John Lawrence Bailey is employed in Country T by American Conglomerate Corporation. Bailey has resided with his wife and three children in Country T for seven years. He made one five-day business trip back to the United States in the current year, and $2,000 of his salary (but none of the allowances) is allocable to the U.S. business trip. Bailey reports the following tax-related information for the current year:
Income:
Base salary …………………………………………………………………………………………$100,000
Overseas premium in addition to base salary …………………………………………15,000
Cost-of-living allowance ………………………………………………………………………….37,500
Housing allowance ………………………………………………………………………………….30,000
Education allowance ……………………………………………………………………………….16,000
Home leave travel allowance …………………………………………………………………..11,000
Income tax reimbursement from employer for preceding tax year ………….25,000
Expenditures:
Tuition at U.S. school ……………………………………………………………………………….12,000
Housing expenses (rental of home and related expenses) ……………………….32,500
Itemized deductions (including $4,000 of unreimbursed employee
expenses) ………………………………………………………………………………………………..10,000
Foreign income taxes ………………………………………………………………………………12,000
Complete a 2016 Form 2555 for the Baileys’ current tax year. Assume Mr. Bailey established foreign residency in 2012, and all prior tax returns were filed with a Form 2555 claiming that Mr. Bailey was a bona fide foreign resident.
