Category Archives: Foreign Earned Income Exclusion

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:

https://prep.podbean.com/e/us-taxation-of-americans-abroad-do-the-foreign-tax-credit-rules-work-sometimes-yes-and-sometimes-no/

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.

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The "proper care and feeding of the Green Card": Tax Filing Edition – Use of the 911 Foreign Earned Income Exclusion

Introduction: The Purpose and Limited Scope Of This Post
This post focuses on Green Card holders who are filing the 1040 tax return. The 1040 is the return that is filed by all individuals unless you are a “nonresident aliens”. Non-resident aliens file the 1040-NR. This post does NOT discuss (1) when it could be advantageous for a Green Card holder to file a 1040-NR (using a tax treaty tie breaker provision) and (2) what the (DANGEROUS) consequences of filing a 1040-NR (from both a tax and immigration perspective) could be. For a Green Card holder, there can be both disadvantages and also substantial advantages to using a tax treaty tiebreaker to file a 1040-NR.
This post assumes that the Green Card holder is filing a 1040 and is specifically focused on the following question:
Is it wise for a Green Card holder who is temporarily outside the United States to use the Foreign Earned Income Exclusion found in Section 911 of the Internal Revenue Code (as opposed to the Section 901 Foreign Tax credits) when filing the 1040?
(Most tax practitioners agree, that in general, it is better to use the Sec. 901 foreign tax credits and and not sue the S. 911 Foreign Earned Income Exclusion. Here is a post that explains why this is so. So, why would anybody ever use the FEIE? The answer is that some people live in countries where there is income tax and therefore no foreign tax credit to use against income that is taxable from a U.S. perspective.)
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Does the end of #OVDP signal a move FROM the "voluntary disclosure" model TO the "enforcement model"?

The IRS recently announced that it was ending OVDP – the “Offshore Voluntary Disclosure Program.”
The reaction of the “tax compliance community has been largely that the “retiring” of the OVDP program should be interpreted to be a “last, best chance to come into compliance!” A comment at the Isaac Brock Society asks:

“Those who still wish to come forward have time to do so.”
I haven’t finished reading John’s farewell to OVDP but that IRS statement caught my eye. It does NOT say “who must come forward” or “who have yet to come forward”. Who the heck would ever “wish” to come forward, especially after reading about Just Me’s trial by OVDP fire and the betrayal of trust suffered by our dear Dr. Marcus Marcio Pinheiro (aka markpinetree)?

I suppose there could be two possible reasons:
1. The OVDP program could be replaced with something worse; and/or
2. There could be some (few and far between) situations where OVDP might actually be better than streamlined.


What do the “tax professionals” think? A collection of comments from the twittersphere follows:


Interestingly, the IRS announcement was accompanied by the statement that:

The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.

A comment from the Isaac Brock Society asks:

Doesn’t this just mean that they will move from the “voluntary disclosure” model to the “enforcement model” where they will begin to use the information gathered in FATCA, etc, to send notices to people with large fines?
To me, this sounds more like a gunshot that begins the battle between the IRS and expats versus an expat victory.

And in the real world …
Last week I was shown a sample of an IRS form letter received by an elderly American woman who has (apparently) not lived in the United States for fifty years. During those fifty years she had dutifully and responsibly filed her U.S. tax returns. Of course, she was living in a “foreign” country outside the United States.
Those interested might have a look at the following form letter she received. Notice that the letter appears to have been prompted because the IRS received information that she had an account at a “foreign bank”.
IRS – ltr form 6019
Looks like quite the fishing expedition to me. What a “penalty laden” list of possible accusations. Would you like to receive a letter like this about your “local” bank accounts?

The biggest cost of being a "dual Canada/U.S. tax filer" is the "lost opportunity" available to pure Canadians

Update August 6, 2018:
I have written a sequel to this post – “7 Habits Of Highly Effective Americans Abroad” which you may find of interest:


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The reality of being a “DUAL” Canada U.S. tax filer is that you are a “DUEL” tax filer

“It’s not the taxes they take from you. It’s that the U.S. tax system leaves you with few opportunities for financial planning”.

