Choosing the Foreign Earned Income Exclusion
The foreign earned income exclusion is voluntary. You can choose the foreign earned income exclusion and the foreign housing exclusion by completing the appropriate parts of Form 2555. Your initial choice of the exclusions on Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion generally must be made with:
a timely filed return (including any extensions),
a return amending a timely filed return, or
a late-filed return filed within 1 year from the original due date of the return (determined without regard to any extensions).
You can choose the exclusion on a return filed after the periods described above, provided you owe no federal income tax after taking the exclusion into account.
If you owe federal income tax after taking the exclusion into account, you can choose the exclusion on a return filed after the periods described above, provided you file before the IRS discovers that you failed to choose the exclusion. You must type or legibly print at the top of the first page of Form 1040 "FILED PURSUANT TO SECTION 1.911-7(a)(2)(i)(D)."
If you owe federal income tax after taking the foreign earned income exclusion into account and the IRS discovers that you failed to choose the exclusion, you must request a private letter ruling under Income Tax Regulation 301.9100-3 and according to the instructions contained in the very first Revenue Procedure issued by the Internal Revenue Service every year.
Once you choose to exclude your foreign earned income or housing amount, that choice remains in effect for that year and all later years unless you revoke it.
Foreign Tax Credit
Once you choose to exclude either foreign earned income or foreign housing costs, you cannot take a foreign tax credit for taxes on income you exclude. If you do take the foreign tax credit, one or both of the choices may be considered revoked. However, you can choose to take the foreign tax credit on any amount of foreign income which has not been excluded under the foreign earned income exclusion or the foreign housing exclusion.
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.