Have a friend in similar situation.

1. US Citizen, retired, moved to Germany since a few years ago. Staying year round.

2. All income from US bank CDs, Ponzi scheme loss recoveries (Ponzi scheme was a US company), no wage income in Germany.

3. German tax law requires all her income is taxed in Germany regardless where it is earned.

To avoid double taxation in Germany and US.

- Should they designate all income in #2 as foreign income even though they are from US entity? 

- File US tax return and claim foreign tax credit deduction to eliminate US tax liability?

@madmanc20 They could report their income as Foreign Earned Income, and take the Foreign Earned Income Exclusion and the Foreign Tax Credit.

Or, report the income as US income, and claim the credit only.

Click this link for more info on Foreign Income and Tax Credit.