Andrew Mitchel LLC

International Tax Blog - New and Interesting International Tax Issues


Section 911 Housing Cost Amounts Updated for 2024

2024-03-21

seoul_skyline

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.

911_housing_exclusion_2024_03

Tags: 911 Foreign Earned Income Exclusion, 911 Housing Cost Amounts, Authority - Notices, Form 2555

4,000 Tax Cases and Rulings

2023-03-27

Whenever I read a tax case or an IRS ruling, I print it out and use a highlighter to indicate the portions I find important. I also save an electronic version of the document. I have printed and electronic copies of the cases and rulings that I have read for over 30 years.

I keep track of these documents in three general categories:

  1. Cases;
  2. Revenue Rulings, Revenue Procedures, and Notices; and
  3. PLRs, TAMs, CCAs, PMTAs, GCMs, AMs, FSAs, INFOs, ILMs, FAAs, etc.

Indexing Cases & Rulings

Years ago I realized that I would vaguely remember a rule or principle, but I was unable to locate the origin of the rule or principle. I therefore created an Excel file to index the documents I had read.

For each item in the index, I include the name, citation, relevant code sections, a brief description of the key concepts in the document, and related cases or rulings. As I draft each description, I think of “what would I search for” if I were looking for this case or principle. A sample of a few of my index items looks like:

sample of cases and rulings index

On average, I tend to read a new case or ruling every two or three days. So far in 2023, I have read 37 cases and rulings. Last year I read 155 cases and rulings. In total, I have read and indexed over 4,000 cases and rulings.

Flashcards

I export the index of cases and rulings to a text file so that I can import it into a flashcards app on my phone and iPad. This app has some powerful features. For example, if I want to see all of the cases and rulings that I have read that deal with treaties, I can just type in “894”. This is the code section I use to identify treaties, and the app will show me all of the items that discuss treaties.

If I have time to kill, such as standing in line for coffee, I will often open the flashcards app and review the descriptions of recent cases or rulings I have read.

Tags: Authority - Notices, Authority - PLRs / CCAs, Authority - Revenue Procedures, Authority - Revenue Rulings, Other - Other

Section 911 Housing Cost Amounts Updated for 2023

2023-03-16

bangkok_skyline

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.

911_housing_exclusion_2023_03

Tags: 911 Foreign Earned Income Exclusion, 911 Housing Cost Amounts, Authority - Notices, Form 2555

Famous Tax Quotes - Turning Square Corners

2022-06-05

Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle) today's tax quote is from a recent Sixth Circuit case holding that IRS Notice 2007-83 must be set aside because it did not satisfy the notice-and-comment procedures under the Administrative Procedure Act.  The court stated:

If individuals must turn square corners when they deal with the government, * * * it cannot be too much to expect the government to turn square corners when it deals with them. [internal quotation marks omitted]

Mann Construction, Inc. v. U.S., 27 F.4th 1138 (6th Circuit 2022)

Tags: Authority - Notices, Other - Famous Tax Quotes

Section 911 Housing Cost Amounts Updated for 2022

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.

911_housing_exclusion_2022_03

Tags: 911 Foreign Earned Income Exclusion, 911 Housing Cost Amounts, Authority - Notices, Form 2555

Section 911 Housing Cost Amounts Updated for 2021

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.

911_housing_cost_exclusion_2021_02

Tags: 911 Foreign Earned Income Exclusion, 911 Housing Cost Amounts, Authority - Notices, Form 2555

Section 911 Housing Cost Amounts Updated for 2020

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.

911_housing_cost_exclusion_2020_02

Tags: 911 Foreign Earned Income Exclusion, 911 Housing Cost Amounts, Authority - Notices, Form 2555

Recent Publications

2015-08-14

Below are several interesting authorities or publications related to international tax that have been released recently.

The U.S. Senate Permanent Subcommittee on Investigations (PSI), held a hearing on July 30, 2015 exploring the impact of the U.S. corporate tax code on foreign acquisitions of U.S. businesses and the ability of U.S. businesses to expand by acquisition.  The associated report, "Impact of the U.S. Tax Code on the Market for Corporate Control and Jobs," details transactions involving Burger King, Anheuser-Busch, and Valeant.

