Irs Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad

an employee or self-employed individual. Hav-

exclusion. If your new work assignment is for an

available to residents of Guam and the Com-

ing a “tax home” in a given location does not

indefinite period, your new place of employment

monwealth of the Northern Mariana Islands if,

necessarily mean that the given location is your

becomes your tax home and you would not be

and when, new implementation agreements

residence or domicile for tax purposes.

able to deduct any of the related expenses that

take effect between the United States and those

you have in the general area of this new work

possessions.

If you do not have a regular or main place of

assignment. If your new tax home is in a foreign

For more information, see Publication 570.

business because of the nature of your work,

country and you meet the other requirements,

your tax home may be the place where you

your earnings may qualify for the foreign earned

regularly live. If you have neither a regular or

Puerto Rico

income exclusion.

main place of business nor a place where you

and U.S. Virgin Islands

regularly live, you are considered an itinerant

If you expect your employment away from

and your tax home is wherever you work.

home in a single location to last, and it does last,

Residents of Puerto Rico and the U.S. Virgin

for 1 year or less, it is temporary unless facts

You are not considered to have a tax home in

Islands cannot claim the foreign earned income

and circumstances indicate otherwise.

a foreign country for any period in which your

exclusion or the foreign housing exclusion.

abode is in the United States. However, your

If you expect it to last for more than 1 year, it

abode is not necessarily in the United States

is indefinite.

Puerto Rico. Generally, if you are a U.S. citi-

while you are temporarily in the United States.

If you expect it to last for 1 year or less, but at

zen who is a bona fide resident of Puerto Rico

Your abode is also not necessarily in the United

some later date you expect it to last longer than

for the entire tax year, you are not subject to

States merely because you maintain a dwelling

1 year, it is temporary (in the absence of facts

U.S. tax on income from Puerto Rican sources.

in the United States, whether or not your spouse

and circumstances indicating otherwise) until

This does not include amounts paid for services

or dependents use the dwelling.

your expectation changes. Once your expecta-

performed as an employee of the United States.

“Abode” has been variously defined as one’s

tion changes, it is indefinite.

However, you are subject to U.S. tax on your

home, habitation, residence, domicile, or place

income from sources outside Puerto Rico. In

of dwelling. It does not mean your principal place

figuring your U.S. tax, you cannot deduct ex-

Foreign Country

of business. “Abode” has a domestic rather than

penses allocable to income not subject to tax.

a vocational meaning and does not mean the

To meet the bona fide residence test or the

Bona Fide Residence Test

same as “tax home.” The location of your abode

physical presence test, you must live in or be

often will depend on where you maintain your

present in a foreign country. A foreign country

economic, family, and personal ties.

You meet the bona fide residence test if you are

includes any territory under the sovereignty of a

a bona fide resident of a foreign country or

government other than that of the United States.

Example 1. You are employed on an off-

countries for an uninterrupted period that in-

shore oil rig in the territorial waters of a foreign

The term “foreign country” includes the coun-

cludes an entire tax year. You can use the bona

country and work a 28-day on/28-day off sched-

try’s airspace and territorial waters. It also in-

fide residence test to qualify for the exclusions

ule. You return to your family residence in the

cludes the seabed and subsoil of those

and the deduction only if you are either:

United States during your off periods. You are

submarine areas adjacent to the country’s terri-

•

A U.S. citizen, or

considered to have an abode in the United

torial waters over which it has exclusive rights

•

States and do not satisfy the tax home test in the

under international law to explore and exploit the

A U.S. resident alien who is a citizen or

foreign country. You cannot claim either of the

natural resources.

national of a country with which the United

exclusions or the housing deduction.

The term “foreign country” does not include

States has an income tax treaty in effect.

Antarctica or U.S. possessions such as Puerto

Example 2. For several years, you were a

Rico, Guam, the Commonwealth of the Northern

You do not automatically acquire bona fide

marketing executive with a producer of machine

Mariana Islands, the U.S. Virgin Islands, and

resident status merely by living in a foreign

tools in Toledo, Ohio. In November of last year,

Johnston Island. For purposes of the foreign

country or countries for 1 year. If you go to a

your employer transferred you to London, Eng-

earned income exclusion, the foreign housing

foreign country to work on a particular job for a

land, for a minimum of 18 months to set up a

exclusion, and the foreign housing deduction,

specified period of time, you ordinarily will not be

sales operation for Europe. Before you left, you

the terms “foreign,” “abroad,” and “overseas”

regarded as a bona fide resident of that country

distributed business cards showing your busi-

refer to areas outside the United States and

even though you work there for 1 tax year or

ness and home addresses in London. You kept

those areas listed or described in the previous

longer. The length of your stay and the nature of

ownership of your home in Toledo but rented it

sentence.

your job are only some of the factors to be

to another family. You placed your car in stor-

considered in determining whether you meet the

age. In November of last year, you moved your

bona fide residence test.

spouse, children, furniture, and family pets to a

American Samoa,

Bona fide residence. To meet the bona fide

home your employer rented for you in London.

Guam, and the

residence test, you must have established a

Commonwealth of the

Shortly after moving, you leased a car and

bona fide residence in a foreign country.

you and your spouse got British driving licenses.

Northern Mariana Islands

Your bona fide residence is not necessarily

Your entire family got library cards for the local

the same as your domicile. Your domicile is your

public library. You and your spouse opened

Residence or presence in a U.S. possession

permanent home, the place to which you always

bank accounts with a London bank and secured

does not qualify you for the foreign earned in-

return or intend to return.

consumer credit. You joined a local business

come exclusion. You may, however, qualify for

league and both you and your spouse became

an exclusion of your possession income on your

Example. You could have your domicile in

active in the neighborhood civic association and

U.S. return.

Cleveland, Ohio, and a bona fide residence in

worked with a local charity. Your abode is in

Edinburgh, Scotland, if you intend to return

American Samoa. There is a possession ex-

London for the time you live there. You satisfy

eventually to Cleveland.

clusion available to individuals who are bona

the tax home test in the foreign country.

The fact that you go to Scotland does not

fide residents of American Samoa for the entire

automatically make Scotland your bona fide res-

tax year. Gross income from sources within

Temporary or

idence. If you go there as a tourist, or on a short

American Samoa may be eligible for this exclu-

Indefinite Assignment

business trip, and return to the United States,

sion. Income that is effectively connected with

you have not established bona fide residence in

the conduct of a trade or business within Ameri-

The location of your tax home often depends on

Scotland. But if you go to Scotland to work for an

can Samoa also may be eligible for this exclu-

whether your assignment is temporary or indefi-

indefinite or extended period and you set up

sion. Use Form 4563, Exclusion of Income for

nite. If you are temporarily absent from your tax

permanent quarters there for yourself and your

Bona Fide Residents of American Samoa, to

home in the United States on business, you may

family, you probably have established a bona

figure the exclusion.

be able to deduct your away-from-home ex-

fide residence in a foreign country, even though

penses (for travel, meals, and lodging), but you

Guam and the Commonwealth of the North-

you intend to return eventually to the United

would not qualify for the foreign earned income

ern Mariana Islands. An exclusion will be

States.

Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction

Page 13

Irs Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad - 2008 Page 13

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