Section 61 Gross Income Defined
Section 164(a) Taxes
Section 901(a) and (b) Taxes of Foreign Countries and of Possessions of United States
Section 911 Citizens or Residents of the United States Living Abroad
Section 912 Exemption for Certain Allowances
Section 6039E Information Concerning Resident Status
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Alimony and separate maintenance payments;
(9) Annuities;
(10) Income from life insurance and endowment contracts;
(11) Pensions;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or trust.
For items specifically included in gross income, see part II (sec. 71 and following). For items specifically excluded from gross income, see part III (sec. 101 and following).
At the election of a qualified individual (made separately with respect to paragraphs (1) and (2)), there shall be excluded from the gross income of such individual, and exempt from taxation under this subtitle, for any taxable year--
(1) the foreign earned income of such individual, and
(2) the housing cost amount of such individual.
(1) Definition
For purposes of this section--
(A) In general
The term "foreign earned income" with respect to any individual means the amount received by such individual from sources within a foreign country or countries which constitute earned income attributable to services performed by such individual during the period described in subparagraph (A) or (B) of subsection (d)(1), whichever is applicable.
(B) Certain amounts not included in foreign earned income
The foreign earned income for an individual shall not include amounts--
(i) received as a pension or annuity,
(ii) paid by the United States or an agency thereof to an employee of the United States or an agency thereof,
(iii) included in gross income by reason of section 402(b) (relating to taxability of beneficiary of nonexempt trust) or section 403(c) (relating to taxability of beneficiary under a nonqualified annuity), or
(iv) received after the close of the taxable year following the taxable year in which the services to which the amounts are attributable are performed.
(2) Limitation on foreign earned income
(A) In general
The foreign earned income of an individual which may be excluded under subsection (a)(1) for any taxable year shall not exceed the amount of foreign earned income computed on a daily basis at an annual rate equal to the exclusion amount for the calendar year in which such taxable year begins.
(B) Attribution to year in which services are performed
For purposes of applying subparagraph (A), amounts received shall be considered received in the taxable year in which the services to which the amounts are attributable are performed.
(C) Treatment of community income
In applying subparagraph (A) with respect to amounts received from services performed by a husband or wife which are community income under community property laws applicable to such income, the aggregate amount which may be excludable from the gross income of such husband and wife under subsection (a)(1) for any taxable year shall equal the amount which would be so excludable if such amounts did not constitute community income.
(D) Exclusion amount
(i) In general
The exclusion amount for any calendar year is the exclusion amount determined in accordance with the following table (as adjusted by clause (ii)):
For calendar year-- The exclusion amount is: [1997 . . . . . . . . . . . . $70,000] 1998 . . . . . . . . . . . . . $72,000 1999 . . . . . . . . . . . . . 74,000 2000 . . . . . . . . . . . . . 76,000 2001 . . . . . . . . . . . . . 78,000 2002 and thereafter . . 80,000
(ii) Inflation adjustment
In the case of any taxable year beginning in a calendar year after 2007, the $80,000 amount in clause (i) shall be increased by an amount equal to the product of--
(I) such dollar amount, and
(II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting "2006" for "1992" in subparagraph (B) thereof.
If any increase determined under the preceding sentence is not a multiple of $100, such increases shall be rounded to the next lowest multiple of $100.
For purposes of this section--
(1) In general
The term "housing cost amount" means an amount equal to the excess of--
(A) the housing expenses of an individual for the taxable year, over
(B) an amount equal to the product of--
(i) 16 percent of the salary (computed on a daily basis) of an employee of the United States who is compensated at a rate equal to the annual rate paid for step 1 of grade GS-14, multiplied by
(ii) the number of days of such taxable year within the applicable period described in subparagraph (A) or (B) of subsection (d)(1).
(2) Housing expenses
(A) In general
The term "housing expenses" means the reasonable expenses paid or incurred during the taxable year by or on behalf of an individual for housing for the individual (and, if they reside with him, for his spouse and dependents) in a foreign country. The term--
(i) includes expenses attributable to the housing (such as utilities and insurance), but
(ii) does not include interest and taxes of the kind deductible under section 163 or 164 or any amount allowable as a deduction under section 216(a).
Housing expenses shall not be treated as reasonable to the extent such expenses are lavish or extravagant under the circumstances.
(B) Second foreign household
(i) In general
Except as provided in clause (ii), only housing expenses incurred with respect to that abode which bears the closest relationship to the tax home of the individual shall be taken into account under paragraph (1).
