Foreign Earned Income Exclusion

[catax]

I have a client that is a US citizen that transfered from HP in the US, to HP in Mexico. It appeared to me that the options she exercised in 2006 were included in her Mexican W2. She exercised more options in 2007 and quit working for HP Mexico. It doesn't appear that her options were included in the 2007 Mexican W2. She lived in Mexico all year and qualifies for the Foreign Earned Income Exclusion. This is for a 2007 return. I have a 1099-B for the options she exercied. No breakdown for witholding etc like I normally she with options exercised in the US.

The question: do the options exercised while living in Mexico and working for HP qualify for the foreign earned income exclusion?

[RoyDaleOne]

Pub 54.

Stock options. You may have earned income if you disposed of stock that you got by exercising a stock option granted to you under an employee stock purchase plan.

If your gain on the disposition of stock you got by exercising an option is treated as capital gain, your gain is unearned income.

However, if you disposed of the stock less than 2 years after you were granted the option or less than 1 year after you got the stock, part of the gain on the disposition may be earned income. It is considered received in the year you disposed of the stock and earned in the year you performed the services for which you were granted the option. Any part of the earned income that is due to work you did outside the United States is foreign earned income.

See Publication 525, Taxable and Nontaxable Income, for a discussion of the treatment of stock options.

[catax]

Thanks for posting a reply. I had been looking for information without sucess. Now trying to get the information out of the client regarding when the options were earned? I hope I can get the information. Thanks