I was recently asked “what exactly are the issues facing “Canada U.S. dual tax filers?” This is my attempt to condense this topic into a short answer. There are a number of “obvious issues facing U.S. citizens living in Canada.” There are a number of issues that are less obvious. Here goes …
There are (at least) five obvious issues facing “dual Canada U.S. tax filers in Canada”.
At the very least the issues include:
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Jackie Bugnion 2017 Residence Based Taxation: To Chairman Hatch's request for tax reform proposals

Introduction: It’s tax reform season and Senator Orrin Hatch wants to hear from you (again)
As reported on the Isaac Brock Society and other digital resources for those impacted by U.S. taxes, you have until July 17, 2017 to tell Senator Hatch what you think needs to be changed in the Internal Revenue Code. After great deliberation, it occurred to me that people who either are (or are accused of being) U.S. citizens or Green Card holders living outside the United States, might want the USA to stop taxing them. After all, they already pay taxes to the countries where they reside. This is your opportunity to “Let your voices be heard” (well maybe).

The Senate Finance Committee is yet again asking the general public to send comments on tax reform. The deadline is July 17, and the email address is taxreform2017@finance.senate.gov.
https://www.finance.senate.gov/chairmans-news/hatch-calls-for-feedback-on-tax-reform

(July 17, 2017 is coming quickly. Please take a few moments to send your thoughts to Senator Hatch. Tell him you feel about FATCA, citizenship-based taxation, FBAR, etc.)
Speaking of “tax reform”: Introducing Jackie Bugion

Jackie Bugnion is a U.S. citizen who has lived in Switzerland for many many years. She has been a tireless advocate for “residence based taxation”. She worked with “American Citizens Abroad” for many years and has recently retired. She was recently honoured with the Eugene Abrams award by ACA – an event that was the subject of a post at the Isaac Brock Society – that described her many achievements (over a long career).
She was the principal organizer of the “Conference on Citizenship Taxation” which took place in Toronto, Canada in May of 2014. The Conference was widely discussed on the Isaac Brock Society here and here. The live video of the “Kirsch Schneider debate” is here.
I have reproduced a number of her written submissions and posts on this blog, specifically:

Jackie Bugnion – 2013 Submission to the House Ways and Means Committee – Explains the upcoming New American Revolution


The submission referenced in the above tweet describes the history of the construction of the U.S. “fiscal prison” brick by legislative brick! (Forward it to anybody and everybody with a interest in this.)
Jackie has returned with her 2017 submission to Senator Hatch.
Jackie Bugnion – 2017 submission to Chairman Hatch – reproduced with permission of Jackie Bugnion
 
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Whether through regulation or legislation #FATCA Same Country Exemption won't work

In the beginning there was Facebook …


and from a second Facebook group:


 
Introduction: If you were to REPEAL FATCA
A previous post discussing the what exactly is meant by FATCA and the Mark Meadows “Repeal FATCA” bill, described:
FATCA is the collective effect of a number of specific amendments to the Internal Revenue Code which are designed to target both (1) Foreign Financial Institutions and (2) Those “U.S. Persons” who are their customers.
1. There are “Three Faces To FATCA” which include:
– Face 1: Legislation targeting Foreign Financial Institutions (Internal Revenue Code Chapter 4)
– Face 2: The FATCA IGAs (which for practical purposes have replaced Chapter 4)
– Face 3: Legislation targeting individuals (primarily Americans abroad who commit “Personal Finance Abroad – While Living Abroad” – Internal Revenue Code 6038D which mandates Form 8938)
2. The amendments to the Internal Revenue Code that would be necessary to reverse the sections of the Internal Revenue that created FATCA.
Legislative FATCA vs. Regulatory FATCA
The sections of the Internal Revenue Code that comprise “FATCA” are surprisingly few.
FATCA Face 1: Internal Revenue Code S. 1474(f) gives Treasury broad authority to make “FATCA regulations”.
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How #digitalnomads use the #FEIE to avoid paying income tax anywhere


The above tweet references a post by Virginia La Torre Jeker describing the “Foreign Earned Income Exclusion” found in Internal Revenue Code S. 911. Her description of the Foreign Earned Income Exclusion includes:
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