Exceptions to the Bona Fide Residence and the Physical Presence Tests

 

There are two exceptions to meeting the minimum time requirements under the bona fide residence and the physical presence tests; the waiver of time requirements allows a taxpayer the foreign-based tax benefits when they are forced to leave certain countries early due to war or unrest, and travel restrictions for certain countries precludes a taxpayer from accruing qualifying time in a restricted country.

Waiver of Time Requirements

Both the bona fide residence test and the physical presence test have minimum time requirements. However, the minimum time requirements can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that foreign country.

Early each year, the IRS publishes an Internal Revenue Bulletin with a list of the only foreign countries for which the minimum time requirements are waived for the prior year and the effective dates.  If you left one of those countries on or after the effective date, you can meet the bona fide residence or physical presence test for that year without meeting the minimum time requirement.  However, you must be able to show that you reasonably could have expected to meet the minimum time requirements if not for the adverse conditions. To qualify for the waiver, your tax home must be in the foreign country and you must be a bona fide resident of, or be physically present in, the foreign country on or before the beginning date of the waiver.

Note: Although you can still meet the minimum time requirements under the bona fide residence or physical presence test under this exception, in figuring your foreign earned income exclusion or deduction, the number of your qualifying days of bona fide residence or physical presence only includes days of actual residence or presence within the foreign country.

U.S. Travel Restrictions

If you are present in a foreign country in violation of U.S. law, you will not be treated as a bona fide resident of a foreign country or as physically present in a foreign country while you are in violation of the law. Income that you earn from sources within such a country for services performed during a period of violation does not qualify as foreign earned income. Your foreign housing expenses within that country (or outside that country for housing your spouse or dependents) while you are in violation of the law cannot be included in figuring your foreign housing amount.

Currently, the only country to which travel restrictions applied is Cuba. For restrictions applicable to other tax years, refer to Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for the year you need the information (search IRS.gov for “[year] publication 54”).

However, see the exception below for civilians working at the U.S. Naval Base at Guantanamo Bay, Cuba.

Civilians Working in Guantanamo Bay Cuba

Notice 2006-84 provides that civilian individuals who are performing services at the U.S. Naval Base in Guantanamo Bay, Cuba, are eligible for the foreign earned income exclusion and/or the foreign housing exclusion or deduction, provided they meet all the requirements under Section 911 of the Internal Revenue Code.

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