Questions and Answers This section answers tax-related questions commonly asked bytaxpayers living abroad. Filing Requirements--Where, When, and How 1) When are U.S. income tax returns due? Generally, for calendar year taxpayers, U.S. income tax returns aredue on April 15. If you are a U.S. citizen or resident and both yourtax home and your abode are outside the United States and Puerto Ricoon the regular due date, an automatic extension is granted to June 15for filing the return. Interest will be charged on any tax due, asshown on the return, from April 15. 2) Where do I file my U.S. income tax return? If you claim the foreign earned income exclusion, the foreignhousing exclusion, or the foreign housing deduction on Form 2555, theforeign earned income exclusion on Form 2555-EZ, or an exclusionof income for bona fide residents of American Samoa on Form 4563,you should file your return with the: Internal Revenue Service Center Philadelphia, PA 19255-0215. If you are not claiming one of the exclusions or the deduction, butare living in a foreign country or U.S. possession and have no legalresidence or principal place of business in the United States, youshould send your return to the address shown above. If you are not sure of the place of your legal residence and haveno principal place of business in the United States, you also can filewith the Philadelphia Service Center. However, you should not filewith the Philadelphia Service Center if you are a bona fide residentof the Virgin Islands or a resident of Guam or the Commonwealth of theNorthern Mariana Islands on the last day of your tax year. See thediscussion in chapter 1. 3) I am going abroad this year and expect to qualify for theforeign earned income exclusion. How can I secure an extension of timeto file my return, when should I file my return, and what forms arerequired? a) You should file Form 2350 by the due date of your return torequest an extension of time to file. Form 2350 is a special form forthose U.S. citizens or residents abroad who expect to qualify undereither the bona fide residence test or physical presence test andwould like to have an extension of time to delay filing until afterthey have qualified. b) If the extension is granted, you should file your return afteryou qualify, but by the approved extension date. c) You must file your Form 1040 with Form 2555 (or Form2555-EZ). 4) My entire income qualifies for the foreign earned incomeexclusion. Must I file a tax return? Maybe. Every U.S. citizen or resident must file a U.S. income taxreturn if certain income levels are reached. Income for filingrequirement purposes is figured without regard to the foreign earnedincome exclusion. The income levels for filing purposes are discussedunder Filing Requirements in chapter 1. 5) I was sent abroad by my company in November of last year. Iplan to secure an extension of time on Form 2350 to file my tax returnfor last year because I expect to qualify for the foreign earnedincome exclusion under the physical presence test. However, if mycompany recalls me to the United States before the end of thequalifying period and I find I will not qualify for the exclusion, howand when should I file my return? If your regular filing date has passed, you should file a return,Form 1040, as soon as possible for last year. Include a statement withthis return noting that you have returned to the United States andwill not qualify for the foreign earned income exclusion. You mustreport your worldwide income on the return. If you paid a foreign taxon the income earned abroad, you may be able to either deduct this taxor claim it as a credit against your U.S. income tax. However, if you pay the tax due after the regular due date,interest will be charged from the regular due date until the date thetax is paid. 6) I am a U.S. citizen and have no taxable income from theUnited States, but I have substantial income from a foreign source. AmI required to file a U.S. income tax return? Yes. All U.S. citizens and resident aliens, depending on the amountof the foreign source income, are subject to U.S. tax on theirworldwide income. If you paid taxes to a foreign government on incomefrom sources outside the United States, you may receive a foreign taxcredit against your U.S. income tax liability for the foreign taxespaid. Form 1116 is used to figure the allowable credit. 7) I am a U.S. citizen who has retired, and I expect to remainin a foreign country. Do I have any further U.S. tax obliga- tions? Your U.S. tax obligation on your income is the same as that of aretired person living in the United States. (See the discussion inchapter 1 of this publication for filing requirements.) U.S. payers ofcertain pension benefits must withhold tax from payments unless therecipient provides a residence address in the United States or a U.S.possession. 8) I have been a bona fide resident of a foreign country forover 5 years. Is it necessary for me to pay estimated tax? U.S. taxpayers overseas have the same requirements for payingestimated tax as those in the United States. See the discussion underEstimated Tax in chapter 1. Overseas taxpayers should not include in their estimated income anyincome they receive that is, or will be, exempt from U.S. taxation. Overseas taxpayers can deduct their estimated housing deduction infiguring their estimated tax. The first installment of estimated tax is due on April 15 of theyear for which the tax is paid. 9) Will a check payable in foreign currency be acceptable inpayment of my U.S. tax? Generally, only U.S. currency is acceptable for payment of incometax. However, if you are a Fulbright grantee, see the discussion underFulbright grants in chapter 1. 