You’re a partner in a Big 4 accounting firm. For the last few years you’ve been working out of the firm’s Paris office because those folks desperately needed your U.S. tax expertise. Now assume that your annual compensation, paid in Euros, is the equivalent of U.S. $600,000. As a permanent resident with a work permit, you’re a French tax-payer just like all of your French colleagues. But you’re also a U.S. citizen, mean-ing that you still must file a Form 1040 every year. The textbook correctly explains that you have a choice as to how to avoid double taxation – i.e., you can, each year, elect either (i) the foreign tax credit or (ii) the foreign earned income exclusion (but not both). Needless to say, you always elect the credit, never the exclusion. But why?

You’re a partner in a Big 4 accounting firm. For the last few years you’ve been working out of the firm’s Paris office because those folks desperately needed your U.S. tax expertise.

Now assume that your annual compensation, paid in Euros, is the equivalent of U.S. $600,000. As a permanent resident with a work permit, you’re a French tax-payer just like all of your French colleagues. But you’re also a U.S. citizen, mean-ing that you still must file a Form 1040 every year.

The textbook correctly explains that you have a choice as to how to avoid double taxation – i.e., you can, each year, elect either (i) the foreign tax credit or (ii) the foreign earned income exclusion (but not both). Needless to say, you always elect the credit, never the exclusion. But why?