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Updated Sec. 911 regulations provide relief for nonfilers.

Under Sec. 911(a), certain taxpayers may elect to exclude foreign earned income and housing costs from gross income. Foreign earned income is generally any amount received from sources within a foreign country for services performed while the individual is a "qualified individual" under Sec. 911(d)(1). Housing costs are generally the reasonable expenses paid or incurred to house a qualified individual and his family in a foreign country. A strict qualification test that relates to the specific nature of the expenses paid or incurred must be satisfied to be eligible for the foreign housing exclusion.

To elect the exclusions under Sec. 911(a), a separate election is required for each exclusion. The election must be made on Form 2555, Foreign Earned Income, or other comparable form. Prior to the amended regulations, a valid election was made when the taxpayer (1) filed the form with a timely filed income tax return (including extensions), (2) filed the form with a timely filed amended return within the period described in Sec. 6511(a) or (3) filed the form with an original tax return filed within one year of the return's original due date (Regs. Sec. 1.911-7(a)(2)).

The amended Sec. 911 regulations allow a qualified taxpayer to make the election at a date later than allowed previously in two instances. The taxpayer may file an income tax return with Form 2555 either before or after the IRS determines the taxpayer failed to elect the exclusion if the taxpayer owes no Federal income tax (after taking into account the exclusion). However, if the taxpayer will owe Federal income tax, even with the benefits of the election, the qualified individual must file before the Service discovers that the taxpayer failed to elect the exclusion (Regs. Sec. 1.911-7(a)(2)(i)(D)). In either case, the taxpayer must include a statement at the top of the return that the return was filed pursuant to Regs. Sec. 1.911-7(a)(2)(i)(D).

Since this change is effective for tax years beginning after Dec. 31, 1981, taxpayers who filed returns but were denied the benefits of the exclusion under the old rules may be entitled to a refund. Under Sec. 6511(a), refund claims may be filed "by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later."
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Author:Beyersdorff, Chris
Publication:The Tax Adviser
Date:Dec 1, 1993
Words:405
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