U.S. citizen abroad may re-elect the foreign earned income exclusion early after switching countries and employers

Plain-English summary

A U.S. citizen working overseas may exclude foreign earned income from U.S. tax under section 911, but once he revokes that election he normally cannot make it again for five years without IRS permission. This taxpayer had used the exclusion in earlier years, then revoked it for one year by choosing the foreign tax credit instead (which counts as a revocation). Within the five-year lockout, he changed employers and moved from one foreign country to another where his income was taxed at a lower rate, making the exclusion more valuable again. He asked the IRS to let him re-elect early. Treasury Regulation 1.911-7(b)(2) lets the IRS permit an early re-election after weighing facts such as a change of employer and a move between foreign countries with different tax rates, both of which applied here. The IRS granted permission to re-elect the foreign earned income exclusion for the year of the move and later years. This shows the standard path for expatriate workers who gave up the exclusion but whose circumstances changed before the five-year waiting period ran.

Ruling snapshot

• Question: May a taxpayer who revoked the section 911 foreign earned income exclusion re-elect it within the five-year waiting period after changing employers and moving to a lower-tax foreign country?
• Outcome: approved (early re-election permitted)
• Key authorities: IRC §§ 911(a), 911(e)(2); Treas. Reg. § 1.911-7(b); Rev. Rul. 90-77

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201909006                                              Third Party Communication: None
Release Date: 3/1/2019                                         Date of Communication: Not Applicable
Index Number: 911.11-03
                                                               Person To Contact:
----------------------                                         ----------------------, ID No. -----------------
-------------------                                            Telephone Number:
------------------------------------------                     --------------------
                                                               Refer Reply To:
                                                               CC:INTL:B02
                                                               PLR-123703-18
                                                               Date:
                                                               November 29, 2018

                  TY: ------

Legend
Taxpayer          =        ----------------------
                           -----------------------

Employer X =               ------------------------------------------
Employer Y =               --------------------------------------

Country A         =        ----------------
Country B         =        -----

Year 1            =        ------
Year 2            =        ------
Year 4            =        ------
Year 5            =        ------
Year 6            =        ------
Year 7            =        ------

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

       This is in response to a letter dated June 25, 2018 requesting permission to
reelect the foreign earned income exclusion under section 911 of the Internal Revenue
Code (the Code).

      The rulings contained in this letter are based upon information and
representations submitted by the 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.
PLR-123703-18                               2

       Taxpayer is a United States citizen who lived and worked outside the United
States from Year 1 to Year 2. On his joint United States income tax returns filed with
his wife for Year 1 and Year 2, Taxpayer claimed the foreign earned income exclusion
under section 911(a) of the Code. Taxpayer returned to the United States in November
of Year 2. Apart from living and working outside the United States from January
through April of Year 4, a period for which Taxpayer represents that he did not claim the
foreign earned income exclusion or take the foreign tax credit because he did not qualify
for them, Taxpayer lived and worked in the United States until December of Year 5. In
December of Year 5, Taxpayer moved from the United States to Country A and
commenced work with Employer X. Taxpayer continued to work for Employer X in
Country A during Year 6. Taxpayer claimed the foreign tax credit for Year 6 because he
determined that it would be more beneficial to credit Country A taxes than to exclude
foreign income earned in Country A for that year.

       In Year 7, Taxpayer accepted a job offer from Employer Y, requiring him to move
from Country A to Country B in March of Year 7. Taxpayer’s income earned in Country
B is subject to a lower rate of tax than it was in Country A. Taxpayer therefore requests
permission to reelect the foreign earned income exclusion pursuant to section 911 of
the Code for Year 7 and subsequent taxable years.

       Section 911 of the Code permits certain taxpayers to elect to exclude from gross
income their foreign earned income and housing cost amounts. Under Treas. Reg. §
1.911-7(b)(1), the election applies to the taxable year for which it is made and for all
subsequent taxable years, unless revoked by the taxpayer. Treas. Reg. § 1.911-7(b)(1)
prescribes a method by which a taxpayer may revoke an election to exclude foreign
earned income (i.e., by filing a statement revoking any previously made election). It
does not, however, purport to provide the exclusive method for revoking such an
election. Section 911(e)(2) provides that once revoked, the election may not be made
again by the taxpayer until the sixth taxable year after the year in which the revocation
was made unless the Commissioner consents to the reelection.

        Treas. Reg. § 1.911-7(b)(2) provides that if an individual revokes an election
under Treas. Reg. § 1.911-7(b)(1), and desires to reelect the same exclusion within the
next five years, the individual must obtain permission by requesting a ruling. The
Service may permit the taxpayer to reelect the foreign earned income exclusion before
the sixth year after considering all of the facts and circumstances. Treas. Reg. § 1.911-
7(b)(2) provides that relevant facts and circumstances may include a period of United
States residence, a move from one foreign country to another foreign country with
differing tax rates, a substantial change in the tax laws of the foreign country of
residence or physical presence, and a change of employer.

       Taxpayer effectively revoked the foreign earned income exclusion for Year 6 by
claiming the foreign tax credit. See Rev. Rul. 90-77, 1990-2 C.B. 183. Taxpayer
wishes to reelect the exclusion for Year 7, which is within five years of Year 6.
PLR-123703-18                                  3

Therefore, Taxpayer requests permission to reelect the foreign earned income
exclusion. Taxpayer has represented that he changed employers and moved from
Country A to Country B in Year 7. Taxpayer has also represented that the applicable
foreign tax rates differ between Country B and Country A.

      Accordingly, based solely on the information and representations set forth above,
Taxpayer may reelect the section 911 foreign earned income exclusion for Year 7 and
subsequent tax years.

        Except as otherwise expressly provided herein, no opinion is expressed as to
whether Taxpayer otherwise satisfies the requirements of section 911 for excluding
foreign earned income and housing amounts from gross income, including without
limitation whether Taxpayer is a qualified individual within the meaning of section
911(d). Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

      This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.

       A copy of this letter must be attached to any income tax return to which it is
relevant. Alternatively, if Taxpayer files his return electronically, he may satisfy this
requirement by attaching to his return a statement that provides the date and control
number of the letter ruling.

         In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to your authorized representative.

                                       Sincerely,



                                       Jeffery G. Mitchell
                                       Chief, Branch 2
                                       (International)




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