Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad - 2006 Page 40
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4414) In 2001, I qualified to exclude
with you, the type of visa, the em-
qualifying period under either the
earned income. However, you
my foreign earned income, but I
bona fide residence test or physical
ployment agreement, and any
must include it in gross income re-
did not claim this exclusion on
presence test. If you paid foreign
other factor pertinent to show
ported on your Form 1040.
the return I filed in 2002. I paid all
tax on the income earned abroad,
whether your stay in the foreign
outstanding taxes with the re-
you may be able to claim that tax as
3) My company pays my foreign
country is indefinite or prolonged.
turn. Can I file a claim for refund
a deduction or as a credit against
income tax on my foreign earn-
To claim the foreign earned in-
now?
ings. Is this taxable compensa-
your U.S. tax.
come exclusion or foreign housing
tion?
exclusion or deduction under this
It is too late to claim this refund
6) Can a resident alien of the
test, the period of foreign residence
since a claim for refund must be
United States qualify for an ex-
Yes. The amount is compensation
must include 1 full tax year (usually
filed within 3 years from the date
clusion or deduction under the
for services performed. The tax
January 1 – December 31), but
the return was filed or 2 years from
bona fide residence test or the
paid by your company should be
once you meet this time require-
the date the tax was paid, which-
physical presence test?
reported on Form 2555, Part IV,
ment, you figure the exclusions and
ever is later. A return filed before
item 22(f) (or on Form 2555-EZ,
the deduction from the date the res-
the due date is considered filed on
Resident aliens of the United
Part IV, line 17).
idence actually began.
the due date.
States can qualify for the foreign
earned income exclusion, the for-
4) I live in an apartment in a for-
3) To meet the qualification of
Meeting the
eign housing exclusion, or the for-
eign city for which my employer
“an uninterrupted period which
eign housing deduction if they meet
Requirements
pays the rent. Should I include in
includes an entire taxable year,”
the requirements of the physical
of Either the Bona Fide
my income the cost to my em-
do I have to be physically pres-
presence test. Resident aliens who
Residence Test or the
ent in a foreign country for the
ployer ($1,200 a month) or the
are citizens or nationals of a coun-
entire year?
Physical Presence Test
fair market value of equivalent
try with which the United States has
housing in the United States
an income tax treaty in effect can
No. Uninterrupted refers to the
($800 a month)?
1) I recently came to Country X to
also qualify under the bona fide
bona fide residence proper and not
work for the Orange Tractor Co.
residence test.
and I expect to be here for 5 or 6
to the physical presence of the indi-
You must include in income the fair
years. I understand that upon
vidual. During the period of bona
market value (FMV) of the facility
7) On August 13 of last year I left
the completion of 1 full year I will
fide residence in a foreign country,
provided, where it is provided. This
the United States and arrived in
qualify under the bona fide resi-
even during the first full year, you
will usually be the rent your em-
Country Z to work for the Gordon
dence test. Is this correct?
can leave the country for brief and
ployer pays. Situations when the
Manufacturing Company. I ex-
temporary trips back to the United
FMV is not included in income are
pected to be able to exclude my
Not necessarily. The law provides
States or elsewhere for vacation, or
discussed in chapter 4 under Ex-
foreign earned income under the
that to qualify under this test for the
even for business. To preserve
clusion of Meals and Lodging.
physical presence test because I
foreign earned income exclusion,
your status as a bona fide resident
planned to be in Country Z for at
the foreign housing exclusion, or
of a foreign country, you must have
5) My U.S. employer pays my sal-
least 1 year. However, I was reas-
the foreign housing deduction, a
a clear intention of returning from
ary into my U.S. bank account. Is
signed back to the United States
person must be a “bona fide resi-
those trips, without unreasonable
this income considered earned
and left Country Z on July 1 of
dent of a foreign country or coun-
delay, to your foreign residence.
in the United States or is it con-
this year. Can I exclude any of
tries for an uninterrupted period
sidered foreign earned income?
my foreign earned income?
which includes an entire taxable
4) I am a U.S. citizen and during
year.”
2005 was a bona fide resident of
If you performed the services to
No. You cannot exclude any of the
Country X. On January 15, 2006, I
If, like most U.S. citizens, you
earn this salary outside the United
income you earned in Country Z
was notified that I was to be as-
file your return on a calendar year
States, your salary is considered
because you were not in a foreign
signed to Country Y. I was re-
basis, the taxable year referred to
country for at least 330 full days as
earned abroad. It does not matter
called to New York for 90 days
in the law would be from January 1
required under the physical pres-
that you are paid by a U.S. em-
orientation and then went to
to December 31 of any particular
ence test.
ployer or that your salary is depos-
Country Y, where I have been
year. Unless you established resi-
ited in a U.S. bank account in the
since. Although I was not in
dence in Country X on January 1, it
Foreign Earned Income
United States. The source of sal-
Country Y on January 1, I was a
would be more than 1 year before
ary, wages, commissions, and
bona fide resident of Country X
you could qualify as a bona fide
1) I am an employee of the U.S.
and was in Country Y on Decem-
other personal service income is
resident of a foreign country. Once
Government working abroad.
ber 31, 2006. My family remained
the place where you perform the
you have completed your qualifying
Can all or part of my government
in Country X until completion of
services.
period, however, you are entitled to
income earned abroad qualify
the orientation period, and my
exclude the income or to claim the
for the foreign earned income
household goods were shipped
6) What is considered a foreign
exclusion?
housing exclusion or deduction
directly to my new post. Can I
country?
from the date you established bona
qualify as a bona fide resident of
No. The foreign earned income ex-
fide residence.
a foreign country for 2006, or
For the purposes of the foreign
clusion applies to your foreign
must I wait for the entire year of
earned income exclusion and the
2) I understand the physical
2007 to qualify?
earned income. Amounts paid by
foreign housing exclusion or de-
presence test to be simply a mat-
the United States or its agencies to
duction, any territory under the sov-
ter of being physically present in
Since you did not break your period
their employees are not treated, for
ereignty of a country other than the
a foreign country for at least 330
of foreign residence, you would
this purpose, as foreign earned in-
United States is a foreign country.
days within 12 consecutive
continue to qualify as a bona fide
come.
Possessions of the United States
months; but what are the criteria
resident for 2006.
of the bona fide residence test?
are not treated as foreign coun-
2) I qualify under the bona fide
tries.
5) Due to illness, I returned to the
residence test. Does my foreign
To be a bona fide resident of a
earned income include my U.S.
United States before I completed
7) What is the source of earned
foreign country, you must show
dividends and the interest I re-
my qualifying period to claim the
income?
that you entered a foreign country
ceive on a foreign bank ac-
foreign earned income exclu-
intending to remain there for an in-
count?
sion. Can I figure the exclusion
The source of earned income is the
definite or prolonged period and, to
for the period I resided abroad?
place where the work or personal
that end, you are making your
No. The only income that is foreign
services that produce the income
home in that country. Considera-
No. You are not entitled to any ex-
earned income is income from the
clusion of foreign earned income
are performed. In other words, in-
tion is given to the type of quarters
performance of personal services
since you did not complete your
occupied, whether your family went
abroad. Investment income is not
come received for work in a foreign
Page 40
Publication 54 (2006)
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