REQUEST LETTER

 

02-014

Response: 9/4/02

 

 

NAME

ADDRESS

 

Dear NAME,

 

I am an American tax practitioner in CITY, COUNTRY and among my clients are individuals “domiciled” in Utah while residing abroad. The question I have does Utah allow the Federal foreign earned income exclusion (IRC 911) or does the Federal foreign earned income exclusion have to be added back to arrive at Utah adjusted gross income and therefore taxable income?

 

Thank you for your kind assistance.

 

Sincerely yours,

 

NAME

 

 

RESPONSE LETTER

 

September 4, 2002

 

NAME

ADDRESS

 

Re: How is the federal foreign earned income exclusion treated for purposes of Utah’s

individual income tax?

 

Dear NAME,

 

You have requested information regarding how Utah treats the federal foreign earned income exclusion (IRC 911) that, when claimed on the federal return, is reflected as a deduction in arriving at federal adjusted gross income (“FAGI”). Specifically, you inquire whether Utah requires a taxpayer to add the amount of the federal exclusion back when computing Utah adjusted gross income. The answer is no. Utah taxable income is based on FAGI with certain modifications, subtractions, and adjustments as provided in Utah Code Ann. §59-10-114. None of the Section 114 modifications, subtractions, and adjustments address the federal foreign earned income exclusion. Accordingly, when the federal exclusion is allowed as a deduction from FAGI for federal tax purposes, it is excluded from taxation for Utah income tax purposes by entering the FAGI amount on the Utah return. No Utah law requires the amount of the federal exclusion to be added back to compute Utah taxable income.

 

Although you did not inquire whether Utah allows a deduction or credit for foreign taxes paid, this issue often arises with foreign-based filers and we take this opportunity to explain it. For federal income tax purposes, the taxpayer may elect to treat foreign taxes as either a deduction from taxable income, which reduces FAGI, or as a credit against federal taxes due. If the taxpayer elects to treat the foreign taxes as a deduction from income, the deduction is carried forwarded on the Utah tax return when FAGI is entered on the Utah return. No further adjustment is made. On the other hand, if the taxpayer elects to treat the foreign taxes as a credit against federal taxes due, Utah law does not permit these taxes to be deducted when computing Utah taxable income or credited against Utah taxes due.

 

Should you need further clarification, please contact us.

For the Commission,

 

 

 

Marc B. Johnson

Commissioner

 

MBJ/PL

02-014