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Foreign Earned Income Exclusion - Bona Fide Residence Test

You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. You can use the bona fide residence test to qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction only if you are either:

  • A U.S. citizen, or
  • A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect.

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

Example:

If you go to a foreign country to work on a particular construction job for a specified period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for 1 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.

Bona Fide Residence

The bona fide residence test applies to U.S. citizens and to any U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect.

To see if you meet the test of bona fide residence in a foreign country, you must find out if you have established such a residence in a foreign country. Your bona fide residence is not necessarily the same as your domicile. Your domicile is your permanent home, the place to which you always return or intend to return.

Example:

You could have your domicile in Cleveland, Ohio, and a bona fide residence in London if you intend to return eventually to Cleveland. The fact that you go to London does not automatically make London your bona fide residence. If you go there as a tourist, or on a short business trip, and return to the United States, you have not established bona fide residence in London. But if you go to London to work for an indefinite or extended period and you set up permanent quarters there for yourself and your family, you probably have established a bona fide residence in a foreign country, even though you intend to return eventually to the United States. You are clearly not a resident of London in the first instance (going as a tourist). However, in the second (going for an indefinite work assignment), you are a resident because your stay in London appears to be permanent. If your residency is not as clearly defined as either of these illustrations, it may be more difficult to decide whether you have established a bona fide residence.

Determination

Questions of bona fide residence are determined on a case-by-case basis, taking into account such factors as your intention or the purpose of your trip and the nature and length of your stay abroad. You must show the Internal Revenue Service (IRS) that you have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. The IRS decides whether you qualify as a bona fide resident of a foreign country largely on the basis of facts you report on Form 2555, Foreign Earned Income. The IRS cannot make this determination until you file Form 2555.

Statement to Foreign Authorities

You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country and the authorities hold that you are not subject to their income tax laws as a resident. If you have made such a statement and the authorities have not made a final decision on your status, you are not considered to be a bona fide resident of that foreign country.

Special Agreements and Treaties

An income tax exemption provided in a treaty or other international agreement will not in itself prevent you from being a bona fide resident of a foreign country. Whether a treaty prevents you from becoming a bona fide resident of a foreign country is determined under all provisions of the treaty, including specific provisions relating to residence or privileges and immunities.

Uninterrupted Period Including Entire Tax Year

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 country.

Example 1:

You are the Lisbon representative of a U.S. employer. You arrived with your family in Lisbon on November 1, 2011. Your assignment is indefinite, and you intend to live there with your family until your company sends you to a new post. You immediately established residence there. On April 1, 2012, you arrived in the United States to meet with your employer, leaving your family in Lisbon. You returned to Lisbon on May 1, and continue living there. On January 1, 2013, you completed an uninterrupted period of residence for a full tax year (2012), and you may qualify as a bona fide resident of a foreign country.

Example 2:

Assume that in Example 1, you transferred back to the United States on December 13, 2012. You would not qualify under the bona fide residence test. Although, your bona fide residence in the foreign country lasted more than a year, it did not include a full tax year. You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test.

Bona Fide Residence Status Not Automatic

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

Example:

If you go to a foreign country to work on a particular construction job for a specified 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.

Bona Fide Resident For Part Of A Year

Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you will qualify as a bona fide resident for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. You could qualify as a bona fide resident for an entire tax year plus parts of 1 or 2 other tax years.

Example:

You were a bona fide resident of England from March 1, 2010, through September 14, 2012. On September 15, 2012, you returned to the United States. Since you were a bona fide resident of a foreign country for all of 2011, you also qualify as a bona fide resident from March 1, 2010, through the end of 2010 and from January 1, 2012, through September 14, 2012.

References/Related Topics

Page Last Reviewed or Updated: 02-Jun-2014