(ii) Separate household for spouse and dependents
If an individual maintains a separate abode outside the United States for his spouse and dependents and they do not reside with him because of living conditions which are dangerous, unhealthful, or otherwise adverse, then--
(I) the words "if they reside with him" in subparagraph (A) shall be disregarded, and
(II) the housing expenses incurred with respect to such abode shall be taken into account under paragraph (1).
(3) Special rules where housing expenses not provided by employer
(A) In general
To the extent the housing cost amount of any individual for any taxable year is not attributable to employer provided amounts, such amount shall be treated as a deduction allowable in computing adjusted gross income to the extent of the limitation of subparagraph (B).
(B) Limitation
For purposes of subparagraph (A), the limitation of this subparagraph is the excess of--
(i) the foreign earned income of the individual for the taxable year, over
(ii) the amount of such income excluded from gross income under subsection (a) for the taxable year.
(C) 1-year carryover of housing amounts not allowed by reason of subparagraph (B)
(i) In general
The amount not allowable as a deduction for any taxable year under subparagraph (A) by reason of the limitation of subparagraph (B) shall be treated as a deduction allowable in computing adjusted gross income for the succeeding taxable year (and only for the succeeding taxable year) to the extent of the limitation of clause (ii) for such succeeding taxable year.
(ii) Limitation
For purposes of clause (i), the limitation of this clause for any taxable year is the excess of--
(I) the limitation of subparagraph (B) for such taxable year, over
(II) amounts treated as a deduction under subparagraph (A) for such taxable year.
(D) Employer provided amounts
For purposes of this paragraph, the term "employer provided amounts" means any amount paid or incurred on behalf of the individual by the individual's employer which is foreign earned income included in the individual's gross income for the taxable year (without regard to this section).
(E) Foreign earned income
For purposes of this paragraph, an individual's foreign earned income for any taxable year shall be determined without regard to the limitation of subparagraph (A) of subsection (b)(2).
For purposes of this section--
(1) Qualified individual
The term "qualified individual" means an individual whose tax home is in a foreign country and who is--
(A) a citizen of the United States and establishes to the satisfaction of the Secretary that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or
(B) a citizen or resident of the United States and who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in such period.
(2) Earned income
(A) In general
The term "earned income" means wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered.
(B) Taxpayer engaged in trade or business
In the case of a taxpayer engaged in a trade or business in which both personal services and capital are material income-producing factors, under regulations prescribed by the Secretary, a reasonable allowance as compensation for the personal services rendered by the taxpayer, not in excess of 30 percent of his share of the net profits of such trade or business, shall be considered as earned income.
(3) Tax home
The term "tax home" means, with respect to any individual, such individual's home for purposes of section 162(a)(2) (relating to traveling expenses while away from home). An individual shall not be treated as having a tax home in a foreign country for any period for which his abode is within the United States.
(4) Waiver of period of stay in foreign country
Notwithstanding paragraph (1), an individual who--
(A) is a bona fide resident of, or is present in, a foreign country for any period,
(B) leaves such foreign country after August 31, 1978--
(i) during any period during which the Secretary determines, after consultation with the Secretary of State or his delegate, that individuals were required to leave such foreign country because of war, civil unrest, or similar adverse conditions in such foreign country which precluded the normal conduct of business by such individuals, and
(ii) before meeting the requirements of such paragraph (1), and
(C) establishes to the satisfaction of the Secretary that such individual could reasonably have been expected to have met such requirements but for the conditions referred to in clause (i) of subparagraph (B),
shall be treated as a qualified individual with respect to the period described in subparagraph (A) during which he was a bona fide resident of, or was present in, the foreign country and in applying subsections (b)(2)(A) and (c)(1)(B)(ii) with respect to such individual, only the days within such period shall be taken into account.
(5) Test of bona fide residence
If--
(A) an individual who has earned income from sources within a foreign country submits a statement to the authorities of that country that he is not a resident of that country, and
(B) such individual is held not subject as a resident of that country to the income tax of that country by its authorities with respect to such earnings,
then such individual shall not be considered a bona fide resident of that country for purposes of paragraph (1)(A).
(6) Denial of double benefits
No deduction or exclusion from gross income under this subtitle or credit against the tax imposed by this chapter (including any credit or deduction for the amount of taxes paid or accrued to a foreign country or possession of the United States) shall be allowed to the extent such deduction, exclusion, or credit is properly allocable to or chargeable against amounts excluded from gross income under subsection (a).
