Gurus - can you help here?

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bonafide

Registered Users (C)
Gurus - I have a question =

If a person is leaving on a long trip abroad while having GC and securing reentry permit while still maintaining ties to the US - would this be a show stopper if the person excludes 80,000 worth of personal income earned abroad based on the fact that the person is a bona fide a resident of a foreign country for the given tax year?

The IRS web site http://www.irs.gov/businesses/small/international/article/0,,id=96960,00.html
states that to qualify you need ties to the foreign country. This is all true because you can have both ties to the US and to the foreign country. So it looks like it could work because the GC holder has a reentry permit and intent to eventually go back to America.

But maybe INS would think that since you are claiming the 80K exclusion you really don't want to live in the US. Note that the 80K exclusion for some is a life saver - otherwise they would owe lots to IRS......

Gurus any suggestions?
 
Thanks JoeF. I was going to declare worldwide income but I was going to exclude 80,000 USD from taxation based on the fact that I was a bona fide tax resident of a foreign country. IRS allows this for both US citizens and resident aliens. Now the question remains if there is some loophole that I do not know about e.g: if INS notices the exclusions then it revokes GC because it says you cannot be a bona fide tax resident of another country. Assume there is intent to come back to the US, ties to the US and reentry permit. Just substantial stay abroad.
 
So just to make it clear: I was going to file 1040 - Tax resident. But because I was a bona fide tax resident also of another country I would exclude 80K worth of foreign income.
 
Hey JoeF -

Exclusion means actually reporting and just making 80K as non taxable. So you exclude 80K from taxation but not from reporting. IRS explicitely says that this option is available for both US citizens and resident aliens of the US.
 
JoeF -

This is what they say about exclusion - everybody still has to report this but will not get taxed on the first 80K if they meet the bona fide residence test or physical presence test.


A break for income earned abroad
But there is a break for U.S. taxpayers who live abroad. These citizens may be able to exclude all or a portion of their foreign income from the American tax code.

For 2005 returns, up to $80,000 you made last year in non-U.S. earnings could be exempt.

There are two tests you must meet to qualify for the foreign-earned-income exclusion:

You have a tax home in a foreign country, and
You meet either the Internal Revenue Service's bona fide residence or physical presence requirements.
Basically, your tax home is your regular or principal place of business, employment or post of duty. The IRS wants to be sure that you actually moved abroad, rather than simply traveled there periodically to earn money. And you're not totally off the tax hook. If the foreign country has income tax laws, you cannot claim to be exempt from them.

The second test requires you to establish a genuine home in the country for a full tax year or, failing that, spend at least 330 days abroad earning your income.
 
I am not sure about personal income. But I know for a fact that a legal person (as an entity, a physical person or a corporation) can have different residency for tax and legal purposes. So it is entirely possible such a treatment can be extended to personal income.

However you may need to find out about limitations of such a treatment.
 
JoeF said:
But bottom line: you need to declare everything. Period.
Click to expand...

but that's not what he was asking: he will declare such income on his return but was asking if he could exclude it from taxation.

you answered the wrong question that nobody asked.
 
I think N-400 asks you:

"Have you ever called yourself a non resident on a federal tax return?"

I am not sure what this refers to. Does it just refer to filing 1040NR - filing as a non resident? Or it also refers to filing taxes as a resident but claiming 80K exemption based on the fact that the person is a bona fide tax resident of another country.

There is no way that I know of to claim 80K exemption unless and only unless you are a bona fide tax resident of another country or meet physical presence test which also implies tax resident of another country.

Also if you file for reentry permit and live for substantial periods abroad - then your general abode will be in a foreign country. While you might try to lie that you are not a bona fide resident of a foreign country - you will still be because you will meet IRS requirement of being a bona fide resident of a foreign country who is filing resident taxes and who is a resident alien of the United States.
 
bonafide said:
I am not sure what this refers to. Does it just refer to filing 1040NR - filing as a non resident? Or it also refers to filing taxes as a resident but claiming 80K exemption based on the fact that the person is a bona fide tax resident of another country.
Click to expand...

The latter, of course. In order to claim the FEIE you must be a US tax resident. The fact that you are also a tax resident of another country in no way affects your US tax residency.
 
Wow. So if you claim that you were a bona fide resident of a foreign country during a tax year - then you cannot naturalize?

This is even though you filed a US resident tax return a regular 1040 form?
 
This is what I saw on the IRS web site:
"Example 2:

For several years, you were a marketing executive with a producer of machine tools in Toledo, Ohio. In November of last year your employer transferred you to London, England, for a minimum of 18 months to set up a sales operation for Europe. Before you left, you distributed business cards showing your business and home addresses in London. You kept ownership of your home in Toledo but rented it to another family. You placed your car in storage. In November of last year, you moved your spouse, children, furniture, and family pets to a home your employer rented for you in London.

