Hello, I am a Canadian citizen, planning on using Foreign Income exclusion to exclude my Canadian income prior to moving to the U.S in February of '05.
I'm a little concerned by this text I found on the IRS website surrounding foreign income exclusion.
Statement To Foreign Authorities
You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country and the authorities hold that you are not subject to their income tax laws as a resident. If you have made such a statement and the authorities have not made a final decision on your status, you are not considered to be a bona fide resident of that foreign country.
Am I not making this very statement statement on my Canadian return? Am I going to get into a big mess trying to do this? Under what test should I base the exclusion on ? The above text would seem to indicate that Bona Fide Residency wont' work. I don't think I qualify under Physical Presence as I travelled quite often to the U.S for the last 4 months of '04.
Form 2555 Question
Moderator: Mark T Serbinski CA CPA
There is a lengthy thread on this subject earlier, look for "german" or "germany" and you will find it.
You would have no problem excluding your Cdn income from before you became US resident: you were a redicent of canada, and a complex treaty interpretation allows you to use 2555.
Your so-called statement that you are no longer resident of canada comes AFTER you US residency start date, so there is no conflict there.
Your problem may indeed be spending too much time in US, this is a problem that evne US citizens face when tryting to US 2555.
You may simply have to use 1116 instead, using foreign tax credit.
You would have no problem excluding your Cdn income from before you became US resident: you were a redicent of canada, and a complex treaty interpretation allows you to use 2555.
Your so-called statement that you are no longer resident of canada comes AFTER you US residency start date, so there is no conflict there.
Your problem may indeed be spending too much time in US, this is a problem that evne US citizens face when tryting to US 2555.
You may simply have to use 1116 instead, using foreign tax credit.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Great. Thanks so much for the help.
One other question though, when you say I can exclude my Canadian income from before I came a U.S resident, do you mean "physically" or for "tax purposes".
I am electing to be treated as a U.S resident for the entire year for tax purposes. So, does that I mean I became a U.S resident on Jan 1st, 05 and therefore may not exclude this income since it was earned from Jan1st to Feb 15th?
I will search for the thread as you suggested as well.
One other question though, when you say I can exclude my Canadian income from before I came a U.S resident, do you mean "physically" or for "tax purposes".
I am electing to be treated as a U.S resident for the entire year for tax purposes. So, does that I mean I became a U.S resident on Jan 1st, 05 and therefore may not exclude this income since it was earned from Jan1st to Feb 15th?
I will search for the thread as you suggested as well.
I mean physically. Until Feb 15th you were a resident of canada (it was your tax home), but you still have to meet the physical presence test PPT (have been in Canada for 330 days (between Feb 2004 and feb 2005). If we had been talikng about a FULL calenadaer year, like 2004, it would simply be "tax purposes", but because your qulifyingh period extends across calendar years (feb 04 to feb 05), and you aren't a US citizen, you need to use the PPT.
Remember too, that your exclusion can only be 45/365ths of the annual limit, since you are only claiming 2005 foreign income exclusion.
You may just be simpler to use the 1116 for everything credit instead of 2555 on your Cdn wages.
Remember too, that your exclusion can only be 45/365ths of the annual limit, since you are only claiming 2005 foreign income exclusion.
You may just be simpler to use the 1116 for everything credit instead of 2555 on your Cdn wages.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Got It
Great, thanks for clearing it up. I am certain I don't qualify under PPT because I was travelling down for business trips for the last quarter of 04. But, can I say that I qualify under bona fide residence from basically my date of birth to Feb 05?. If not, I will have to go the foreign tax credit route which will result in higher taxes, but I guess thats my only option at that point if I Want to avoid filing a dual status return.
My wife has income from that time as well, she WILL qualify under PPT, so at least we can use 2555 for her income, which is higher then mine anyway.
Thanks again for your help.
My wife has income from that time as well, she WILL qualify under PPT, so at least we can use 2555 for her income, which is higher then mine anyway.
Thanks again for your help.
I have no idea what your date of birth would have to do with this discussion. There are 12-month periods, and there are calendar years, but NONE have anything to do with birthdays.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Bona fide residence vs physical presence
I think your reaction to my suggestion of using my date of birth to the date I moved to U.S has cleared up my confusion.
I was confused as to the relationship between the bona fide residence test year, and the tax year you are aiming to exclude income from. This was probably dumb on my part, but I wasn't sure if you must meet the bona fide residence test in the same year as the year when you earned the income you want to exclude. Your reaction seems to suggest that you do.
