Foreign Earned Income Act

(Reported to House from the Committee on Ways and Means with amendment, H. Rept. 95-1463)

Foreign Earned Income Act - Amends the Internal Revenue Code to limit the tax exclusion for income earned outside the United States to such income as is earned in a "qualified foreign country." Defines "qualified foreign country." Limits the amount of excludable income to $20,000 for United States citizens who establish bona fide residency in a qualified foreign country for at least one taxable year and for United States citizens or resident aliens who work in such a country during a period of 17 out of 18 consecutive months. Limits the excludable amount to $25,000 for United States citizens who establish bona fide residency in a qualified foreign country for an uninterrupted period of three consecutive years. Treats presence on certain North Sea equipment used in exploring natural resources as presence in a qualified foreign country, if such equipment is the individual's principal place of work and the individual meets the time requirements for presence. Repeals the requirement that income earned outside the United States must be received in the country in which it is earned.

Allows a tax deduction for United States citizens or residents working abroad for the sum of the qualified cost-of-living differential (difference between the cost-of-living in a particular foreign country and the metropolitan area in the continental United States excluding Alaska having the highest cost-of-living, housing, schooling, and home leave travel expenses. Limits the amount of the deduction to the amount earned abroad by an individual reduced by the amount excludable under the foreign earned income exclusion plus the amount of the exclusion for meals and lodging provided by an employer and the amount of specified allocable deductions. Specifies that the deductions for such living expenses be taken from gross income, thus permitting taxpayers who do not itemize deductions to claim such expenses as deductions in computing adjusted gross income.

Sets forth definitions for qualified housing, schooling, and home leave travel expenses and rules for computing allowable deductions for such expenses. Permits an individual to maintain a separate household for spouse and dependents and still claim tax deductions for living expenses, if the living conditions in which such individual works are dangerous, unhealthy, or otherwise adverse.

Increases the time and amount limitations for moving expenses for the relocation of a taxpayer at a new principal place of work outside the United States. Permits deductions for the moving expenses of a taxpayer due to retirement or for the expenses of a survivor upon the death of such taxpayer. Includes the storage fees incurred for the duration of a foreign assignment within the expenses qualifying for the moving expense deduction.

Excludes from gross income meals and lodging furnished to the taxpayer, spouse, and dependents by the employer outside the United States in a "camp style" or communal setting.

Provides taxpayers working abroad the same extended repurchase time limitations as are presently provided servicemen stationed overseas for the nonrecognition of gain on the sale or exchange of a principal residence.

Directs the Secretary of the Treasury to submit a report to Congress indicating the number and characteristics of individuals claiming tax benefits under this Act, the economic impact of such benefits, and the manner in which such benefits have been administered.