Worker could reelect the foreign earned income exclusion after moving countries

Plain-English summary

A U.S. taxpayer working abroad had used the foreign earned income exclusion for two years, then claimed foreign tax credits in the next year because an adviser said that approach would lower the taxpayer's U.S. tax. Claiming the credits effectively revoked the exclusion, normally preventing another election for five years without IRS consent. The taxpayer then changed employers and moved to another foreign country where the income would face a significantly lower tax rate. Those changes were factors the regulations identify as relevant to an early reelection. The IRS permitted the taxpayer to reelect the section 911 exclusion for the move year and later years, without deciding whether the taxpayer otherwise met the exclusion's requirements.

Ruling snapshot

• Question: Could the taxpayer reelect the foreign earned income exclusion within five years after revoking it?
• Outcome: Approved for the move year and subsequent years.
• Key authorities: IRC § 911(a), (e)(2); Treas. Reg. § 1.911-7; Rev. Rul. 90-77

Full text (IRS public release)

Internal Revenue Service                         Department of the Treasury
                                                 Washington, DC 20224

Number: 201743014                                Third Party Communication: None
Release Date: 10/27/2017                         Date of Communication: Not Applicable
Index Number: 911.11-03
                                                 Person To Contact:
---------------------------                      ----------------------, ID No. ------------------
-------------------------                        Telephone Number:
------------------------------                   ----------------------
                                                 Refer Reply To:
                                                 CC:INTL:B02
                                                 PLR-110824-17
                                                 Date:
                                                 July 27, 2017

                  TY: -------

Legend

Taxpayer = ---------------------------
TIN = ------------------

Year 1 = -------
Year 2 = -------
Year 3 = -------
Year 4 = -------

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


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

This is in response to a letter dated March 22, 2017, 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 based in Country A and elected to exclude his foreign
earned income under section 911(a) of the Code for Year 1 and Year 2. In Year 3,
Taxpayer’s tax return preparer advised him that his U.S. tax liability would be lower if he
claimed foreign tax credits rather than the section 911 foreign earned income exclusion.
PLR-110824-17                                2

In Year 4, Taxpayer accepted a job offer from a new employer in Country B requiring
him to move from Country A to Country B to begin work in April of Year 4. Taxpayer’s
income earned in Country B will be subject to a significantly lower rate of tax than it was
in Country A. Taxpayer requests permission to reelect the foreign earned income
exclusion pursuant to section 911 of the Code for Year 4 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(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., filing a statement revoking any previously made elections). 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 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 effectively revoked the foreign earned income exclusion for Year 3 by
claiming the foreign tax credit. See Rev. Rul. 90-77, 1990-2 C.B. 183. Taxpayer
desires to reelect the exclusion for Year 4, which is within five years of Year 3.
Therefore, Taxpayer is requesting 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 4. Also, he represented that the tax rates with respect
to his income differ between Country B and Country A.

Accordingly, based solely on the information and representations set forth above, it is
held that Taxpayer may reelect the section 911 exclusion for Year 4 and subsequent
taxable years.

Except as otherwise 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
PLR-110824-17                                  3

opinion is expressed or implied concerning the tax consequences of any aspect of any
transaction or item discussed or referenced in this letter.

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,



                                           Jeffery G. Mitchell
                                           Chief, Branch 2
                                           (International)



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