Can I qualify for Foreign Earned Income Exclusion if I was deployed for 156 days to a combat zone as a contractor supporting U.S. Armed Forces in 2018?

[craig-speranzi]

IR-2018-173, Aug. 24, 2018
WASHINGTON — Certain U.S. citizens or resident aliens, specifically contractors or employees of contractors supporting the U.S. Armed Forces in designated combat zones, may now qualify for the foreign earned income exclusion.
The Bipartisan Budget Act of 2018, enacted in February, changed the tax home requirement for eligible taxpayers, enabling them to claim the foreign earned income exclusion even if their “abode” is in the United States. The new law applies for tax year 2018 and subsequent years.
This means that these taxpayers, if eligible, will be able to claim the foreign earned income exclusion on their income tax return for 2018 when they file. Under the exclusion, taxpayers can choose to exclude their foreign earned income from gross income, up to a certain dollar amount. For tax year 2018, that dollar amount limit is $103,900.
The foreign earned income exclusion is not automatic. Eligible taxpayers must file a U.S. income tax return each year with either a Form 2555 or Form 2555-EZ attached. These forms, instructions and Publication 54,Tax Guide for U.S. Citizens and Resident Aliens Abroad, will be revised later this year to reflect this clarification.
Foreign earned income is the income a taxpayer receives for performing personal services in a foreign country or countries during a period in which he or she meets both of the following requirements:
His or her tax home is in a foreign country, and
He or she meets either the bona fide residence test or the physical presence test.
Full details on these tests can be found in Publication 54.
Under prior law, many otherwise eligible taxpayers who lived and worked in designated combat zones failed to qualify because they had an abode in the United States. The new law makes it clear that contractors or employees of contractors providing support to U.S. Armed Forces in designated combat zones are eligible to claim the foreign earned income exclusion.
Taxpayers choosing the foreign earned income exclusion cannot take advantage of any other exclusion, deduction or credit related to the excluded income. This includes any expenses, losses or other items that would have been deductible had the exclusion not been claimed.
As in the past, the foreign earned income exclusion is not available to federal employees or members of the military. But service members in combat zones continue to qualify for the combat pay exclusion. See Publication 3 for details.

[KarenJ]

Are you still overseas or were you only overseas for 156 days in 2018 and have been back in the US after 156 days overseas?

[craig-speranzi]

I was only deployed for 156 days, I was back in the States the rest of the time.

[KarenJ]

Unfortunately, if you were only overseas for 156 days, you will not qualify for the foreign earned income exclusion.  To qualify, you must meet one of 2 tests. 

Bona-fide Residency Test (BFR)

To qualify for this test, you must be a U.S. citizen. You might also qualify if you are a U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect.

You must be a resident of a foreign country (or countries) for an uninterrupted period that includes a complete tax year (January 1 to December 31) unless you are eligible to claim a waiver.

Once you have established bona fide residence in a foreign country, your qualification begins with the date you began the residence and ends with the date you abandon the foreign residence.

Your qualifying period as a bona fide resident may include only part of a tax year. You must intend to reside in the foreign country for an extended period.

Physical Presence Test (PPT)

You meet this test if you are physically present in a foreign country or countries for a total of 330 full days (approximately 11 months) during a 12-month period.

This test applies to both U.S. citizens and U.S. resident aliens. Some of this time may be vacation time in foreign countries.

If you leave the foreign country under your employer's orders, because of illness, or because of a vacation in the U.S, you fail to meet the test. However, in the event you are forced to leave because of war or civil unrest, then you may be able to claim a waiver.

This test does not depend on your intentions about returning to the U.S. or the nature or purpose of your stay. 

The 12-month period can begin any day of the year and ends 12 months later. Be sure to select a 12-month period that allows the greatest qualifying period.

[ariley73]

Why is this so ambiguous?  It reads in a way that the combat zone designation allows us to qualify under the Tax Home Test, therefore, negates the 330 day rule under the Tax home test, so it should apply to the physical presence test.  The press release from Aug 2018 tells us we qualify if we are contractors in a combat designated zone.

