26 U.S.C. § 911 : US Code - Section 911: Citizens or residents of the United States living abroad

Search 26 U.S.C. § 911 : US Code - Section 911: Citizens or residents of the United States living abroad

(a) Exclusion from gross income
At the election of a qualified individual (made separately with
respect to paragraphs (1) and (2)), there shall be excluded from
the gross income of such individual, and exempt from taxation under
this subtitle, for any taxable year -
(1) the foreign earned income of such individual, and
(2) the housing cost amount of such individual.
(b) Foreign earned income
(1) Definition
For purposes of this section -
(A) In general
The term "foreign earned income" with respect to any
individual means the amount received by such individual from
sources within a foreign country or countries which constitute
earned income attributable to services performed by such
individual during the period described in subparagraph (A) or
(B) of subsection (d)(1), whichever is applicable.
(B) Certain amounts not included in foreign earned income
The foreign earned income for an individual shall not include
amounts -
(i) received as a pension or annuity,
(ii) paid by the United States or an agency thereof to an
employee of the United States or an agency thereof,
(iii) included in gross income by reason of section 402(b)
(relating to taxability of beneficiary of nonexempt trust) or
section 403(c) (relating to taxability of beneficiary under a
nonqualified annuity), or
(iv) received after the close of the taxable year following
the taxable year in which the services to which the amounts
are attributable are performed.
(2) Limitation on foreign earned income
(A) In general
The foreign earned income of an individual which may be
excluded under subsection (a)(1) for any taxable year shall not
exceed the amount of foreign earned income computed on a daily
basis at an annual rate equal to the exclusion amount for the
calendar year in which such taxable year begins.
(B) Attribution to year in which services are performed
For purposes of applying subparagraph (A), amounts received
shall be considered received in the taxable year in which the
services to which the amounts are attributable are performed.
(C) Treatment of community income
In applying subparagraph (A) with respect to amounts received
from services performed by a husband or wife which are
community income under community property laws applicable to
such income, the aggregate amount which may be excludable from
the gross income of such husband and wife under subsection
(a)(1) for any taxable year shall equal the amount which would
be so excludable if such amounts did not constitute community
income.
(D) Exclusion amount
(i) In general
The exclusion amount for any calendar year is the exclusion
amount determined in accordance with the following table (as
adjusted by clause (ii)):
LFor calendar year - 2The exclusion
amount is -
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1998 $72,000
1999 74,000
2000 76,000
2001 78,000
2002 and thereafter 80,000.
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(ii) Inflation adjustment
In the case of any taxable year beginning in a calendar
year after 2007, the $80,000 amount in clause (i) shall be
increased by an amount equal to the product of -
(I) such dollar amount, and
(II) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which the taxable
year begins, determined by substituting "2006" for "1992"
in subparagraph (B) thereof.
If any increase determined under the preceding sentence is
not a multiple of $100, such increase shall be rounded to the
next lowest multiple of $100.
(c) Housing cost amount
For purposes of this section -
(1) In general
The term "housing cost amount" means an amount equal to the
excess of -
(A) the housing expenses of an individual for the taxable
year, over
(B) an amount equal to the product of -
(i) 16 percent of the salary (computed on a daily basis) of
an employee of the United States who is compensated at a rate
equal to the annual rate paid for step 1 of grade GS-14,
multiplied by
(ii) the number of days of such taxable year within the
applicable period described in subparagraph (A) or (B) of
subsection (d)(1).
(2) Housing expenses
(A) In general
The term "housing expenses" means the reasonable expenses
paid or incurred during the taxable year by or on behalf of an
individual for housing for the individual (and, if they reside
with him, for his spouse and dependents) in a foreign country.
The term -
(i) includes expenses attributable to the housing (such as
utilities and insurance), but
(ii) does not include interest and taxes of the kind
deductible under section 163 or 164 or any amount allowable
as a deduction under section 216(a).
Housing expenses shall not be treated as reasonable to the
extent such expenses are lavish or extravagant under the
circumstances.
(B) Second foreign household
(i) In general
Except as provided in clause (ii), only housing expenses
incurred with respect to that abode which bears the closest
relationship to the tax home of the individual shall be taken
into account under paragraph (1).
(ii) Separate household for spouse and dependents
If an individual maintains a separate abode outside the
United States for his spouse and dependents and they do not
reside with him because of living conditions which are
dangerous, unhealthful, or otherwise adverse, then -
(I) the words "if they reside with him" in subparagraph
(A) shall be disregarded, and
(II) the housing expenses incurred with respect to such
abode shall be taken into account under paragraph (1).
(3) Special rules where housing expenses not provided by employer
(A) In general
To the extent the housing cost amount of any individual for
any taxable year is not attributable to employer provided
amounts, such amount shall be treated as a deduction allowable
in computing adjusted gross income to the extent of the
limitation of subparagraph (B).
(B) Limitation
For purposes of subparagraph (A), the limitation of this
subparagraph is the excess of -
(i) the foreign earned income of the individual for the
taxable year, over
(ii) the amount of such income excluded from gross income
under subsection (a) for the taxable year.
(C) 1-year carryover of housing amounts not allowed by reason
of subparagraph (B)
(i) In general
The amount not allowable as a deduction for any taxable
year under subparagraph (A) by reason of the limitation of
subparagraph (B) shall be treated as a deduction allowable in
computing adjusted gross income for the succeeding taxable
year (and only for the succeeding taxable year) to the extent
of the limitation of clause (ii) for such succeeding taxable
year.
(ii) Limitation
For purposes of clause (i), the limitation of this clause
for any taxable year is the excess of -
(I) the limitation of subparagraph (B) for such taxable
year, over
(II) amounts treated as a deduction under subparagraph
(A) for such taxable year.
