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A U.S. citizen worked in a foreign country for the period July 1, 2013 through August 1, 2014. Her salary was $10,000 per month. Also, in 2013 she received $5,000 in dividends from foreign corporations (not qualified dividends). No dividends were received in 2014. Which of the following is correct?

A. The taxpayer cannot exclude any of the income because she was not present in the foreign country more than 330 days in either 2013 or 2014.

B. The taxpayer can exclude a portion of the salary from U.S. gross income in 2013 and 2014, and all of the dividend income.

C. The taxpayer can exclude from U.S. gross income $60,000 salary in 2013, but in 2014 the taxpayer will exceed the twelve month limitation and, therefore, all of the 2014 compensation must be included in gross income. All of the dividends must be included in 2013 gross income.

D. The taxpayer must include the dividend income of $5,000 in 2013 gross income, but the taxpayer can exclude a portion of the compensation income from U.S. gross income in 2013 and 2014.

E. None of the above.

Please explain why and be certain of your responses. I have many mixed answers and opinions on this questions and require the correct answer for a very important take home exam. I have seen that B is chosen a lot by peers but I am unsure if the tax rules have changed through 2014.

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