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dwernick
New Member

Can my research fellowship qualify for the foreign earned income exclusion?

I am on a 20-month Fulbright research fellowship abroad. I am not working towards a degree, and the fellowship is therefore taxable, earned income.  The foreign country is my tax home, and soon I will qualify for the foreign earned income exclusion by the physical presence test. However, I am not sure if the exclusion applies to the fellowship.

On the IRS website for Foreign Earned Income Exclusion - I am Eligible to Claim... it states that income from "a Personal Services Agree with a US government agency or instrumentality" is not eligible. The money is paid to me by the United States Israel Education Foundation - a foundation funded by the government's of both nations.

Therefore, is the foundation considered a US government instrumentality? And is the fellowship considered a Personal Services Agreement?

The IRS Fulbright Grants page does not discuss this whatsoever.

Thanks
3 Replies
bine22
Level 7

Can my research fellowship qualify for the foreign earned income exclusion?

If you receive the fellowship to perform research (or study or training) it's considered a fellowship and not eligible for the exclusion. If you receive it to give lectures or teach, it would be compensation for personal services and eligible for the exclusion.


See for more details here:

https://www.irs.gov/Individuals/International-Taxpayers/Fulbright-Grants


dwernick
New Member

Can my research fellowship qualify for the foreign earned income exclusion?

However, according to IRS publication 54 (<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p54/ch04.html">https://www.irs.gov/publications/p54/ch04.html</a>), the fellowship is not for progress towards a degree, therefore is taxable and "earned income." I am "earning" this income in a foreign country that is my tax home. After seeing that, doesn't it sound like it qualifies for the exclusion?
Nevertheless, like the original question says, is the fellowship a Personal Service Agreement with a US instrumentality?
bine22
Level 7

Can my research fellowship qualify for the foreign earned income exclusion?

fellowship is always taxable unless it can be offset by eligible expenses (which you don't have if it's not for a degree program). If you are getting the fellowship to do research, it is not earned income for the exclusion
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