Can we get the Foreign Earned Income Exclusion updated?

[Elvin Richmond]

When using TurboTax, the Foreign Earned Income Exclusion causes issues for me every year.  It completely messed up my return this year and now I'm doing amendments.  If it doesn't end up changing I'm just going to have to go to a CPA from now on.  It's creating more of a dead ache than anything.  If you meet the below information, then you don't have to meet the normal abode or physical requirements to exclude the income you earned while there.

IR-2018-173, August 24, 2018

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.

[pk]

@Elvin Richmond , without commenting on your  situation and the issues your are/were having with TurboTax , Pub 54 now says the following:

Abode

You are not considered to have a tax home in a foreign country for any period during which your abode is in the United States unless, for tax years beginning after December 31, 2017, you are serving in support of the Armed Forces of the United States in an area designated as a combat zone

Will have to try and duplicate the issue you are seeing.

[Elvin Richmond]

Yes, that's the most recent wording.  

The issue is when you put the dates in for the time you were in a declared combat zone, TurboTax will not allow you to submit without correcting it to be a full year to meet the "abode" definition (without consideration for supporting in a declared combat zone).  Obviously, if you set the date to a full year, it sets all of your income as foreign earned income, not just the amount that you say is foreign earned income.   You are given an option to say that you have a waiver, and you can add a note that you were in a combat zone.  However that still doesn't allow you to electronically file because it wants you to fix the dates.  Using the physical test pretty much results in the same issue.   The only option is to then file it by mail.  Which, if I'm doing that, I might as well pay a CPA to make sure I'm not spending months to do my taxes.  I spend way too much time overseas to deal with that.

[pk]

@Elvin Richmond , I tried  , with the latest update , windows Home & Business.

The scenario I used --- US citizen, Single,  employed by a US entity ( with US address  and a Foreign Base address) , employed by US entity, based in Sudan, earned 130,000 , no housing or any other employer provided  benefits / funding , no COLA etc. to include.   

Chose a  12 month test period of  01/01/2024 through  10/30/2024, said  I have waiver, allowed me to fill out explanation of "waiver" as Combat zone declared  10/20/2024.  No trips back home .  Did not use FEIE priorly, established foreign home on 01/01/2024.

TurboTax accepted all my entries , allowed  FEIE of 105,000 based on 304 days of presence in foreign country.  

Ran checks , found error, related to  employer's  US address , Foreign Address etc.  Digital currency questions,  Foreign Bank account questions,  Any distribution from a  Foreign Trust/person etc.  Once these fixed , TurboTax is happy.

What I did not try is to go further and see  e-filing is possible.

So at this point I do not see if there is a problem or not -- 

Obviously, even though you are frustrated with TurboTax , as regards this issue,  absent other  facts, I do not believe  that a tax professional ( familiar with international taxation )  would do better.  But of course it is your return and your are the one  on the block.

I am a volunteer  here, have no financial or other interest in Intuit, TurboTax,  Lacerte , Pro-Series etc. , nor have any friends/ relatives working for  Intuit or its subsidiaries.

Is there more I can do for you ?

[Elvin Richmond]

I used TurboTax Online Premium.  Is that what's causing the issue?  Because it would NOT let me put in a date that didn't meet a 1 year period.   The only other issue it had was 15 e. on the Form 2555.  I do maintain a home in the US and my spouse resides there.  TurboTax just kept saying that it needs to be left blank.

[pk]

@Elvin Richmond , I have zero knowledge of the screens and/or operation of the  on-line product.  Thus I think I will forward your post / this thread to the  powers be , for action and/or contacting you.

I apologize for my inability to help in this matter any further.

pk

[RobertB4444]

I ran the same test as both of you and you are correct - the system does not allow an exception to the Bona Fide Residence or Physical Presence Tests for someone who was in a combat zone as the tax law allows.  

To get the ball rolling for the TurboTax developers it would be really helpful if we had a diagnostic copy of your return to submit along with our note and request.  Please go to 'Online' in the upper left corner of your TurboTax program and select 'Send Tax File to Agent'.  This will generate a copy of your tax return with all of the personal information removed.  You'll get a six digit code and if you share it here it will help us out.

After you've shared that I have the workaround so that you can file.  It's not great but it will get the job done.  The other option is to wait and see if the developers update the 2024 program.  They might not - this may be a fix they add to 2025.

In order to file the exclusion you'll have to first make sure that you have the income set to exactly what you earned in the combat zone.  That means that you classify the W2 that you received as containing foreign earned income.  When you go to the foreign earned income section there is a screen that allows you to adjust the amount of foreign earned income from that W2.  You need to enter a negative number in the box provided to remove any income that wasn't earned in a combat zone that was on that W2.  That way the total foreign earned income should match what was actually earned.  Then you need to span the dates the way that @pk did above.  Get all the way to 329 days so that it's not enough to meet the physical presence test but it is enough to exclude all of the income.  That will bring up the waiver.  In the waiver explanation you need to enter the dates that you were actually in the combat zone as well as the explanation that it was a combat zone.  Then continue through.  

This should get the amount of income excluded on the 2555 to the correct level, include the explanation with the correct dates and allow you to efile the return.  Obviously, it's not perfect but it will get the job done while the program gets fixed.

Good luck!

@Elvin Richmond