I would meet the bona fide residence test for the Calendar year of 04, but that is obviously useless to me since I don't need to exclude income from that year and I didn't even file a U.S return.
Since I moved in Feb. 05', it would be impossible for me to qualify for the bona fide residence test in 05. That leaves the physical presence test from Feb. 04 to Feb 05, which I would qualify for, had I not travelled so much to the U.S at the end of '04.
So, the bottom line is I need to go the foreign tax credit route, and my wife can use income exclusion. That approach seems to be completely legitimate if I understand everything correctly now.
I was confused as to the relationship between the bona fide residence test year, and the tax year you are aiming to exclude income from. This was probably dumb on my part, but I wasn't sure if you must meet the bona fide residence test in the same year as the year when you earned the income you want to exclude. Your reaction seems to suggest that you do.
I would meet the bona fide residence test for the Calendar year of 04, but that is obviously useless to me since I don't need to exclude income from that year and I didn't even file a U.S return.
Since I moved in Feb. 05', it would be impossible for me to qualify for the bona fide residence test in 05. That leaves the physical presence test from Feb. 04 to Feb 05, which I would qualify for, had I not travelled so much to the U.S at the end of '04.
So, the bottom line is I need to go the foreign tax credit route, and my wife can use income exclusion. That approach seems to be completely legitimate if I understand everything correctly now.
The saga continues
Hmm, just when I think I have this figured out, I read something that confuses me again. I found this text also from the IRS Pub 54
Bona fide resident for part of a year.
Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you will qualify as a bona fide resident for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. You could qualify as a bona fide resident for an entire tax year plus parts of 1 or 2 other tax years.
Which brings me back to the question of using my birth date. That is an arbitrary start date, but can I say that I qualified as a bona fide resident of Canada from 01/20/1978 to 02/15/2005 (that includes many tax years), thereby automatically qualifying as a bona fide resident for 05 and not have to meet the PPT, and thus exclude my income. Their example seems to indicate this is the case.
Example.
You were a bona fide resident of Singapore from March 1, 2003, through September 14, 2005. On September 15, 2005, you returned to the United States. Since you were a bona fide resident of a foreign country for all of 2004, you also qualify as a bona fide resident from March 1, 2003, through the end of 2003 and from January 1, 2005, through September 14, 2005.
Just to complete the point, I'll reword it with my situation.
You were a bona fide resident of Canada from January 20, 1978, through February 15, 2005. On February 15, 2005, you returned to the United States. Since you were a bona fide resident of a foreign country for all of 2004, you also qualify as a bona fide resident from March 1, 2003, through the end of 2003 and from January 1, 2005, through February 15, 2005.
So, is there something precluding me from taking this approach. Is it because I am not a U.S citizen? I just don't see where it says that you have to be a U.S citizen to qualify under bona fide residence.
Anyway, I promise this is the last question I will ask about this, before just going with the tax credit route. I do really appreciate you taking the time to look at these issues, because the answers sure aren't obvious to me.
Bona fide resident for part of a year.
Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you will qualify as a bona fide resident for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. You could qualify as a bona fide resident for an entire tax year plus parts of 1 or 2 other tax years.
Which brings me back to the question of using my birth date. That is an arbitrary start date, but can I say that I qualified as a bona fide resident of Canada from 01/20/1978 to 02/15/2005 (that includes many tax years), thereby automatically qualifying as a bona fide resident for 05 and not have to meet the PPT, and thus exclude my income. Their example seems to indicate this is the case.
Example.
You were a bona fide resident of Singapore from March 1, 2003, through September 14, 2005. On September 15, 2005, you returned to the United States. Since you were a bona fide resident of a foreign country for all of 2004, you also qualify as a bona fide resident from March 1, 2003, through the end of 2003 and from January 1, 2005, through September 14, 2005.
Just to complete the point, I'll reword it with my situation.
You were a bona fide resident of Canada from January 20, 1978, through February 15, 2005. On February 15, 2005, you returned to the United States. Since you were a bona fide resident of a foreign country for all of 2004, you also qualify as a bona fide resident from March 1, 2003, through the end of 2003 and from January 1, 2005, through February 15, 2005.
So, is there something precluding me from taking this approach. Is it because I am not a U.S citizen? I just don't see where it says that you have to be a U.S citizen to qualify under bona fide residence.
