I have a client that has not filed income taxes from 5 years. The client has lived abroad for the entire 5 yrs. I sent the client to a CPA, and the CPA stated that the client was not entitled to foreign earned income exclusion for the oldest 3 years as the client needed to make the election for the foreign earned income exclusion within one year of a timely filed return. My question is whether there is an exception to the rule, or if this is enforced by the service?

The deadline for filing or claiming the foreign earned income exclusion is tolling of the election. For example, if the taxpayer was stuck in a war torn country; or if the taxpayer had some incapacity. Usually, the Service is unsympathetic toward late filing taxpayers unless there is good faith and a reasonable excuse.

Good luck!

I believe what you said to be true. I was just hoping that someone was aware of an exception to the rule. I appreciate your response.

Timing of the foreign earned income exclusion election:

Generally, a qualifying individual’s initial choice of the foreign earned income exclusion must be made with one of the following income tax returns:

1. A return filed by the due date (including any extensions),
2. A return amending a timely-filed return. Amended returns generally must be filed by the later of 3 years after the filing date of the original return or 2 years after the tax is paid, or
3. A return filed within 1 year from the original due date of the return (determined without regard to any extensions)

I believe there is a rev proc that says if you are a bona fide resident then you are entitled to an additional extension for filing (even past the due date). If i come across it i will post it.