§ 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—
(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—
(ii)
paid by the United States or an agency thereof to an employee of the United States or an agency thereof,
(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)):
| For calendar year— | The exclusion amount is— |
|---|---|
| 1998 | $72,000 |
| 1999 | 74,000 |
| 2000 | 76,000 |
| 2001 | 78,000 |
| 2002 and thereafter | 80,000. |
(ii)
Inflation adjustment
In the case of any taxable year beginning in a calendar year after 2005, the $80,000 amount in clause (i) shall be increased by an amount equal to the product of—
(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 “2004” 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 to the extent such expenses do not exceed the amount determined under paragraph (2), over
(2)
Limitation
(A)
In general
The amount determined under this paragraph is an amount equal to the product of—
(3)
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—
(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).
(4)
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—
(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.
(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).
(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—
(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—
(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
(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), (c)(1)(B)(ii), and (c)(2)(A)(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)(4)(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,
(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)
Determination of tax liability
(1)
In general
If, for any taxable year, any amount is excluded from gross income of a taxpayer under subsection (a), then, notwithstanding sections
1 and
55—
(A)
if such taxpayer has taxable income for such taxable year, the tax imposed by section
1 for such taxable year shall be equal to the excess (if any) of—
(i)
the tax which would be imposed by section
1 for such taxable year if the taxpayer’s taxable income were increased by the amount excluded under subsection (a) for such taxable year, over
(ii)
the tax which would be imposed by section
1 for such taxable year if the taxpayer’s taxable income were equal to the amount excluded under subsection (a) for such taxable year, and
(B)
if such taxpayer has a taxable excess (as defined in section
55
(b)(1)(A)(ii)) for such taxable year, the amount determined under the first sentence of section
55
(b)(1)(A)(i) for such taxable year shall be equal to the excess (if any) of—
(2)
Special rules
(A)
Regular tax
In applying section
1
(h) for purposes of determining the tax under paragraph (1)(A)(i) for any taxable year in which, without regard to this subsection, the taxpayer’s net capital gain exceeds taxable income (hereafter in this subparagraph referred to as the capital gain excess)—
(i)
the taxpayer’s net capital gain (determined without regard to section
1
(h)(11)) shall be reduced (but not below zero) by such capital gain excess,
(B)
Alternative minimum tax
In applying section
55
(b)(3) for purposes of determining the tax under paragraph (1)(B)(i) for any taxable year in which, without regard to this subsection, the taxpayer’s net capital gain exceeds the taxable excess (as defined in section
55
(b)(1)(A)(ii))—
(i)
the rules of subparagraph (A) shall apply, except that such subparagraph shall be applied by substituting “the taxable excess (as defined in section
55
(b)(1)(A)(ii))” for “taxable income”, and