Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 75-85

1975-1 C.B. 239

Sec. 217
Sec. 911

IRS Headnote

U.S. citizen employed abroad; moving expense deduction. The treatment is prescribed, under section 217 of the Code, for moving expenses incurred and paid in one year by a U.S. citizen who moved to a foreign country to seek employment, became a bona fide resident there, and in the following year became entitled to the exclusion provisions of section 911.

Full Text

Rev. Rul. 75-85

Advice has been requested as to the proper treatment for Federal income tax purposes of moving expenses under the circumstances described below.

A, a citizen of the United States who files his Federal income tax return on a calendar year basis and uses the cash receipts and disbursements method of accounting, left the United States on November 1, 1970, and arrived in foreign country X on the same day for the purpose of seeking employment as an employee at a new principal place of work in that country. During 1970 A, for this purpose, incurred and paid unreimbursed moving expenses, as defined in section 217(b)(1) of the Internal Revenue Code of 1954, in the amount of $6,000.

A remained abroad during November and December of 1970, arriving in the general location of his new principal place of work and becoming a bona fide resident of country X on December 1, 1970. He commenced work as a full-time employee at his new principal place of work on January 4, 1971, and remained so employed during the entire 1971 taxable year. A had no earned income from sources without the United States during 1970. His earned income from employment in country X during 1971 amounted to $60,000, $20,000 of which is excludable from gross income under section 911(a)(1) of the Code.

Section 217(a) of the Code allows as a deduction moving expenses (as defined in section 217(b)) paid or incurred during the taxable year in connection with the commencement of work by the taxpayer as an employee or as a self-employed individual at a new principal place of work, provided certain requirements are met. One of these requirements, as set forth in Section 217(c)(2)(A), is that the taxpayer, if an employee during the 12-month period immediately following his arrival in the general location of his new principal place of work, must be a full-time employee in such general location during at least 39 weeks.

Section 217(d)(2) of the Code and section 1.217-2(d)(2)(i) of the Income Tax Regulations provide that if a taxpayer has not satisfied the 39-week period of employment requirement before the time prescribed by law (including extensions thereof) for filing the return for the taxable year during which he paid or incurred moving expenses which would otherwise be deductible under section 217, but may still satisfy such requirement, then such expenses may (at the election of the taxpayer) be deducted for such taxable year notwithstanding the minimum period of employment requirement.

Section 1.217-2(d)(2)(ii) of the regulations provides that where the above election is not made and the minimum period of employment requirement is subsequently satisfied, the taxpayer may file an amended return or a claim for refund for the taxable year in which such moving expenses were paid or incurred.

Section 911(a) of the Code allows an individual United States citizen employed abroad, who is either a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year (section 911(a)(1)), or present in a foreign country or countries for 510 days during a period of 18 consecutive months (section 911(a)(2)), to exclude from gross income amounts received from sources without the United States which constitute earned income (as defined in section 911(b)) attributable to services performed during such period.

Section 911(a) of the Code also provides that an individual citizen of the United States shall not be allowed, as a deduction from his gross income, any deductions (other than those allowed by section 151, relating to personal exemptions) properly allocable to or chargeable against amounts excluded from gross income thereunder.

Section 911(c)(1) of the Code provides, in part, that the amount of exclusion under section 911(a) for any taxable year shall not exceed an amount which shall be computed on a daily basis at an annual rate of $20,000.

Section 1.911-2(d)(6) of the regulations provides, in part, that in any case in which any amount is excluded from the gross income of an individual on account of residence or presence in a foreign country, there shall be disallowed as a deduction any expenses, losses, or other items otherwise deductible (other than those allowed by section 151 of the Code, relating to personal exemptions) properly allocable to or chargeable against the amount so excluded from gross income. If the earned income excludable under section 911(a)(1) or 911(a)(2) (determined without regard to the applicable dollar limitation) exceeds the earned income excludable under section 911(a)(1) or section 911(a)(2), the amount disallowed as a deduction shall be limited to an amount which bears the same ratio to the total of such items properly allocable to or chargeable against such earned income so excludable (determined without regard to the applicable dollar limitation) as the amount excluded from gross income under section 911(a)(1) or section 911(a)(2) bears to such earned income (determined without regard to the applicable dollar limitation).

Section 1.911-2(e)(1) of the regulations provides, in part, that any income tax return filed before the completion of the period necessary to qualify a citizen for the section 911 exclusion shall be filed without regard to such exclusion, but claim for credit or refund of any overpayment of tax may be filed if the taxpayer subsequently qualifies for the exclusion. Section 1.911-2(e)(1) further provides, that a taxpayer desiring an extension of time (in addition to the automatic extension of time granted by section 1.6081-2) for filing the return until after the completion of the qualifying period shall make application therefor on Form 2350, Application for Extension of Time for Filing U.S. Income Tax Return.

