Couple may make late foreign income exclusion election

Plain-English summary

A married couple filed jointly after the wife worked as a physical therapist providing health care in a foreign country. They did not timely file Form 2555 or Form 2555-EZ to elect the foreign earned income exclusion under IRC § 911. The couple requested discretionary relief under the regulations for late regulatory elections. Based on their information and representations, the IRS found that they satisfied the applicable standards. It gave them 60 days from the ruling date to elect the exclusion for the specified year and later tax years and required them to attach the ruling to the relevant return.

Ruling snapshot

• Question: Could the married taxpayers make a late election for the foreign earned income exclusion?
• Outcome: Approved, with 60 days to make the election
• Key authorities: IRC §§ 911 and 6511; Treas. Reg. §§ 1.911-7, 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201507013 Third Party Communication: None
Release Date: 2/13/2015 Date of Communication: Not Applicable
Index Number: 911.11-00, 911.11-01
Person To Contact:
------------------------------------------ ------------------, ID No. --------------
---------------------- Telephone Number:
--------------------------------------- ----------------------
Refer Reply To:
CC:INTL:B02
PLR-125289-14
Date:
October 22, 2014

                 TY: -------

Legend
Taxpayers = -------------------------
------------------------------

                         -------------------------

Company A = --------------------------------------------
Country Y = ---------

Date 1 = ----------------------
Date 2 = -----------------

Year 1 = -------

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

   This is in response to a letter dated June 10, 2014, 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 Year 1.

  The rulings contained in this letter are based upon information and

representations submitted by Taxpayers 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.

PLR-125289-14 2

     Taxpayers, husband and wife, are married and filed their income tax return

jointly. Wife is a physical therapist who was hired by Company A to provide health care
in Country Y from Date 1 to Date 2. Taxpayers failed to file Form 2555, Foreign Earned
Income, or Form 2555-EZ, Foreign Earned Income Exclusion, to claim the section 911
foreign earned income exclusion and did not make a section 911 election within the time
prescribed by Treas. Reg. § 1.911-7(a)(2)(i).

   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.

    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.

PLR-125289-14 3

     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 Taxpayers
satisfy the standards set forth under Treas. Reg. § 301.9100-3(a).

   Based solely on the information and representations set forth above, we

conclude that Taxpayers satisfy Treas. Reg. § 301.9100-3(a). Accordingly, Taxpayers
are granted an extension of time until 60 days from the date of this ruling letter to elect
the foreign earned income exclusion for Year 1 and subsequent tax years.

   Taxpayers should attach a copy of this letter ruling to their federal income tax

return for the relevant year.

PLR-125289-14 4

  This ruling is directed only to Taxpayers who requested it. I.R.C. section

6110(k)(3) provides that it may not be used or cited as precedent.

   Pursuant to a power of attorney on file in this office, a copy of this ruling letter is

being furnished to your authorized representative.

                                    Sincerely,



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