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

American Samoa,

your job are only some of the factors to be

under the North Atlantic Treaty Status of Forces

Guam, and the

considered in determining whether you meet the

Agreement. You are subject to United Kingdom

bona fide residence test.

income taxes and may qualify as a bona fide

Commonwealth of the

resident.

Northern Mariana Islands

Bona fide residence. To meet the bona fide

residence test, you must have established such

Residence or presence in a U.S. possession

Example 2. You are a U.S. citizen in the

a residence in a foreign country.

does not qualify you for the foreign earned in-

United Kingdom who qualifies as an “employee”

Your bona fide residence is not necessarily

come exclusion. You may, however, qualify for

of an armed service or as a member of a “civilian

the same as your domicile. Your domicile is your

the possession exclusion.

component” under the North Atlantic Treaty Sta-

permanent home, the place to which you always

tus of Forces Agreement. You do not qualify as

return or intend to return.

American Samoa. There is a possession ex-

a bona fide resident.

clusion available to individuals who are bona

Example. You could have your domicile in

fide residents of American Samoa for the entire

Example 3. You are a U.S. citizen em-

Cleveland, Ohio, and a bona fide residence in

tax year. Gross income from sources within

ployed in Japan by a U.S. employer under con-

London, England, if you intend to return eventu-

American Samoa, Guam, or the Commonwealth

tract with the U.S. Armed Forces. You are

ally to Cleveland.

of the Northern Mariana Islands may be eligible

subject to the agreement of the Treaty of Mutual

The fact that you go to London does not

for this exclusion. Income that is effectively con-

Cooperation and Security between the United

automatically make London your bona fide resi-

nected with the conduct of a trade or business

States and Japan. You do not qualify as a bona

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

within those possessions also may be eligible

fide resident.

business trip, and return to the United States,

for this exclusion. Use Form 4563, Exclusion of

you have not established bona fide residence in

Income for Bona Fide Residents of American

Example 4. You are a U.S. citizen em-

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

Samoa, to figure the exclusion.

ployed as an “official” by the United Nations in

indefinite or extended period and you set up

Switzerland. You are exempt from Swiss taxa-

Guam and the Commonwealth of the North-

permanent quarters there for yourself and your

tion on the salary or wages paid to you by the

ern Mariana Islands. A possession exclusion

family, you probably have established a bona

United Nations. This does not prevent you from

will be available to residents of Guam and the

fide residence in a foreign country, even though

qualifying as a bona fide resident if you meet all

Commonwealth of the Northern Mariana Islands

you intend to return eventually to the United

the requirements for that status.

if, and when, new implementation agreements

States.

take effect between the United States and those

Effect of voting by absentee ballot. If you

You are clearly not a resident of London in

possessions.

are a U.S. citizen living abroad, you can vote by

the first instance. However, in the second, you

For more information, see Publication 570.

absentee ballot in any election held in the United

are a resident because your stay in London

States without risking your status as a bona fide

appears to be permanent. If your residency is

resident of a foreign country.

not as clearly defined as either of these illustra-

Puerto Rico

However, if you give information to the local

tions, it may be more difficult to decide whether

and Virgin Islands

election officials about the nature and length of

you have established a bona fide residence.

your stay abroad that does not match the infor-

Determination. Questions of bona fide resi-

Residents of Puerto Rico and the Virgin Islands

mation you give for the bona fide residence test,

dence are determined according to each individ-

cannot claim the foreign earned income exclu-

the information given in connection with absen-

ual case, taking into account factors such as

sion, the foreign housing exclusion, or the pos-

tee voting will be considered in determining your

your intention, the purpose of your trip, and the

session exclusion.

status, but will not necessarily be conclusive.

nature and length of your stay abroad.

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

You must show the Internal Revenue Ser-

Uninterrupted period including entire tax

zen who is a bona fide resident of Puerto Rico

vice (IRS) that you have been a bona fide resi-

year. To qualify for bona fide residence, you

for the entire tax year, you are not subject to

dent of a foreign country or countries for an

must reside in a foreign country for an uninter-

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

uninterrupted period that includes an entire tax

rupted period that includes an entire tax year. An

This does not include amounts paid for services

year. The IRS decides whether you qualify as a

entire tax year is from January 1 through De-

performed as an employee of the United States.

bona fide resident of a foreign country largely on

cember 31 for taxpayers who file their income

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

the basis of facts you report on Form 2555. IRS

tax returns on a calendar year basis.

income from sources outside Puerto Rico. In

cannot make this determination until you file

During the period of bona fide residence in a

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

Form 2555.

foreign country, you can leave the country for

penses allocable to income not subject to tax.

brief or temporary trips back to the United States

Statement to foreign authorities. You are

or elsewhere for vacation or business. To keep

not considered a bona fide resident of a foreign

Bona Fide Residence Test

your status as a bona fide resident of a foreign

country if you make a statement to the authori-

country, you must have a clear intention of re-

ties of that country that you are not a resident of

You meet the bona fide residence test if you are

turning from such trips, without unreasonable

that country and the authorities either:

a bona fide resident of a foreign country or

delay, to your foreign residence or to a new bona

countries for an uninterrupted period that in-

fide residence in another foreign country.

1) Hold that you are not subject to their in-

cludes an entire tax year. You can use the bona

come tax laws as a resident, or

fide residence test to qualify for the exclusions

Example 1. You arrived with your family in

2) Have not made a final decision on your

and the deduction only if you are either:

Lisbon, Portugal, on November 1, 1999. Your

status.

assignment is indefinite, and you intend to live

•

A U.S. citizen, or

there with your family until your company sends

•

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

Special agreements and treaties.

An in-

you to a new post. You immediately established

national of a country with which the United

come tax exemption provided in a treaty or other

residence there. On April 1, 2000, you arrived in

States has an income tax treaty in effect.

international agreement will not in itself prevent

the United States to meet with your employer,

you from being a bona fide resident of a foreign

leaving your family in Lisbon. You returned to

You do not automatically acquire bona fide

country. Whether a treaty prevents you from

Lisbon on May 1, and continued living there. On

resident status merely by living in a foreign

becoming a bona fide resident of a foreign coun-

January 1, 2001, you completed an uninter-

country or countries for 1 year.

try is determined under all provisions of the

rupted period of residence for a full tax year

treaty, including specific provisions relating to

(2000), and you meet the bona fide residence

Example. If you go to a foreign country to

residence or privileges and immunities.

test.

work on a particular construction job for a speci-

fied period of time, you ordinarily will not be

Example 1. You are a U.S. citizen em-

Example 2. Assume that in Example 1, you

regarded as a bona fide resident of that country

ployed in the United Kingdom by a U.S. em-

transferred back to the United States on Decem-

even though you work there for 1 tax year or

ployer under contract with the U.S. Armed

ber 13, 2000. You would not meet the bona fide

longer. The length of your stay and the nature of

Forces. You do not qualify for special status

residence test because your bona fide resi-

Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction

Page 13

Publication 54 - Tax Guide For U.s. Citizens And U.s. Citizens Abroad - 2001 Page 13

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