Foreign Earned Income Exclusion

[menawach]

Individual retires from the US Air Force and has resided in
the Phillippines for the last 10 years. He is going to
begin work, either the end of this year or the beginning of
next year, in another foreign country. Even though he did
not work while in the Phillippines will he meet the tax
home test of living in a foreign country or countries as
required by IRS Pub 54.

Ric Smith, EA

 

[David Woods, EA, ChFC, CLU]

Individual retires from the US Air Force and has resided in
the Phillippines for the last 10 years. He is going to
begin work, either the end of this year or the beginning of
next year, in another foreign country. Even though he did
not work while in the Phillippines will he meet the tax
home test of living in a foreign country or countries as
required by IRS Pub 54.

If he doesn't work, I don't see how.

 

[Lanny K Williams CPA]

Individual retires from the US Air Force and has resided in
the Phillippines for the last 10 years. He is going to
begin work, either the end of this year or the beginning of
next year, in another foreign country. Even though he did
not work while in the Phillippines will he meet the tax
home test of living in a foreign country or countries as
required by IRS Pub 54.

First, just because he has been living in the Philippines
for 10 years does not, in and of itself, make him a bona
fide resident. I would think he probably would be but it is
not automatic.

That said, if he was a bona fide resident of the Philippines
and qualifies as a resident in the other country, then the
period of bona fide residence began 10 years ago.
Consequently, he would be able to claim the exclusion under
the residence rules and not have to meet the physical
presence rules.

Once a taxpayer has established bona fide residence in one
country, that residency continues even if he moves to
another country. However, he must move directly and not
return to the U.S. other than for a short period of time.
In other words, he must not terminate the Philippine
residence, return to the U.S., and then obtain the job in
the third country.

If he moves to the third country and begins work and
otherwise meets the bona fide residence rules, the third
country becomes his tax home from the time he begins to work
there.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

 

[A.G. Kalman]

Individual retires from the US Air Force and has resided in
the Phillippines for the last 10 years. He is going to
begin work, either the end of this year or the beginning of
next year, in another foreign country. Even though he did
not work while in the Phillippines will he meet the tax
home test of living in a foreign country or countries as
required by IRS Pub 54.

You asked whether this individual meets the "tax home" test.
The answer is "yes" if the Phillipines was this individual's
permanent duty station. This individual also has to pass
either the bona fide residence test or the physical presence
test. I haven't researched this, but I think a member of the
military stationed abroad would not be considered a bona
fide resident of the country or countries where stationed.
The physical presence test is available to everyone. If
this person can show physical presence of at least 330 full
days during 12 consecutive months in a foreign country or
countries, the test is passed.