Hi! I would appreciate any advice on this question. I've searched online but haven't found a clear answer.

I am a long time overseas resident and US citizen. I file taxes every year and always claim the foreign earned income exclusion (FEIE). My income has always been less than the exclusion amount, so I pay zero.

In 2011 I did some work for some US agencies, who issues 1099s. It was about $20,000 total. I reported it, but claimed the exclusion and so paid nothing on it (my income including this amount and that I earned abroad was less than the exclusion). But I just got a letter from the IRS saying I "may" be liable for self employment tax on the 1099 income.

It was my understanding that all income earned abroad, even that earned from US companies, was counted under FEIE if you qualify as a foreign tax resident. Is this correct? The letter says "If you are not liable for self employment tax, please provide an explanation with your reply"... so can I somehow explain I am not liable?

Thank you!