Foreign Earned Income Exclusion after repatriation

If he didn't meet the tests in the year he's required to recognize the income, he's SOL as far as I know.

BTW, if he's an ex-pat, he's NO LONGER a citizen.

rubbish.

Two factors affect the answer here. First, the rules say that income paid for services rendered abroad must be paid within two years of being earned to be eligible for the exclusion. Thus, a contract completion bonus paid at the end of four years would be only paritally eligible.

Second, the payment must be made on account of current service. Stock options, retirement pay, etc. are not paid for current service and do not qualify.

On first reading, the exclusion rules may seem straighforward, but in actual practice, there are many pitfalls. I've been doing expat returns for many, many years and I've seen a lot of them done wrong by otherwise qualified accountants. If you are not familiar with the rules and encounter anything but current earnings, you need help from someone who knows the rules.

Lanny K Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans Bangkok, Thailand

For tax purposes, the US Treasury refers to expatriates as someone who has relinquished their US citizenship or long term US residency.

A quick search discloses no definition of ex-patriot either in the Code or Regulations. The courts seem to use the word to refer to anyone who has left is country of origin but not necessarily someone who has given up his citizenship.

no, that is not true as I see it. Ex-pat is a loose term, not solely related to tax issues.

the US Treasury has "expatriation tax provisions" that pertain to "US citizens who have renounced their citizenship and long-term residents (as defined in IRC 877(e)) who have ended their US resident status for federal tax purposes".

I don't disagree that the word is a loose term. I am only pointing out that Mr Stussy's comment about ex-pats not being citizens is not unusual as the Treasury when referring to individuals affected by the tax regime under IRC sections 877,

2107 and 2501 identifies them as expatriates.

I would agree with Alan's interpretation. In the instructions for Form 8854, Expatriation Information Statement, expatriation tax provisions apply to citizens who relinquish their citizenship and residents who end their residency. To me, that means in IRS-speak if you are an expat American, you are no longer a citizen.

I am not disagreeing with you, but Mr. Stussy seems to twist the original poster's scenario: "A US citizen lives and works as an expat in a foreign country for multiple years."

Clearly, this US Citizen was working in a foreign country as a "loosely defined" expat. Mr. Stussy's comment that this US Citizen is no longer a US Citizen is, well, rubbish.

Just to be clear, the individual to whom I am referring is a US citizen who was on a temporary assignment in a foreign country. (This is true for me as well). He never renounced his citizenship while abroad. I apologize if the term "expat" confused the issue, as I was using a term frequently used by fellow US citizens who work abroad temporarily.

Lanny: if the payment four years after repatriation (is that what you meant?) is partially eligible, why isn't a stock option exercise four years after repatriation partially eligible too?

Do the vesting rules have an impact here? For example, the restricted shares or stock option may have vesting provisions that limit their use before several years have lapsed.

Thanks.

why would you apply IRS speak to the OP? Clearly, the OP was using non-IRS speak.

Then he's not expatriated.

Being an "expat" means he has renounced his citizenship. Such is NOT a temporary thing.

That's not how the courts use the term. And that's not how the code uses the term, either. If it were, then the opening phrase in §877 would not start out with, "Every nonresident alien individual..." but would say "Every expatriot...."

And §2107 would not impose a tax, as it does, on "every decedent nonresident not a citizen of the United States," but on "every deceased expatriot."

And §871(l)(2) wouldn't talk about "nonresident alien individuals who are expatriate United States citizens,..." but simply "expatriate United States citizens."

The instructions for Form 8854 talk only about one kind of expatriation - one where the person is not now a US citizen. It doesn't mean that the word can't apply to others who left the country but are still citizens - the form just doesn't apply to them.

A payment, even four years later, is still a payment for services. A stock option is not a payment. The option, itself, may or may not be currently taxable. The taxable event is not the performance of a service but the acquisition/sale of shares of stock.

Lanny K Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans

Lanny: I respectfully disagree. The granting of a stock option is clearly part of one's compensation for services. (I am not talking about a program where an equal number of options that are granted to every single employee. These are specific shares granted to managers as part of one's bonus....part is granted in cash, part in shares). The value of the compensation may not be determined until the option is exercised, but you cannot argue that it isn't compensation for services. I am talking about NQ stock options (or restricted shares). In both cases, you have ordinary income upon exercise or the lapsing of restrictions.

It wouldn't be hard to value the options or restricted shares two years after repatriation, and consider that amount as foreign income when you later exercise the options or lapse the restrictions. Is that a totally unreasonable position to take?

Thanks.

I take it to mean that if you work abroad for 4 years and get a completion bonus at the end, half of it was earned during the first 2 years (and isn't eligible) and the other half was earned during the last 2 years (and is eligible).

Seth

Publication 54 doesn't seem to address this issue clearly. They refer to income received more than one year after it was earned. The stock options or restricted shares are received two or three months after the performance year has ended.

To my thinking, the stock options were "paid" to the employee while his tax home was overseas and he was physically in the foreign country virtually all year (except brief vacations to the states).

I actually see a different risk with this position. If the individual (for example) received the options in early 2001 (for services in

2000), and took the foreign earned income exclusion for 2001 -- wouldn't taking the foreign earned income exclusion on his stock option income income in 2009 be double dipping? He may have already used the entire exclusion for income attributabe to that year.

Any thoughts on this angle?

Thanks.