Foreign Service Representation Expenses
If you are an employee of the U.S. Foreign Service and your position requires you to establish and maintain favorable relations in foreign countries, you may receive a nontaxable allowance for representation expenses. If your expenses are more than the allowance you receive, you can deduct the excess expenses as an itemized deduction on Schedule A (Form 1040) (PDF) if you meet one of the following conditions:
- You have a certificate from the Secretary of State attesting that the expenses were incurred for the benefit of the United States, and would be reimbursable under appropriate legislation if the agency had sufficient funds for these reimbursements,
- You do not have a certificate described in (1) because the expenses are specifically not reimbursable under State Department regulations. However, the expenses do qualify as ordinary and necessary business expenses in performing your official duties.
Note: To deduct any expenses for travel, entertainment, and gifts, including those certified by the Secretary of State, you must meet the rules for recordkeeping and accounting to your employer. These rules are explained in Publication 463, Travel, Entertainment, Gift, and Car Expenses.
These are expenses that further the interest of the United States abroad. They include certain entertainment, gifts, costs of official functions, and rental of ceremonial dress. They generally do not include costs of passenger vehicles (such as cars or aircraft), printing or engraving, membership fees, or amounts a principal representative must pay personally to cover the usual costs of operating and maintaining an official residence.
Chapters 300 and 400 of the Standardized Regulations (Government Civilians, Foreign Area) provide more detail on what expenses are allowable as representation expenses. These regulations are available at US Embassies and consular offices. You can also find them at the U.S. Department of State Office of Allowances. Publication 463 and Publication 529, Miscellaneous Deductions, provide more detail on what expenses are allowable as ordinary and necessary business expenses.
Impairment-related work expenses
If you are an employee with a physical or mental disability, you can deduct attendant-care services at your place of work and other expenses in connection with work that are necessary for you to be able to work. Attendant care includes a reader for a blind person and a helper for a person with a physical disability. These expenses are reported on Form 2106 or 2106-EZ and carried to Schedule A (Form 1040). They are not subject to the 2%-of- adjusted-gross-income limit on miscellaneous itemized deductions.
Loss on conversion of U.S. dollars into foreign currency
The conversion of U.S. dollars into foreign currency at an official rate of exchange that is not as favorable as the free market rate does not result in a deductible loss.
The Foreign Service Act requires U.S. citizens who are members of the foreign service to take a leave of absence after completing 3 years of continuous service abroad. This period is called "home leave" and can be used to take care of certain personal matters such as medical and dental checkups, buying a new wardrobe, and visiting relatives.
The amounts paid for travel, meals, and lodging while on home leave are deductible as travel or business expenses subject to the rules and limits discussed earlier. You must be able to verify these amounts in order to claim them. Amounts paid on behalf of your family while on home leave are personal living expenses and are not deductible. See chapter 1 of Publication 463, Travel, Entertainment, Gift, and Car Expenses for more information on travel expenses.