Form 2555 to Form 1116: The Year Your Revocation Attaches To

For most Americans living and working in the UK, the foreign tax credit on Form 1116 beats the foreign earned income exclusion on Form 2555, because UK tax on employment income generally runs above the US tax on the same income and the surplus credit carries forward. But the exclusion is a standing election, not an annual tick-box: revoke it and you cannot elect it again for five tax years without the IRS's consent. The detail almost every guide gets wrong is which year the lock is measured from — it is the year the revocation first takes effect, not the year you file the statement.

The exclusion is an election that runs until you stop it

This is the part that catches people. You do not choose the exclusion each year. You choose it once, and it keeps applying. IRC §911(e)(1) puts it plainly: an election "shall apply to the taxable year for which made and to all subsequent taxable years unless revoked." The Instructions for Form 2555 say the same thing in the IRS's own words — the choice "remains in effect for that year and all future years unless it is revoked."

So there is no neutral way to "just use the credit this year". There is claiming the exclusion, and there is ending it — and ending it is a formal act with a formal consequence. Two further points follow, and both are routinely missed:

• There are two elections, not one. The foreign earned income exclusion and the foreign housing exclusion are separate. Treas. Reg. §1.911-7(b)(1) requires that "a revocation must be made separately with respect to each election," and the IRS revocation page repeats it. A loosely drafted statement can take down more than you meant, or less.
• You revoke by filing a statement with the return — or with an amended return — for the first year the revocation is to be effective, saying which choices you are revoking. The regulation names no other mechanism.

Why a UK-resident American usually should switch

The case for moving to the credit is strong, and it is not only about rates.

The exclusion removes income from the US tax base. It produces nothing else. The credit does something the exclusion structurally cannot: it generates a carryover. Under §904(c), as set out in the Instructions for Form 1116, unused foreign tax can be carried back one year and forward ten, within the same separate category. For a UK filer whose UK tax on employment income exceeds the US tax on it, that surplus is not wasted — it is banked against future years in the same basket.

The credit also reaches income the exclusion never touches. The exclusion is confined to foreign earned income, so UK dividends, rent, interest and gains need Form 1116 whatever you do about your salary — and if you are filing it anyway, running two regimes side by side carries a real cost in complexity.

And the exclusion has edges that bite at the wrong moment: it does not reduce self-employment tax, it does not bind the states, and the foreign tax attributable to excluded income is not creditable. Together those mean that for a settled UK-resident American on a UK salary, the credit is usually the better long-run position.

We have written about the mechanics on the credit side in more depth — how UK salary and UK dividends land in different baskets that cannot subsidise each other, how the high-tax kickout is tested, and how a UK tax year straddling two US years is matched. If you are weighing the two regimes against each other on the numbers rather than the mechanics, our comparison of the two strategies is the better starting point.

The year the lock is measured from

Here is where the published guidance diverges from the regulation.

The statute at §911(e)(2) says that a taxpayer who revokes "may not make another election under this section for any subsequent taxable year before the 6th taxable year after the taxable year for which such revocation was made," except with consent. The Form 2555 instructions state the same rule from the other end: you "can't claim the exclusion(s) for your next 5 tax years without the approval of the IRS." Both describe one bar — five tax years blocked, the exclusion available again in the sixth.

The regulation then supplies the part that matters. Treas. Reg. §1.911-7(b)(1) says you may not elect again, without consent, "until the sixth taxable year following the taxable year for which the revocation was first effective."

First effective. Not the year the statement was signed, not the year it was filed. If you revoke on a current-year return the two are the same and the distinction is invisible. If you revoke on an amended return for an earlier year, they are not, and the whole answer moves by however many years separate them.

What a revocation does to years you have already filed

The second half of the same sentence is the one that should stop anyone reaching for an amended return casually. A revocation, the regulation says, "once made is effective for that year and all subsequent years." And it may be made for any taxable year "including the first taxable year for which an election was effective."

Read those together and a revocation is not a point event. It is a line drawn across the record, and everything after the line falls on the other side of it — including returns already filed and already claiming the exclusion.

The regulation works it through with its own example, which is worth following closely. A taxpayer elects the exclusion on the return for 1982, then files for 1983 and 1984 claiming the exclusion on both. He later amends the earliest year, attaching a statement revoking the election. The regulation's conclusion: the revocation "is effective for taxable years 1982, 1983, and 1984" — and he "may not elect to exclude income under section 911(a)(1) for any taxable year before 1988" without consent.

