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Home Taxes

Use It Or Lose It

Kathleen Peddicord by Kathleen Peddicord
Feb 08, 2010
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Foreign Earned Income Exclusion

“In a perfect world,” writes our international tax attorney, ” all U.S. citizens would file their U.S. tax returns on April 15 and make use of all the proper and available exclusions and deductions. Of course, that is not the case. In fact, the majority of returns I prepare for Americans living abroad are delinquent.

“This can be extremely costly if you’re making use of the foreign earned income exclusion (FEIE). If you file late, and you are audited by the IRS, you could lose the foreign earned income exclusion and have to pay tax on 100% of your foreign-earned income!

“Generally, a qualifying individual’s initial choice of using the foreign earned income exclusion must be made with one of the following income tax returns:

— A return filed by the due date (including any extensions)…

— A return amending a timely filed return. Amended returns generally must be filed by the later of either three years after the filing date of the original return or two years after the tax is paid…

— Or a return filed within one year of the original due date of the return (determined without regard to any extensions).

“An exception to this rule is made provided:

— You owe no federal tax after accounting for the exclusion…

— Or if you act prior to the IRS discovering that you failed to elect the exclusion.

“If you owe tax after taking the FEIE into account, and the IRS discovers your failure to use the FEIE, then you can seek relief by requesting a private letter ruling under Income Tax Regulation 301.9100-3 and Revenue Procedure 2009-1.

“Having handled many of these cases, I can tell you that negotiating a settlement or securing a letter ruling can be a costly and time-consuming battle. In a case where a husband and wife each who would have been eligible for the full FEIE have failed to file their returns for six or seven years, it could be possible to have as much as US$1 million in untaxed income at issue.”

Kathleen Peddicord

 

Tags: FEIEForeign Earned Income ExclusionIncome Tax Regulation 301.9100-3Revenue Procedure 2009-1
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Kathleen Peddicord

Kathleen Peddicord

Kathleen Peddicord has covered the live, retire, and do business overseas beat for more than 30 years and is considered the world's foremost authority on these subjects. She has traveled to more than 75 countries, invested in real estate in 21, established businesses in 7, renovated historic properties in 6, and educated her children in 4.

Kathleen has moved children, staff, enterprises, household goods, and pets across three continents, from the East Coast of the United States to Waterford, Ireland... then to Paris, France... next to Panama City, where she has based her Live and Invest Overseas business. Most recently, Kathleen and her husband Lief Simon are dividing their time between Panama and Paris.

Kathleen was a partner with Agora Publishing’s International Living group for 23 years. In that capacity, she opened her first office overseas, in Waterford, Ireland, where she managed a staff of up to 30 employees for more than 10 years. Kathleen also opened, staffed, and operated International Living publishing and real estate marketing offices in Panama City, Panama; Granada, Nicaragua; Roatan, Honduras; San Miguel de Allende, Mexico; Quito, Ecuador; and Paris, France.

Kathleen moved on from her role with Agora in 2007 and launched her Live and Invest Overseas group in 2008. In the years since, she has built Live and Invest Overseas into a successful, recognized, and respected multi-million-dollar business that employs a staff of 35 in Panama City and dozens of writers and other resources around the world.

Kathleen has been quoted by The New York Times, Money magazine, MSNBC, Yahoo Finance, the AARP, and beyond. She has appeared often on radio and television (including Bloomberg and CNBC) and speaks regularly on topics to do with living, retiring, investing, and doing business around the world.

In addition to her own daily e-letter, the Overseas Opportunity Letter, with a circulation of more than 300,000 readers, Kathleen writes regularly for U.S. News & World Report and Forbes.

Her newest book, "How to Retire Overseas: Everything You Need to Know to Live Well (for Less) Abroad," published by Penguin Random House, is the culmination of decades of personal experience living and investing around the world.

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