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APRIL 2015

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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.

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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.

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—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.

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NEWS BRIEF