Notice 2015-54 - Announces that the Treasury Department and the IRS intend to issue regulations under Code §721(c) to ensure that, when a U.S. person transfers certain property to a partnership that has foreign partners related to the transferor, income or gain attributable to the property will be taken into account by the transferor either immediately or periodically.  This notice also announces that the Treasury Department and the IRS intend to issue regulations under Code §§482 and 6662 applicable to controlled transactions involving partnerships to ensure the appropriate valuation of such transactions.

Rev. Proc. 2015-40 - Provides guidance on the process of requesting and obtaining assistance under U.S. tax treaties from the U.S. competent authority, acting through the Advance Pricing and Mutual Agreement Program and the Treaty Assistance and Interpretation Team of the Deputy Commissioner (International), Large Business & International Division of the Internal Revenue Service.  This revenue procedure updates and supersedes Rev. Proc. 2006-54, and is being issued concurrently with Rev. Proc. 2015-41, which provides guidance with respect to advance pricing agreements.

Rev. Proc. 2015-41 - Provides guidance on the process of requesting and obtaining advance pricing agreements from the Advance Pricing and Mutual Agreement program (“APMA”), a constituent office of the U.S. competent authority, within the office of the Deputy Commissioner International, Large Business & International Division.  This revenue procedure also provides guidance on administration of executed APAs.

The IRS also released two new International Practice Units: Non-Services FDAP Income and Branch-Level Interest Tax Concepts.

Tags: 701 Partnerships, Authority - Notices, Authority - Revenue Procedures, Other - Resources

Charts of Examples in Notice 2014-52

2015-02-05

UPDATE - 11/1/16:  Notice 2014-52 was made obsolete by T.D. 9761.  See our blog post Over 50 New Situational Charts – Code §7874 Regulation Examples.

On September 22, 2014, the IRS released Notice 2014-52.  The notice announced that regulations will be issued under Code §§304(b)(5)(B), 367, 956(e), 7701(l), and 7874 to target corporate inversions.

In summary, the notice aims to:

  • Prevent inverted companies from accessing a foreign subsidiary’s earnings while deferring U.S. tax through the use of creative loans, which are known as “hopscotch” loans (action under Code §956(e)).
  • Prevent inverted companies from restructuring a foreign subsidiary in order to access the subsidiary’s earnings tax-free (action under Code §7701(l)).
  • Close a loophole to prevent inverted companies from transferring cash or property from a CFC to the new parent to completely avoid U.S. tax (action Code §304(b)(5)(B)).
  • Make it more difficult for U.S. entities to invert by strengthening the requirement that the former owners of the U.S. entity own less than 80 percent of the new combined entity (action under Code §7874).

The notice provides 11 examples of the new rules.  We have created situational charts that illustrate the examples.  Images of the charts are shown below and links to PDFs of the charts are also available:

Notice 2014-52 2.01(b) Ex

Notice 2014-52 2.03 Ex 1

Notice 2014-52 2.03 Ex 1 Alt,/p>

Notice 2014-52 2.03 Ex 2

Notice 2014-52 2.03 Ex 2 Alt

Notice 2014-52 3.02(e)(iii) Ex 1

Notice 2014-52 3.02(e)(iii) Ex 1 Alt

Notice 2014-52 3.02(e)(iii) Ex 2

Notice 2014-52 3.02(e)(iii) Ex 3

Notice 2014-52 3.03 Ex 1

Notice 2014-52 3.03 Ex 2

Tags: 304 Transactions, 367(b) Fgn to Fgn Corp, 956 Investments in U.S. Property, 1248 Sales of CFCs, 7874 Corporate Inversions, Authority - Notices, Charts - Situational Charts

Charts of Examples in Notice 2014-44

2014-07-28

Last week the IRS released Notice 2014-44, announcing that regulations will be issued under Code §901(m). 

