Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad - 2006 Page 13
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44consumer credit. You joined a local business
an exclusion of your possession income on your
Example. You could have your domicile in
league and both you and your spouse became
U.S. return.
Cleveland, Ohio, and a bona fide residence in
active in the neighborhood civic association and
Edinburgh, Scotland, if you intend to return
American Samoa. There is a possession ex-
worked with a local charity. Your abode is in
eventually to Cleveland.
clusion available to individuals who are bona
London for the time you live there. You satisfy
The fact that you go to Scotland does not
fide residents of American Samoa for the entire
the tax home test in the foreign country.
automatically make Scotland your bona fide res-
tax year. Gross income from sources within
idence. If you go there as a tourist, or on a short
American Samoa may be eligible for this exclu-
business trip, and return to the United States,
Temporary or
sion. Income that is effectively connected with
you have not established bona fide residence in
Indefinite Assignment
the conduct of a trade or business within Ameri-
Scotland. But if you go to Scotland to work for an
can Samoa also may be eligible for this exclu-
indefinite or extended period and you set up
The location of your tax home often depends on
sion. Use Form 4563, Exclusion of Income for
permanent quarters there for yourself and your
whether your assignment is temporary or indefi-
Bona Fide Residents of American Samoa, to
family, you probably have established a bona
nite. If you are temporarily absent from your tax
figure the exclusion.
fide residence in a foreign country, even though
home in the United States on business, you may
you intend to return eventually to the United
Guam and the Commonwealth of the North-
be able to deduct your away-from-home ex-
States.
ern Mariana Islands. An exclusion will be
penses (for travel, meals, and lodging), but you
You are clearly not a resident of Scotland in
available to residents of Guam and the Com-
would not qualify for the foreign earned income
the first instance. However, in the second, you
monwealth of the Northern Mariana Islands if,
exclusion. If your new work assignment is for an
are a resident because your stay in Scotland
and when, new implementation agreements
indefinite period, your new place of employment
appears to be permanent. If your residency is
take effect between the United States and those
becomes your tax home and you would not be
not as clearly defined as either of these illustra-
possessions.
able to deduct any of the related expenses that
tions, it may be more difficult to decide whether
For more information, see Publication 570.
you have in the general area of this new work
you have established a bona fide residence.
assignment. If your new tax home is in a foreign
Determination. Questions of bona fide resi-
country and you meet the other requirements,
Puerto Rico
dence are determined according to each individ-
your earnings may qualify for the foreign earned
and U.S. Virgin Islands
ual case, taking into account factors such as
income exclusion.
your intention, the purpose of your trip, and the
If you expect your employment away from
Residents of Puerto Rico and the U.S. Virgin
nature and length of your stay abroad.
home in a single location to last, and it does last,
Islands cannot claim the foreign earned income
You must show the Internal Revenue Serv-
for 1 year or less, it is temporary unless facts
exclusion or the foreign housing exclusion.
ice (IRS) that you have been a bona fide resi-
and circumstances indicate otherwise. If you
dent of a foreign country or countries for an
expect it to last for more than 1 year, it is indefi-
Puerto Rico. Generally, if you are a U.S. citi-
uninterrupted period that includes an entire tax
nite. If you expect it to last for 1 year or less, but
zen who is a bona fide resident of Puerto Rico
year. The IRS decides whether you qualify as a
at some later date you expect it to last longer
for the entire tax year, you are not subject to
bona fide resident of a foreign country largely on
than 1 year, it is temporary (in the absence of
U.S. tax on income from Puerto Rican sources.
the basis of facts you report on Form 2555. IRS
facts and circumstances indicating otherwise)
This does not include amounts paid for services
cannot make this determination until you file
until your expectation changes.
performed as an employee of the United States.
Form 2555.
However, you are subject to U.S. tax on your
income from sources outside Puerto Rico. In
Statement to foreign authorities. You are
Foreign Country
figuring your U.S. tax, you cannot deduct ex-
not considered a bona fide resident of a foreign
penses allocable to income not subject to tax.
To meet the bona fide residence test or the
country if you make a statement to the authori-
physical presence test, you must live in or be
ties of that country that you are not a resident of
Bona Fide Residence Test
present in a foreign country. A foreign country
that country, and the authorities:
usually is any territory (including the air space
•
Hold that you are not subject to their in-
You meet the bona fide residence test if you are
and territorial waters) under the sovereignty of a
come tax laws as a resident, or
a bona fide resident of a foreign country or
government other than that of the United States.
countries for an uninterrupted period that in-
•
Have not made a final decision on your
The term “foreign country” includes the sea-
cludes an entire tax year. You can use the bona
status.
bed and subsoil of those submarine areas adja-
fide residence test to qualify for the exclusions
cent to the territorial waters of a foreign country
and the deduction only if you are either:
and over which the foreign country has exclu-
Special agreements and treaties. An income
•
A U.S. citizen, or
sive rights under international law to explore and
tax exemption provided in a treaty or other inter-
•
exploit the natural resources.
national agreement will not in itself prevent you
A U.S. resident alien who is a citizen or
from being a bona fide resident of a foreign
The term “foreign country” does not include
national of a country with which the United
country. Whether a treaty prevents you from
Puerto Rico, Guam, the Commonwealth of the
States has an income tax treaty in effect.
becoming a bona fide resident of a foreign coun-
Northern Mariana Islands, the U.S. Virgin Is-
lands, or U.S. possessions such as Johnston
try is determined under all provisions of the
You do not automatically acquire bona fide
Island. For purposes of the foreign earned in-
treaty, including specific provisions relating to
resident status merely by living in a foreign
come exclusion, the foreign housing exclusion,
residence or privileges and immunities.
country or countries for 1 year. If you go to a
and the foreign housing deduction, the terms
foreign country to work on a particular job for a
Example 1. You are a U.S. citizen em-
“foreign,” “abroad,” and “overseas” refer to ar-
specified period of time, you ordinarily will not be
ployed in the United Kingdom by a U.S. em-
eas outside the United States, American Sa-
regarded as a bona fide resident of that country
ployer under contract with the U.S. Armed
moa, Guam, the Commonwealth of the Northern
even though you work there for 1 tax year or
Forces. You do not qualify for special status
Mariana Islands, Puerto Rico, the U.S. Virgin
longer. The length of your stay and the nature of
under the North Atlantic Treaty Status of Forces
Islands, and the Antarctic region.
your job are only some of the factors to be
Agreement. You are subject to United Kingdom
considered in determining whether you meet the
income taxes and may qualify as a bona fide
bona fide residence test.
American Samoa,
resident.
Guam, and the
Bona fide residence. To meet the bona fide
residence test, you must have established such
Example 2. You are a U.S. citizen in the
Commonwealth of the
a residence in a foreign country.
United Kingdom who qualifies as an “employee”
Northern Mariana Islands
Your bona fide residence is not necessarily
of an armed service or as a member of a “civilian
Residence or presence in a U.S. possession
the same as your domicile. Your domicile is your
component” under the North Atlantic Treaty Sta-
does not qualify you for the foreign earned in-
permanent home, the place to which you always
tus of Forces Agreement. You do not qualify as a
come exclusion. You may, however, qualify for
return or intend to return.
bona fide resident.
Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction
Page 13
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