New Regs Expand Time for Electing Foreign Earned Income Exclusion

 [4830-01-u]

 ACTION: Final regulations.

 SUMMARY: This document contains final Income Tax Regulations relating to the application of section 911 with respect to the requirement of a return in order to make a valid election to exclude foreign earned income and the housing cost amount. These regulations will provide the public with guidance necessary to comply with the Economic Recovery Tax Act of 1981 and will affect individuals claiming the foreign earned income exclusion and the housing cost amount.

 DATES: Effective June 30, 1993.

These regulations apply to taxable years beginning after December 31, 1981.

 FOR FURTHER INFORMATION CONTACT: Leslie B. van der Wal of the Office of Associate Chief Counsel (International), Internal Revenue Service, 202-622-3850, (not a toll-free number).

SUPPLEMENTARY INFORMATION:

BACKGROUND

This document contains amendments to part 1 of the Income Tax Regulations under section 911 of the Internal Revenue Code of 1986 (Code). These amendments will provide the public with guidance necessary to comply with the Economic Recovery Tax Act of 1981.

EXPLANATION OF PROVISIONS

 Section 911(a) provides that at the election of a qualified individual, there shall be excluded from gross income and exempt from tax the foreign earned income and the housing cost amount of such individual.

 Section 1.911-7(a) provides that in order to receive either exclusion provided by section 911(a), a qualified individual must separately elect each exclusion. The election may be made on Form 2555 or on a comparable form. Section 1.911-7(a)(2)(i) provides that in order to make a valid election, the election must be made (A) with an income tax return that is timely filed (including any extensions of time to file), (B) with a later return filed within the period described in section 6511(a) amending the foregoing timely filed income tax return, or (C) with an original income tax return that is filed within one year after the due date of the return (determined without regard to any extension of time to file). The one-year period in (C) above does not constitute an extension of time for any purpose; it is merely a period during which a valid election may be made on a late return.

 Section 1.911-7(a)(2)(i)(D) is added to provide that a qualified individual may make an election at dates later than provided in paragraphs (a)(2)(i)(A), (B) and (C) in two situations. If the taxpayer owes no federal income tax after taking into account the exclusion, the taxpayer may file under this paragraph (a)(2)(i)(D)(1) Form 1040 with Form 2555 or a comparable form attached either before or after the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion. If, however, the taxpayer owes federal income tax after taking into account the exclusion, the taxpayer may file under paragraph (a)(2)(i)(D)(2) Form 1040 with Form 2555 or a comparable form attached provided the filing is before the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion. Paragraph (a)(2)(i)(D)(3) provides that a taxpayer who files an income tax return pursuant to (a)(2)(i)(D)(1) or (2) must state at the top of the return that the return was filed pursuant to section 1.911-7(a)(2)(i)(D). This change shall apply to taxable years beginning after December 31, 1981.

SPECIAL ANALYSES

 It has been determined that these rules are not major rules as defined in Executive Order 12291. It has further been determined that immediate guidance in this area is necessary. The issuance of this regulation removes a temporal restriction presently imposed on taxpayers by allowing them to claim a benefit without making a timely election. Therefore, it has been determined pursuant to 5 U.S.C. 553(b)(B) that good cause exists to dispense with prior notice and public procedure. Because no notice of proposed rulemaking is required for this rule, the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. Pursuant to section 7805 (f) of the Internal Revenue Code, a copy of these regulations has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

DRAFTING INFORMATION

 The principal author of these regulations is Leslie B. van der Wal of the Office of Associate Chief Counsel (International), Internal Revenue Service. However, other personnel from the Internal Revenue Service and Treasury Department participated in their development.

LIST OF SUBJECTS IN PART 1

26 CFR part 1

 Income taxes, Reporting and recordkeeping requirements.

AMENDMENTS TO THE REGULATIONS

Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding a citation in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * * Section 1.911-7 also issued under 26 U.S.C. 911(d)(9). * * *

Par. 2. Section 1.911-7(a)(2)(i) is amended as follows:

1. Paragraph (a)(2)(i)(B) is amended by removing the word "or" at the end of the sentence.

2. Paragraph (a)(2)(i)(C) is amended by removing the period at the end of the sentence and by adding the language ", or" in its place.

3. Paragraph (a)(2)(i)(D) is added.

4. The added provision reads as follows:

SECTION 1.911-7 PROCEDURAL RULES.

(a) * * *

(2) * * * (i) * * *

* * * * *

(D) With an income tax return filed after the period described in paragraphs (a)(2)(i)(A), (B), or (C) of this section provided--

(1) The taxpayer owes no federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached either before or after the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion; or

(2) The taxpayer owes federal income tax after taking into account the exclusion and files Form 1040 with Form 2555 or a comparable form attached before the Internal Revenue Service discovers that the taxpayer failed to elect the exclusion.

(3) A taxpayer filing an income tax return pursuant to paragraph (a)(2)(i)(D)(1) or (2) of this section must type or legibly print the following statement at the top of the first page of the Form 1040: "Filed Pursuant to Section 1.911-7(a)(2)(i)(D)."

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