Shortly after moving, you leased a car, and you and your spouse got British driving licenses. Your entire family got library cards for the local public library. You and your spouse opened bank accounts with a London bank and secured consumer credit. You joined a local business league, and both you and your spouse became active in the neighborhood civic association and worked with a local charity. Your abode is in London for the time you live there, and you satisfy the tax home test in the foreign country."

Although this likely refers to an American person - we could easily see a GC holder setting up a temporary yet extended residence in a foreign country with a reentry permit. It seemed to me that such a person should still naturalize as long as the person files a 1040 form and maintains ties to the US. Also if the person comes back for brief visits to the US for the 18 months he/she is abroad, has a reentry permit and satisfies ultimately the 30 month physical presence requirement then the person should be ok.
 
Anyways - gurus can someone help here?

If somebody is going for an extended time abroad they meed bona fide residence test for IRS it seems. The bona fide test is for both US citizens and PRs. When they meet this test - they get to exclude up to 80K worth of income earned abroad and for the rest they can claim tax credit.

I do not want to get into different stories how you should secure a reentry permit, maintain reasonable ties to the US and have intention to come back from a temp trip. I know all of this.

My question is more simple: Can you get in trouble with INS by declaring you were a bona fide tax resident of another country? If you declare this - then when you file N-400 - what do you answer to this question:
Did you call yourself a "non resident" for federal taxes? Will this screw up your N-400 application? If - so does IRS have this bona fide test so that people get tricked and declare they were tax residents of another country so that their GC can be taken away?

In my opinion: the fact that you are a tax resident somewhere does not mean that you are a non resident in the US. In fact by filing 1040 you file a resident tax return. But I maybe totally wrong.

Maybe people in this forum have not dealt with such situations and cannot offer advice here?
 
JoeF -

You say:
"That's irrelevant for this issue. If you file resident tax returns, you of course can say no to this question.
But, by claiming to be a tax resident of another country, that means that you reside there, that you work there, that your "place of general abode" is there. And that's what doesn't go well with CIS..."

Where is the person's general abode if the person goes for a temporary but extended reason abroad. Gets a reentry permit. Maintains ties to the US while having intention to come back to the US.

Let's assume for the sake of argument that a GC holder is assigned on an 18 month contract to go somewhere to establish an office of the parent company and then the GC holder will return back to the US. This is stated in the contract explicitely. So now we know the trip is temporary (assume this is all genuine though). The person secures a reentry permit. On top of this maintains bank accounts in the US, credit cards, has some stuff in storage, files taxes in the US, has drivers licence in the US, instead of selling - rents out the house, keeps car in storage etc. So now we have on top of the reentry permit - a temporary trip, ties to the US. That should fly at CIS very well - I would think?

Now - the person who works abroad needs to establish ties to the new country (although temporary ties). This means the person gets a new drivers licence there but keeps the US one (maybe they do not allow people to drive on US licence for more than 90 days for example). Gets a local blockbuster card. Leases a car for 18 months. Sends kids to a new school for 18 months etc. And spends physically with small breaks all the time in the new country.

So because the person has temporary ties to the new country the person is considered a tax resident in that country (for example due to the fact that the person spends more than 180 days in that country). The person is likely to meet IRS guideline for bona fide tax resident of the new country.

So although the trip is temporary, the intention to return is there, ties are there, reentry permit is there - the person is by IRS guideline - a bona fide resident of the new country and is eligible to exclude 80K based on this. Why would the person not take advantage of this?

And even if the person does not take advantage of this law - wouldn't the person still be a bona fide resident - just without declaring it? Objectively the person is a bona fide resident of a new country whether the person declares it or not.

And if we say that: If you meet bona fide resident guidelines for IRS then your GC is screwed - then is it possible to go on a 2 year assignment somewhere abroad???

And please do not confuse the fact of taking an exclusion with filing Non Resident Taxes. Those are 2 completely different issues. In this scenario a regular 1040 form would be filed.
 
Also if you try to get foreign income exclusion based on physical presence - then you also need to put in IRS form tax home and country.

So I think there is no way to get exclusion at all unless you do say about the other tax home.
 
Hey JoeF -

I think you still do not understand. You keep on making remarks that making local income abroad means that you may have abondoned GC?

We are talking about a scenario:
"Let's assume for the sake of argument that a GC holder is assigned on an 18 month contract to go somewhere to establish an office of the parent company and then the GC holder will return back to the US. This is stated in the contract explicitely. So now we know the trip is temporary (assume this is all genuine though). The person secures a reentry permit. On top of this maintains bank accounts in the US, credit cards, has some stuff in storage, files taxes in the US, has drivers licence in the US, instead of selling - rents out the house, keeps car in storage etc. So now we have on top of the reentry permit - a temporary trip, ties to the US."

