Physical Presence Test

cindy333 · Post by **cindy333** » Sun Jul 31, 2005 2:13 am

Hi.

I am a US citizen that has been living and working outside of the country for the last 10 months. I am not sure whether or not I will pass the Physical Presence Test (330 days out of 12 consecutive months), because my work has required travel to the US to meet American clients/businesses. Any help at all regarding the questions below would be extremely helpful, as I need to decide whether to cancel my next business meeting in the US to try and qualify for FEI.

1.) How exactly is the Physical Presence Test measured? What is the definition of a "day"? Full 24 hours or is partial/traveling acceptable?

2.) How does the US IRS verify the PPT? Access to entry/exit from US customs, self-reporting, passport stamps?

3.) Are there any special allowances for travel to the US for business reasons?

4.) If I do not qualify for PPT (and therefore Foreign Earned Income) by a few days, what type of taxes will I need to report?

Thanks for all your help in advance.

-Cindy

nelsona · Post by **nelsona** » Sun Jul 31, 2005 11:44 pm

To begin, let me state that the period you are concerned about for the physical presence test (PPT) is the preiod before Jan 01, 2005. For 2005, if you stay resident in Canada, you will use the Bona Fide residence test, and not have to worry about days presence. So you are really going thru this exercise to exclude Cdn wages earned in 2004.

Note: I see from another post that you were not in canada for these 10 months. I do not know if you have met the residency requirements of the Asian country you were in. So you may need to use PPT for 2005 as well. 

1. As the instructuions in Pub 54 state it is 24 hour days midnight to midnight which constitute fulldays. So if yo go overnight to US, that is 2 days off your total.

2. self-reporting, and audits.

3. No.

4. If you do not meet PPT for 2004, you will simply report all your income, just as you would have anyways. You simply will not be able to exclude any by FEIE. You will be able to use the foreign tax credits to lower your US tax.

If you do meet the PPT, you would be excluding about $20K of foreign wages.

For 2005, if you will meet the bone fide residence tst, you will get to exclude $80,000 of foreign wages. All other income you earn is taxable in US, with possibility of Foreign tax credits of course.

nelsona non grata... and non pro

davidyulca · Post by **davidyulca** » Thu Aug 04, 2005 8:37 pm

Re: Question 3 - Just wondering - Are there any circumstances where days present in the U.S. will not count for a PPT (such as a U.S. citizen resident in Canada who is attends as a full time student at a U.S. university, or for medical attention, etc.)?

nelsona · Post by **nelsona** » Fri Aug 05, 2005 7:57 am

There are some emergent situations like hostilities or dire medical situation (University isn't one of them obviously).

But remember, US citizens don't usually rely on PPT, they usually (after the first few months of foreign resdidence) rely on the simpler Bona fide tax home, which allows petty much unlimited US presence, so long as their treaty residence is in another country.

nelsona non grata... and non pro

davidyulca · Post by **davidyulca** » Fri Aug 05, 2005 8:12 am

So does a U.S. citizen with a bona fide tax residence in Canada, who is a university student in the U.S. and has a part-time job in the U.S. qualify for the earned income exemption???

Carson · Post by **Carson** » Fri Aug 05, 2005 10:02 am

<blockquote id="quote">quote:<hr height="1" noshade id="quote">Originally posted by davidyulca

So does a U.S. citizen with a bona fide tax residence in Canada, who is a university student in the U.S. and has a part-time job in the U.S. qualify for the earned income exemption???
<hr height="1" noshade id="quote"></blockquote id="quote">

The exemption can not be used against the income earned in the US. It must be foreign earned income. See pages 15 and 16 of Pub 54.

CRH

davidyulca · Post by **davidyulca** » Sun Aug 07, 2005 9:26 am

Carson is of course correct!

The question is what if this individual had a large Canadian based earned income, while spending most of his time in the U.S.?? His home residence remains in Canada. Based on the number of days in the U.S. test this income should not be exempt, but maybe....

nelsona · Post by **nelsona** » Sun Aug 07, 2005 2:39 pm

The answer to that would be 'who cares?'

Regarless of where his tax home is, that Cdn-source earned income (remember: earned income) will be taxed in Canada, so the FEIE, valid or not, PPT or Bona Fide tax home or not, would result in miniscule tax difference.

Generally, for those US citizens in Canada, the FEIE is not a means of saving taxes, it is a means of simplifying one's tax reporting.

Someone trying to play both sides of the fence as you describe is interested in the former, not the latter

nelsona non grata... and non pro

davidyulca · Post by **davidyulca** » Sun Aug 07, 2005 3:34 pm

There would be a significant difference when one remembers that the maximum deduction for college tuition in the U.S. is only $4000, while in Canada it is unlimited (and can be carried forward indefinitely). What are your thoughts??

nelsona · Post by **nelsona** » Mon Aug 08, 2005 5:36 am

The definitions as to what constitutes tax home are pretty clear. Students don't generally change there tax home when going to school.

Of course, significant tax savings would only occur if one had significant earned income in canada against which to write off these expenses.
The US has other Earned Income credits and deductions that would come into play.

Pretty hard to be spending 6-7 months a year in US while earning scads of money working ion Canada, but hey, whatever.

nelsona non grata... and non pro