SECTION 2. BACKGROUND

Section 911(a) of the Code allows a qualified individual to elect to exclude from gross income the foreign earned income and housing cost amount of such individual. Section 911(c)(1) defines the term “housing cost amount” as an amount equal to the excess of (A) the housing expenses of an individual for the taxable year to the extent such expenses do not exceed the amount determined under section 911(c)(2), over (B) 16 percent of the exclusion amount (computed on a daily basis) in effect under section 911(b)(2)(D) for the calendar year in which such taxable year begins ($70.44 per day for 2007, or $85,700 for the full year), multiplied by the number of days of that taxable year within the applicable period described in section 911(d)(1). The applicable period is the period during which the individual

2007–40 I.R.B. 735 October 1, 2007

2006–87, 2006–43 I.R.B. 766, and Notice 2007–25, 2007–12 I.R.B. 760, to provide adjustments to the limitation on housing expenses for 2006 for qualified individuals incurring housing expenses in countries with high housing costs relative to housing costs in the United States.