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Hi, my name is Sandy. I'll be doing the research to answer your question.
I have pulled the instructions for form 2555. The publication states,"citizen or resident alien who is physically present in a foreign country, or countries, for at least 330 full days during any period of 12 months in a row."
It also states, "The 12-month period on which the physical presence test is based must include 365 or 366 days, part of which must be in 2012. The dates may begin or end in a calendar year other than 2012."
This is tricky because for the CALENDAR year 2012, he does not meet the physical presence test.
However, if he uses either 2/1/11-1/131/12 or 7/1/12-6/30/13 he does meet that test.
When filling out form 2555 part III you must put in the 12-month period you are using to meet the test. Since calendar year 2012 does not meet the test, I would use the period with the higher income for the exclusion; hence I would put 7/1/12 thru 6/30/13 and take $80,000 as the exclusion.
However, he may need to get an extension and wait to file for 2012 in order to be sure he will meet the physical presence test for that $80,000.
Does this make sense?
More information from publication 54:
How to figure the 12-month period. There are four rules you should know when figuringthe 12-month period. Your 12-month period can begin with anyday of the month. It ends the day beforethe same calendar day, 12 months later.Your 12-month period must be made up ofconsecutive months. Any 12-month periodcan be used if the 330 days in a foreigncountry fall within that period.You do not have to begin your 12-monthperiod with your first full day in a foreigncountry or end it with the day you leave.You can choose the 12-month period thatgives you the greatest exclusion.In determining whether the 12-month periodfalls within a longer stay in the foreigncountry, 12-month periods can overlap oneanother.
Example 1. You are a construction workerwho works on and off in a foreign country over a20-month period. You might pick up the 330 fulldays in a 12-month period only during the middlemonths of the time you work in the foreigncountry because the first few and last fewmonths of the 20-month period are broken upby long visits to the United States.
Based on this info and example, I would still use the period from 7/1/12 - 6/30/13 to establish physical presence and take an exclusion of $80,000.
Seems reasonable yet I can't help but think the exclusion should be pro-rated since if he had worked entire year 2012 and made $160,000 he would only get $95,100 exclusion, however if he works 1/1/13-6/30/13 he will get another $80,000 exclusion for a total of $160,000.
I understand your point, but the IRS doesn't do prorating. The way the law is written is that the taxpayer has to be absent from the country for 330 out of 365 days. You can't use calendar year 2012 as your 12 months, since he will not meet that test. The exclusion is for a tax year, so he will get another $80,000 exclusion for 2013 if he is gone until 6/30/13.
After working thru Form 2555 I see that I am forced to pro-rate the exclusion based upon the number of days in 2012 that taxpayer, so about one-half of the exclusion is allowed.