Academic journal article Journal of Accountancy

Former Marine Not Entitled to Exclude Foreign Earned Income: The Tax Court Holds the Taxpayer's Election Was Untimely

Academic journal article Journal of Accountancy

Former Marine Not Entitled to Exclude Foreign Earned Income: The Tax Court Holds the Taxpayer's Election Was Untimely

Article excerpt

The Tax Court held that a former U.S. Marine did not make a timely and valid foreign earned income exclusion election for 2010; thus he was not entitled to exclude from gross income his foreign earnings pursuant to Sec. 911(a)(1).

Facts: Prior to 2010, Damon Redfield left the Marine Corps as a disabled veteran suffering from memory loss and post-traumatic stress disorder. In January 2010, he began working in a civilian position at the Kandahar Airfield in Afghanistan. Due to his worsening condition, he returned to the United States before completing his one-year assignment. He did not file a 2010 return before May 27, 2014, when the IRS prepared a substitute for return that treated all of his wages for 2010 as gross income and subsequently issued a notice of deficiency.

On Oct. 7,2014, Redfield filed a delinquent return, which included Form 2555, Foreign Earned Income, electing to exclude earnings from his work in Afghanistan. He reported a tax liability and tax due. Based on the delinquent return, the IRS issued a notice of deficiency disallowing his claim of a foreign earned income exclusion because he had failed to make a valid election for 2010.

Issue: While US. citizens are generally taxed on their worldwide income, Sec. 911(a)(1) allows a qualified individual to elect to exclude foreign earnings from gross income, subject to the limitations in Sec. 911(b)(2).

Regs. Sec. 1.911-7(a)(2) provides the timing requirements for a valid election. Regs. Sec. 1.911-7(a)(2)(i) provides that a Form 2555 or comparable form making the election may be attached to (1) a timely filed return (including extensions); (2) a timely amended return; or (3) an original return filed within one year after the due date of the return (without regard to extensions).

Regs. Sec. 1.911-7(a)(2)(i)(D) provides that an election made on a return after these periods will still be valid if (1) the taxpayer owes no income tax after taking into account the exclusion; or (2) tax is owed and the taxpayer files Form 1040, U. …

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