The S. 911 Foreign Earned Income Exclusion: It’s origins, journey, opportunities and limitations

I recently participated in a podcast discussing both the opportunities and limitations associated with the Section 911 FEIE (“Foreign Earned Income Exclusion”). It is short and explains why the FEIE is not the answer to the problems experienced by Americans abroad. You can listen to it here:

The podcast was the subject of a post at American Expat Finance. That post prompted me to explore more deeply, the origins of the FEIE. When was it enacted? What was it designed to do? I found a fantastic article that I thought I would/should share.

The above tweet references a 1981 article about the taxation of Americans abroad with a focus on the Section 911 FEIE (“Foreign Earned Income exclusion”). Basically, the FEIE has been around, in various forms, since 1926. In 1976 the Carter administration temporarily abolished it. This event triggered this 1981 article by John D. Maiers.

This is a seriously good article which should be read by any and all people interested in the taxation of Americans abroad. Among other things, the article makes clear that the purpose of the FEIE was to benefit US corporations and was NOT motivated by any attempt to help Americans abroad. This is important!

(At one point the article describes how certain US citizens living in Japan could owe more in US taxes than their annual income. Yes, it’s true!)

The article (perhaps because of the circumstances of the author) is one of the few articles that recognizes the difficulties of Americans abroad. Mr. Maier’s article was written (apparently) during the period between the election of Ronald Reagan and his administration assuming power. In hindsight, the Reagan tax reforms established some very damaging provision for Americans abroad. For example, the PFIC rules were part of the Reagan tax reform. There were changes to the Subpart F rules which resulted in the creation of more Subpart F income. (Note that the Reagan tax reform was designed to reduce tax rates, by broadening the tax base and strengthening the anti-deferral rules.)

Mr. Maiers’s article:

1. Recognizes the difficulties of CBT (even in 1981); and

2. Concludes with the advice that CBT is bad tax policy.

Interestingly, he writes from ONLY the perspective of “short term Americans abroad”. His article doesn’t acknowledge the existence of Emigrants and Accidental Americans. Things have gotten far worse since 1981. It would be interesting to get Mr. Maier’s perspective today.


Its a great article. Read it!

John Richardson – Follow me on Twitter @ExpatriationLaw

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