Question

A U.S. citizen worked in a foreign country for the period July 1, 2014 through August 1, 2015. Her salary was $10,000 per month. Also, in 2014 she received $5,000 in dividends from foreign corporations (not qualified dividends). No dividends were received in 2015. Which of the following is correct?

a. The taxpayer cannot exclude any of the income because she was not present in the foreign country more than 330 days in either 2014 or 2015.
b. The taxpayer can exclude a portion of the salary from U.S. gross income in 2014 and 2015, and all of the dividend income.
c. The taxpayer can exclude from U.S. gross income $60,000 salary in 2014, but in 2015 the taxpayer will exceed the twelve month limitation and, therefore, all of the 2015 compensation must be included in gross income. All of the dividends must be included in 2014 gross income.
d. The taxpayer must include the dividend income of $5,000 in 2014 gross income, but the taxpayer can exclude a portion of the compensation income from U.S. gross income in 2014 and 2015.
e. None of these.

Answer 1

The correct answer is a. The taxpayer cannot exclude any of the income because she was not present in the foreign country more than 330 days in either 2014 or 2015.

Step-by-step explanation:

To determine the correct answer, we need to understand the rules for excluding income earned in a foreign country as a U.S. citizen.

or the taxpayer to qualify for the Foreign Earned Income Exclusion, she must meet either the Physical Presence Test or the Bona Fide Residence Test.

In this case, the taxpayer worked in a foreign country for a period from July 1, 2014, through August 1, 2015.

To meet the Physical Presence Test, she must be physically present in that foreign country for at least 330 full days during a consecutive 12-month period.

Based on the given information, the taxpayer doesn't meet this requirement for either 2014 or 2015.

As a result, the correct answer is a. The taxpayer cannot exclude any of the income because she was not present in the foreign country more than 330 days in either 2014 or 2015.