It depends. As I understand, your wife is being taxed on foreign income that she hasn't been able to exclude. My question is, why not? Was it for the following reasons? She should be able to exclude her foreign income if she meets the following four requirements.
My guess is that the reason why income was not excluded is because she did not meet the requirements of the the bona residence or physical presence test. if this is the case, she should be able to claim a foreign tax credit for the foreign taxes paid to another country. As far as taxation, foreign income is taxed the same as ordinary income.
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