Bona fide residence determinations require an examination of all relevant facts and circumstances. This is done each year. The factors considered are:

(1) intention of the taxpayer;

(2) establishment of a home temporarily in a foreign country for an indefinite period;

(3) assimilation into the foreign environment and culture;

(4) physical presence in the foreign country consistent with employment;

(5) nature, extent, and reasons for temporary absences from the temporary home;

(6) assumption of economic burdens and payment of taxes to the foreign country;

(7) status of residence contrasted to that of transient or sojourner;

(8) treatment accorded income tax status by employer;

(9) marital status and residence of family;

(10) nature and duration of employment;

(11) good faith in making trip abroad.

As with any determination hinging on facts and circumstances, the amount of time a US citizen can safely spend away from their bona fide residence varies widely. In the case of my client, because he had a residence, family, employment and strong social and cultural ties to the foreign country, and an aversion towards confrontation with the IRS, we agreed that he could safely spend up to 4 months each year in the United States. There was case law indicating that other taxpayers were able to spend in excess of 6 months away from their bona fide residence without losing their foreign income exclusion. On the other hand, there was case law denying US citizens their bona fide residency (accompanied by IRS assessments) for spending less than 4 months away from their stated foreign abode or place of employment.

Competent advice is necessary before you plan your temporary absences from your foreign residence if you want to preserve your bona fide residency status with the IRS. Your facts and circumstances are specific only to your situation and there are no rules that regulate your absences except the above facts and circumstances test.

The consequences of becoming a US resident means that the foreign citizen may be taxed by the US on their worldwide income. Such consequences can be shocking to some foreigners. Tax planning can save on unnecessary taxation from two or more jurisdictions.

If you remain neither a US citizen or US resident, then you may still be taxed by the Internal Revenue Service on US source income. Examples of US source income include:

The above list is not all-inclusive.

Tax planning to minimize unnecessary US income taxation typically involves
identifying what kind of income is taxable by the IRS, what favorable tax exclusions
exist, and identifying any favorable treaty provisions.

A summary for foreigners who wish to minimize US taxes are to:

File the Form 3520 on the due date of your income tax return (with extensions) to avoid the substantial penalties for nonreporting or late reporting.

The amounts that you report on Form 3520 should cross reference into the amounts you report on your tax return. For example, Schedules B and E on your Form 1040 should be checked and cross referenced to the appropriate amounts reported on Form 3520. Inconsistencies between your reporting and the fiduciary’s annual report may have to be reported on Form 8082. If you have a foreign bank account, you may have to report to the IRS on Form TD F 90-22.1 Report of Foreign Bank and Financial Accounts.

Circular 230 Disclosure: Internal Revenue Service regulations provide that, for the purpose of avoiding certain penalties under the Internal Revenue Code, taxpayers may rely only on opinions of counsel that meet specific requirements set forth in the regulations, including a requirement that such opinions contain extensive factual and legal discussion and analysis. Any tax advice that may be contained in this newsletter or website does not constitute an opinion that meets the requirements of the regulations. Any such tax advice therefore cannot be used, and was not intended or written to be used, for the purpose of avoiding any federal tax penalties that the Internal Revenue Service may attempt to impose. The legal advice expressed in this newsletter or website is being delivered to you solely for information purposes only and may not be made available to or relied upon by any other person or entity or used for any other purpose without our prior written consent.

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