FEIE vs. FTC in the year I move

[BKKPilot]

I excluded FEI in 2019 and before as I lived and worked overseas via the FEIE.

I moved back to the US and had no FEI for 2020-2023, only US sourced income.

I moved overseas to a different country in 2024 mid year.

I have FEI from the second half of 2024.

I cannot exclude my FEI from 2024 unless I wait until July 2025 to file as I do not qualify (as I moved mid year) - don’t pass the PPT or BFRT yet.

If I take the foreign tax credit instead of excluding my FEI (which also lowers my tax liability) and file before I qualify for the FEIE in July 2025, would this represent a revocation of the FEIE, even though I don’t qualify yet?

I may want to keep the option to use the FEIE in 2025 as it may work better for me...

[pk]

@BKKPilot , 

Having read your post, 

(a)  for the year 2024  you do qualify for FEIE. However you cannot exercise the election till you meet the Physical Presence Test  interval of 12 months .  If you choose to use FEIE, then you have to wait till you have the  uninterrupted 12 month test period  completion  -- 07/xx/2024 through 07/xx/2025 -- that encompasses your  2024 foreign earning period.

(b)  Because of the carry forward / backward  mechanism  when using FTC ilo  FEIE, if you choose to revoke FEIE the following  blackout  period applies:

 Code Section 911

(e)Election

(1)In general

An election under subsection (a) shall apply to the taxable year for which made and to all subsequent taxable years unless revoked under paragraph (2).

(2)Revocation

A taxpayer may revoke an election made under paragraph (1) for any taxable year after the taxable year for which such election was made. Except with the consent of the Secretary, any taxpayer who makes such a revocation for any taxable year may not make another election under this section for any subsequent taxable year before the 6th taxable year after the taxable year for which such revocation was made.  "

Thus , since you have used FEIE   ( 2019 ), that choice is still in effect a  change  to  FTC   ( General category  ONLY ) now would be a revocation  of  that election and therefore  the blackout period would come into play.

Which country are we talking about  ( current  Tax home ) ?

Is there more I can do for you ?

[BKKPilot]

Well, but I do not qualify for the FEIE as I cannot not pass any test yet.  Imagine, I moved on October 16th.  I would never qualify for the PPT or the BFRT before having to file with the max extension to Oct 15.  What then?  Pay double tax or implicitly revoke by claiming FTC and hence being blacked out for the next 5 years?

[DaveF1006]

It depends. Choosing the Foreign Tax Credit (FTC) instead of the Foreign Earned Income Exclusion (FEIE) for 2024 would not automatically revoke your ability to use the FEIE in 2025. Revocation of the FEIE occurs when you explicitly state that you are revoking it on your tax return or amended return for the first year you do not wish to claim the exclusion. Since you do not qualify for the FEIE in 2024 due to not meeting the Physical Presence Test (PPT) or Bona Fide Residence Test (BFRT), you aren't technically "revoking" the FEIE by opting for the FTC.

For 2025, if you meet the PPT or BFRT and qualify for the FEIE, you should be able to claim it without issue, provided you haven't explicitly revoked it in prior years.

Revoking your choice to exclude foreign-earned income

[pk]

@BKKPilot  generally agreeing with my Colleague @DaveF1006  on "revocation" requiring  a specific action.  However,   I still see that you are  eligible to choose  FEIE , just  have to wait till you can meet the test period.  

On the subject of revocation, I am leery  of changing  track and thereby triggering the six year blackout period.  My references here   ( and in addition to my earlier  inclusion ) is ----- >  Choosing the foreign earned income exclusion | Internal Revenue Service;

Also from Pub 54 , page 18

Effect of Choosing the Exclusions
and Deduction
Once you choose the foreign earned income exclusion
election or foreign housing exclusion election, that choice
remains in effect for that year and all later years unless
you revoke it. This means you must make the same choice
in a subsequent year. Otherwise, it will be considered as a
revocation of your foreign earned income exclusion elec
tion or foreign housing exclusion election for that year.

Effect of Revoking the Exclusions
You can revoke your choice for any year. You may revoke
in several different ways. You may revoke by attaching a
statement that you are revoking one or more previously
made choices to your return or amended return for the first
year that you do not wish to claim the exclusion(s). You
must specify which choice(s) you are revoking. You must
revoke separately a choice to exclude foreign earned in
come and a choice to exclude foreign housing amounts.
Alternatively, if you decide to take the foreign tax credit,
additional child tax credit, or earned income credit in a
subsequent year, you will be considered to have revoked
your prior choice.
Note. You do not need to revoke a prior choice just be
cause you have no foreign earned income or foreign hous
ing costs for the year.
If you revoked a choice and within 5 years again wish to
choose the same exclusion, you must apply for IRS appro
val. You do this by requesting a ruling from the IRS. Re
quests can be submitted by fax, encrypted email, or mail.
See Revenue Procedure 2024-01, Section 8.05(6).04(1)
(3) for additional information. For fax requests, transmis
sions of full packages with a cover sheet can be faxed to
844-249-6231. For email requests, the IRS encourages
use of secure electronic facsimile method, or encrypted
email attachment to lbi.irt.info@irs.gov.
Mail your request for a ruling, in duplicate, to:
Associate Chief Counsel (International)
Internal Revenue Service
Attn: CC:PA:LPD:DRU
P.O. Box 7604
Ben Franklin Station
Washington, DC 2004