(c) Amounts not included in foreign earned income. Foreign earned income does not include an amount:

(1) Excluded from gross income under section 119;

(2) Received as a pension or annuity (including social security benefits);

(3) Paid to an employee by an employer which is the U.S. government or any U.S. government agency or instrumentality;

(4) Included in the individual's gross income by reason of section 402(b) (relating to the taxability of a beneficiary of a nonexempt trust) or section 403(c) (relating to the taxability of a beneficiary under a nonqualified annuity or under annuities purchased by exempt organizations);

(5) Included in gross income by reason of § 1.911-6(b)(4)(ii); or

(6) Received after the close of the first taxable year following the taxable year in which the services giving rise to the amounts were performed. For treatment of amounts received after December 31, 1962, which are attributable to services performed on or before December 31, 1962, and with respect to which there existed on March 12, 1962, a right (whether forfeitable or nonforfeitable) to receive such amounts, see § 1.72-8.

(d) Determination of the amount of foreign earned income that may be excluded under section 911(a)(1)—(1) In general. Foreign earned income described in this section may be excluded under section 911(a)(1) and this paragraph only to the extent of the limitation specified in paragraph (d)(2) of this section. Income is considered to be earned in the taxable year in which the services giving rise to the income are performed. The determination of the amount of excluded earned income in this manner does not affect the time for reporting any amounts included in gross income.

(2) Limitation-(i) In general. The term "section 911(a)(1) limitation" means the amount of foreign earned income for a taxable year which may be excluded under section 911(a)(1). The section 911(a)(1) limitation shall be equal to the lesser of the qualified individual's foreign earned income for the taxable year in excess of amounts that the individual elected to exclude

from gross income under section 911(a)(2) or the product of the annual rate for the taxable year (as specified in paragraph (d)(2)(ii) of this section multiplied by the following fraction:

The number of qualifying days in the taxable year

The number of days in the taxable year

(ii) Annual rate for the taxable year. The annual rate for the taxable year is the rate set forth in section 911(b)(2)(A).

(3) Number of qualifying days. For purposes of section 911 and the regulations thereunder, the number of qualifying days is the number of days in the taxable year within the period during which the individual met the tax home requirement and either the bona fide residence requirement or the physical presence requirement of §1.911-2(a). Although the period of bona fide residence must include an entire taxable year, the entire uninterrupted period of residence may include fractional parts of a taxable year. For instance, if an individual who was a calendar year taxpayer established a tax home and a residence in a foreign country as of November 1, 1982, and maintained the tax home and the residence through March 31, 1984, then the uninterrupted period of bona fide residence includes fractional parts of the years 1982 and 1984, and all of 1983. The number of qualifying days in 1982 is sixty-one. The number of qualifying days in 1983 is 365. The number of qualifying days in 1984 is ninety-one. The period during which the physical presence requirement of §1.911-2(a)(2)(ii) is met is any twelve consecutive month period during which the individual is physically present in one or more foreign countries for 330 days and the individual's tax home is in a foreign country during each day of such physical presence. Such period may include days when the individual is not physically present in a foreign country, and days when the individual does not maintain a tax home in a foreign country. Such period may include fractional parts of

a taxable year. Thus, if an individual's period of physical, presence is the twelve-month period beginning June 1, 1982, and ending May 31, 1983, the number of qualifying days in 1982 is 2:4 and the number of qualifying days in 1983 is 151.

(e) Attribution rules—(1) In general. Foreign earned income is considered to be earned in the taxable year in which the individual performed the services giving rise to the income. If income is earned in one taxable year and received in another taxable year, then, for purposes of determining the amount of foreign earned income that the individual may exclude under section 911(a), the individual must attribute the income to the taxable year in which the services giving rise to the income were performed. Thus, any rembursement would be attributable to the taxable year in which the services giving rise to the obligation to pay the reimbursement were performed, not the taxable year in which the reimbursement was received. For example, tax equalization payments are normally received in the year after the year

which the services giving rise to the obligation to pay the tax equalization payment were performed. Therefore, such payments will almost always have to be attributed to the prior year. Poreign earned income attributable to services performed in a preceding taxable year shall be excludable from gross income in the year of receipt arly to the extent such amount could have been excluded under paragraph 41) in the preceding taxable year, had such amount been received in the preceding taxable year. The taxable year to which income is attributable will be determined on the basis of all the facts and circumstances.

(2) Priority of use of the section 9:1 ax1) limitation. Foreign earned income received in the year in which it is earned shall be applied to the sec|tion 911(a)(1) limitation for that year

before applying income earned in that year that is received in any other year. Foreign earned income that is earned in one year and received in another year shall be applied to the section 911 a 1) limitation for the year in which it was earned, on a year by year basis, in any order that the individual

(But

see

chooses. section 911(b)(1)(B)(iv)). An individual may not amend his return to change the treatment of income with respect to the section 911(a)(1) exclusion after the period provided by section 6511(a). The special period of limitation provided by section 6511(d)(3) does not apply for this purpose. For example, C, a qualified individual, receives an advance bonus of $10,000 in 1982, salary of $70,000 in 1983, and a performance bonus of $10,000 in 1984, all of which are foreign earned income for 1983. C has a section 911(a)(1) limitation for 1983 of $80,000, and has no housing cost amount exclusion. On his income tax return for 1983, C elects to exclude foreign earned income of $70,000 received in 1983. C may also exclude his $10,000 advance bonus received in 1982 (by filing an amended return for 1982), or he may exclude the $10,000 performance bonus received in 1984 on his 1984 income tax return. However, C may not exclude part of the 1982 bonus and part of the 1984 bonus.

(3) Exception for year-end payroll period. Notwithstanding paragraph (e)(1) of this section, salary or wage payments of a cash basis taxpayer shall be attributed entirely to the year of receipt under the following circumstances:

(i) The period for which the payment is made is a normal payroll period of the employer which regularly applies to the employee;

(ii) The payroll period includes the last day of the employee's taxable year;

(iii) The payroll period does not exceed 16 days; and

(iv) The payment is part of a normal payroll of the employer that is distributed at the same time, in relation to the payroll period, that such payroll would normally be distributed, and is distributed before the end of the next succeeding payroll period.

(4) Attribution of bonuses and substantially nonvested property to periods in which services were performed-(i) In general. Bonuses and substantially nonvested property are attributable to all of the services giving rise to the income on the basis of all the facts and circumstances. If an individual re

that year and if unused FORI tax could be deemed paid or accrued in that year under § 1.907(e)-1(c). If this carry back is permitted, the unused FOGEI tax is subject to § 1.907(e)1(c)(2) (relating to reduction of unused tax) determined by applying section 907(a) in the year of origin on an overall basis (with regard to section 907(c)(4)) and on a per-country basis.

(i) Cross-reference. In computing the carryback and carryover of disallowed credits under section 907(f), the principles of § 1.904-2 (d), (e), and (f) apply. (j) Пlustration. The following example illustrates the application of the regulations under section 907(f).

Example. (a) Facts. X is a domestic corporation organized on January 1, 1975, and uses the calendar year as its taxable year X chooses to claim a credit under section 901 for each of the taxable years set forth below. For 1975, X elects the overall limitation. X has FOGEI and FORI in each of these taxable years. For purposes of simplic ity, the United States corporate tax rate and the limitation percentage for years other than 1975 and 1976 are each assumed to be 48 percent. Based upon the foregn taxes paid with respect to both these classes of income, and the additional facts assumed in the table below, the unused FOGEI tar deemed paid under section 907(f), and the unused FORI tax deemed paid under sec tion 904(c) in each of the appropriate years are as follows: