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Issue 37336

F2555 and Inst

Project Statement: Determine Form 2555: Foreign Earned Income and Instructions clearly communicates appropriate guidance to public.

Goal Statement: The goal of this project is to review and make recommendations to the IRS that will enhance customer service and improve the taxpayers’ experience

TAP RECOMMENDATION

ID 1617 Form 2555 Instructions, page 1, column 2 Tax Home test. Insert after first paragraph

Recommended Text

Note: If you did not live 330 full days in a foreign country during a 12-month period, you are not entitled to claim the Foreign Earned Income exclusion. The 330 qualifying days do not have to be consecutive.

Comments/Justification

The clarification is made to inform taxpayers that they must live 330 or more days outside the U.S. during a 12-month period to receive the exemption.

IRS Action:Adopted

ID 1617 Form 2555 Instructions, page 1, column 2

IRS Initial Response

Adopted, except for not capitalizing “foreign earned income exclusion.” See Page 1 of the draft 2019 Instructions for Form 2555 circulated on 8/12/19.

IRS Final Response

Adopted, except for not capitalizing “foreign earned income exclusion.” See Page 1 of the draft 2019 Instructions for Form 2555 circulated on 8/12/19.

TAP RECOMMENDATION

ID 1618 Form 2555 Instructions, page 1, column 1, General Information

Insert new text
Report foreign income in U.S. dollars. The Internal Revenue Service has no official exchange rate. Generally, it accepts any posted exchange rate that is used consistently. You can view the IRS yearly average currency exchange rates at: https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates and you may find more information on foreign exchange rates at: https://www.irs.gov/individuals/international-taxpayers/foreign-currency-and-currency-exchange-rates

Comments/Justification
To provide information to taxpayers who do not know that the IRS
has this information on their website. This information is important
when completing Form 2555.

IRS Action:Not adopted

ID 1618 Form 2555 Instructions, page 1, column 1, General Information

IRS Initial Response

Not adopted. As noted in the heading for Part IV of Form 2555, taxpayers are required to use the exchange rate in effect when they actually or constructively receive the income. If there is more than one exchange rate, taxpayers are to use the one that most properly reflects their income. They can generally get exchange rates from banks and U.S. Embassies. Rates on the IRS website are annual average rates and should not be used to convert income received or expenses incurred in foreign currency to US dollars. The conversion rate is the one used on the day payments are received or expenses incurred, and not on an annual basis.

IRS Final Response

Not adopted. As noted in the heading for Part IV of Form 2555, taxpayers are required to use the exchange rate in effect when they actually or constructively receive the income. If there is more than one exchange rate, taxpayers are to use the one that most properly reflects their income. They can generally get exchange rates from banks and U.S. Embassies. Rates on the IRS website are annual average rates and should not be used to convert income received or expenses incurred in foreign currency to US dollars. The conversion rate is the one used on the day payments are received or expenses incurred, and not on an annual basis.

TAP RECOMMENDATION

ID 1619 Form 2555 Instructions, page 2, column 3, Specific Instructions, Part II

Add new – Above Part II

Comments/Justification
NOTE: You must complete Part II or Part III below, not both. Completing both parts may result in your exclusion being denied. To assist paper filers in completing this form correctly as some taxpayers do not know that you can only claim the exclusion under one of the two methods. Provide guidance to allow them to complete the form correctly.

IRS Action:Adopted

ID 1619 Form 2555 Instructions, page 2, column 3, Specific Instructions, Part II

IRS Initial Response

Adopted, except for some minor changes to the wording, and dropping the last sentence, which may not be correct. See bottom right corner of Page 2 of the draft 2019 Instructions for Form 2555 circulated on 8/12/19 (click link in ID 1617 response above).

IRS Final Response

Adopted, except for some minor changes to the wording, and dropping the last sentence, which may not be correct. See bottom right corner of Page 2 of the draft 2019 Instructions for Form 2555 circulated on 8/12/19 (click link in ID 1617 response above).

TAP RECOMMENDATION

ID 1620 Form 2555 Instructions, page 5, column 3, Part VIII

Add after instructions for Line 44: Line 45. Enter the amount from line 45 in parentheses on Schedule 1 (Form 1040), line 21, Other Income, and next to the amount enter “Form 2555.” On Schedule 1 (Form 1040), subtract this amount from your additional income to arrive at the amount reported on Schedule 1 (Form 1040), line 22.

Comments/Justification
Although this information is included on Form 2555, there are no instructions for line 45 under the instructions for Part VIII. Adding the instructions for line 45 will add additional clarification of how to report the amount on Schedule 1 (Form 1040)

IRS Action:Adopted

ID1620 Form 2555 Instructions, page 5, column 3, Part VIII

IRS Initial Response

Adopted, except for replacing the word “subtract” with “combine,” which is standard Tax Forms and Publications Division language for this situation. Also, line references to Schedule 1 (Form 1040 or 1040-SR) were updated to correspond to the 2019 form. See Page 5 of the draft 2019 Instructions for Form 2555 circulated on 8/12/19 (click link in ID 1617 response above).

