The Foreign Service Journal, April 2015

80 APRIL 2015 | THE FOREIGN SERVICE JOURNAL AFSA NEWS Tax News: Foreign Earned Income Exemption Denials We have recently heard from AFSAmembers who report having some difficulty claim- ing the foreign earned income exemption (FEIE). Many Foreign Service spouses and dependents work in the private sector or for an international organiza- tion overseas, and they are thus eligible for the FEIE— unless they are employees of the United States govern- ment. The first $99,200 earned overseas either as an employee or self-employed, may be exempt from income taxes. To receive the exemption, the taxpayer must meet one of two tests: 1) the Physical Presence Test, which requires that the taxpayer be pres- ent in a foreign country for at least 330 full (midnight to midnight) days during any 12-month period (the period may be different from the tax year); or 2) the Bona Fide Residence Test, which requires that the taxpayer has been a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. It is important to note that if you work for a company or organization on the local economy you generally have to pay local taxes, and your “tax home” is technically in the foreign country. You will have relinquished your diplomatic status in any matters related to your job, although for matters outside your job you would of course retain the diplomatic status that you derive from your FS employee spouse or parent. Recently, AFSAmembers have reported to us that IRS auditors have been denying the FEIE for Foreign Service spouses and dependents under the “bona fide resi- dence” test, on the grounds that diplomatic status over- seas does not permit “bona fide residence” in a foreign country. However, members report that they have successfully used the “physical presence” test to qualify for FEIE. They have also used this in appeal- ing a denial of the “bona fide residence test.”This test requires that you spend 330 full days during a calendar year actually in a foreign coun- try, not just outside the United AFSA hosted active-duty Diplomatic Security special- ists for a “Lunchtime Conversation” at DS headquarters in Rosslyn, Virginia, on Jan. 20. AFSA President Robert J. Silverman and State Vice President Matthew Asada presented an overview of the association’s advocacy, engagement and communications efforts on behalf of DS specialists. AFSA held similar outreach events at AFSA headquar- ters in August, the Foreign Service Institute in October and Main State in November. n AFSA/DEBRABLOME AFSA President Bob Silverman at DS headquarters. AFSA Hosts Lunch Conversation at the Bureau of Diplomatic Security States, so time spent traveling does not count. If using this test, you are advised to record all your travel carefully and to keep copies of visas and tick- ets so that you can substanti- ate the 330 days in case of an audit. n —James Yorke, Senior Labor Management Adviser SCHOLARSH I P NEWS : TWO COMPAN I ES CONT I NUE MER I T AWARDS SUPPORT Embassy Risk Management and CareFirst BlueCross BlueShield Federal Employee Program have recom- mitted to funding three AFSAAcademic Merit Awards in 2015. Open to high school seniors of Foreign Service employees, the merit award program rewards aca- demic and art accomplishments. FEPBlue will fund two $2,500Academic Merit Awards for the third consecutive year. Embassy Risk Management, which provides insurance to diplomats overseas, will sponsor a $2,500Academic Merit Award for the second year. The total prizes for the 23 youth Merit Awards, which will be conferred in May, will total $45,250. Visit www.afsa.org/scholar for complete details. n NEWS BRIEF