IRS grants late-election relief for the foreign earned income exclusion

Plain-English summary

The IRS granted an extension of time for an individual living and working abroad to elect the foreign earned income exclusion under section 911. The taxpayer's accounting firm failed to advise the taxpayer to make the election and did not explain the consequences of missing it. The IRS found that the taxpayer reasonably relied on a qualified tax professional and acted reasonably and in good faith. The extension lasted until 60 days from the date of the ruling letter and applied to the taxpayer's first year and subsequent taxable years covered by the ruling.

Ruling snapshot

• Question: Could the taxpayer receive more time to make the section 911 foreign earned income exclusion election?
• Outcome: Approved
• Key authorities: IRC § 911; Treas. Reg. §§ 1.911-7, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201347016
[Third Party Communication:
Release Date: 11/22/2013
Date of Communication: Month DD, YYYY]
Index Number: 911.11-03
Person To Contact:
---------------------
------------------, ID No. --------------
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Telephone Number:
-------------------------------------------- ---------------------- Refer Reply To:
CC:INTL:B02
PLR-133345-12
Date:
August 22, 2013

TY: -------

Legend

Taxpayer = ----------------
-------------------------
Country X = -----------------------
Company A = ---------------
Accounting Firm B = ----------------
Date 1 = -----------------
Year 1 = -------
Year 2 = -------

Dear --------------:

This is in response to a letter received in this office on August 3, 2012, submitted on your behalf by your authorized representative, requesting an extension of time under Treas. Reg. § 301.9100-3 to elect the provisions of section 911 of the Internal Revenue Code (“Code”) for Taxpayer’s Year 1 taxable year. Additional information was submitted on September 30, 2012.

The rulings contained in this letter are based upon information and representations submitted by Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

Beginning Date 1, Year 1, Taxpayer lived and worked in Country X for Company A. Company A engaged the services of Accounting Firm B to complete Taxpayer’s U.S. and County X income tax returns for Year 1 and Year 2. Additionally, Accounting Firm
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B worked with Company A to collect the information necessary for it to issue Forms W-2 and corrected Forms W-2 for those years.

When preparing Taxpayer’s Year 1 and Year 2 U.S. income tax returns, Accounting Firm B failed to advise Taxpayer to make the election and failed to advise Taxpayer of the consequences of not make the election.

Taxpayer has submitted an affidavit, signed under penalties of perjury, describing the events that led to Taxpayer’s failure to make the election in Year 1. Taxpayer relied on the advice of Accounting Firm B. Taxpayer has also submitted affidavits of Company A and Accounting B corroborating the statements made by Taxpayer.

Section 911(a) of the Code allows qualified citizens and residents of the United States living abroad to elect to exclude from gross income the foreign earned income and housing cost amounts of such individuals. Treas. Reg. ' 1.911-7(a) sets forth the procedural rules for making a valid section 911 election. The election must be made on Form 2555 or on a comparable form, and must be filed with the income tax return or with an amended return. With respect to the timing of the election, Treas. Reg. ' 1.911- 7(a)(2)(i) provides that a valid section 911 election must be made:

(A) With an income tax return that is timely filed (including any extensions of time to file);

(B) With a later return filed within the period prescribed in section 6511(a) amending a timely filed income tax return;

(C) With an original return filed within one year after the due date of the return (determined without regard to any extension of time to file); or

(D) With an income tax return filed after the period described in paragraphs (a)(2)(i)(A), (B), or (C) of this section provided -

(1) The taxpayer owes no federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached either before or after the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion; or

(2) The taxpayer owes federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached before the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion.
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Treas. Reg. § 301.9100-1(c) provides that the Commissioner has discretion to grant a taxpayer a reasonable extension of time, under the rules set forth in Treas. Reg.
§ 301.9100-3, to make a regulatory election under all subtitles of the Code, except subtitles E, G, H, and I.

Treas. Reg. § 301.9100-1(b) provides that an election includes an application for relief in respect of tax, and defines a regulatory election as an election whose due date is prescribed by a regulation, a revenue ruling, revenue procedure, notice, or announcement.

Treas. Reg. § 301.9100-3(a) provides that requests for relief will be granted when the taxpayer provides the evidence (including affidavits described in Treas. Reg. § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.

Treas. Reg. § 301.9100-3(b) (1) provides that, except as provided in paragraph (b)(3)(i) through (iii), a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer:

i. requests relief under this section before the failure to make the regulatory election is discovered by the Internal Revenue Service;

ii. failed to make the election because of intervening events beyond the taxpayer's control;

iii. failed to make the election because, after exercising reasonable diligence (taking into account the taxpayer's experience and the complexity of the return or issue), the taxpayer was unaware of the necessity for the election;

iv. reasonably relied on the written advice of the IRS; or

v. reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make, the election.

In this case, Treas. Reg. § 1.911-7(a) fixes the time to make the election under section 911. Therefore, the Commissioner has discretionary authority under Treas. Reg. § 301.9100-1(c) to grant Taxpayer an extension of time provided, that Taxpayer satisfies the standards set forth under Treas. Reg. § 301.9100-3(a).
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Based on the facts and circumstances of this case, we conclude that Taxpayer satisfies Treas. Reg. § 301.9100-3(a). Accordingly, Taxpayer is granted an extension of time until 60 days from the date of this ruling letter to elect the foreign earned income exclusion for Taxpayer’s Year 1 taxable year and subsequent taxable years.

Taxpayer should attach a copy of this letter ruling to his federal income tax return for the relevant year.

This ruling is directed only to the taxpayer who requested it. I.R.C. section 6110(k)(3) provides that it may not be used or cited as precedent.

Sincerely,

Jeffery G. Mitchell
Branch Chief, Branch 2
(International)