earned income exclusion and the exclusion for employer-provided foreign hos Ous

Question

earned income exclusion and the exclusion for employer-provided foreign hos Ous ing income. What amounts may be excluded from income? Which electionte should J make? Bona Fide Resident or Physical Presence Test. P, a U.S. cit England June 1, 2014 and expects to return to the United States December 1, 2015 P is employed by a U.S.-based multinational corporation as an advisor to its British business operations during this period. Every other month, the company requires P to return to the United States for business purposes. Thus, P will be in the United States for seven days every two months, beginning with the last week in July. Ps taxable year is the calendar year. a. Does P meet the bona fide resident test for 2014 or 2015? b. Does P meet the physical presence test for 2014 or 20152 c. What recommendations would you make to P that would enhance his situation 13-19 izen, moves to London, to exclude foreign source income?

Explanation / Answer

As per IRS publication: You do not automatically acquire bona fide resident status merely by living in a foreign country or countries for 1 year.

So 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.

a.

So P does not meet the bona fide residency test as his intention is to come back to US on Dec 1, 2015.

b.

To qualify for bona fide residence, you must reside in a foreign country for an uninterrupted period that includes an entire tax year. An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business.

To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign

So P does not meet the physical presence test for 2014 or 2015 as he retuned permanently on Ist Dec 2015.

c

P should stay back till 31st December 2015 to pass physical presence test

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