10) I have met the test for physical presence in a foreigncountry and am filing returns for 2 years. Must I file a separate Form2555 (or Form 2555-EZ)with each return? Yes. A Form 2555 (or Form 2555-EZ) must be filed with eachForm 1040 tax return on which the benefits of income earned abroad areclaimed. 11) Does a Form 2555 (or 2555-EZ) with a Schedule C orForm W-2 attached constitute a return? No. The Form 2555 (or 2555-EZ), Schedule C, and FormW-2 are merely attachments and do not relieve you of therequirement to file a Form 1040 to show the sources of income reportedand the exclusions or deductions claimed. 12) On Form 2350, Application for Extension of Time to File U.S.Income Tax Return,I stated that I would qualify under thephysical presence test. If I qualify under the bona fide residencetest, can I file my return on that basis? Yes. You can claim the foreign earned income exclusion and theforeign housing exclusion or deduction under either test as long asyou meet the qualification requirements. You are not bound by the testindicated in the application for extension of time. You must be sure,however, that you file the Form 1040 return by the date approved onForm 2350, since a return filed after that date may be subject to afailure to file penalty. If you will not qualify under the bona fide residence test until adate later than the extension granted under the physical presencerule, apply for a new extension to a date 30 days beyond the date youexpect to qualify as a bona fide resident. 13) I am a U.S. citizen who worked in the United States for 6months last year. I accepted employment overseas in July of last yearand expect to qualify for the foreign earned income exclusion. ShouldI file a return and pay tax on the income earned in the United Statesduring the first 6 months and then, when I qualify, file anotherreturn covering the last 6 months of the year? No. You have the choice of one of the following two methods offiling your return: a) You can file your return when due under the regular filingrules, report all your income without excluding your foreign earnedincome, and pay the tax due. After you have qualified for theexclusion, you can file an amended return,Form 1040X, accompanied by Form 2555(or 2555-EZ), for a refund of any excess tax paid. b) You can postpone the filing of your tax return by applying onForm 2350 for an extension of time to file to a date 30 days beyondthe date you expect to qualify under either the bona fide residencetest or the physical presence test, then file your return reflectingthe exclusion of foreign earned income. This allows you to file onlyonce and saves you from paying the tax and waiting for a refund.However, interest is charged on any tax due on the postponed taxreturn, but interest is not paid on refunds paid within 45 days afterthe return is filed. (If you have moving expenses that are forservices performed in two years, you can be granted an extension to 90days beyond the close of the year following the year of first arrivalin the foreign country.) 14) I am a U.S. citizen. I have lived abroad for a number ofyears and have only recently realized that I should have been filingU.S. income tax returns. How do I correct this oversight in not havingfiled returns for these years? File the late returns as soon as possible, stating your reason forfiling late. For advice on filing the returns, you should contact theInternal Revenue Service representative serving your area, or theInternal Revenue official who travels through your area (details canbe obtained from your nearest U.S. consulate or Embassy), or you canwrite to the: Internal Revenue Service Assistant Commissioner (International) Attn: OP:IN:D:CS 950 L'Enfant Plaza South, SW Washington, DC 20024. 15) In 1993 I qualified to exempt my income earned abroad, but Idid not claim this exemption on the return I filed in 1994. I paid alloutstanding taxes with the return. Can I file a claim for refundnow? It is too late to claim this refund since a claim for refund mustbe filed within 3 years from the date the return was filed or 2 yearsfrom the date the tax was paid, whichever is later. For this purpose,a return filed before the due date is considered filed on the duedate. Meeting the Requirementsof Either the Bona FideResidence Test or thePhysical Presence Test 1) I recently came to Country X to work for the Orange TractorCo., and I expect to be here for 5 or 6 years. I understand that uponthe completion of 1 full year I will qualify under the bona fideresidence test. Is this correct? Not entirely. The law provides that to qualify under this test forthe foreign earned income exclusion, the foreign housing exclusion, orthe foreign housing deduction, a person must be a "bona fideresident of a foreign country or countries for an uninterrupted periodthat includes an entire taxable year." If, like most U.S. citizens, you file your return on a calendaryear basis, the taxable year referred to in the law would be fromJanuary 1 to December 31 of any particular year. Unless youestablished residence in Country X on January 1, it would be more than1 year before you could qualify as a bona fide resident of a foreigncountry. Once you have completed your qualifying period, however, youare entitled to exclude the income or to claim the housing exclusionor deduction from the date you established bona fide residence. 