134 h List c. Compare foreign source earned income for a exant U.S citizen with

Question

134

h List c. Compare foreign source earned income for a exant U.S citizen with ettecti nected income for a nonresident alien. tware Service as a U.S. partnership. Both partners are U.S. citizens. They expect net each of the first three years to exceed S100,000, half from the United from Burope. I will live and manage the activities in the United States an and manage the activities in Europe. They will divide all profits equall a. Do either or both partners have foreign b Advise the partners how the partnership agreement can be written to maximize 13-3 Forein Sowrce Earmed Income. I and U organize the IU Computer Softuan States and half U will ive source income or foreign-earned income tax benefits from foreign source income. 13-4 Foreign Resident Tests. In order to qualify for certain exclusions, a U.S. citizen must meet either the bona fide resident or the physical presence tests. a. Define both of these tests. b. May a U.S. citizen qualify under either or both tests even though the citizen owns a home in the United States and expects to return to that home perma- nently at the end of three years? May a U.S. citizen who lives in three different countries during a two-year pe riod qualify under either or both tests? c. differ 13-5 Deductions for Foreign Moving Expenses. Rules for foreign moving expenses from those for U.S. moves. a. How do they differ? b. Why do they differ? Reg. § 1.864-2(b).

Explanation / Answer

Bona Fide Resident Test

If you go to a foreign country to work on a particular job for a specified period of time or in other words your intention is to come back to us after certain period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for one tax year or longer. The length of your stay and the nature of your job are only two of the factors to be considered in determining whether you meet the bona fide residence test

Physical presence test

The Physical Presence Test is one of the two tests US Americans and green card holders living abroad can use to qualify to claim the Foreign Earned Income Exclusion, the Foreign Housing Exclusion, or the Foreign Housing Deduction. If your tax home is in a foreign country, the Physical Presence Test or the Bona Fide Resident Test can be used by an expat to maximize the exclusion of their foreign earned income and avoid double taxation.

To meet the physical presence test, you must

1. You must be physically present in a foreign country or countries for at least 330 full calendar days during a period of 12 consecutive months

2. Be a US citizen and resident alien

How to count the days:

The 330 full days do not have to be consecutive

You do not have to be in a foreign country just for job purposes, you can be on vacation

The days must be within a foreign country or countries

Days in in the US for illness, family problems, vacation, employer’s order do not count

b.

If a us citizen expect to return the home does not qualify bonafide resident test however may pass physical presence test as specified as above

C

Yes, it does not matter how many county us citizen lives abroad to pass any to these test

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