My client does not qualify for the physical presence test for the foreign income exclusion. Lacerte is calculating the exclusion. Why?

[sharon]

My client clearly doesn't qualify for the foreign income exclusion but I want to show that on the form. The form is calculating that she does, even though she was only in Afghanistan for 197 days. What am I doing wrong?

[sjrcpa]

Sounds like you don't have the dates enetered correctly and/or completely. Lool at the form and see what period it is using.

[sharon]

The dates entered are 1/1/18-12/31/18    Within that period she was only in Afghanistan for 197 days.

[sharon]

Her prior accountants calculated 2016 and 2017 on a prorated basis but used calendar year for the reporting period. She is used to receiving the exclusion, though in 2016 and 2017 she wasn't eligible either because she didn't meet the 330 day rule. I want to produce the form showing she's not eligible.

[TaxGuyBill]

First, you want to determine if she IS eligible.  When using ANY 12 month period (such as July 2017 through June 2018), does she meet the 330 day test?  Don't only use calendar years.

[itonewbie]

The law simply does not permit the exclusion to be prorated unless PPT or BFR is met.  Either way, it seems to me your client may not even have a tax home in Afghanistan to start with.  What type of visa was she on?  Was she on rotational duties?  How long is her assignment there supposed to last?  Etc., etc., etc.

[TaxGuyBill]

Good point about it being unlikely to be a Tax Home.

[itonewbie]

And with the no vote, I can take an early day off on Friday :smile:

[itonewbie · Accepted solution]

Why would you show that on the form?  If she doesn't qualify, F.2555 would not even be filed.

Lacerte doesn't calculate FEIE in the event the taxpayer fails PPT unless you have made entries to indicate that the taxpayer qualifies for BFR.  Note, however, PPT does not only count current year days but days in any consecutive 12-month period.  So, not having enough days in the current year doesn't mean that the individual is not eligible.

[itonewbie]

Thanks for the no vote.

[Illni]

Can I call you? I have a client on rotational basis in and out of Iraq -- clearly does not meet 330 day presence for 2019 calendar year.  I'm trying to get dates for 2018 presence in Iraq as well. If we can get a 330 day period that overlaps 2018 and 2019, does that give them the full exclusion on their 2019 wages or only the months included in the 12 month period that meets the 330 day test?

[sjrcpa]

If they qualify, the exclusion for 2019 will be prorated by number of days in 2019  they qualified divided by 365.

Where are they staying while in Iraq? I'm guessing no tax home in Iraq.

[Illni]

They have quarters provided by their employer -- isn't physical presence test enough? He doesn't have to own or rent a home while there does he? This isn't a bona fide residence test, just physical presence. 

Thanks -- if he must meet tax home test, then give me an example of a contractor who meets the tax home test -- I don't quite understand what you're getting at otherwise.

Randy

(I've seen a court case that talks about "abode". That case would imply that unless the taxpayer cuts most ties with the U.S. then his abode is still in the U.S. and he would NEVER qualify for Form 2555 exclusion, even if he were in Iraq for 330 days within any 12 month period -- CORRECT?)

The last time I had a client with 2555 was our minister and his wife, who sold home, possessions, car, and moved to Uganda for at least 330 days per year. So he clearly left his "abode" for a new abode in Uganda. So if a person is married and leaving wife and kids behind, he's pretty much out of luck for the 2555, RIGHT? If so, I'll just send this client to the preparer who did all of his "buddies" who took the exclusion. I'm anticipating a "fire fight" when he gets home if I try to explain that his abode is in the U.S. and not Iraq. Would love to hear your commentary on my commentary -- thanks a load!

[sjrcpa]

On  the 2555 you have to indicate tax home(s) during the year and date established. There are a lot of cases going against taxpayers and IRS recently released some guidance making it easier to meet the tax home. 

I just threw this out as a caution. You can do the research and reach your own conclusion.