The IRS has provided a waiver for any individual who failed to meet the foreign earned income exclusion eligibility requirements because of adverse conditions in a foreign country that precluded the individual from meeting the requirements for the 2020 tax year. Under this guidance, Iraq has been added as the country for which the eligibility requirements have been waived. Previously, the IRS issued guidance that provided relief to nonresident alien individuals and foreign businesses affected by travel restrictions and disruptions arising from the COVID-19 emergency for tax year 2020.

Background. U.S. citizens or residents who work in a foreign country can exclude a limited amount of income earned in that country. The purpose of the foreign earned income exclusion is to give some relief to U.S. citizens or residents who might otherwise have to pay both the U.S. income tax and the income tax of the foreign country where they work. To qualify for the foreign earned income exclusion, a taxpayer must:

  • Have a tax home in a foreign country; and
  • Meet either of the following tests:
  • the bona fide residence test: the individual must be a bona fide resident of a foreign country for an uninterrupted period which includes an entire tax year (e.g., January 1 through December 31, for calendar year taxpayers).
  • the physical presence test: the individual must be physically present in the foreign country during at least 330 full days during 12 consecutive months.

Relief for the foreign income exclusion and Iraq. A qualified individual can elect to exclude from gross income the foreign earned income and to exclude or deduct the housing cost amount of such individual. An individual who left Iraq on or after March 25, 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 Iraq, if the individual establishes a reasonable expectation that he or she would have met the requirements but for those adverse conditions. Individuals who established residency or were first physically present in Iraq after March 25, 2020, are not eligible for the waiver.

You may call us to discuss your situation related to restricted travel to foreign countries and the tax relief granted. We are here to assist you.

Venkat Iyer. CPA(USA). CPA(Canada). MBA

Venkat holds a CPA credential both in the USA and Canada, and he is very proficient in tax and compliance requirements in both countries. He is a Seasoned Business Adviser with 18+ years of extensive experience in diversified industries and accounting firms.He is also very prominent in implementing Lean Principles and Strong Financial Foundations for Hotels and Restaurants. He believes the key to any business success is knowing their indicators and their impact. He has been helping businesses with predictive analytics, transforming data from their enterprise's system for delivering meaningful insights.He is also a Business Automation Expert helping streamline the workflows from marketing to management to ensure optimal business performance.