Foreign Earned Income Exclusion

Choosing the Exclusion

The foreign earned income exclusion is voluntary. You can choose the exclusion by completing the appropriate parts of Form 2555.

When You Can Choose the Exclusion

Your initial choice of the exclusion on Form 2555 or Form 2555-EZ generally must be made with one of the following returns.

A return filed by the due date (including any extensions).
A return amending a timely-filed return. Amended returns generally must be filed by the later of 3 years after the filing date of the original return or 2 years after the tax is paid.
A return filed within 1 year from the original due date of the return (determined without regard to any extensions).

You can choose the exclusion on a return filed after the periods described above if you owe no federal income tax after taking into account the exclusion.

If you owe federal income tax after taking into account the exclusion, you can choose the exclusion on a return filed after the periods described above if you file before IRS discovers that you failed to choose the exclusion. You must type or legibly print at the top of the first page of the Form 1040 "Filed pursuant to section 1.911-7(a)(2)(i)(D)."

If you owe federal income tax after taking into account the foreign earned income exclusion and the IRS discovered that you failed to choose the exclusion, you may still be able to choose the exclusion. You must request a private letter ruling under Income Tax Regulation 301.9100-3 and Revenue Procedure 2007-1.

Revenue procedures are published in the Internal Revenue Bulletin (I.R.B.) and in the Cumulative Bulletin (C.B.), which are volumes containing official matters of the Internal Revenue Service. The I.R.B. is available on the Internet at http://www.irs.gov/. You can buy the C.B. containing a particular revenue procedure from the Government Printing Office (online at http://www.blogger.com/app/scripts/exit.jsp?dest=http%3A%2F%2Fbookstore.gpo.gov%2Firs or call 1-866-512-1800).

Effect of Choosing the Exclusion

Once you choose to exclude your foreign earned income, that choice remains in effect for that year and all later years unless you revoke it.

Solving timely filed returns problems can be very confusing and can take a lot of know how to resolve. If you find yourself in this position, call someone who can help you out and resolve your IRS issues.