Anyway, I promise this is the last question I will ask about this, before just going with the tax credit route. I do really appreciate you taking the time to look at these issues, because the answers sure aren't obvious to me.
Several days ago I said:
If none of your wages before feb 15 2005 were earned while in the US, you can claim 15/365ths of the exemption, which should cover you.
The reason for the treaty manipulation is that to use boan fide resident clause you must either be a citizen or a US resident 9essentially a GC holder).
While you may NOW be a US tax resident (alien resident), you weren't for the period in which you are trying to claim the exemption. Thus the need to use the german treaty.
I still stand by that.You would have no problem excluding your Cdn income from before you became US resident
If none of your wages before feb 15 2005 were earned while in the US, you can claim 15/365ths of the exemption, which should cover you.
The reason for the treaty manipulation is that to use boan fide resident clause you must either be a citizen or a US resident 9essentially a GC holder).
While you may NOW be a US tax resident (alien resident), you weren't for the period in which you are trying to claim the exemption. Thus the need to use the german treaty.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
German treaty? I assume you mean the canada/us treaty?
Anyway, I think you have answered it for me. I can't use Bona Fide residence, as that option is available only to citizens and G.C holders and, as you point out, I was not a U.S resident for the period I'm trying to exempt.
Unfortunately, I certainly don't meet the PPT between Feb. 04 and Feb. 05 so I guess I am out of luck as far as income exclusion goes. That was my whole rationale for trying to see if I could still qualify for the exemption based on bona fide residence. I don't know what my chances are of "getting away with it" (claiming the exemption when I don't meet the PPT), so I will be going the tax credit route.
Appreciate the help..
Anyway, I think you have answered it for me. I can't use Bona Fide residence, as that option is available only to citizens and G.C holders and, as you point out, I was not a U.S resident for the period I'm trying to exempt.
Unfortunately, I certainly don't meet the PPT between Feb. 04 and Feb. 05 so I guess I am out of luck as far as income exclusion goes. That was my whole rationale for trying to see if I could still qualify for the exemption based on bona fide residence. I don't know what my chances are of "getting away with it" (claiming the exemption when I don't meet the PPT), so I will be going the tax credit route.
Appreciate the help..
Yes german treaty.
I asked you to look for that earlier. I see there is aproblem searching for older posts since the "upgrade" to this forum, but searching for "rhollan" posts will help.
I asked you to look for that earlier. I see there is aproblem searching for older posts since the "upgrade" to this forum, but searching for "rhollan" posts will help.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I think I found the post you were refererring to ("Cross year treaty position") finally.
I had no idea how complicated the treaty interpretation you were mentioning really was (how it leverages both the canada us and us/german treaties).
So, I understand now that the canada/U.S treaty grants me the privileges of the u.s german treaty. The U.S/German treaty states that a german in canada must be treated the same as a U.S citizen. So, if a german were to move from canada to the U.S, they can claim the exclusion as a U.S citizen would. They don't need to be "U.S resident alien" to claim the exclusion. They still have to meet that PPT, as a U.S citizen would.
That then applies to canadians under Article xxv.2.
Do I have this right now?
I had no idea how complicated the treaty interpretation you were mentioning really was (how it leverages both the canada us and us/german treaties).
So, I understand now that the canada/U.S treaty grants me the privileges of the u.s german treaty. The U.S/German treaty states that a german in canada must be treated the same as a U.S citizen. So, if a german were to move from canada to the U.S, they can claim the exclusion as a U.S citizen would. They don't need to be "U.S resident alien" to claim the exclusion. They still have to meet that PPT, as a U.S citizen would.
That then applies to canadians under Article xxv.2.
Do I have this right now?
I don't believe so, since a US citizen with a bona fide tax residence does NOT have to meet PPT. He only has to meet one or the other. the one twist in that other persons situation was that they personally did not meet the bone fide FULL TAX YEAR bona fide test since they had left US only in the previous tax year.They still have to meet that PPT, as a U.S citizen would.
As we have alrady discussed, you meeet FEIE requirements, by your Cdn residence and citizenship. Forget about that now, and do your taxes.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Okay. Earlier you said though that
Perfect. That is exactly what I was looking for.
In fact tough, I don't need to use PPT. I can claim bona fide residency as a U.S citizen would because of the treaty interpretations.because your qulifyingh period extends across calendar years (feb 04 to feb 05), and you aren't a US citizen, you need to use the PPT.
Perfect. That is exactly what I was looking for.