2) I understand the physical presence test to be simply a matterof being physically present in a foreign country for at least 330 dayswithin 12 consecutive months; but what are the criteria of the bonafide residence test? To be a bona fide resident of a foreign country, you must show thatyou entered a foreign country intending to remain there for anindefinite or prolonged period and, to that end, you are making yourhome in that country. Consideration is given to the type of quartersoccupied, whether your family went with you abroad, the type of visa,the employment agreement, and any other factor pertinent to showwhether your stay in the foreign country is indefinite or prolonged. To claim the foreign earned income exclusion or foreign housingexclusion or deduction under this test, the period of foreignresidence must include 1 full tax year (usually January1--December 31), but once you meet this time requirement, youfigure the exclusions and the deduction from the date the residenceactually began. 3) To meet the qualification of "an uninterrupted period whichincludes an entire taxable year" do I have to be physically presentin a foreign country for the entire year? No. Uninterrupted refers to the bona fide residence proper and notto the physical presence of the individual. During the period of bonafide residence in a foreign country, even during the first full year,you can leave the country for brief and temporary trips back to theUnited States or elsewhere for vacation, or even for business. Topreserve your status as a bona fide resident of a foreign country, youmust have a clear intention of returning from those trips, withoutunreasonable delay, to your foreign residence. 4) I am a U.S. citizen and during 1998 was a bona fide residentof Country X. On January 15, 1999, I was notified that I was to beassigned to Country Y. I was recalled to New York for 90 daysorientation and then went to Country Y, where I have been since.Although I was not in Country X on January 1, I was a bona fideresident of Country X and was in Country Y on December 31, 1999. Myfamily remained in Country X until completion of the orientationperiod, and my household goods were shipped directly to my new post.Can I qualify as a bona fide resident of a foreign country for 1999,or must I wait for the entire year of 2000 to qualify? Since you did not break your period of foreign residence, you wouldcontinue to qualify as a bona fide resident for 1999. 5) Due to illness, I returned to the United States before Icompleted my qualifying period to claim the foreign earned incomeexclusion. Can I figure the exclusion for the period I residedabroad? No. You are not entitled to any exclusion of foreign earned incomesince you did not complete your qualifying period under either thebona fide residence test or physical presence test. If you paidforeign tax on the income earned abroad, you may be able to claim thattax as a deduction or as a credit against your U.S. tax. 6) Can a resident alien of the United States qualify for anexclusion or deduction under the bona fide residence test or thephysical presence test? Resident aliens of the United States can qualify for the foreignearned income exclusion, the foreign housing exclusion, or the foreignhousing deduction if they meet the requirements of the physicalpresence test. Certain resident aliens can qualify under the bona fideresidence test. 7) On August 13 of last year I left the United States andarrived in Country Z to work for the Gordon Manufacturing Company. Iexpected to be able to exclude my foreign earned income under thephysical presence test because I planned to be in Country Z for atleast 1 year. However, I was reassigned back to the United States andleft Country Z on July 1 of this year. Can I exclude any of my foreignearned income? No. You cannot exclude any of the income you earned in Country Zbecause you were not in a foreign country for at least 330 full daysas required under the physical presence test. Foreign Earned Income 1) I am an employee of the U.S. Government working abroad. Canall or part of my government income earned abroad qualify for theforeign earned income exclusion? No. The foreign earned income exclusion applies to your foreignearned income. Amounts paid by the United States or its agencies totheir employees are not treated, for this purpose, as foreign earnedincome. 2) I qualify under the bona fide residence test. Does my foreignearned income include my U.S. dividends and the interest I receive ona foreign bank account? No. The only income that is foreign earned income is income fromthe performance of personal services abroad. Investment income,including income from foreign investments, is not earned income.However, you must include it in gross income reported on your Form1040. 