"Arab Spring" Foreign Earned Income Exclusion

The IRS has determined that some taxpayers who lived in the countries that experienced an "Arab Spring" should be allowed to exclude some of their foreign earned income. Generally, U.S. citizens or resident aliens living and working abroad are taxed on their worldwide income. If, however, a taxpayer's tax home is in a foreign country and they meet certain IRS criteria, namely the "bona fide residence" test or the "physical presence" test, they may exclude from their U.S. income a limited amount of their foreign earned income ($91,500 for 2010).

In Revenue Procedure 2012-21, the Treasury and State Department have determined that civil unrest, war, or other similar adverse conditions precluded the normal conduct of business in the following countries beginning on the specified date:

•· Egypt on Feb. 1, 2011,

•· Libya on Feb. 21, 2011,

•· Syria on April 25, 2011, and

•· Yemen on May 25, 2011.

Therefore, any individual who left one of these countries on or after the specified departure date during 2011 will have the minimum time requirements waived, because taxpayers had to leave a foreign country because of war, civil unrest or similar adverse conditions.

To read the full text of IRS Revenue Procedure 2012-21 click here.

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