One amendment, to one year, and:

• two further years that were filed correctly on the law as it then stood lose the exclusion as a consequence;
• the lock is counted from the earliest year, not the amendment — so the first free year arrives sooner than a filing-date count would suggest, but the damage behind it is larger than anyone expected;
• the returns for the swept years now need revisiting, because the income they excluded is no longer excluded.

This is the trap in any year-by-year optimisation exercise. Choosing the credit for an early year because it produces a better number for that year can, if done by revoking rather than by confining the credit to unexcluded income, carry the revocation forward through every year that follows.

The route back, and the four things the IRS says it weighs

There is a consent route, and it is genuinely available — but it is a private letter ruling, not a form.

Treas. Reg. §1.911-7(b)(2) provides that an individual who wants the same exclusion back inside the barred period "may apply for consent to the reelection", by requesting a ruling. The regulation names the office as the Associate Chief Counsel (Technical) at 1111 Constitution Avenue — an address that has been superseded. The live IRS guidance directs the request, in duplicate, to the Associate Chief Counsel (International), CC:PA:LPD:DRU, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Work from the regulation alone and the request goes to the wrong place. A user fee applies; it is reset each year by the first revenue procedure of the year, so take the figure from current IRS guidance rather than from any article, including this one.

On the merits, the regulation says the Associate Chief Counsel "shall consider any facts and circumstances that may be relevant", and then names four:

• a period of United States residence;
• a move from one foreign country to another foreign country with differing tax rates;
• a substantial change in the tax laws of the foreign country of residence or physical presence;
• a change of employer.

Look at that list against the person most likely to want the exclusion back. Someone who stayed in the UK, kept the same employer, saw no upheaval in UK law, and simply found that the arithmetic turned out differently from what they expected, presents none of the four. The named factors are all about a change in circumstances; a change of mind is not among them.

That is our reading of the provision's structure, not a statement of IRS policy, and the Service considers any relevant facts, not only the four. But it is the right way to weigh the risk at the point of decision: do not revoke on the assumption that you can buy your way back in. Plan on the switch being permanent for the full barred period — if the plan only works when you can reverse it in year two, it is not a plan.

What is not a revocation

Two reassurances, both from the IRS's own material.

A year with nothing to exclude is not a revocation. The Form 2555 instructions are explicit that you "do not need to revoke a prior choice just because you have no foreign earned income or foreign housing costs for the year." Moving back to the US, unpaid leave, a year of purely investment income — none of that requires a statement, and filing one unnecessarily starts a clock for nothing.

Nor is using both forms in the same year inherently a revocation. You may exclude salary on Form 2555 and claim the credit on Form 1116 for foreign tax on income the exclusion does not reach, or on earned income above the exclusion ceiling. What you may not do is take a credit or deduction for foreign tax on income you have excluded — the two cannot be applied to the same income.

Between those two points sits a genuinely uncertain area: whether a return position that is simply inconsistent with a live election, filed without any revoking statement, operates as a revocation anyway. The regulation names only a filed statement as the mechanism. We would not file into that uncertainty on either assumption without looking at the specific years, and nor should anyone else.

A disciplined way to make the decision

If you are considering the move, the sequence that protects you is this:

• Model the whole barred period, not the year in front of you. The decision binds for five tax years. Project UK and US positions across all of them, including any year you might move, change employer, or take income the exclusion would have sheltered.
• Value the carryover. Excess credit under §904(c) has real worth in later years. The exclusion generates none. A single-year comparison systematically understates the credit.
• Decide which year the revocation should attach to — and confirm what sits behind that year, because everything after it is swept along.
• Draft the statement deliberately. Name the specific election or elections. Decide separately about the housing exclusion. Boilerplate is how people revoke two things while meaning one.
• Check whether you need to revoke at all. If the credit only needs to reach unexcluded income, you may not have to end the election.

Our calculators will give you a first sense of the shape of a UK-versus-US position, and our pricing sets out what a multi-year modelling exercise involves. For the decision itself, our US-UK tax specialists model both regimes across the full lock before anything is signed — and every return and every election statement we prepare is reviewed and signed off by a licensed professional, a CPA or Enrolled Agent on the US side and an ACCA-qualified accountant on the UK side. If a switch is on the table for this filing season, book a consultation before the return goes out, not after.

The exclusion is easy to give up and hard to get back. That asymmetry, not the rate comparison, is what should set the pace of the decision.