3) My company pays my foreign income tax on my foreign earnings.Is this taxable compensation? Yes. The amount is compensation for services performed. The taxpaid by your company should be reported on Form 1040 and in item 22(f)of Part IV, Form 2555 (or Line 17 of Part IV, Form 2555-EZ). 4) I live in an apartment in a foreign city for which myemployer pays the rent. Should I include in my income the cost to myemployer ($1,200 a month) or the fair market value of equivalenthousing in the United States ($800 a month)? No. You must include in income the fair market value (FMV) of thefacility provided, where it is provided. This will usually be the rentyour employer pays. Situations when the FMV is not included in incomeare discussed in chapter 4under Exclusion of meals andlodging. 5) My U.S. employer pays my salary into my U.S. bank account. Isthis considered U.S. income or foreign income? If you performed the services to earn this salary outside theUnited States, your salary is considered earned abroad. It does notmatter that you are paid by a U.S. employer or that your salary isdeposited in a U.S. bank account in the United States. The source ofsalary, wages, commissions, and other personal service income is theplace where you perform the services. 6) What is considered a foreign country? For the purposes of the foreign earned income exclusion and theforeign housing exclusion or deduction, foreign country means anyterritory under the sovereignty of a country other than the UnitedStates. Possessions of the United States are not treated as foreigncountries. 7) What is meant by the source of earned income? The word "source" refers to the place where the work orpersonal services that produce earned income are performed. In otherwords, income received for work in a foreign country has its source inthat country. The foreign earned income exclusion and the foreignhousing exclusion or deduction are limited to earned income fromsources within foreign countries. Foreign EarnedIncome Exclusion 1) I qualify for the foreign earned income exclusion and earnedmore than $74,000 during the year. Am I entitled to the maximum$74,000 exclusion? Not necessarily. Although you qualify for the foreign earned incomeexclusion, you may not have met either the bona fide residence test orthe physical presence test for your entire tax year. If you did notmeet either of these tests for your entire tax year, you must proratethe $74,000 maximum exclusion based on the number of days that you didmeet either test during the year. 2) How do I qualify for the foreign earned income exclusion? To be eligible, you must have a tax home in a foreign country andyou must be a U.S. citizen or a resident alien who is a citizen ornational of a country with which the United States has an income taxtreaty in effect. You must be a bona fide resident of a foreigncountry or countries for an uninterrupted period that includes anentire tax year, or you must be a U.S. citizen or resident and bephysically present in a foreign country or countries for at least 330full days during any period of 12 consecutive months. Your tax home must be in the foreign country or countriesthroughout your period of residence or presence. For this purpose,your period of physical presence is the 330 full days during which youare present in a foreign country, not the 12 consecutive months duringwhich those days occur. 3) Is it true that my foreign earned income exclusion cannotexceed my foreign earned income? Yes. The amount of the exclusion is limited each year to the amountof your foreign earned income after reducing that income by theforeign housing exclusion. The foreign earned income must be earnedduring the part of the tax year that you have your tax home abroad andmeet either the bona fide residence test or the physical presencetest. 4) My wife and I are both employed, reside together, and file ajoint return. We meet the qualifications for claiming the foreignearned income exclusion. Do we each figure a separate foreign earnedincome exclusion and foreign housing exclusion? You can each claim a foreign earned income exclusion since you bothhave foreign earned income. The amount of the exclusion for each ofyou cannot exceed your separate foreign earned incomes. If you each have a housing amount, you can figure your housingexclusion either separately or jointly. See the discussion,Married Couples Living Apart, in chapter 4for furtherdetails. Exemptions andDependency Allowances 1) I am a U.S. citizen married to a nonresident alien who has noincome from U.S. sources. Can I claim an exemption for my spouse on myU.S. tax return? Yes. You can claim an exemption for your nonresident alien spouseon your tax return if your spouse has no income from sources withinthe United States and is not the dependent of another U.S. taxpayer. You must use the married filing separately column in the Tax Tableor the Tax Rate Schedule for married individuals filing a separatereturn, unless you qualify as a head of household. (Also see Question12 under General Tax Questions, later. ) A U.S. citizen or resident married to a nonresident alien also canchoose to treat the nonresident alien as a U.S. resident for allfederal income tax purposes. This allows you to file a joint return,but also subjects the alien's worldwide income to U.S. income tax. 2) What