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

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Whether you have already requested an-

of your return and you file on a calendar year

change rate, use the one that most properly

other extension for time to file for this tax

basis, the due date for filing your return is June

reflects your income. You can generally get ex-

year.

15.

change rates from banks and U.S. Embassies.

If you have a QBU, translate the results,

You can sign the request for this extension, or it

What if tests are not met. If you obtain an

such as income or loss, into U.S. dollars on a

can be signed by your attorney, CPA, enrolled

extension and unforeseen events make it im-

monthly basis.

agent, or a person with a power of attorney. If

possible for you to satisfy either the bona fide

you are unable to sign the request because of

residence test or the physical presence test, you

illness or for another good reason, a person in

should file your income tax return as soon as

Blocked Income

close personal or business relationship to you

possible because you must pay interest on any

can sign the request.

tax due after the regular due date of the return

You generally must report your foreign income

(even though an extension was granted).

in terms of U.S. dollars and, with one exception

Extension granted. If IRS approves your

(see Fulbright grants, later), you must pay taxes

application for this extension, you will be noti-

You should make any request for an

due on it in U.S. dollars.

fied.

extension early, so that if it is denied

If an extension is granted and the IRS later

you still can file your return on time.

CAUTION

If, because of restrictions in a foreign coun-

determines that the statements made on your

Otherwise, if you file late and additional tax is

try, your income is not readily convertible into

request for this extension are false or misleading

due, you may be subject to a penalty.

U.S. dollars or into other money or property that

and an extension would not have been granted

is readily convertible into U.S. dollars, your in-

based on the true facts, the extension is null and

Return filed before test is met. If you file a

come is “blocked” or “deferrable” income. You

void. You may have to pay the failure-to-file

return before you meet the bona fide residence

can report this income in one of two ways:

penalty if you file after the regular due date.

test or the physical presence test, you must

include all income from both U.S. and foreign

1) Report the income and pay your federal

Extension not granted. If your application

sources and pay the tax on that income. If you

income tax with U.S. dollars that you have

for this extension is not approved, you must file

later qualify for the foreign earned income exclu-

in the United States or in some other coun-

your return by the extended due date of the

sion, the foreign housing exclusion, or the for-

try, or

automatic extension. You may be allowed to file

eign housing deduction under the bona fide

within 10 days of the date of the notice you get

2) Postpone the reporting of the income until

residence or physical presence rules, you can

from the IRS if the end of the 10-day period is

it becomes unblocked.

file a claim for refund of tax on Form 1040X. The

later than the due date. The notice will tell you if

refund will be the difference between the

If you choose to postpone the reporting of the

the 10-day grace period is granted.

amount of tax already paid and the tax liability as

income, you must file an information return with

figured after the exclusion or deduction.

your tax return. For this information return, you

Further extensions. You generally cannot

should use another Form 1040 labeled “Report

get an extension of more than 6 months. How-

Foreign Currency

of Deferrable Foreign Income, pursuant to Rev.

ever, if you are outside the United States and

Rul. 74 – 351.” You must declare on the informa-

meet certain tests, you may be able to get a

You must express the amounts you report on

tion return that you will include the deferrable

longer extension.

your U.S. tax return in U.S. dollars. If you receive

income in your taxable income for the year that it

You can get an extension of more than 6

all or part of your income or pay some or all of

becomes unblocked. You also must state that

months to file your tax return if you need the time

your expenses in foreign currency, you must

you waive any right to claim that the deferrable

to meet either the bona fide residence test or the

translate the foreign currency into U.S. dollars.

income was includible in your income for any

physical presence test to qualify for either the

How you do this depends on your functional

earlier year.

foreign earned income exclusion or the foreign

currency. Your functional currency generally

housing exclusion or deduction. The tests, the

You must report your income on your infor-

is the U.S. dollar unless you are required to use

exclusions, and the deduction are explained in

mation return using the foreign currency in

the currency of a foreign country.

chapter 4.

which you received that income. If you have

You must make all federal income tax deter-

You should request an extension if all three

blocked income from more than one foreign

minations in your functional currency. The U.S.

of the following apply.

country, include a separate information return

dollar is the functional currency for all taxpayers

for each country.

1) You are a U.S. citizen or resident.

except some qualified business units (QBUs). A

Income becomes unblocked and reportable

QBU is a separate and clearly identified unit of a

2) You expect to meet either the bona fide

for tax purposes when it becomes convertible, or

trade or business that maintains separate books

residence test or the physical presence

when it is converted, into dollars or into other

and records. Unless you are self-employed,

test, but not until after your tax return is

money or property that is convertible into U.S.

your functional currency is the U.S. dollar.

due.

currency. Also, if you use blocked income for

Even if you are self-employed and have a

your personal expenses or dispose of it by gift,

3) Your tax home is in a foreign country (or

QBU, your functional currency is the dollar if any

bequest, or devise, you must treat it as un-

countries) throughout your period of bona

of the following apply.

blocked and reportable.

fide residence or physical presence,

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You conduct the business in dollars.

If you have received blocked income on

whichever applies.

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which you have not paid tax, you should check

The principal place of business is located

Generally, if you are granted an extension, it

to see whether that income is still blocked. If it is

in the United States.

will be to 30 days beyond the date on which you

not, you should take immediate steps to pay tax

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can reasonably expect to qualify under either

You choose to or are required to use the

on it, file a declaration or amended declaration of

the bona fide residence test or the physical pres-

dollar as your functional currency.

estimated tax, and include the income on your

ence test. However, if you have moving ex-

•

tax return for the year in which the income be-

The business books and records are not

penses that are for services performed in 2

came unblocked.

kept in the currency of the economic envi-

years, you may be granted an extension to 90

If you choose to postpone reporting blocked

ronment in which a significant part of the

days beyond the close of the year following the

income and in a later tax year you wish to begin

business activities is conducted.

year of first arrival in the foreign country.

including it in gross income although it is still

blocked, you must obtain the permission of the

How to get an extension. To obtain an

Make all income tax determinations in your

IRS to do so. To apply for permission, file Form

extension, you should file Form 2350 with the

functional currency. If your functional currency is

3115, Application for Change in Accounting

Internal Revenue Service Center, Philadelphia,

the U.S. dollar, you must immediately translate

Method. You also must request permission from

PA 19255 – 0002, the local IRS representative,

into dollars all items of income, expense, etc.

the IRS on Form 3115 if you have not chosen to

or other IRS employee.

(including taxes), that you receive, pay, or ac-

defer the reporting of blocked income in the

You must file Form 2350 by the due date for

crue in a foreign currency and that will affect

past, but now wish to begin reporting blocked

filing your return. Generally, if both your tax

computation of your income tax. Use the ex-

income under the deferred method. See the

home and your abode are outside the United

change rate prevailing when you receive, pay, or

instructions for Form 3115 for information.

States and Puerto Rico on the regular due date

accrue the item. If there is more than one ex-

Page 4

Chapter 1 Filing Information

Publication 54 - Tax Guide For U.s. Citizens And U.s. Citizens Abroad - 2001 Page 4

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