(7) Aggregate benefit cannot exceed foreign earned income
The sum of the amount excluded under subsection (a) and the amount deducted under subsection (c)(3)(A) for the taxable year shall not exceed the individual's foreign earned income for such year.
(8) Limitation on income earned in restricted country
(A) In general
If travel (or any transaction in connection with such travel) with respect to any foreign country is subject to the regulations described in subparagraph (B) during any period--
(i) the term "foreign earned income" shall not include any income from sources within such country attributable to services performed during such period,
(ii) the term "housing expenses" shall not include any expenses allocable to such period for housing in such country or for housing of the spouse or dependents of the taxpayer in another country while the taxpayer is present in such country, and
(iii) an individual shall not be treated as a bona fide resident of, or as present in, a foreign country for any day during which such individual was present in such country during such period.
(B) Regulations
For purposes of this paragraph, regulations are described in this subparagraph if such regulations--
(i) have been adopted pursuant to the Trading With the Enemy Act (50 U.S.C. App. 1 et seq.), or the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.), and
(ii) include provisions generally prohibiting citizens and residents of the United States from engaging in transactions related to travel to, from, or within a foreign country.
(C) Exception
Subparagraph (A) shall not apply to any individual during any period in which such individual's activities are not in violation of the regulations described in subparagraph (B).
(9) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations providing rules--
(A) for cases where a husband and wife each have earned income from sources outside the United States, and
(B) for married individuals filing separate returns.
(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.
For administrative and penal provisions relating to the exclusions provided for in this section, see sections 6001, 6011, 6012(c), and the other provisions of subtitle F.
The following items shall not be included in gross income, and shall be exempt from taxation under this subtitle:
(1) Foreign areas allowances
In the case of civilian officers and employees of the Government of the United States, amounts received as allowances or otherwise (but not amounts received as post differentials) under--
(A) chapter 9 of title I of the Foreign Service Act of 1980,
(B) section 4 of the Central Intelligence Agency Act of 1949, as amended (50 U.S.C., sec. 403e),
(C) title II of the Overseas Differentials and Allowances Act, or
(D) subsection (e) or (f) of the first section of the Administrative Expenses Act of 1946, as amended, or section 22 of such Act.
(2) Cost-of-living allowances
In the case of civilian officers or employees of the Government of the United States stationed outside the continental United States (other than Alaska), amounts (other than amounts received under title II of the Overseas Differentials and Allowances Act) received as cost-of-living allowances in accordance with regulations approved by the President (or in the case of judicial officers or employees of the United States, in accordance with rules similar to such regulations).
(3) Peace Corps allowances
In the case of an individual who is a volunteer or volunteer leader within the meaning of the Peace Corps Act and members of his family, amounts received as allowances under section 5 or 6 of the Peace Corps Act other than amounts received as--
(A) termination payments under section 5(c) or section 6(1) of such Act,
(B) leave allowances,
(C) if such individual is a volunteer leader training in the United States, allowances to members of his family, and
(D) such portion of living allowances as the President may determine under the Peace Corps Act as constituting basic compensation.
Notwithstanding any other provision of law, any individual who--
(1) applies for a United States passport (or a renewal thereof), or
(2) applies to be lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws,
shall include with any such application a statement which includes the information described in subsection (b).
Information required under subsection (a) shall include--
(1) the taxpayer's TIN (if any),
(2) in the case of a passport applicant, any foreign country in which such individual is residing,
(3) in the case of an individual seeking permanent residence, information with respect to whether such individual is required to file a return of the tax imposed by chapter 1 for such individual's most recent 3 taxable years, and
(4) such other information as the Secretary may prescribe.
Any individual failing to provide a statement required under subsection (a) shall be subject to a penalty equal to $500 for each such failure, unless it is shown that such failure is due to reasonable cause and not to willful neglect.
Notwithstanding any other provision of law, any agency of the United States which collects (or is required to collect) the statement under subsection (a) shall--
(1) provide any such statement to the Secretary, and
(2) provide to the Secretary the name (and any other identifying information) of any individual refusing to comply with the provisions of subsection (a).
Nothing in the preceding sentence shall be construed to require the disclosure of information which is subject to section 245A of the Immigration and Nationality Act (as in effect on the date of the enactment of this sentence).
The Secretary may by regulations exempt any class of individuals from the requirements of this section if he determines that applying this section to such individuals is not necessary to carry out the purposes of this section.
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