exemptions can be claimed by a U.S. citizen for anonresident alien spouse who was blind and 65 years of age? The spousedid not have income from U.S. sources and was not a dependent ofanother U.S. taxpayer. A U.S. taxpayer can generally claim one exemption for his or herspouse. In addition, if the U.S. taxpayer does not itemize deductionson Schedule A (Form 1040), the taxpayer may be entitled to a higherstandard deduction if his or her spouse is age 65 or older or is blindat the end of the year. 3) My wife is a nonresident alien who receives interest incomefrom deposits in a U.S. bank. Is this income taxable to her? Your nonresident alien spouse's bank deposit interest income is nottaxed by the United States unless it is effectively connected with aU.S. trade or business. The exclusion of interest on bank depositsalso applies to interest on deposits or withdrawable accounts withsavings and loan associations, credit unions, mutual savings banks,and similar institutions, and on amounts held by insurance companiesunder an agreement to pay interest. Interest received by your spouse from deposits in the foreignbranches of U.S. banks is from foreign sources and is not subject toU.S. tax. However, if you choose to treat your nonresident alien spouse as aU.S. resident as explained in question 1, all of the interest incomeis subject to tax and must be included on a U.S. tax return. 4) I spend $375 a month to support my parents who live in Italy.I am sure this provides the bulk of their support. Can I claimexemptions for them? It depends on whether they are U.S. citizens or residents. If yourparents are not U.S. citizens or residents, you cannot claimexemptions for them even if you provide most of their support. Toqualify as a dependent, a person generally must be either a citizen ornational of the United States or a resident of the United States,Canada, or Mexico for some part of the tax year. The other tests ofdependency also must be met. 5) Should I prorate my own personal exemption and the exemptionsfor my spouse and dependents, since I expect to exclude part of myincome? No. Do not prorate exemptions for yourself, your spouse, and yourdependents. Claim the full amount for each exemption permitted. Social Security Benefits andSelf-Employment Tax 1) Are U.S. social security benefits taxable? Benefits received by U.S. citizens and resident aliens may betaxable, depending on the total amount of income and the filing statusof the taxpayer. Benefits similar to social security received from other countriesby U.S. citizens or residents may be taxable. U.S. social securitybenefits are taxed by some foreign countries. (Refer to our taxtreaties with various countries for any benefit granted by thetreaty.) 2) As a U.S. citizen or resident, how do I figure the amount ofmy U.S. social security benefits to include in gross income? See Publication 915, Social Security and Equivalent RailroadRetirement Benefits, to figure if any of your benefits areincludible in income. 3) How are railroad retirement benefits taxed? The part of a tier 1 railroad retirement benefit that is equivalentto the social security benefit you would have been entitled to receiveif the railroad employee's work had been covered under the socialsecurity system rather than the railroad retirement system is treatedthe same as a social security benefit, discussed above. The other part of a tier 1 benefit that is not considered a socialsecurity equivalent benefit is treated like a private pension orannuity, as are tier 2 railroad retirement benefits. Pensions andannuities are explained in chapter 4under Earned and UnearnedIncome. Vested dual benefits and supplemental annuities are alsotreated like private pensions but are fully taxable. The proper amounts of the social security equivalent part of tier 1benefits and any special guaranty benefits are shown on the FormRRB-1099, Payments by the Railroad Retirement Board,that you receive from the Railroad Retirement Board. The taxableamounts of the non-social security equivalent part of tier 1, tier 2,vested dual benefits, and supplemental annuities are shown on theForm RRB-1099-R, Annuities or Pensions by the Railroad RetirementBoard, that you receive from the Railroad Retirement Board. 4) How do I get a social security number when I am overseas? If you are 18 years of age or older, you must apply in person at aU.S. Embassy, consulate, or military installation. During yourinterview, you will be asked to show evidence of your identity, age,and citizenship. If you are under 18 years old, you should ask yourlocal U.S. Embassy or consulate how to apply for a social securitynumber. 