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

dence in the foreign country, although it lasted

returning, or the nature and purpose of your stay

transit. You are treated as traveling over areas

more than a year, did not include a full tax year.

not within any foreign country.

abroad.

You may, however, qualify for the foreign

How to figure the 12-month period.

There

330 full days. Generally, to meet the physical

earned income exclusion or the housing exclu-

are four rules you should know when figuring the

presence test, you must be physically present in

sion or deduction under the physical presence

12-month period.

a foreign country or countries for at least 330 full

test (discussed later).

days during a 12-month period. You can count

1) Your 12-month period can begin with any

Bona fide resident for part of a year. Once

days you spent abroad for any reason. You do

day of the month. It ends the day before

you have established bona fide residence in a

not have to be in a foreign country only for

the same calendar day, 12 months later.

foreign country for an uninterrupted period that

employment purposes. You can be on vacation

includes an entire tax year, you will qualify as a

2) Your 12-month period must be made up of

time.

bona fide resident for the period starting with the

consecutive months. Any 12-month period

You do not meet the physical presence test if

date you actually began the residence and end-

can be used if the 330 days in a foreign

illness, family problems, a vacation, or your

ing with the date you abandon the foreign resi-

country fall within that period.

employer’s orders cause you to be present for

dence. You could qualify as a bona fide resident

less than the required amount of time.

3) You do not have to begin your 12-month

for an entire tax year plus parts of 1 or 2 other tax

period with your first full day in a foreign

years.

Exception. You can be physically present

country or end it with the day you leave.

in a foreign country or countries for less than 330

You can choose the 12-month period that

Example. You were a bona fide resident of

full days and still meet the physical presence

gives you the greatest exclusion.

England from March 1, 1999, through Septem-

test if you are required to leave a country be-

ber 14, 2001. On September 15, 2001, you re-

cause of war or civil unrest. See Waiver of Time

4) In determining whether the 12-month pe-

turned to the United States. Since you were a

Requirements, later.

riod falls within a longer stay in the foreign

bona fide resident of a foreign country for all of

country, 12-month periods can overlap one

2000, you also qualify as a bona fide resident

Full day. A full day is a period of 24 consecu-

another.

from March 1, 1999, through the end of 1999

tive hours, beginning at midnight.

and from January 1, 2001, through September

Example 1. You are a construction worker

Travel.

When you leave the United States to

14, 2001.

who works on and off in a foreign country over a

go directly to a foreign country or when you

Reassignment. If you are assigned from

20-month period. You might pick up the 330 full

return directly to the United States from a foreign

one foreign post to another, you may or may not

days in a 12-month period only during the middle

country, the time you spend on or over interna-

have a break in foreign residence between your

months of the time you work in the foreign coun-

tional waters does not count toward the 330-day

assignments, depending on the circumstances.

try because the first few and last few months of

total.

the 20-month period are broken up by long visits

Example 1. You were a resident of Pakistan

to the United States.

Example. You leave the United States for

from October 1, 2000, through November 30,

France by air on June 10. You arrive in France at

2001. On December 1, 2001, you and your fam-

Example 2. You work in New Zealand for a

9:00 a.m. on June 11. Your first full day in

ily returned to the United States to wait for an

20-month period from January 1, 2000, through

France is June 12.

assignment to another foreign country. Your

August 31, 2001, except that you spend 28 days

Passing over foreign country. If, in travel-

household goods also were returned to the

in February 2000 and 28 days in February 2001

ing from the United States to a foreign country,

United States.

on vacation in the United States. You are pre-

Your foreign residence ended on November

you pass over a foreign country before midnight

sent in New Zealand 330 full days during each of

30, 2001, and did not begin again until after you

of the day you leave, the first day you can count

the following two 12-month periods: January 1,

were assigned to another foreign country and

toward the 330-day total is the day following the

2000 — December 31, 2000, and September 1,

physically entered that country. Since you were

day you leave the United States.

2000 — August 31, 2001. By overlapping the

not a bona fide resident of a foreign country for

12-month periods in this way, you meet the

Example. You leave the United States by

the entire tax year of 2000 or 2001, you do not

physical presence test for the whole 20-month

meet the bona fide residence test in either year.

air at 9:30 a.m. on June 10 to travel to Kenya.

period. See Table 4-1.

You may, however, qualify for the foreign

You pass over western Africa at 11:00 p.m. on

earned income exclusion or the housing exclu-

June 10 and arrive in Kenya at 12:30 a.m. on

Exceptions to Tests

sion or deduction under the physical presence

June 11. Your first full day in a foreign country is

test, discussed later.

June 11.

There are two exceptions to meeting the re-

quirements under the bona fide residence and

Change of location. You can move about

Example 2. Assume the same facts as in

the physical presence tests.

from one place to another in a foreign country or

Example 1, except that upon completion of your

to another foreign country without losing full

assignment in Pakistan you were given a new

days. But if any part of your travel is not within a

assignment to England. On December 1, 2001,

Waiver of Time Requirements

foreign country or countries and takes 24 hours

you and your family returned to the United

or more, you will lose full days.

States for a month’s vacation. On January 2,

Both the bona fide residence test and the physi-

2002, you arrived in England for your new as-

cal presence test contain minimum time require-

Example 1. You leave England by air at

signment. Because you did not interrupt your

ments. The minimum time requirements can be

11:00 p.m. on July 6 and arrive in Sweden at

bona fide residence abroad, you meet the bona

waived, however, if you must leave a foreign

5:00 a.m. on July 7. Your trip takes less than 24

fide residence test.

country because of war, civil unrest, or similar

hours and you lose no full days.

adverse conditions in that country. You also

Physical Presence Test

must be able to show that you reasonably could

Example 2. You leave Norway by ship at

have expected to meet the minimum time re-

10:00 p.m. on July 6 and arrive in Portugal at

You meet the physical presence test if you are

quirements if not for the adverse conditions. To

6:00 a.m. on July 8. Since your travel is not

physically present in a foreign country or coun-

qualify for the waiver, you must actually have

within a foreign country or countries and the trip

tries 330 full days during a period of 12 consecu-

your tax home in the foreign country and be a

takes more than 24 hours, you lose as full days

tive months. The 330 days do not have to be

bona fide resident of, or be physically present in,

July 6, 7, and 8. If you remain in Portugal, your

consecutive. Any U.S. citizen or resident can

the foreign country on or before the beginning

next full day in a foreign country is July 9.

use the physical presence test to qualify for the

date of the waiver.

exclusions and the deduction.

In United States while in transit. If you are

Early in 2002, the IRS will publish in the

The physical presence test is based only on

in transit between two points outside the United

Internal Revenue Bulletin a list of countries qual-

how long you stay in a foreign country or coun-

States and are physically present in the United

ifying for the waiver for 2001 and the effective

tries. This test does not depend on the kind of

States for less than 24 hours, you are not treated

dates. If you left one of the countries on or after

residence you establish, your intentions about

as present in the United States during the

the date listed for each country, you can qualify

Page 14

Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction

Publication 54 - Tax Guide For U.s. Citizens And U.s. Citizens Abroad - 2001 Page 14

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