Code §901(m)(1) provides that, in the case of a covered asset acquisition ("CAA"), the disqualified portion of any foreign income tax determined with respect to the income or gain attributable to relevant foreign assets ("RFAs") will not be taken into account in determining the foreign tax credit allowed under Code §901(a), and in the case of foreign income tax paid by a Code §902 corporation (as defined in Code §909(d)(5)) will not be taken into account for purposes of Code §§902 or 960.  Instead, the disqualified portion of any foreign income tax is allowed as a deduction.

Calculation of the disqualified portion of a foreign income tax requires the determination of the basis difference, which is the change in an asset's adjusted basis as a result of a CAA.  The regulations will deal with situations where there are differences in the U.S. and foreign basis of an asset as a result of a CAA.  Certain transactions will not be treated as dispositions for purposes of Code §901(m).

The notice provides two examples of the new rules.  Images of the charts are shown below and the charts can be viewed as PDF files here:  Notice 2014-44 Example 1, Notice 2014-44 Example 2.

UPDATE - 7/30/14:  Yesterday the IRS released Notice 2014-45, which eliminates a potential timing abuse in Notice 2014-44.  Notice 2014-44 stated that it would apply to dispositions on or occuring after July 21, 2014.  Notice 2014-45 states that Notice 2014-44 will also apply to any dispositions triggered by check-the-box elections filed on or after July 29, 2014 with an effective date on or before July 21, 2014.

Notice 2014-44 ex 1

Notice 2014-44 ex 2

Tags: 901 Foreign Tax Credits, 901(m) Covered Asset Acquisitions, Authority - Notices, Charts - Situational Charts

Treasury Issues Regulations to Close Repatriation Loophole

2008-06-22

The U.S. Treasury Department recently issued temporary and proposed regulations under Code § 367(b) to close a loophole used by multinationals to repatriate cash from their foreign subsidiaries to the U.S. without paying tax on the repatriated earnings.

Background

On September 22, 2006, the IRS and Treasury Department issued Notice 2006- 85 (charted here), which announced that regulations would be issued under Code § 367(b) to address certain triangular reorganizations under section 368(a) involving one or more foreign corporations.  On May 31, 2007, the IRS and Treasury Department issued Notice 2007-48 (charted here), which amplified Notice 2006-85 and announced that additional regulations would be issued under Code § 367(b).

Notice 2006-85 describes triangular reorganizations in which a subsidiary (S) purchases stock of its parent corporation (P) from P in exchange for property, and then exchanges the P stock for the stock or assets of a target corporation (T), but only if P or S (or both) is foreign.  Notice 2006-85 announced that regulations to be issued under Code § 367(b) would make adjustments that would have the effect of a distribution of property from S to P under Code § 301 (deemed distribution).

Notice 2007-48 describes a transaction very similar to the transaction in Notice 2006-85, except that S purchases the P stock from a person other than P (such as from public shareholders on the open market).

The New Regulations

The new temporary and proposed regulations (Treas. Reg. § 1.367(b)-14T) apply to triangular reorganizations where P or S (or both) is foreign and, in connection with the reorganization, S acquires, in exchange for property, all or a portion of the P stock that is used to acquire the stock or assets of T.  In a triangular reorganization subject to the temporary regulations, adjustments shall be made that have the effect of a distribution of property from S to P under Code § 301. The amount of the deemed distribution shall equal the amount of money plus the fair market value of other property that S used to acquire P stock.

In Notice 2006-85 and Notice 2007-48, the transactions were structured as triangular B reorganizations (sometimes referred to as “killer B” reorganizations).  The regulations include an example (Treas. Reg. § 1.367(b)-14T(b)(4)) of another type of triangular reorganization (forward triangular merger -- Code §§ 368(a)(1)(A) and (a)(2)(D)) that could be used (if not for the new rules) to repatriate cash tax free (say, a "killer forward triangular merger").  We expect to create a chart of the example soon.

Tags: Authority - Notices, Charts - Situational Charts, Other - Other