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jgordosea , Enrolled Agent
Category: Tax
Satisfied Customers: 3159
Experience:  I've prepared all types of taxes since 1987.
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Hi John, Boy they all come out of the woodwork on April 1st.

Resolved Question:

Hi John,
Boy they all come out of the woodwork on April 1st. I have an English teacher that works for the Avalon English Academy in Seoul Korea. Last year he had me prepare a return where he worked for a US CO and they withheld fed inc tax. In 2009 he received a Grade A income Tax Certificate (in Korean Won) and when converted made $ 25 K US Dollars. I filed a return with Form 2555. No tax was owed. This year is the same, but he is questioning that because they didn't take out any US tax he thinks he doesn't want to file. Is he not liable to file on his worldwide income?
Submitted: 5 years ago.
Category: Tax
Expert:  jgordosea replied 5 years ago.



Checking the Technical Explanation

"Under paragraph (1), a resident of one Contracting State may be taxed by the other

Contracting State on any income from sources within that other Contracting State and only on such income, subject to any limitations set forth in the Convention. For this purpose, the source rules contained in Article 6 (Source of Income) are to be applied. However, if the resident is a citizen of the other Contracting State, that other Contracting State may tax the resident without regard to this paragraph because of the saving clause of paragraph (4) of this Article."

"Relief from Double Taxation

Under paragraph (1), the United States agrees to allow a United States citizen or resident

as a credit against the United States tax the appropriate amount of Korean tax in accordance with the provisions and subject to the limitations of the law of the United States..."

From that it is clearly anticipated that a US citizen will file and pay US tax; but will use the foreign tax credit as a relief from double taxation.

I hope this helps even though you can not force a client to do what is legally required.

Best wishes.

Customer: replied 5 years ago.

won't there be an exclusion of the $ 91K(roughly) first before we really have a problem. What if this person only made $ 25K US dollars again. I believe I consulted with irs last year and the earned income I put on Line 7 was wiped out as a negatine on the other income line which I put Form 2555 next to the negative figure.


so he has to file, any idea how they track this??

Expert:  jgordosea replied 5 years ago.

Hello again,


Indeed, if he can qualify the foreign earned income exclusion can apply and effectively reduce his gross income to zero.


Nonetheless, he has to file and apply to exclude the income. There is not a waiver of the filing requirement even though he may have zero income and zero tax after the exclusion.


One manner of tracking is to simply have the computerized notices that a return has not been received for those that have a history of filing.

Regardless, it is never a consideration as to how or if evasion will or will not be tracked.


There is clearly a requirement to file on the income earned in Korea.


I hope this helps to clarify for you.

Best regards.



jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3159
Experience: I've prepared all types of taxes since 1987.
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