5) Do I need social security numbers for my dependents? Yes. You generally must provide a social security number on thereturn for any dependent for whom you claim an exemption. You shouldapply for this number early enough so that it can be assigned beforeyour return is due. Nonresident alien dependents are not exempt fromthis requirement. If your nonresident alien dependent is not eligibleto get an SSN, you must apply for an IRS individual taxpayeridentification (ITIN) for the dependent. To apply for an ITIN fileForm W-7 with the IRS. It usually takes about 30 days to get anITIN. Note. An ITIN is for tax use only. It does notentitle a person to social security benefits or change theiremployment or immigration status under U.S. law. 6) I know U.S. savings banks need my social security number, butdo the U.S. companies in which I own stock require the number? Yes. Corporations are required to request your number and includeit when reporting dividend payments to the IRS. 7) I am a minister with earned income from abroad and expect toqualify for the foreign earned income exclusion. How do I pay theself-employment tax that results from social security coverage? File a Form 1040 accompanied by a Schedule SE andForm 2555. Figure your self-employ-menttax on Schedule SE and enter it on Form 1040 as the tax due with thereturn. 8) Because I expect to qualify for the foreign earned incomeexclusion, I have requested and received an extension of time untilJanuary 30, 2001, to file my 1999 return. However, since I will bepaying self-employment tax on my spouse's income, should I file a 1999return when due, pay the self-employment tax, and then file anotherreturn when I qualify for the exclusion? No. You do not need to file a 1999 Form 1040 (the regular incometax return) when due if you have received an extension to file it byJanuary 30, 2001. To stop interest from accruing on theself-employment tax due for 1999, you can pay enough estimated tax tocover the self-employment tax and any income tax that would be dueafter taking out the amount of excludable income. Problems on Withholding 1) How can I get my employer to stop withholding federal incometaxes from wages while I am overseas and eligible for the foreignearned income exclusion? File a statement in duplicate with your employer stating thatwithholding should be reduced because you meet the bona fide residencetest or physical presence test. See also the following question. 2) Does the Internal Revenue Service provide forms to be used byemployees requesting employers to stop withholding income tax fromwages they expect to be excluded as income earned abroad? Yes. Form 673is a sample statement that can be usedby individuals who expect to qualify under the bona fide residencetest or the physical presence test. A copy of this form is displayedin chapter 2.You can get this form by writing to the: Internal Revenue Service Assistant Commissioner (International) Attn: OP:IN:D:CS 950 L'Enfant Plaza South, SW Washington, DC 20024. 3) I am a U.S. citizen residing overseas, and I receive dividendand interest income from U.S. sources from which tax is being withheldat a rate of 30%. How can I have this situation corrected? Write a letter in duplicate to the withholding agents who arepaying you the dividends and interest and inform them you are a U.S.citizen residing abroad and are not subject to the withholding atsource rules that apply to nonresident aliens. This letter is theirauthority to stop withholding the 30% income tax at the source onpayments due you. They must withhold this tax on any payment of incomegoing outside the United States unless they have the authority to dootherwise. 4) As a U.S. citizen receiving dividend and interest income fromthe United States from which tax has been withheld, do I report thenet dividend and interest income on my return, or do I report thegross amount and take credit for the tax withheld? You must report the gross amount of the income received and take atax credit for the tax withheld. This is to your advantage since thetax withheld is deducted in full from the tax due. It is alsoadvisable to attach a statement to your return explaining this taxcredit so there will be no question as to the amount of creditallowable. Deductions 1) Not having many deductions to itemize, how do I figure thestandard deduction? For 1999 the standard deduction is $7,200 for married personsfiling a joint return and for certain widows or widowers; $4,300 for asingle person; $6,350 for a head of household; and $3,600 for amarried person filing a separate return. The standard deduction is higher if you are age 65 or older orblind, and different amounts apply to dependents. See Publication 501. 2) My wife and I are considering filing separate returns. Can Iitemize deductions while she figures her tax using the standarddeduction? Yes. However if you itemize deductions, your wife's standarddeduction is zero, therefore your wife should also itemize. 3) Can I claim a foreign tax credit even though I do not itemizedeductions? Yes. You can claim the foreign tax credit even though you do notitemize deductions. 4) I had to pay customs duty on a few things I brought back withme from Europe last summer. Can I include customs fees with my otherdeductible taxes? No. Customs duties, like federal excise taxes, are not deductible. 5) Some taxes paid in the United States are not deductible if Iitemize my deductions. Which ones are they? Sales taxes, as well as the state and local taxes leviedspecifically on cigarettes, tobacco, and alcoholic beverages are notdeductible. In addition, no deduction can be taken for drivers'licenses or gasoline taxes. Auto registration fees cannot be deductedexcept when they qualify as personal property taxes. To qualify aspersonal property taxes they must be based on the value of the auto. Some state and local taxes are deductible, such as those onpersonal property, real estate, and income. 