2003 HTML Instructions for Form 2555-EZ,

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Table of Contents

Do not include on Form 1040, line 61 (Federal income tax withheld), any taxes a foreign employer withheld from your pay and paid to the foreign country's tax authority instead of to the U.S. Treasury.

Purpose of Form

If you qualify, you may use Form 2555-EZ instead of Form 2555, Foreign Earned Income, to exclude a limited amount of your foreign earned income. You may not exclude more than your foreign earned income for the year.

Remember, U.S. citizens and U.S. resident aliens living in a foreign country are subject to the same U.S. income tax laws that apply to citizens and resident aliens living in the United States.

Foreign country. A foreign country is any territory (including the air space, territorial waters, seabed, and subsoil) under the sovereignty of a government other than the United States. It does not include U.S. possessions or territories.

Note:

Specific rules apply to determine if you are a resident or nonresident alien of the United States. See Pub. 519, U.S. Tax Guide for Aliens, for details.

Who Qualifies

You may use Form 2555-EZ to claim the foreign earned income exclusion if all five of the following apply.

You meet the seven conditions listed at the top of Form 2555-EZ.
Your total foreign earned income received in 2003 is reported on Form 1040, line 7.
You do not have a housing deduction carryover from 2002.
You meet either the bona fide residence test (see the instructions for lines 1a and 1b on page 2) or the physical presence test (see the instructions for lines 2a and 2b on
page 2).
You meet the tax home test (see the instructions for line 3 on page 2).

Note:

If your only earned income from work abroad is pay you received from the U.S. Government as its employee, you do not qualify for the foreign earned income exclusion. Do not file Form 2555-EZ.

Married Couples

If both you and your spouse qualify for, and choose to claim, the foreign earned income exclusion, figure the amount of the exclusion separately for each of you. You must each complete separate Forms 2555-EZ.

Community income. The amount of the exclusion is not affected by the income-splitting provisions of community property laws. The sum of the amounts figured separately for each of you is the total amount excluded on a joint return.

Violation of Travel Restrictions

List of Countries To Which Travel Restrictions Apply

	Time Periods
Country	Beginning	and	Ending
Cuba	January 1, 1987		Still in effect
Iraq*	August 2, 1990		Still in effect
Libya	January 1, 1987		Still in effect
*Individuals whose activities in Iraq are permitted by a specific or general license issued by the Office of Foreign Assets Control are not in violation of U.S. law. Accordingly, the restriction does not apply to such individuals with respect to the activities permitted by the license.

Generally, if you were in a foreign country in violation of U.S. travel restrictions, the following rules apply.

Any time spent in that country may not be counted in determining if you qualify under the bona fide residence or physical presence test and
Any income earned in that country is not considered foreign earned income. See the list below for countries to which U.S. travel restrictions apply.

Additional Information

Pub. 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, has more information about the bona fide residence test, the physical presence test, and the foreign earned income exclusion. You can get this publication from most U.S. embassies and consulates or by writing to: Eastern Area Distribution Center, P.O. Box 85074, Richmond, VA 23261-5074. You can also download this publication (as well as other forms and publications) from the IRS website at www.irs.gov.

Waiver of Time Requirements

If your tax home was in a foreign country and you were a bona fide resident of, or physically present in, a foreign country and had to leave because of war, civil unrest, or similar adverse conditions, the minimum time requirements specified under the bona fide residence and physical presence tests may be waived. You must be able to show that you reasonably could have expected to meet the minimum time requirements if you had not been required to leave. Each year the IRS will publish in the Internal Revenue Bulletin a list of countries and the dates they qualify for the waiver. If you left one of the countries during the period indicated, you can claim the foreign earned income exclusion on Form 2555-EZ, but only for the number of days you were a bona fide resident of, or physically present in, the foreign country.

If you can claim the foreign earned income exclusion because of the waiver of time requirements, attach a statement to your return explaining that you expected to meet the applicable time requirement, but the conditions in the foreign country prevented you from the normal conduct of business. Also, enter “Claiming Waiver” in the top margin on page 1 of your 2003 Form 2555-EZ.

When To File

Form 1040 is generally due April 15, 2004.

However, you are automatically granted a 2-month extension of time to file (to June 15, 2004) if, on the due date of your return, you live outside the United States and Puerto Rico and your tax home (defined later) is outside the United States and Puerto Rico. If you take this extension, you must attach a statement to your return explaining that you meet these two conditions.

The automatic 2-month extension also applies to paying the tax. However, interest is charged on the unpaid tax from the regular due date until it is paid.

Special extension of time. The first year you plan to take the foreign earned income exclusion, you may not expect to qualify until after the automatic 2-month extension period described above. If this occurs, you may apply for an extension to a date after you expect to qualify.

To apply for this extension, complete and file Form 2350, Application for Extension of Time To File U.S. Income Tax Return, with the Internal Revenue Service Center, Philadelphia, PA 19255, before the due date of your return. Interest is charged on the tax not paid by the regular due date as explained earlier.

Choosing the Exclusion

To choose the foreign earned income exclusion, complete the appropriate parts of Form 2555-EZ and file it with your Form 1040 or Form 1040X, Amended U.S. Individual Income Tax Return. Your initial choice to claim the exclusion must usually be made on a timely filed return (including extensions) or on a return amending a timely filed return. However, there are exceptions. See Pub. 54 for more information.

Once you choose to claim the exclusion, that choice remains in effect for that year and all future years unless it is revoked. To revoke your choice, you must attach a statement to your return for the first year you do not wish to claim the exclusion. If you revoke your choice, you may not claim the exclusion for your next 5 tax years without the approval of the Internal Revenue Service. See Pub. 54 for details.

Earned income credit. You cannot take the earned income credit if you claim the exclusion.

Foreign tax credit or deduction. You may not claim a credit or deduction for foreign income taxes paid on income you exclude. If all of your foreign earned income is excluded, you may not claim a credit or deduction for the foreign taxes paid on that income. If only part of your income is excluded, you may not claim a credit or deduction for the foreign taxes allocable to the excluded income. For details on how to figure the amount allocable to the excluded income, see Pub. 514, Foreign Tax Credit for Individuals.

IRA deduction. If you claim the exclusion, special rules apply in figuring the amount of your IRA deduction. For details, see Pub. 590, Individual Retirement Arrangements (IRAs).

General Instructions