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Lecture Notes--Case 7 - International Tax Topics Lecture...

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International Tax Topics Lecture Notes—Case Seven Taxation of Foreign Income of U.S. Taxpayers U.S. taxpayers normally are taxable on income from outside the U.S. just as they are on income from inside the U.S. This is true for U.S. citizens, U.S. (domestic) corporations, other taxable U.S. entities, and aliens who reside in the U.S. (resident aliens). Thus, there is normally no tax advantage for a U.S. taxpayer who receives foreign source income from a low tax country because all income, whether U.S. or foreign source, is taxed at the same U.S. rate. Reg § 1.1-1(b). Exceptions : the following foreign source income received by a U.S. citizen is fully or partially exempt from U.S. tax: foreign earned income, foreign housing exclusion, income from U.S. possessions Foreign Earned Income Exclusion. An individual who has a tax home in a foreign country and satisfies either the bona fide foreign residence test (resident full tax year) or the foreign physical presence test (330 days) may elect to exclude up to $91,500 (2010) of his foreign earned income from gross income in a tax year. If both spouses are qualified individuals, the foreign earned income exclusion is computed separately for each spouse. Code Sec. 911(a)(1). Foreign Housing Cost Amount Exclusion and Deduction. An individual who has a tax home in a foreign country and satisfies either the bona fide foreign residence test or the foreign physical presence test (qualified individual) may elect to exclude a portion of his housing cost amount from gross income.
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