# Filed Pursuant to section 1.911-7(a)(2)(i)(D)



## LC3622

I was reading the tax code last night and found information about a provision 1.911-7(a)(2)(i)(D) for delinquent returns eligible for FEIE. I interpret it as saying that if IRS has not discovered your not filed return, you can basically file a return at any time (even 20-30 yrs later?) and if you either owe or do not owe any tax (due to FEIE) and state on the first page of 1040 that the return is filed "Pursuant to 1.911-7(a)(2)(i)(D)", they cannot deny you FEIE which is otherwise gone after a certain period (1yr after the return due date). Am I interpreting this provision correctly or is there anything else to it?

I tried to google and found discussion on this on some websites, but most tax advisors are not telling this (maybe because if this is true, many people will choose not to use their services or file all past returns themselves?).

If my interpretation is correct, this might be a way out for many people and a safer way to file delinquent returns without risking losing FEIE? 

Ironically, even the IRS page the following:

The foreign earned income exclusion is voluntary. You can choose the foreign earned income exclusion and the foreign housing exclusion by completing the appropriate parts of Form 2555. Your initial choice of the exclusions on Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion generally must be made with:
a timely filed return (including any extensions),
a return amending a timely filed return, or
a late-filed return filed within 1 year from the original due date of the return (determined without regard to any extensions).

*
You can choose the exclusion on a return filed after the periods described above, provided you owe no federal income tax after taking the exclusion into account. *
If you owe federal income tax after taking the exclusion into account, you can choose the exclusion on a return filed after the periods described above, *provided you file before the IRS discovers that you failed to choose the exclusion. You must type or legibly print at the top of the first page of Form 1040 "FILED PURSUANT TO SECTION 1.911-7(a)(2)(i)(D)." *

I think they missed the critical clarification in the first sentence (on purpose?) and even if you file tax return and owe no tax, you still need to file 1040 pursuant to section 1.911-7(a)(2)(i)(D). If IRS challenges you in court, I read the court can deny FEIE if your return does not include this sentence.

Any thoughts?


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## Bevdeforges

Back when there was still an IRS office here in France, one of the expat groups used to run annual "tax seminars" for overseas Americans, and even the IRS office staff stated that you can take the FEIE any time, as long as the IRS hasn't already started investigating your tax returns.

For the most part, the IRS can't afford to waste time on looking into returns that aren't going to yield any back taxes. For the vast majority of overseas taxpayers, who are eligible for the FEIE, it really isn't worth bothering with an audit or other investigation since the penalty for late filing is a percentage of the tax due - so no tax due, no penalty.

The trick here is that your return shouldn't have anything on it that might prompt an IRS "challenge."
Cheers,
Bev


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## LC3622

Bevdeforges said:


> Back when there was still an IRS office here in France, one of the expat groups used to run annual "tax seminars" for overseas Americans, and even the IRS office staff stated that you can take the FEIE any time, as long as the IRS hasn't already started investigating your tax returns.
> 
> For the most part, the IRS can't afford to waste time on looking into returns that aren't going to yield any back taxes. For the vast majority of overseas taxpayers, who are eligible for the FEIE, it really isn't worth bothering with an audit or other investigation since the penalty for late filing is a percentage of the tax due - so no tax due, no penalty.
> 
> The trick here is that your return shouldn't have anything on it that might prompt an IRS "challenge."
> Cheers,
> Bev


Bev, what do you mean "challenge". Let's assume the taxpayer has been living abroad for 20 yrs , done the streamline, but wants to do all tax returns to be in full compliance (perhaps one will want to return to the US someday). For example, one had income USD 70,000 (all foreign earned) in 2004, for which he filed no returns. If FEIE is taken, there is no taxable income. I read this as the taxpayer can just send all unfiled 1040 + 2555 or 2555Z and state "Filed Pursuant to section 1.911-7(a)(2)(i)(D)" on each 1040 form and be done with this. If this is done, IRS cannot deny you the FEIE even if it is filed 20yrs later. Moreover, according to the wording, it does not matter whether IRS finds you or not - if there is a notice from IRS, you just file under this section and you are done with it. If you just send quietly, they can deny FEIE in courts. If pursuant to this section, they cannot. Am I misinterpreting something? This might be a solution to millions without signing all sort of nasty forms, including the streamline declaration form.


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## Bevdeforges

If you file "streamlined" you are, in essence, deemed up to date for all non-filed tax returns up to the dates of the back filings you did. The IRS statute of limitation only runs for 4 years (on tax returns). What you did prior to that is completely irrelevant - other than any taxable income you didn't declare, which they could theoretically come after you for years later.

When I talk about the IRS "challenging" your returns, I mean that there is something on one or more returns that indicates that you have willfully violated one or more tax rules AND that you potentially owe mega-bucks in unpaid taxes. Having failed to report a savings account that is "tax-free" in your state of residence, and that produced $200 in interest one year simply isn't worth the IRS' attention. And actually, once your streamlined filings have been accepted and processed, the IRS really can't fuss even if you didn't take the FEIE 10 or more years ago, because those tax years are closed and cannot be re-opened.

IMO, you're opening yourself to far more potential harm by back filing returns you don't have to than you would be simply by accepting the good grace of the IRS with their Streamlined program. Even if you move back to the US, no one will ask you for copies of your tax returns going back more than 4 years. (And I know of one tax consultant who used to advise her clients to shred their returns and supporting documents once the statute of limitations had run on them.)
Cheers,
Bev


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