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      On March 4, 2026, the U.S. Internal Revenue Service (IRS) released an advance copy of Revenue Procedure 2026-16, potentially offering relief to individuals who failed to meet the eligibility requirements of either the bona fide residence test or the physical presence test under U.S. Internal Revenue Code section 911(d)(1)—and thus would not be able to exclude foreign earned income and housing cost amounts from gross income—because war, civil unrest, or similar adverse conditions in a foreign country precluded the normal conduct of business and prevented the individuals from satisfying these tests.1

      The revenue procedure waives the section 911(d)(1) eligibility requirements for tax year 2025 for the following countries if the individual leaves the country on or after the corresponding date.

      Country

      Date of departure on or after

       

      Haiti

      January 1, 2025

      Ukraine

      January 1, 2025

      Democratic Republic of the Congo

      January 28, 2025

      South Sudan

      March 7, 2025

      Iraq

      June 11, 2025

      Lebanon

      June 22, 2025

      Mali

      October 30, 2025

      WHY THIS MATTERS

      Individuals who would otherwise qualify for the foreign earned income (FEIE) and foreign housing cost exclusions may lose the benefit of those exclusions if they leave a country prior to fulfilling the time requirements, which could affect the amount of tax they owe.

      A special exception to the time requirements to qualify for those exclusions is allowed for persons who are forced to leave a country designated by the IRS due to war, civil unrest, or other adverse conditions.

      Context

      The Revenue Procedure provides that the Treasury Department, in consultation with the Secretary of State, has determined that for tax year 2025, war, civil unrest, or similar adverse conditions precluded the normal conduct of business in the listed countries beginning on the dates specified above. Of the countries listed in the Revenue Procedure, Haiti, Iraq, and Ukraine are the only countries for which similar relief was granted for tax year 2024.2

      Qualifying for Relief

      To qualify for this relief, an individual must have established residency, or have been physically present, in the foreign country on or before the above applicable dates. Individuals seeking to qualify for the FEIE because they could reasonably have been expected to have been present in a foreign country for 330 days but for war, civil unrest, or similar adverse conditions, and have met the other requirements for qualification, may use any 12-month period to meet the qualified individual requirement.

      For example, consider an individual who arrived in Lebanon on January 1 and was present there until June 22, 2025, and who establishes that he reasonably expected to work in Lebanon for the entire calendar year. Because the individual departed Lebanon on or after June 22, 2025, that individual will be considered to have met the physical presence test despite not having been present in Lebanon for 330 days. He will be considered a qualifying individual for the periods of January 1-June 22, 2025, assuming the other requirements for qualification under section 911 are met.

      However, the same individual would not qualify for the waiver if the date he was first physically present, or established bona fide residency, in Lebanon was after June 22, 2025, which is the date on or after which the Secretary of the Treasury determined, after consultation with the Secretary of State, that individuals were required to leave Lebanon because of war, civil unrest, or similar adverse conditions that precluded the normal conduct of business.

      KPMG INSIGHTS

      The ability to claim the FEIE is an important tax-planning and cost-mitigation element of a long-term outbound international assignment from the United States. When the employee is tax equalized by the employer, the FEIE may help mitigate the overall tax cost of a U.S.-outbound assignment to the employer, and will have been factored into 2025 budget forecasts, tax projections, tax-equalization payments, and other cost and cash-flow projections.

      Revenue Procedure 2026-16 provides relief for certain individuals and employers that have had to cut assignments short as a result of war, civil unrest, or similar adverse conditions.

      However, assignees and their employers will need to establish that the individual could reasonably have been expected to meet the eligibility requirements for the FEIE if the individual had not been required to leave the foreign country due to war, civil unrest, or similar adverse conditions. In addition, an individual must be able to demonstrate that he or she established residency, or was physically present, in the foreign country on or before the applicable dates. Documentation of the original intended assignment length and location, reason for the change in assignment length and location, date of the change, any ongoing amendments to the assignment terms, and travel records should be maintained and regularly updated as the situation evolves.

      FOOTNOTES:

      1  Rev. Proc. 2026-16 will appear in the Internal Revenue Bulletin 2026-13 for Monday, March 23, 2026. See https://www.irs.gov/pub/irs-drop/rp-26-16.pdf. 

      2  For prior coverage of the countries covered under IRS guidance related to section 911(d)(1) for the 2024 tax year, see GMS Flash Alert 2025-055 (March 7, 2025). For more information on the FEIE, see chapter 1 of U.S. Taxation of Americans Abroad, a publication of KPMG LLP (U.S.).

      Contacts

      John T. Seery
      John Seery

      Principal, Washington National Tax – Global Mobility Services

      KPMG in the U.S.

      Christine Deveney
      Christine Deveney

      Director, Washington National Tax – Global Mobility Services

      KPMG in the U.S.

      Rob Fagan
      Rob Fagan

      Senior Manager, Washington National Tax – Global Mobility Services

      KPMG in the U.S.

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      The above information is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.

      The information contained in this newsletter was submitted by the KPMG International member firm in the United States.

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