Using Both Tests for Foreign Earned Income Exclusion in One Tax Year?

[jofijohnjoseph]

A client has been a bona fide resident of the UAE since 2018.  In 2021, his bona fide residency terminated on 10/31/21, but he immediately moved to another foreign country.  He would qualify for the physical presence test for the 09/01/21-08/31/22 period, so he should also be able to exclude a pro-rated income amount for those final two months of 2021.  

1) Is it legal to use both the Bona Fide Residence and the Physical Presence Test in the same tax year, assuming the taxpayer meets the criteria for both tests?

2) If yes, does anyone know how to do this in ProSeries?  If I use one test, I am not allowed to use the other test in the return I am preparing.

[sjrcpa]

Would he qualify under Physical Presence for the whole year?

[jofijohnjoseph]

No.  That is the problem.  He does qualify for the PPT for the two months of the year he was not a Bona Fide resident.

[George4Tacks]

Not my strongest suite, but "

330 Full Days

Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period including some part of the year at issue. You can count days you spent abroad for any reason, so long as your tax home is in a foreign country."

would seem to qualify.

[jofijohnjoseph]

He does not meet the 330 day test for the January 1- December 31 period, which is why we cannot use the Physical Presence test for the full year.

[sjrcpa]

@George4Tacks  If you are a Bona Fide Resident, it doesn't matter how many days you were physically present in the foreign country.

[Terry53029]

the Bona Fide Residency test has to do with your economic and social ties, whereas the Physical Presence Test has to do with the number of days you spend outside the U.S. To pass the Bona Fide Residence Test you must have more ties to a foreign country and be a resident of that country for an uninterrupted period that includes an entire tax year. Your client does not meet the the Bona Fide Residency test, but if he was out of the US for 330 full days he would meet the Physical Presence Test

[jofijohnjoseph]

He has met the Bona Fide Residency test since 2018 for this country and he used this test to claim the Foreign Earned Income Exclusion in both TY 2019 and TY 2020 for the full tax year.  His residency came to an end on 10/31/21, which is when his resident visa expired in the country and he relocated to another foreign country.  You must be a Bona Fide Resident for a full tax year in order to begin claiming the FEIE using this specific test, but there is nothing preventing you from using this test for a portion of a year once you have already spent a full tax year as a Bona Fide resident.

So he does meet this test for the 01/01-10/31 period.  What I am now trying to do is figure out if and how he can claim the Physical Presence Test for the final two months of the year, which he does meet based on the specific 365 day period we are using.

Thanks.

[Terry53029]

AS mentioned, if you are out of the US for 330 days in a calendar year you meet the  Physical Presence Test, and can use the Foreign Earned Income Exclusion for the year

[jofijohnjoseph]

I appreciate your effort to help here, but you are clearly not understanding the question I asked here.

[sjrcpa]

Have you checked IRS Publication 54 Tax Guide for US Citizens and Resident Aliens Abroad?

It may address this situation.

I find it to be a really good Pub.

[sjrcpa]

@Terry53029 Apparently the client doesn't meet the number of days outside the US when counting his Bona Fide Resident period.

[Terry53029]

I have been under the impression he was out of the US for full year, Sorry

[jofijohnjoseph]

I have, and agree it is a very useful publication, but does not address this situation where a taxpayer meets the Bona Fide Residence test for a portion of the year and the Physical Presence Test for the remaining portion of the year, but neither test is met for the full calendar year.