IRS permits an early reelection of the foreign earned income exclusion

Plain-English summary

A taxpayer had elected the foreign earned income exclusion while working in one foreign country, then revoked the election when it was no longer beneficial. Before the normal five-year waiting period ended, the taxpayer changed employers, moved with his family to a different foreign country, and experienced a significant income change. The regulations allow the IRS to consider a move between countries and a change of employer when deciding whether to permit an early reelection. Based on those circumstances, the IRS allowed the taxpayer to reelect the IRC § 911 exclusion for the requested year and later years. The ruling did not decide whether the taxpayer otherwise met the substantive requirements for excluding foreign earned income or housing costs.

Ruling snapshot

• Question: May the taxpayer reelect the foreign earned income exclusion within five years after revoking it?
• Outcome: Approved
• Key authorities: IRC § 911(a) and (e)(2); Treas. Reg. § 1.911-7

Full text (IRS public release)

Internal Revenue Service                                    Department of the Treasury
                                                            Washington, DC 20224

Number: 201620006                                           Third Party Communication: None
Release Date: 5/13/2016                                     Date of Communication: Not Applicable
Index Number: 911.00-00, 911.11-00,
              911.11-03                                     Person To Contact:
                                                            -----------------------, ID No. ----------------
-------------------------------------                       Telephone Number:
-----------------------------                               --------------------
 --------------------------------------                     Refer Reply To:
                                                            CC:INTL:B02
                                                            PLR-133421-15
                                                            Date:
                                                            February 17, 2016




Legend

Taxpayer                            =     -------------------------------------
                                          -----------------------
                                          -----------------------

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

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




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


This is in response to a letter received in this office on September 14, 2015, in which a
ruling is requested to permit Taxpayer 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.

Taxpayer was employed in a job in Country A from 2000 through 2014 and elected to
exclude his foreign earned income under section 911(a) of the Code for tax years ------
through ------. In 2012, Taxpayer determined that the foreign earned income exclusion
under section 911(a) was not beneficial to him and he therefore filed a statement
revoking his election of the foreign earned income exclusion, effective for tax year ------.
PLR-133421-15                                 2


In 2014, Taxpayer left his job in Country A and accepted a new job in Country B.
Taxpayer and his family moved from Country A to Country B. Taxpayer’s income
changed significantly as a result of his change in employment. Taxpayer requests
permission to reelect the foreign earned income exclusion under section 911(a) of the
Code for ------ 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.
Section 1.911-7(a)(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
elections. 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 any facts and circumstances that may be relevant to the
determination. 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 tax laws of the foreign country of residence or physical presence, and a change of
employer.

Taxpayer filed a statement that revoked his foreign earned income exclusion in ------.
Taxpayer desires to reelect the exclusion for ------, which is within five years of ------.
Therefore, Taxpayer is requesting permission to reelect the foreign earned income
exclusion. Taxpayer has represented that he experienced a change of employer when
he moved from Country A to Country B in ------.

Accordingly, based solely on the information and representations set forth above, it is
held that Taxpayer may reelect the section 911 exclusion for ------ and subsequent
taxable 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 cost amounts from gross income. 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.
PLR-133421-15                                  3

This private letter 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, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return 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 representatives.



                                           Sincerely,



                                           Kristine A. Crabtree
                                           Assistant to Branch Chief, Branch 2
                                           Office of Associate Chief Counsel
                                           (International)




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