6) What types of foreign taxes are deductible? Generally, real estate and foreign income taxes are deductible asitemized deductions. Foreign income taxes are deductible only if youdo not claim the foreign tax credit. Foreign income taxes paid onexcluded income are not deductible as an itemized deduction. Note. Foreign income taxes are usually claimed under thecredit provisions, if they apply, because this is more advantageous inmost cases. 7) I rented an apartment in the United Kingdom and had to pay alocal tax called a "general rates" tax, which is based onoccupancy of the apartment. Can I deduct this tax as a foreign realestate tax? No. This tax does not qualify as a real estate tax since it islevied on the occupant of the premises rather than on the owner of theproperty. Scholarship and Fellowship Grantees 1) I am a Fulbright grantee. What documentation must I attach tomy return? a) There are no special tax forms for Fulbright grantees. File on aregular Form 1040. b) If you claim exemption as a scholarship or fellowship grantee,submit brochures and correspondence describing the grant and yourduties. c) If you are located in a foreign country and wish to pay tax inforeign currency, you should submit a certified statement showing thatyou were a Fulbright grantee and at least 70% of the grant was paid innonconvertible foreign currency (see Publication 520). 2) I taught and lectured abroad under taxable grants. Whatexpenses can I deduct? You may be able to deduct your travel, meals, and lodging expensesif you are temporarily absent from your regular place ofemployment. For more information about deducting travel, meals, andlodging expenses, get Publication 463. 3) I am a professor who is teaching abroad while on sabbaticalleave from my position in the United States. What records am Irequired to keep to prove my expenses? How do I allocate my meals andlodging if my wife and children live with me in an apartment and mywife does the cooking? Keep a day-to-day record of expenses, with receipts where possible.Allocate meals by dividing the total expense by the number in yourfamily and take your proportionate share. Generally, your deductionfor rent will be limited to the amount you would have paid had youbeen abroad alone. General Tax Questions 1) Will the Internal Revenue Service representatives at theEmbassies and those who provide taxpayer assistanceanswer questions about taxlaws of our home state and the laws of the foreign country where wereside as well as U.S. federal income tax laws? No. The IRS representatives are authorized only to answer taxquestions on U.S. federal income tax. You should write your homestate's tax office for state tax information and contact the taxofficials of the country where you reside for information regardingtheir taxes. 2) Can Internal Revenue Service personnel recommend taxpractitioners who prepare returns? No. IRS employees are not permitted to recommend tax practitionerswho prepare income tax returns. 3) I just filed my return. How long will it take to get myrefund? It may take up to 10 weeks to issue a refund on a return that isproperly made out. A refund may take longer than that if the return isfiled just before the filing deadline. An error on the return will also delay the refund. Among the mostcommon causes of delay in receiving refunds are unsignedreturns and incorrect social security numbers. 4) I have not received my refund from last year's return. Can Iclaim the credit against this year's tax? No. That would cause problems to both years' returns. If your lastyear's refund is overdue, write to the Internal Revenue Service Centerwhere you filed your return and ask about the status of the refund. Besure to include your social security number (or individual taxpayeridentification number) in the letter. 5) I forgot to include interest income when I filed my returnlast week. What should I do? To correct a mistake of this sort you should prepare Form 1040X.Complete this form, including the omitted interest income, refigurethe tax, and send the form as soon as possible along with anyadditional tax due to the Internal Revenue Service Center where youfiled your return. Form 1040X can be used to correct an individualForm 1040 income tax return filed for any year for which the period oflimitation has not expired (usually 3 years after the due date of thereturn filed, or 2 years after the tax was paid, whichever is later). 6) I am a U.S. citizen and, because I expect to qualify for theforeign earned income exclusion, all my foreign income (which consistssolely of salary) will be exempt from U.S. tax. Do I get any taxbenefit from income tax I paid on this salary to a foreign countryduring the tax year? No. You cannot take either a tax credit or a tax deduction forforeign income taxes paid on income that is exempt from U.S. taxbecause of the foreign earned income exclusion. 7) I am a U.S. citizen stationed abroad. I made a personal loanto a nonresident alien who later went bankrupt. Can I claim a bad debtloss for this money? Yes. The loss should be reported as a short-term capital loss onSchedule D (Form 1040). You have the burden of proving the validity ofthe loan, the subsequent bankruptcy, and the recovery or nonrecoveryfrom the loan. 8) With which countries does the United States have taxtreaties? Table 6-1 lists those countries with which theUnited States has income tax treaties. 