Qualifying for Foreign Earned Income Exclusions
To qualify for the foreign earned income exclusions, you must first have your tax home abroad. This requirement can generally be met if you are on an assignment abroad expected to last for more than one year. Once the tax home requirement is met, you can then look at qualifying under the bona fide residence or physical presence tests. This page provides links to more information on those tests as well as discussing the tax home matter and related audit issues.
What is the tax home requirement?
The first requirement for claiming the exclusions is that your tax home is abroad. This means that you are on a foreign assignment expected to last, and which does in fact last, for more than one year. If you are on an assignment expected to last for less than one year, then you have not moved your tax home and cannot further consider claiming the foreign earned income exclusions. Your assignment letter should provide proper documentation of your expected assignment length.
Note that this determination is based on expected, rather than actual, assignment length as discussed in Rev. Rul. 93-86. This Ruling amplified Notice 93-29 which was issued as a result of a change in the tax law under the Energy Policy Act of 1993 (P.L. 102-486). Under prior law a tax home move was based on the facts and circumstances of the situation without a finite time limit as discussed in Rev. Rul. 83-82. While many of the IRS documents have not been fully updated for this change, the article has been updated.
Often, individuals initially minimize US travel so that the exclusions can be claimed using the physical presence test. Once the qualifications of BFR have been met, less attention is needed to the number of days in the states. See our PPT page for information on how to qualify under this test.
My assignment is expected to last less than 12 months but I will be sure to stay 330 days outside the US. Will I qualify for the physical presence test?
If your assignment is expected to last for less than one year, you do not meet the tax home requirement and cannot claim the foreign earned income exclusions. The fact that you also have 330 full foreign days in 12 month period is not relevant. You cannot look at the qualifications under the physical presence test or bona fide residence test until satisfying the tax home move criteria.
I rotate to an offshore oil rig. Do I qualify for the exclusions?
No. A rotation assignment is usually a series of short-term assignments (such as 4 weeks on followed by 4 weeks off.) As such, no tax home move has been made. While this is quite clear from a plain reading of the law, many taxpayers continue to take the matter to court. For more information, have your tax advisor search his or her court case database for "Angola." The results will almost all be related to rotators working on offshore oil rig. For an example, see Patrick J. Abrams, TC Memo 1990-517. , Code Sec(s) 911.
Rotator and rotation are not defined in the tax law. You may see the term also used on long-term assignments where a person takes time off for home leave - 3 months at the jobsite with a 2 week "rotation" for home leave.
How do I qualify for the bona fide residence test?
See our page on the bona fide residece test.
How do I qualify for the physical presence test?
See our page on the physical presence test.
- Qualifying for the Foreign Earned Income Exclusions
- ►General Questions
- ►Physical Presence Test
- ►Counting Days in the US, Abroad and Traveling
- ►Bona Fide Residence
- ►War Zones and Military Contractors
- Income and Social Tax Withholding
- ►Social Security and Medicare Taxes
- ►Income Tax Withholding
- ►Hypothetical Tax
- ►Totalization Agreements
- ►Due Dates and Extensions
- ►Expatriate Tax Forms
- ►IRS Addresses
- ►Other Resources