(D) Employer provided amounts
For purposes of this paragraph, the term "employer provided
amounts" means any amount paid or incurred on behalf of the
individual by the individual's employer which is foreign earned
income included in the individual's gross income for the
taxable year (without regard to this section).
(E) Foreign earned income
For purposes of this paragraph, an individual's foreign
earned income for any taxable year shall be determined without
regard to the limitation of subparagraph (A) of subsection
(b)(2).
(d) Definitions and special rules
For purposes of this section -
(1) Qualified individual
The term "qualified individual" means an individual whose tax
home is in a foreign country and who is -
(A) a citizen of the United States and establishes to the
satisfaction of the Secretary that he has been a bona fide
resident of a foreign country or countries for an uninterrupted
period which includes an entire taxable year, or
(B) a citizen or resident of the United States and who,
during any period of 12 consecutive months, is present in a
foreign country or countries during at least 330 full days in
such period.
(2) Earned income
(A) In general
The term "earned income" means wages, salaries, or
professional fees, and other amounts received as compensation
for personal services actually rendered, but does not include
that part of the compensation derived by the taxpayer for
personal services rendered by him to a corporation which
represents a distribution of earnings or profits rather than a
reasonable allowance as compensation for the personal services
actually rendered.
(B) Taxpayer engaged in trade or business
In the case of a taxpayer engaged in a trade or business in
which both personal services and capital are material income-
producing factors, under regulations prescribed by the
Secretary, a reasonable allowance as compensation for the
personal services rendered by the taxpayer, not in excess of 30
percent of his share of the net profits of such trade or
business, shall be considered as earned income.
(3) Tax home
The term "tax home" means, with respect to any individual, such
individual's home for purposes of section 162(a)(2) (relating to
traveling expenses while away from home). An individual shall not
be treated as having a tax home in a foreign country for any
period for which his abode is within the United States.
(4) Waiver of period of stay in foreign country
Notwithstanding paragraph (1), an individual who -
(A) is a bona fide resident of, or is present in, a foreign
country for any period,
(B) leaves such foreign country after August 31, 1978 -
(i) during any period during which the Secretary
determines, after consultation with the Secretary of State or
his delegate, that individuals were required to leave such
foreign country because of war, civil unrest, or similar
adverse conditions in such foreign country which precluded
the normal conduct of business by such individuals, and
(ii) before meeting the requirements of such paragraph (1),
and
(C) establishes to the satisfaction of the Secretary that
such individual could reasonably have been expected to have met
such requirements but for the conditions referred to in clause
(i) of subparagraph (B),
shall be treated as a qualified individual with respect to the
period described in subparagraph (A) during which he was a bona
fide resident of, or was present in, the foreign country, and in
applying subsections (b)(2)(A) and (c)(1)(B)(ii) with respect to
such individual, only the days within such period shall be taken
into account.
(5) Test of bona fide residence
If -
(A) an individual who has earned income from sources within a
foreign country submits a statement to the authorities of that
country that he is not a resident of that country, and
(B) such individual is held not subject as a resident of that
country to the income tax of that country by its authorities
with respect to such earnings,
then such individual shall not be considered a bona fide resident
of that country for purposes of paragraph (1)(A).
(6) Denial of double benefits
No deduction or exclusion from gross income under this subtitle
or credit against the tax imposed by this chapter (including any
credit or deduction for the amount of taxes paid or accrued to a
foreign country or possession of the United States) shall be
allowed to the extent such deduction, exclusion, or credit is
properly allocable to or chargeable against amounts excluded from
gross income under subsection (a).
(7) Aggregate benefit cannot exceed foreign earned income
The sum of the amount excluded under subsection (a) and the
amount deducted under subsection (c)(3)(A) for the taxable year
shall not exceed the individual's foreign earned income for such
year.
(8) Limitation on income earned in restricted country
(A) In general
If travel (or any transaction in connection with such travel)
with respect to any foreign country is subject to the
regulations described in subparagraph (B) during any period -
(i) the term "foreign earned income" shall not include any
income from sources within such country attributable to
services performed during such period,
(ii) the term "housing expenses" shall not include any
expenses allocable to such period for housing in such country
or for housing of the spouse or dependents of the taxpayer in
another country while the taxpayer is present in such
country, and
(iii) an individual shall not be treated as a bona fide
resident of, or as present in, a foreign country for any day
during which such individual was present in such country
during such period.
(B) Regulations
For purposes of this paragraph, regulations are described in
this subparagraph if such regulations -
(i) have been adopted pursuant to the Trading With the
Enemy Act (50 U.S.C. App. 1 et seq.), or the International
Emergency Economic Powers Act (50 U.S.C. 1701 et seq.), and
(ii) include provisions generally prohibiting citizens and
residents of the United States from engaging in transactions
related to travel to, from, or within a foreign country.
(C) Exception
Subparagraph (A) shall not apply to any individual during any
period in which such individual's activities are not in
violation of the regulations described in subparagraph (B).
(9) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
section, including regulations providing rules -
(A) for cases where a husband and wife each have earned
income from sources outside the United States, and
(B) for married individuals filing separate returns.
(e) Election
(1) In general
An election under subsection (a) shall apply to the taxable
year for which made and to all subsequent taxable years unless
revoked under paragraph (2).
(2) Revocation
A taxpayer may revoke an election made under paragraph (1) for
any taxable year after the taxable year for which such election
was made. Except with the consent of the Secretary, any taxpayer
who makes such a revocation for any taxable year may not make
another election under this section for any subsequent taxable
year before the 6th taxable year after the taxable year for which
such revocation was made.
(f) Cross references
For administrative and penal provisions relating to the
exclusions provided for in this section, see sections 6001,
6011, 6012(c), and the other provisions of subtitle F.