Tax Home Test
The Tax Home Test is strictly a qualitative test, and is found on page 1 Part I of Form 2555 Foreign Earned Income.
Qualifications to meet the Tax Home Test
In order to meet the requirements for the Tax Home Test under IRC Sec 911 you must:
- Have a ‘tax home’ outside the U.S. in a ‘foreign country’ for a full uninterrupted 12 fiscal month period.
Tax Home Defined
A tax home is:
1) A main place of business, employment or post of duty and is the place where you are permanently or indefinitely (must be in excess of one fiscal year) engaged to work as an employee or self-employed person, or
2) A Tax Home is where you regularly live- if you do not have a regular or main place of business due to the nature of your work, or
3) A Tax Home is where you work- if you are itinerant- having neither a regular or main place of business nor a place where you regularly live.
Although a tax home and residence or domicile may all mean something different for tax purposes, they are connected by the definition of abode, where a U.S. abode could disqualify the Tax Home Test.
You do not have a U.S. abode while temporarily in the U.S., also your abode is not in the U.S. merely because you maintain a dwelling in the U.S. even if inhabited by your family- spouse and dependents. In these instances you continue to meet the Tax Home Test.
You are not considered to have a tax home in a ‘foreign country’ for any period of time in which your abode is in the U.S. An abode is a home, residence, domicile or dwelling.
The IRS has held that “alternating blocks of time” or “rotational XX days on/ XX days off scheduling” in the U.S. constitutes a U.S. abode. In these instances you do not meet the Tax Home Test.
Foreign Country Defined
A ‘foreign country’ for the purposes of the Foreign Earned Income Exclusion, IRC Sec 911 is defined as any territory under the sovereignty of a government other than the United States.
‘Foreign country’ does not include ships or aircraft traveling in or above international waters. Nor does ‘foreign country’ include offshore installations which are located outside the territorial waters of any individual nation.
Additionally, the term ‘foreign country’ does include the country’s airspace and territorial waters, in addition to the seabed and subsoil of those submarine areas adjacent to the county’s territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources.
The term ‘foreign country’ does not include Antarctica or U.S. possessions, such as Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U.S. Virgin Islands and the Johnston Island.
Expatriate Tax Accounting and Consulting
Expatriate tax filings can be highly complex – involving intricate terminology and Internal Revenue Code sections not understood by the majority of CPA practitioners,let alone the average taxpayer. For optimal results, only competent international tax CPAs should attempt these filings.
Protax Consulting specializes in taxes for US expatriates. We can assist you with the tax home test, consult with you in preparation of your U.S. tax returns, and advise you as to the applicable tax laws and regulations directly affecting US expats, to ensure that maximum tax savings mechanisms are in place.
Please contact us for a free consultation and for further details.