9) I am a retired U.S. citizen living in Europe. My only incomeis from U.S. sources on which I pay U.S. taxes. I am taxed on the sameincome in the foreign country where I reside. How do I avoid doubletaxation? If you reside in a country that has an income tax treaty with theUnited States, that country may allow a credit against the tax you owethem for the U.S. tax paid on U.S. source income. Nontreaty countries,depending on their laws, may give the same type of credit against thetax you owe them for the U.S. tax paid on U.S. source income. If double taxation exists and you cannot resolve the problem withthe tax authorities of the foreign country, you can contact the: Internal Revenue Service Assistant Commissioner (International) Attn: OP:IN:D:CS 950 L'Enfant Plaza South, SW Washington, DC 20024. 10) My total income after claiming the foreign earned income andhousing exclusions consists of $5,000 taxable wages. Am I entitled toclaim the refundable earned incomecredit? No. If you claim the foreign earned income exclusion, the foreignhousing exclusion, or the foreign housing deduction, you cannot claimthe earned income credit. 11) Last May my employer transferred me to our office in PuertoRico. I understand that my salary earned in Puerto Rico is tax exempt.Is this correct? accommodation in SetubalAs long as your employer is not the U.S. Government, all incomefrom sources within Puerto Rico is exempt from U.S. tax if you are abona fide resident of Puerto Rico during the entire tax year. Theincome you received from Puerto Rican sources the year you moved toPuerto Rico is not exempt. The tax paid to Puerto Rico inthe year you moved to Puerto Rico can be claimed as a foreign taxcredit on Form 1116. 12) I am a U.S. citizen married to a nonresident alien. Ibelieve I qualify to use the head of householdtax rates. Can I use thehead of household tax rates? Yes. Although your nonresident alien spouse cannot qualify you as ahead of household, you can qualify if (a) or (b) applies: a) You paid more than half the cost of keeping up a home that wasthe principal home for the whole year for your mother or father forwhom you can claim an exemption (your parent does not have to havelived with you), or b) You paid more than half the cost of keeping up the home in whichyou lived and in which one of the following also lived for more thanhalf the year: Your unmarried child, grandchild, stepchild, foster child,or adopted child. A foster child will qualify you for this status onlyif you can claim an exemption for the child. Your married child, grandchild, stepchild, or adopted childfor whom you can claim an exemption, or for whom you could claim anexemption except that you signed a statement allowing the noncustodialparent to claim the exemption, or the noncustodial parent provides atleast $600 support and claims the exemption under a pre-1985agreement. Any relative listed below for whom you can claim anexemption. Parent Father-in-law Grandparent Brother-in-law Brother Sister-in-law Half-brother Half-sister Sister Son-in-law Stepbrother Daughter-in-law, or Stepsister If related by blood: Stepmother --Uncle Stepfather --Aunt Mother-in-law --Nephew --Niece If your spouse was a nonresident alien at any time during the yearand you do not choose to treat your nonresident spouse as a residentalien, then you are treated as unmarried for head of householdpurposes. You must have another qualifying relative and meet the othertests to be eligible to file as head of household. You can use thehead of household column in the Tax Table or the head of household TaxRate Schedule. It may be advantageous to choose to treat your nonresident alienspouse as a U.S. resident and file a joint income tax return. Once youmake the choice, however, you must report the worldwide income of bothyourself and your spouse. Penalties and Interest 1) Does the June 15 extended due date for filing my returnbecause both my tax home and my abode are outside the United Statesand Puerto Rico on the regular due date relieve me from having to payinterest on tax not paid by April 15? No. An extension, whether an automatic extension or one requestedin writing, does not relieve you of the payment of interest on the taxdue as of April 15 following the year for which the return is filed.The interest should be included in your payment. 2) If I wait to file my return until I qualify for the foreignearned income exclusion, I will be charged interest on the U.S. tax Iwill owe. To avoid being charged interest, can I file my return ontime, reporting only my taxable income, excluding my salary forservices abroad that will be exempt after I have met thequalifications? No. If you file a return before you qualify for the exclusion, youmust report all income, including all income for services performedabroad, and pay tax on all of it. After you meet the qualifications,you can file a claim for refund by excluding the income earned abroad.If you defer the filing of your return, you can avoid interest on taxdue on your return to be filed by paying the tax you estimate you willowe with your request for an extension of time to file on Form 2350,or bypaying enough estimated tax to coverany tax that you expect will be due on the return.