Married U.S. citizens/Taiwan residents were denied full Code Sec. 911 income exclusion for the total amount of wages the wife earned while working as an international flight attendant based out of Hong Kong International Airport: to the extent wages were attributable to time the wife was working in international airspace, they didn't qualify as foreign earned income eligible for Code Sec. 911 exclusion. The Tax Court recalculated the excludible amount, upholding with minor adjustments IRS's determination of wage percentage attributable to time the wife was working in or over foreign countries vs. international airspace.

Also, taxpayers were required to include pre-flight and post-flight service time and allocate sick and vacation leave between excludible and non-excludible portions of the wife's income. (William D. Rogers, et ux. v. Commissioner, (2009) TC Memo 2009-111; affirmed by CA Dist of Columbia 4/17/2015)

Certain U.S. citizens or resident aliens, specifically contractors or employees of contractors supporting the U.S. Armed Forces in designated combat zones, may qualify for the foreign earned income exclusion. The Bipartisan Budget Act of 2018 changed the tax home requirement for eligible taxpayers, enabling them to claim the foreign earned income exclusion even if their “abode” is in the United States. Effective for tax year 2018 and subsequent years.

Under prior law, many otherwise eligible taxpayers who lived and worked in designated combat zones failed to qualify because they had an abode in the United States. The law change makes it clear that contractors or employees of contractors providing support to U.S. Armed Forces in designated combat zones are eligible to claim the foreign earned income exclusion if they otherwise qualify.

This means that these taxpayers, if eligible, will be able to claim the foreign earned income exclusion on their income tax return beginning in 2018 if they meet the bona fide residence test or the physical presence test. The rule that the foreign earned income exclusion is not available to federal employees or members of the military is unchanged by this law revision (see page 12 of the 2019 Pub 54).

Also see Chief Counsel memorandum AM2009-003 - https://www.irs.gov/pub/irs-utl/am2009003.pdf

  Special rules apply if taxpayer and spouse live apart and maintain separate households. Both may be able to claim the foreign housing exclusion or the foreign housing deduction. This can be done if the spouses have different tax homes that are not within reasonable commuting distance of each other. Otherwise, one spouse only can exclude or deduct a housing amount.

EITC - Taxpayers that claim the benefit of the foreign earned income exclusion are not eligible to claim the earned income tax credit (EITC). (Sec 32(c)(1)(C))

Refundable Child Tax Credit - Effective for tax years beginning after December 31, 2014, a taxpayer who elects to exclude from gross income any amount of foreign earned income or foreign housing costs is prohibited for that year from claiming the refundable part of the child tax credit. (IRC Sec 24(d)(3))

A taxpayer who excludes foreign earned income from gross income under Sec 911 may not make an IRA contribution based upon the excluded compensation (Prop. Reg. §1.219(a)-1(b)(3)).

Once the election to claim a Sec 911 exclusion is made, it remains in effect for the tax year for which it was made and all subsequent tax years unless revoked with approval from the IRS. Once revoked, the election may not be made again by a taxpayer until the sixth taxable year after the year in which the revocation was made (Sec 911(e)(2)). However, re-election may be made earlier than the sixth year if the taxpayer requests re-election via a letter ruling request (Reg Sec 1.911-7(b)(2)). Relevant facts and circumstances to allow the re-election may include: a period of United States residence, a move from one foreign country to another foreign country with differing tax rates, a substantial change in tax laws of the foreign country of residence or physical presence, and a change of employer.