IRS Final Response

Adopted, except for replacing the word “subtract” with “combine,” which is standard Tax Forms and Publications Division language for this situation. Also, line references to Schedule 1 (Form 1040 or 1040-SR) were updated to correspond to the 2019 form. See Page 5 of the draft 2019 Instructions for Form 2555 circulated on 8/12/19 (click link in ID 1617 response above).

TAP RECOMMENDATION

ID 1621 Form 1040 instructions for Schedule 1, line 21 on pages 87 through 90.

Add as an additional paragraph at the end of the instructions for line 21 on page 90, column 1: Foreign Earned Income Exclusion and Housing Exclusion. Include on line 21 the Foreign Income Exclusion and Housing Exclusion calculated on Form 2555, Foreign Earned Income, Part VIII, Line 45. Enter the amount in parenthesis and next to the amount enter “Form 2555.” This amount should be deducted from the total of Additional Income reported on lines 1 through 21 of Schedule 1 (Form 1040) in arriving at the amount to enter on line 22. The instructions for Schedule 1 (Form 1040), line 21, includes several items that should be reported on line 21, but makes no mention of the Foreign Income Exclusion and Housing Exclusion.

Comments/Justification
Adding this paragraph, similar to the paragraphs for the Net Operating Loss Deduction, Medicaid Waiver Payments to Care Providers, and Olympic and Paralympic Medal and USOC Prize Money, will add additional clarification of how to report the amount on Schedule 1 (Form 1040).

IRS Action:Not adopted

ID1621 Form 1040 instructions for Schedule 1, line 21 on pages 87 through 90.

IRS Initial Response

Non adopt. The Form 2555 instructions clearly tell taxpayers where to enter the information on Schedule 1. We generally try to avoid repeating information given in other instructions. Generally, the other items listed are not carried over from other forms that clearly direct the taxpayer where to enter the information. We follow this general rule to prevent the 1040 instructions from becoming overwhelming large and unusable.

IRS Final Response

Non adopt. The Form 2555 instructions clearly tell taxpayers where to enter the information on Schedule 1. We generally try to avoid repeating information given in other instructions. Generally, the other items listed are not carried over from other forms that clearly direct the taxpayer where to enter the information. We follow this general rule to prevent the 1040 instructions from becoming overwhelming large and unusable.

TAP RECOMMENDATION

ID 1622 Schedule 1, (Form 1040), line 36 and new line 37

Note: Adoption of this requires the adoption of the following three conforming changes

Change Schedule 1 (Form 1040) as follows: Change line 36 to line 37 and insert a new line 36 with a description “Other Adjustments. List type and amount ?” followed by a blank space, similar to that on line 21, to list the types and amounts. Schedule 1 (Form 1040), line 36, tells the taxpayer to enter several items (a total of 11, not including the Foreign Housing Deduction) if applicable. It does not include the Foreign Housing Deduction, which is an item to be included. Line 36 is not designed to enter additional items and is confusing. By adding an additional line similar to line 21 on the form, it makes the form less confusing.

Making this change will also require conforming changes to the instructions for Form 2555 and Schedule 1 (From 1040), which will also make the forms and instructions less confusing.

Conforming changes to Form 2555 Instructions, page 6, Part IX

Include on line 36 any of the following write-in adjustments. To find out if you can take the deduction, see the form or publication indicated. On the dotted line next to line 36, enter the amount of your deduction and identify it as follows: Add the following after the instruction for Line 49: Line 50. Enter the amount from line 50 on Schedule 1 (Form 1040), line 36. Next to the amount, enter “Form 2555.”

Conforming changes to Schedule 1 (Form 1040) Instructions, for line 36 on page 96, column 3. Include on line 36 any of the following write-in adjustments. To find out if you can take the deduction, see the form or publication indicated. Enter the amount and next to it identify it as indicated below

Conforming changes for Form 1040 instructions for Schedule 1, line 36 on pages 96 and 97. Add as an additional paragraph at the end of the instructions for line 36 on page 97, column 3

Add as an additional paragraph at the end of the instructions for line 36 on page 97, column 3 • Foreign Housing Deduction from Form 2555, Foreign Earned Income, Part IX, Line 50. Report the amount determined on Form 2555, Part XI, Line 50, and identify as “Form 2555.”

IRS Action:Not adopted

ID 1622 Schedule 1, (Form 1040), line 36 and new line 37

Note: Adoption of this requires the adoption of the following three conforming changes

 

IRS Initial Response

Non adopt. For 2019 we cannot add a line to Schedule 1. We will consider for the following year. The 3 following conforming changes likewise are not adopted.

IRS Final Response

Adoption of this requires the adoption of the following three conforming changes Non adopt. For 2019 we cannot add a line to  Schedule 1. We will consider for the following year. The 3 following conforming changes likewise are not adopted.

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