This Article addresses the use of earned income as basis for allowing a tax benefit to individuals who live and work abroad. With the exception of a short period of time in the late 1970’s and early 1980’s, earned income has been used to provide a tax benefit for United States citizens and residents living and working abroad. The reasoning for this tax benefit has always been to provide assistance for the higher cost of living and higher tax rate of living in a foreign country, yet the tax benefit has been available to every individual living abroad, independent of whether they are need of tax assistance due to higher expenses.
This Article provides an analysis of the history of the foreign earned income exclusion and the flaws with using an individual’s income as the basis to provide a tax benefit. After identifying the problems with the use of earned income, the Article provides a solution that utilizes Section 913 as its foundation; the Tax Code Section that was in place in the aforementioned late 1970’s and early 1980’s. The Article concludes that using a modified version of Section 913 would provide the tax benefit to those individuals to whom the foreign earned income exclusion was designed to assist, while solving some of the concerns posed when Section 913 was repealed in 1981.
- foreign earned income
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