, you raise an interesting situation/point:(a) Section 911 of the code defines foreign earned income as :The term (A)In general
The term “Foreign Earned Income” with respect to any individual means the amount received by such individual from sources within a foreign country or countries which constitute earned income attributable to services performed by such individual during the period.
Thus implying local entity payment, except for US Govt. or any of its depts.
Note however, that a tax payer acting as self-employed, working at his foreign tax home, can receive payment from an US entity and this would be eligible for FEIE ---- No W-2, or 1099. This would need to be reported on Schedule-C, Schedule-SE and subject to local tax laws.
(b) IRS also generally holds that income is sourced to the location where work is actually performed.
thus your earnings for the work performed in country X ( which country please ? ) should mean that the remuneration should be sourced to that host ( tax-home ) country and therefore eligible for foreign earned income exclusion.
(c) However, my confusion here is that you were still employed by the US entity and paid by them. You probably did not pay any taxes to the host country. So is this foreign earned income ?
(d) In the old days when I was on foreign assignment, I got paid partly by my US employer ( and on W-2 ) and partly by the local entity ( a Wholey owned subsidiary/ local entity ), paid taxes to the host country and therefore the foreign portion of the income/ housing / COLA etc. were all eligible for FEIE.
(e) Also my understanding, while hazy, is that when on sabbatical, a prof gets paid ( and continues to have employee benefits ) by the "mother" entity but may receive grants/stipends etc. from the host institution. If that is your case then that portion of earned income definitely would be Foreign income.
Any details of your situation may help clear up this --so please help