[BeeGee]

This question is asking based on the new tax law of 2018 that allows contractors to exclude their income if they were deployed into a designated U.S. Armed Forces combat zone that would allow you to request for the exemption simply based on the deployment into a Combat Zone.  Would that be correct that civilian employees, contractors, or Red Cross members would now be eligible for the exclusion/waiver IAW the web link below?

https://www.irs.gov/newsroom/new-law-m[product key removed]t-zone-contract-workers-qualify-for-forei...

[KrisD15]

Yes, type    2555 foreign income    into the search box and click on the link. 

link to more information about combat contract workers

[BeeGee]

For clarification...You're saying that this waiver actually waives the requirement of having to stay out of the country for 330 days as long as you're deployed into a U.S. Armed Forces combat zone for that timeframe?  Second, I'm trying to e-file it using a downloaded version of Turbo Tax, but it is continually to error off.  Can you help me resolve the error, or advise as to what corrective steps that I might need to take?

[KrisD15]

The change is that you may have an “abode” in the United States. 

You still need to meet the other requirements. 

According to the IRS:

“1. Your tax home must be in a foreign country.

2. You must have foreign earned income.

3. You must be one of the following.

a. A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.

b. A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.

c. A U.S. citizen or a resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.”

….

“Service in a combat zone. U.S. citizens or residents serving in an area designated by the

President of the United States by Executive Order as a combat zone for purposes of section 112 in support of the U.S. Armed Forces can qualify as having a tax home in a foreign country, even if they have an abode within the United States. For a list of IRS recognized combat zones, go to IRS.gov/Newsroom/CombatZones.”

Pub 54

[BeeGee]

Historically the requirement was that you had to be out of the country for the 330 days to meet the Foreign Earned Income, however in 2018 Congress passed the law that allowed civilian employees, contractors, and Red Cross Members to claim for an waiver/exemption of the 330 days as long as they were deployed into a designated U.S. Armed Forces combat zone.  I was following up to the original question posed, which I followed up tonight, and aske for the clarity as reference below.  My member ID is BeeGee.  Please advise.

For clarification...You're saying that this waiver actually waives the requirement of having to stay out of the country for 330 days as long as you're deployed into a U.S. Armed Forces combat zone for that timeframe?  Second, I'm trying to e-file it using a downloaded version of Turbo Tax, but it is continually to error off.  Can you help me resolve the error, or advise as to what corrective steps that I might need to take?

https://www.irs.gov/newsroom/new-law-m[product key removed]t-zone-contract-workers-qualify-for-forei...

[LinaJ2020]

To clarify, you would still need to stay there for at least 330 days, however, you are allowed to have an abode (residence and connections) in the US, not just the foreign tax home.  The new law makes it clear that contractors or employees of contractors providing support to U.S. Armed Forces in designated combat zones are eligible to claim the foreign earned income exclusion even you have a US abode. 

Under prior law, many otherwise eligible taxpayers who lived and worked in designated combat zones failed to qualify the foreign earned income exclusion because they had an abode in the United States. 

Your blue link from above does not work anymore. Here is the new link:  https://www.irs.gov/newsroom/new-law-makes-clear-combat-zone-contract-workers-qualify-for-foreign-ea...

Generally, to claim the exclusion, you have to have a foreign tax home.  Your tax home is your regular or principal place of business, employment, or post of duty, regardless of where you maintain your family residence.  Prior to the new law, you cannot have an abode in the US.  The location of your abode is based on where you maintain your family, economic, and personal ties.  If you have an abode in the US, you are not considered as having a foreign tax home, thus you will not qualify for the exclusion. 

With the new tax law, for those who work in the combat zones, you are allowed to have an abode in the US while working overseas in the combat zones.  Read here https://www.irs.gov/pub/irs-pdf/i2555.pdf, page 1 under "Who Qualifies"

What does the error message say?  

@BeeGee