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Discussion:Taxpayer working abroad - No W-2 to attach to 1040

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Discussion Forum Index --> Advanced Tax Questions --> Taxpayer working abroad - No W-2 to attach to 1040


Discussion Forum Index --> Tax Questions --> Taxpayer working abroad - No W-2 to attach to 1040

Wkstaxprep (talk|edits) said:

28 January 2014
Hi all, how is your start to tax season going? Wishing everyone many happy returns!

My client is filing 4 years past due taxes.

Taxpayer has been working abroad.

I have been given a breakdown of the salary earned while working abroad. However, I don't believe an actual W-2 (or similar form) is issued by the foreign company.

Will filing a 1040 for a U.S. citizen working abroad with no W-2 or similar form be rejected by the IRS (not Efile rejected but you know what I mean).

Any thoughts?

Thank you as always !!

Guya (talk|edits) said:

28 January 2014
No. Are you using quiet filing; attaching a reasonable cause letter, using the OVDP or the streamlined program?

Captcook (talk|edits) said:

28 January 2014
No. I have a client who works overseas. We always list his wages on the 1040 wage line without issue, but don't have a US W-2 form.

Wkstaxprep (talk|edits) said:

28 January 2014
Thank you for the replies, really appreciate it !

Ckenefick (talk|edits) said:

28 January 2014
Guya is more than suggesting that if the guy hasn't filed a 1040, he likely hasn't filed the FBAR...and all the other foreign stuff.

ChrisV2 (talk|edits) said:

28 January 2014
Are you guys sure the answer is that simple? "taxpayer has been working abroad" -- what if they meet the requirements for tax home and physical presence - what about form 2555? It would be a shame to miss an exclusion opportunity.

The FBAR thing is a real concern too - if they had more than $10K in foreign-held accounts at any time. The penalties are pretty harsh for not reporting that.

Wkstaxprep (talk|edits) said:

28 January 2014
Hi again all, great points.

Taxpayer did not have more than $10k in foreign accounts.

I also learned a new rule on filing past due returns for taxpayers claiming the foreign exclusion. Per IRS website if you file a return more than 1 year after the due date the IRS website states "if you owe federal income tax after taking into account the exclusion(which above taxpayer does)you can choose the exclusion on a return filed after the periods described earlier if you file before the IRS discovers that you failed to choose the exclusion. Whether or not you owe federal income tax after taking the exclusion into account, if you file your return after the periods described earlier, you must type or legibly print at the top of the first page of the form 1040 'Filed pursuant to section 1.911-7(a)(2)(I)(D).'

One last question: I am having difficulty finding any guidance on how to calculate the foreign tax credit on the income that exceeds the foreign exclusion. For example, the income is $120,000 and the foreign exclusion is $91,500. Taxpayer paid $7,000 in foreign taxes. Do I simply take the $28,500/$120,000=$28,500/$120,000 to arrive at 23.75% times $7,000 = $1,662 available foreign tax credit for income that exceeded the foreign exclusion?

Guya (talk|edits) said:

28 January 2014
It seems surprising that you could earn $120,000 and never have had more than $10,000 in aggregate in foreign accounts; but that is possible of course.

Why are electing section 911? Would you not get a better answer by not electing into the exclusion? Do you have non-qualifying income such as a foreign n pension plan taxable under section 402(b)?

Have you asked the client if he wants to use the streamlined program?

Guya (talk|edits) said:

28 January 2014
It seems surprising that you could earn $120,000 and never have had more than $10,000 in aggregate in foreign accounts; but that is possible of course.

Why are electing section 911? Would you not get a better answer by not electing into the exclusion? Do you have non-qualifying income such as a foreign pension plan taxable under section 402(b)?

Have you asked the client if he wants to use the streamlined program?

ChrisV2 (talk|edits) said:

28 January 2014
Don't mean to hijack the thread, and I am continuing to learn this stuff as well -- but Guya, why would it be more beneficial to forgo the section 911 exclusion? The only reason I could think of is if the foreign tax credit were a better deal - but only $7,000 in taxes paid on $120K of income doesn't seem like it would be.

What is it that indicates not to elect the exclusion?

Wkstaxprep (talk|edits) said:

28 January 2014
Hi again.

The taxpayer has $120,000 in foreign income (salary). Taxpayer is claiming the 911 exclusion of $91,500 (tax year 2010). Leaving a small taxable income of a few thousand.

Now since there is some income that was not excluded and taxpayer has paid foreign taxes, the next step is to prorate the amount of foreign taxes that can be claimed. Does this sound accurate?

ChrisV2 (talk|edits) said:

28 January 2014
right - it's a straight (linear) ratio to allocate the taxes to the taxable income...see pub 514 for the gory details...

Wkstaxprep (talk|edits) said:

6 March 2014
Thank you Chris.

Joanmcq (talk|edits) said:

8 March 2014
Use the 1116. It's as straightforward as that (although I'm not claiming the 1116 is straightforward in any sense of the word). But it does take into account the excluded income, and thank god for software!

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