Fulbright Grant - Tax Home

Posted by jeff.h49 on February 18, 2008, 6:12 pm

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One of my clients won a Fulbright last year, and was so happy with the
way I did his taxes that now he referred someone he met on the grant
to me to do hers. I appreciate the referral, BUT a couple of wrinkles
came up I'm not sure how to handle. She did not file taxes for '06 ,
so I am now doing 06 and 07 taxes at once. That's nothing new, but it
gets more complicated.

The new client lived in Virginia in '05, had no income in the first
part of '06 them moved to overseas to Oman to do her Fulbright. She
taught at the University from 9/06-12/06 as part of her grant, so I am
reporting the grant as wages and reporting enough expenses on 2106 to
pretty much wipe out her taxable income (Airfare, housing and 4 months
M&IE at $137 a day, which is the GSA rate for Oman). The grant was for
9 months (9/06-5/06, extended for 3 extra months). She returned to the
US briefly in Sept. 06 (she meets the 330 day test) then went back to
Oman, where she is now employed in the private sector.

She is using her mother's address in Indiana as her mailing address
for taxes.

Now the questions:

1) If I treat the US as her tax home for the period of the Fulbright,
do I have to file a state tax return? If so, in which state? All of
her '06 income was earned in Oman, and she had given up her Virginia
residence. Does she have to pay Indiana taxes on her grant? It looks
to me like Indiana will not recognize any of the 2106 deductions, so
she'd owe them something like $600. Alternatively, I could treat Oman
as her tax home and use the Foreign Income Exclusion. She was there
for a full year, although when she first went over it was supposed to
be for only 9 months (the grant was extended) and she intended to
return to the US.

2) In '07 she did not teach under the grant, she did research. She is
not enrolled in a degree program. Am I correct that I can still report
the '07 income as wages? The IRS circular says it is wages if "you
performed lecturing or teaching services as a condition for recieveing
the Fulbright grant...."

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