I know of at least 5 countries where it is illegal to work there even on a temp assignment for 18 months!! and drive on international drivers licence. Each country has its own set of rules and we do not expect people to violate them.

Sometimes it is better to pay locally - because otherwise you will be subject to steep local social security taxes. You will have to hire accountants yourself over there. I really would not do this.

Last thing - nobody wants to be seperated from family for 18 months. So it makes sense for the family to go with the person.

And the kids will then need to go to local school. The person is a reader and likes to go to a gym. Cannot fly to gym every week to the US - so the person gets a gym membership locally. Also does not want to import all books from the US - so gets a local library card. Likes to rent videos - is not willing to fly to the US and pay 1K to rent a movie - so gets local video membership.

The person effectively works abroad, has kids, library card, drivers licence, video card etc.

And all of that with ties to the US, reentry permit and a temporary visit abroad (but very extended). The person in this case however is clearly a tax resident of another country.

So based on this should such a person just give up GC because you CANNOT work abroad and cannot have family together even though this was mentioned in reentry permit?

But regardless if the person claims this on a tax return or nor - THE PERSON IS A BONA FIDE RESIDENT of another country. The person (if the person still has GC - you seem to suggest that no) is also a resident of the US.
 
Joef-

I hope you have decent legal background on this.

When you say:

"Q:I know of at least 5 countries where it is illegal to work there even on a temp assignment for 18 months!! and drive on international drivers licence. Each country has its own set of rules and we do not expect people to violate them.

A:So what? Then the person can't work there."

Now that is screwed up. You cannot take temp assignment if you need to get local drivers licence. I hope this is not bad advice to people.

And then your advice on family seperation. I just hope you know what you are saying because people can take this advice seriously and that can have tremendous effect on their lives.

I thought that was enough to maintain GC while on an extended assignment:
1) Clear temporary purpose of the trip as evidenced by the contract
2) Ties to the US indicating the will to return back to the US
3) Reentry permit

Those 3 things do not preclude:
- working in another country on a temp assignment. Be it from a local company. Or it could even be taking care of a dying parent and making some money on the side.
- Bringing your kids over with you
- Getting a local drivers licence or do anything that is required by law in the local country
- Some countries have laws that you become tax resident of the country if you spend physically over 180 days (you become a bona fide resident of the country regardless where your income is coming from). So you will have to file taxes in order to be legal in the other country regardless whether you like it or not. Hopefully you will not draw conclusion that in that case you cannot stay there:)
- Getting library card
- Getting video card
- leasing a car for 18 months
 
JoeF said:
But, by claiming to be a tax resident of another country, that means that you reside there, that you work there, that your "place of general abode" is there. And that's what doesn't go well with CIS...
Click to expand...

But being a tax resident of a foreign country may in no way imply that. Beyond the example in your post, I can immediately think of two other situations where I may claim tax residency of a foreign country:

1. I have a spouse residing in Canada, either waiting for FTJ or she is a dual citizen who has moved back home for a period of time. Under Canadian tax law, generally speaking having a Canadian resident spouse would make me a tax resident of Canada, even though I do not live there.

2. Various tax treaties have non-discrimination provisions that prevent the local tax authorities from discriminating against foreign nationals. For example, the US-Germany tax treaty allows citizens of each country to file a resident return in the other country no matter how much time they spend there, and the US-Canada treaty's non-discrimination provisions allow me to claim those same benefits. Therefore, if I have Canadian-sourced income and it is more advantageous for me to file a Canadian resident tax return (I can't imagine it would be, but that's another story) I can do so.

Immigration and taxation residency are two seperate constructs. Claiming US tax residency in no way implies living here on any basis, since nationals of various countries can file a 1040 without spending a single day in the US if it is advantageous to do so. If someone leaves on a temporary assignment aborad, the fact that they file a resident tax return or obtain a foreign drivers' license shpuld not automatically cause the loss of the GC.
 
Regarding:
"Claiming US tax residency in no way implies living here on any basis, since nationals of various countries can file a 1040 without spending a single day in the US if it is advantageous to do so. If someone leaves on a temporary assignment aborad, the fact that they file a resident tax return or obtain a foreign drivers' license shpuld not automatically cause the loss of the GC."

This is not what the guy JoeF says. If the law of another country says in order to drive there when you are physically present for some time - then you just do not get it because of some interference with US law. I don't know where it is written but JoeF must have found it somewhere and I believe now that this is true. When you go abroad you cannot get a driver licence.

