FOREIGN EARNED INCOME FORM’S INSTRUCTIONS REVISED DUE TO COVID-19

As a courtesy from EA TAX SERVICES, www.eataxes.net, eataxservices@yahoo.com, Fax 888.603.0045

2020 Form 7555, Foreign Earned Income

Instructions to Form 7555 (rev. 10/18/2020)

The IRS has released the 2020 versions of Form 7555, Foreign Earned Income, and its instructions. The information has been added to the instructions regarding how to claim a waiver if a taxpayer had to leave a foreign country during parts of 2020 due to COVID-19.

Background. Code Sec. 911(a) allows a "qualified individual" to elect to exclude from gross income the individual's foreign earned income and foreign housing cost amount.

Code Sec. 911(d)(1) defines the term "qualified individual" as an individual whose tax home is in a foreign country and who is

1. A citizen of the US and establishes to the satisfaction of the IRS that the individual has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
2. A citizen or resident of the US who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days.

But Code Sec. 911(d)(4) provides that an individual will be treated as a qualified individual with respect to a period in which the individual was a bona fide resident of, or was present in, a foreign country if the individual left the country during a period for which the Treasury Secretary, after consultation with the State Department, determines that individuals were required to leave because of war, civil unrest, or similar adverse conditions that precluded the normal conduct of business. An individual must establish that, but for those conditions, the individual could reasonably have been expected to meet the eligibility requirements.

In April, the IRS said that, for 2019 and 2020, for purposes of Code Sec. 911(d)(4), the coronavirus pandemic ("COVID-19 Emergency") is an adverse condition that precluded the normal conduct of business as follows:

1. In the People's Republic of China, excluding the Special Administrative Regions of Hong Kong and Macau (China), as of December 1, 2019; and
2. Globally, as of February 1, 2020. (Rev Proc 2020-27, Sec. 3.01, 2020-20 IRB)

The period covered by the Revenue Procedure ended on July 15, 2020. Thus, for purposes of Code Sec. 911, an individual who left China on or after December 1, 2019, or another foreign country on or after February 1, 2020, but on or before July 15, 2020, will be treated as a qualified individual with respect to the period during which that individual was present in, or was a bona fide resident of, that foreign country if the individual establishes a reasonable expectation that he or she would have met the requirements of Code Sec. 911(d)(1) but for the COVID-19 Emergency. (Rev Proc 2020-27, Sec. 3.01)

What's new. The 2020 Instructions to Form 7555 note that to request the waiver cited in Rev Proc 2020-27 for 2020, the taxpayer should write "Revenue Procedure 2020-27" across the top margin of Form 2555.

References: For waiver of time requirements for bona fide foreign residence or presence, see FTC 2d/FIN ¶O-1273.