Section 1.6081-2 of the Regulations grants an automatic extension of time for filing returns of income to and including the fifteenth day of the sixth month following the close of the taxable year in the case of a United States citizen residing or traveling outside the United States and Puerto Rico.

For moving expenses to be deductible under section 217 of the Code, they must be incurred by a taxpayer in connection with the commencement of work by him at a new principal place of work. When such new principal place of work is in a foreign country, deductible expenses incurred in moving there are properly allocable to or chargeable against section 911 earned income. See Hartung v. Commissioner, 484 F 2d 953 (9th Cir. 1973), rev'g 55 T.C. 1 (1970), non-acquiescence page 3, this Bulletin; and Markus V. Commissioner, 486 F 2d 1314 (D.C. Cir. 1973), rev'g 30 CCH Tax Ct. Mem. 1346 (1971). In such cases, the Internal Revenue Service will view those expenses as allocable to or chargeable against earned income in the taxable year of the move and if the taxpayer's period of qualification under section 911 does not include the entire taxable year in which the move took place, then the moving expenses will also be considered allocable to the following taxable year or portion thereof during which the taxpayer qualifies under section 911.

Since A had no earned income from sources without the United States during 1970, he may claim in accordance with the election procedures of section 217(d)(2) of the Code and section 1.217-2(d)(2)(i) of the regulations, the $6,000 moving expense deduction on his 1970 Federal income tax return without regard to the exclusion provision of section 911. See section 1.911-2(e)(1).

Upon subsequently satisfying the section 911(a)(1) bona fide residence test on December 31, 1971, the income tax return filed by A for 1970 under the election procedures of section 217(d)(2) of the Code and section 1.217-2(d)(2)(i) of the regulations would have to be amended by eliminating, in accordance with section 1.911-2(d)(6), that portion of the previously deducted moving expenses which is allocable to the $20,000 excludable under section 911(a) from A's gross income in 1971. The portion of A's total moving expense deduction ($6,000) allocable to such excludable income is $2,000, computed pursuant to section 1.911-2(d)(6) as follows:

        Amount excludable under section 911
        (a)(1) for 1971 - $20,000 X $6,000
        ------------------------------------    =   $2,000
        Earned income
          for 1971 _______________ $60,000

The remaining $4,000 ($6,000 minus $2,000) is allowable as moving expenses for 1970.

If A did not follow the election procedures under section 217 of the Code and section 1.217-2(d)(2)(i) of the regulations, but instead filed an amended return or a claim for refund for taxable year 1970 pursuant to section 1.217-2(d)(2)(ii), subsequent to the time required to file such return (or extension thereof) the same elimination of the $2,000 portion of the moving expense deduction must be made by him either (1) when filing such amended return or refund claim, or (2) in a second amended return or refund claim if he has not met the section 911(a)(1) requirements when filing pursuant to section 1.217-2(d)(2)(ii).

If A had received earned income from sources without the United States during 1970, the possible applicability of the section 911(a) exclusion provision to that year's earned income would exist. Thus, pursuant to section 1.911-2(e)(1) of the regulations, A could have requested an extension of time for filing his Federal income tax return for 1970 until after the completion of the section 911(a)(1) qualifying period on December 31, 1971. By that time, A's satisfaction of the minimum full-time employment period of 39 weeks required by section 217(c)(2)(A) of the Code would also have been determinable, and the proper allocation of the moving expense deduction, allocable to or chargeable against section 911 excludable earned income pursuant to section 1.911-2(d)(6) and thus nondeductible, could have been made on his return for 1970 filed in accordance with such requested extension of time, if granted. See the holding in Situation (1) of Rev. Rul. 75-84, page 236, this Bulletin, for the computation of the allocation of moving expenses under this situation.

If A had received earned income from sources without the United States during 1970 and did not request an extension of time for filing his Federal income tax return for 1970 pursuant to section 1.911-2(e)(1) of the regulations, he must file such return without regard to the exclusion that would apply through his subsequent satisfaction of the requirements of section 911(a)(1) of the Code. Thus, he would have to include such 1970 earned income from sources without the United States in gross income on his 1970 return, and would be allowed to claim the $6,000 moving expense deduction provided by section 217 and the regulations thereunder without regard to the possible future applicability of section 911(a)(1). Upon subsequent satisfaction of the bona fide residence test of section 911(a)(1), he would file an appropriate amended return or refund claim for the amount excludable under section 911(a)(1) and adjusting the moving expense previously deducted on the return in accordance with Situation (1) of Rev. Rul. 75-84.

The principles and procedures set forth herein with respect to an individual citizen of the United States who satisfies the section 911(a)(1) of the Code "bona fide residence" test are equally applicable to an individual citizen of the United States who satisfies the section 911(a)(2) "presence" test.