Question

4) A U.S. citizen worked in a foreign country for the period July 1, 2018 through August 1, 2019. Her salary was $10,000 per month. Also, in 2018 she received $5,000 in dividends from foreign corporations (not qualified dividends).

No dividends were received in 2019. Which of the following is correct?

a. The taxpayer cannot exclude any of the income because she was not present in the foreign country more than 330 days in either 2018 or 2019.

b. The taxpayer can exclude a portion of the salary from U.S. gross income in 2018 and 2019, and all of the dividend income.

c. The taxpayer can exclude from U.S. gross income $60,000 salary in 2018, but in 2019 she will exceed the 12-month limitation and, therefore, all of the 2019 compensation must be included in gross income. All of the dividends must be included in 2018 gross income.

d. The taxpayer must include the dividend income of $5,000 in 2018 gross income, but she can exclude a portion of the compensation income from U.S. gross income in 2018 and 2019.

e. None of these.

Answer 1

Correct answer is option D (i.e. The taxpayer must include the dividend income of $5,000 in 2018 gross income, but she can exclude a portion of the compensation income from U.S. gross income in 2018 and 2019. )

Explanation:-

a. is incorrect because the taxpayer was in the foreign country more than 330 days in a 12 month period.

b. is incorrect with regard to the dividends received in that dividends received cannot be excluded from gross income.

The annual statutory limit on the foreign earned income exclusion is $104,100 in 2018 and $ 105,900 in 2019, and the
exclusion is prorated on a daily basis; therefore c is incorrect.