Guide to Global Payroll Management - 2020 - 6-6

Guide to Global Payroll Management
Example 5: Expatriate Michael, from our earlier examples, resides in
Amsterdam with his family while on indefinite assignment from July 15, 2019,
to November 30, 2020. On December 1, 2020, Michael and his family are
returned to the U.S. by his employer (along with their household possessions)
to wait for another foreign assignment. Michael's foreign residence ended on
November 30, 2020, and did not begin again until he was assigned to another
indefinite assignment in a foreign country and physically entered that country.
Since Michael was not a bona fide resident of the Netherlands for the entire
tax year of 2019 or 2020, he did not qualify for the §911 exclusions under
the bona fide residence test in either year, although he may qualify under the
physical presence test (see page 6-7).
Example 6: Assume the same facts as in Example 5, except that when
Michael finishes his assignment in Amsterdam he is given a new assignment
in Brussels. On December 1, 2020, Michael returned to the U.S. with his family for a vacation. On January 2, 2021, they arrived in Brussels for Michael's
new assignment. Because Michael did not interrupt his bona fide residence
abroad, he qualified on December 31, 2020, as a bona fide resident of a foreign country from the beginning of his residency in Amsterdam.
Treaties and other agreements. Employees who are covered under special agreements or treaties between the U.S. and a foreign country exempting them from foreign
income taxes may not be allowed to qualify for the foreign earned income exclusion as
bona fide residents of that country. This "special status" generally applies to employees of
the U.S. armed forces and sometimes their civilian contractors.15
Qualifying for part of a year. Once an employee has established bona fide residence in
a foreign country for a full tax year, the employee qualifies as a bona fide resident for the
entire period, from the first day of residence to the last. Therefore, the employee can qualify
as a bona fide resident for part of a year.16
Example 7: Expatriate Michael, from the earlier examples, resides in
Amsterdam with his family while on indefinite assignment from July 15, 2019,
to May 1, 2021. Since Michael was a bona fide resident for all of 2020, he
qualifies as a bona fide resident from July 15, 2019, to May 1, 2021.
Some resident aliens can qualify. U.S. citizens can qualify for the §911 exclusions
under either the bona fide residence or the physical presence test (see discussion following), while resident aliens ordinarily can qualify only under the physical presence test. The
IRS has ruled, however, that resident aliens can qualify under the bona fide residence test
if they are citizens or nationals of a country with which the U.S. has an income tax treaty,
15. IRS Pub. 54.
16. IRS Pub. 54.

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