Also JoeF says that if you say you are a tax resident somewhere then it means you live there. I don't know - I thought those were 2 seperate issues but then JoeF must have found this somewhere in the books so it is probably true. This way even what you say is not true because it is all in the books.

JoeF - when you say:
"And where are the ties exactly if you are a resident abroad?
How would you convince a CIS examiner or an officer at the POE that you maintained your ties to the US when you state yourself that you reside abroad?"

I thought that ties to the US could include:
- Property in the US like car in storage, some furniture in storage, maybe a house
- driver licence
- credit cards
- bank accounts
- paying off mortgage
- residence address for sure
- Things like cable, phone service, ISP can be discontinued temporarily
- keep in touch with friends etc.
- airline tickets that end in the US
- makes phone calls to the US
- and things like that

I thought that temporary trip means a trip that will end in the US even if it is extended. The reason can be for instance taking care of a dying mother (family) or it could be that you got a temporary assignment in a foreign country and the company pays you a lot but they will pay from local bank account (I know of 3 countries which require you to do so). You may then transfer most of the money yourself to the US but this is a different story.

I thought that when reentry permit is issued and you have gone into big details about what is going on and they still approve this - then INS in fact agrees that the reason is okay.

If you are a single person for instance and lease apartment abroad, get drivers licence and library card - you are most likely going to immediately fall as a bona fide tax resident of the other country. You do not even have to work there and if you go on a temp assignment you will for sure fall into the category of a bona fide tax resident.

Right now I think that what I said here is all wrong. Because going on temporary assignment abroad where you would get paid from a local bank even though you intend to come back, get reentry permit and maintain ties to the US is NOT SUFFICIENT to maintain GC. Even if you do that you will most likely loose GC and you will loose it even if you try to get a driver licence.

Thanks JoeF - now my life is changed. Based on your advice many people will change their decisions. You are very helpful.
 
Also Joef -

You say
"To stay a US Permanent Resident, you have to comply with US laws."

Can you tell me where I can find a web site that says the following is not enough to maintain GC when you are away for extended periods:
- Reentry Permit that explains the situation
- Ties to the US and genuine intent to go back to the US. Ties to the US on a 2 year trip could include house, property, car, furniture storage, bank accounts, credit cards etc.
- Temporary trip with clear ending date. This normally would also be documented on a reentry permit.
- Genuine intent to come back to the US

And can you tell me where I can find in the law that the following is prohibited on a temporary but extended trip:
- Getting driver licence as a result of law requirement
- Getting library card
- Leasing a car abroad (need to drive sthg)
- Leasing an apartment (cannot live under the bridge)
- Buying some stuff for yourself like a lamp that you need or jewelry or whatever
- doing your temporary assignment where the local office pays you. It is all temporary anyways. But you do transfer all the money to the US.

Now assume the person who was on on this temporary trip returns to the US to the parent company and does exactly what was documented on a reentry permit. So then there is no even question of intent because the reality surfaced - the person actually returns to his/her house in the US and resumes working for the US company.

Should such a person then give up the GC to authorities based on the fact that the person got driver licence of a foreign country while maintaining the US one? What would you recommend? So a person returns from the temporary trip with reentry permit while the person maintained ties to the US.

Where should he give back the GC then?

----
I am a layman and know very little about the law.
 
JoeF -

You are still avoiding answering my question here.

Assuming that it is proven that the person went on a temp trip abroad while maintaining ties to the US and after securing reentry permit - can you still revoke GC say 2 years after the return from temporary trip based on the fact that the person abondoned the GC.

Again - we want to be very specific and exact. The person went genuinely on a temp trip documented on reentry and came back and kept living in the US after that with few or no trips abroad. While the person was abroad on this temporary trip the person maintained: substantial savings in the US, home in the US, paid mortgage, maintained driver licence, kept investments in the US, kept mailing address, kept in touch with friends, worked for subsidiary of the parent company in the US, kept furniture in the US, belongings in the US.

The trip lasted 18 months. The person comes back and starts working for parent US company - just as was explicitely written in the contract. So there are no ifs/butts about the intent and the tenporary trip thing - because the person returned after fulfilling contract. That is proof in itself.

The person however leased apartment abroad for the 18 months, got a library card, got a gym pass, got a video pass, got a drivers licence, leased a car for 18 months. To make it simple let's assume the person is single - so there will be no family issues to discuss. The person was paid from the subsidiary but the person transferred some of the money himself/herself to US bank account.

Because the person was temporarily stationed abroad - the person was a bona fide tax resident of the foreign country because of substantial presence and the fact that the person was working there on a temporary assignment.

What would you recommend to such a person? Should such a person give up GC because the person went on a temp assignment with reentry permit while maintaining ties to the US?
 
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