IRS Waives 2006 Underpayment Penalties Arising From Changes to the Foreign Earned Income and Housing Exclusions

Part III - Administrative, Procedural, and Miscellaneous

ESTIMATED TAX PENALTY FOR CITIZENS OR RESIDENTS OF THE UNITED STATES LIVING ABROAD

Notice 2007-16

Section 1: Purpose
This notice addresses the foreign earned income exclusion and housing cost amount for certain citizens and residents of the United States living abroad as modified by the Tax Increase Prevention and Reconciliation Act of 2005, Pub. L. No. 109-222, 120 Stat. 345, (TIPRA). This notice provides that, under certain circumstances, the Internal Revenue Service (Service) will waive section 6654 penalties for underpayment of estimated tax by certain citizens and residents of the United States living abroad.

Section 2: Background
Generally, the Internal Revenue Code requires individuals to pay federal income tax as they earn income. To the extent these taxes are not withheld from an individual's wages, an individual taxpayer must pay estimated taxes in four installments. Section 6654(a) of the Code provides for an addition to tax where a taxpayer fails to make a sufficient and timely payment of "estimated tax."

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