Definition of "business" for the purposes of the IRS Foreign Earned Income Exclusion (2555)

Question

Line 14 of the IRS Foreign Earned Income Exclusion form (2555) asks that one lists the days one was present in the US during the tax year. It then asks how many of those days were "on business", and for the "income earned in US on business (attach computation)". The latter cannot be included in the exclusion amount.

Maybe I'm just bad at comprehending the instructions, but I'll ask for help. I am a dual citizen employed by a non-US university (hereafter referred to as "home"), but visited a US one for parts of the year as a "visiting researcher". I was paid (only) at home, paid taxes at home, and was by my employer at home considered as working normally (only temporarily physically elsewhere). The US university I visited had no employer/employee or other monetary relationship with me. I did not perform any work for the US university - I continued my regular job (research) while there, but for my employer at home.

Certainly I will list the period I was in the US on line 14, but was I "on business"? In the sense of "conducting business", I was not. In the sense of doing my job as always, I was. The phrasing "income earned in the US on business" sounds like I was earning income by doing business in the US, which isn't the case.

If I cannot exclude my income during this period in the US, I must combine the FEIE (for other parts of the year) with the Foreign Tax Credit (for the period in question). Am I correct in understanding that I then use a US tax rate as if no FEIE was present, but apply it only to the non-excluded income?

Thank you for helping me navigate this mess.

Answer 1

I'm working on similar problem space. There seems to be some working ambiguity in this space - most focus seems to be on more complex cases of income like Dividends and Capital Gains.

The US seems to take a position of "where the work was performed" not "where the work was paid" for purposes of the FEIE. See this link.

The Foreign Tax Credit(FTC) is applied (regardless of FEIE) based on taxes paid in the other Country. In the event you take the FEIE, you need to exclude that from the income possible to claim on the FTC.

i.e. (TOTAL WAGES(X) - Excluded Income)

There is a weird caveat on TOTAL WAGES(X) that says you can only apply the FTC to foreign-sourced income which means that potentially we are liable for the on-US-soil income at crazy rates. See this link.. Upon which... there is probably not a good answer short of writing your congressperson.