclusion Amount” related to foreign earned income and a “Housing Cost Amount”. The Exclusion Amount for 2014 is $99,200.
The Housing Cost Amount is generally defined as an amount equal to the excess of (A) the “Housing Expenses” of an individual for the taxable year, over (B) 16% of the Exclusion Amount.
For example, if an individual had Housing Expenses during 2014 of $20,000, the Housing Cost Amount that could be excluded from that individual’s income would be $4,128 (20,000 - [99,200 X 16%]).
Housing Expenses, however, are generally limited to an amount equal to 30% of the Exclusion Amount in effect for the calendar year ($29,760 for 2014). Thus, the maximum Housing Cost Amount for 2014 which is excludible from income would generally be $13,888 ($29,760 - [99,200 X 16%]).
The I.R.S. is authorized to issue guidance to adjust the limit on Housing Expenses based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the I.R.S. published Notice 2014-29 to provide adjustments to the limitation on Housing Expenses for high cost locations.
For example, the limitation on Housing Expenses for 2014 in Hong Kong is $114,300. Therefore, an individual living in Hong Kong with housing expenses in 2014 of $114,300 or more could exclude from income an amount of $98,428 ($114,300 - [99,200 X 16%]).
An individual generally qualifies for Code §911 during the period which the individual meets the tax home requirement and either the bona fide residence requirement or the physical presence requirement. If it is the first year or the last year that an individual meets these requirements, the amounts above are prorated for the year accordingly.
2013-11-22
Today the IRS published the following Private Letter Rulings relating to international taxation.
PLR 201347002 - Ordinary (and not capital) loss allowed on liquidation of worthless controlled foreign corporation. The fees earned by a foreign subsidiary did not constitute interest for purposes of Code §165(g)(3)(B). Rev. Rul. 88-65.
PLR 201347006, PLR 201347018 - Late IC DISC elections. Form 4876-A, Code §992(b)(1)(A).
PLR 201347007 - Late entity classification election for a foreign entity to be treated as an association taxable as a corporation. Form 8832. Treas. Reg. §301.7701-3(c).
PLR 201347008 - Late entity classification election for a foreign entity to be treated as a partnership. Form 8832. Treas. Reg. §301.7701-3(c).
PLR 201347016 - Late election of Code §911 exclusion. Form 2555. Treas. Reg. §1.911-7(a).
2013-11-15
Today the IRS published the following Private Letter Rulings relating to international taxation.
PLR 201345002, PLR201345007, PLR201345008, PLR201345009, PLR201345010, PLR201345011, PLR201345012, PLR201345013, PLR201345014, PLR201345015, PLR201345016, PLR 201345022 - Late entity classification elections for foreign entities to be treated as partnerships. Form 8832. Treas. Reg. §301.7701-3(c).
PLR 201345031 - Denial of Code §501(c)(3) exemption for domestic organization acting as a "foreign feeder" charity.
2013-11-08
This week the IRS published the following Private Letter Rulings relating to international taxation.
PLR 201344007 - Early re-election of Code §911 exclusion. Form 2555. Treas. Reg. §1.911-7(b). (“Taxpayer lived in Taxing Jurisdiction 1, Country A. Upon the advice of Taxpayer’s accountant at the time, Taxpayer revoked her election under section 911 to exclude her foreign earned income and housing cost amount for Year 1. In Year 2, Taxpayer moved from Taxing Jurisdiction 1 to Taxing Jurisdiction 2 of Country A. Taxing Jurisdiction 2’s tax rate is significantly lower than Taxing Jurisdiction 1’s tax rate. Taxpayer seeks to permission to reelect for Year 2.”)
PLR 201344008 - Late/retroactive passive foreign investment company ("PFIC") qualified electing fund ("QEF") election. Form 8621. Treas. Reg. §1.1295-3(f).
2013-08-18
For the 13th week of 2013, the IRS published the following Chief Counsel Advice relating to international taxation.
CCA 201313023 - two similarly situated taxpayers will pay the same amount of tax regardless of whether they take the housing deduction or exclusion. Code §911. Form 2555.
2013-06-12
Last week the Tax Court published its opinion in Daly v. Commr., TC Memo 2013-147. In this case , the Tax Court held that an individual who spent 106 days in Iraq in 2007 and 93 days in Iraq in 2008 did not qualify for the Code §911 foreign earned income exclusion. Apparently some of the days were also spent in Afghanistan, but the number of days in Afghanistan was not specified.
The Tax Court held that the individual’s abode was in the U.S. and therefore his tax home (for Code §911 purposes) was also in the U.S. Further, even if the individual’s abode and tax home were not in the U.S. the individual did not meet the bona fide residence test or the 330 day physical presence test. Although the individual requested a waiver of the 330 day requirement, neither Iraq nor Afghanistan was included on the list of foreign countries where war, civil unrest, or similar adverse conditions existed for purposes of Code §911(d)(4)(B). See for example Rev. Proc. 2009-22.
It is a bit surprising that this case made it all the way to the Tax Court. One would think that the taxpayer or the taxpayer’s counsel would have concluded beforehand that it would not be fruitful. Apparently a number of arguments advanced by the taxpayer were not even addressed by the Tax Court. The sentence at the end of the case states: “Contentions we have not addressed are irrelevant, moot, or meritless.”
2013-05-06
Code §911(a) allows a qualified individual to elect to exclude from gross income an “Exclusion Amount” related to foreign earned income and a “Housing Cost Amount”. The Exclusion Amount for 2013 is $97,600.
The Housing Cost Amount is generally defined as an amount equal to the excess of (A) the “Housing Expenses” of an individual for the taxable year, over (B) 16% of the Exclusion Amount.
For example, if an individual had Housing Expenses during 2013 of $20,000, the Housing Cost Amount that could be excluded from that individual’s income would be $4,384 (20,000 - [97,600 X 16%]).
Housing Expenses, however, are generally limited to an amount equal to 30% of the Exclusion Amount in effect for the calendar year ($29,280 for 2013). Thus, the maximum Housing Cost Amount for 2013 which is excludible from income would generally be $13,664 ($29,280 - [97,600 X 16%]).
The I.R.S. is authorized to issue guidance to adjust the limit on Housing Expenses based on geographic differences in housing costs relative to housing costs in the United States. Pursuant to this authority, the I.R.S. published Notice 2013-31 to provide adjustments to the limitation on Housing Expenses for high cost locations.
For example, the limitation on Housing Expenses for 2013 in Tokyo is $117,100. Therefore, an individual living in Tokyo with housing expenses in 2013 of $117,100 or more could exclude from income an amount of $101,484 ($117,100 - [97,600 X 16%]).
An individual generally qualifies for Code §911 during the period which the individual meets the tax home requirement and either the bona fide residence requirement or the physical presence requirement. If it is the first year or the last year that an individual meets these requirements, the amounts above are prorated for the year accordingly.
2013-02-26
Last week the IRS published the following Private Letter Rulings relating to international taxation.
Late Canadian registered retirement savings plan ("RRSP") deferral election. Form 8891. Rev. Proc. 2002-23.
Late entity classification election for a foreign entity to be treated as a corporation. Form 8832. Treas. Reg. §301.7701-3(c).
PLR 201308023 - Permission granted for early re-election of 911 exclusion. Form 2555. Treas. Reg. §1.911-7(b).
2012-08-24
Recently the IRS published the following Private Letter Rulings and Chief Cousel Advice relating to international taxation for the 31st week of 2012.
PLR 201231005 - Late entity classification election for a foreign entity to be treated as a corporation. Form 8832. Treas. Reg. §301.7701-3(c).
PLR 201231006 - Early re-election of 911 exclusion. The taxpayer moved back to the U.S. and erroneously thought he had to revoke his election because he no longer had any foreign earned income. Form 2555. Treas. Reg. §1.911-7(b).
PLR 201231008 - Late entity classification election for a foreign entity to be treated as a partnership. Form 8832. Treas. Reg. §301.7701-3(c).
CCA 201231010 - A U.K. resident individual may not rely on the U.K.-U.S. Income Tax Treaty to make a tax-deferred rollover distribution from a U.S. pension scheme to a U.K. pension scheme that is not an “eligible retirement plan.” A lump-sum transfer from a U.S. pension scheme to a U.K. pension scheme that is not an eligible retirement plan is taxable as a distribution in the United States.