Foreign Earned Income Exclusion: Tax Home for less than 12 months

Hello all,

I am currently residing and working in Malaysia, and am confused about a detail of the Foreign Earned Income Exclusion: Is a minimum 12-month period actually necessary for the Tax Home requirement? I started working and living here at the start of Feb. '08 and had every intention and plan of staying here 2-5 years on assignment (with a Malaysian Corporation that I partially control), but circumstances are cutting my foreign stay short. However, I intend to work/live here through early December, and then complete my Physical Presence Test

330 day requirement via a trip (either business or pleasure, or a mix) to Mexico from December to January. (I will return to the USA BEFORE February '09.)

As I read Publication 54 and Revenue Ruling 93-86, since my intent was to work in this foreign country for well more than 1 year, the fact that my assignment is now being cut short of 1 year is irrelevant. My intent can be seen from the planning I did up front, from the fact that we signed a 2-year condo lease in Malaysia, that I brought my wife and child here with me, that we bought rather than renting a car here, that we were active in local organizations, etc. It seems that as long as I meet the 330 day physical presence test (in Malaysia plus Mexico in this case), I will qualify for the FEIE.

Is this correct? Does the fact that I'm taking a trip (which may be all or partially vacation) to a different country (other than the one I've established as my tax home) at the tail-end of this 330-day Physical Presence period matter or hurt my case at all?

Thank you!

Reply to
JamesAndCourtney.bowen
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Treas. Reg. § 1.911-2(a) provides that "[a]n individual is a qualified individual if . . . the individual's tax home is in a foreign country or countries throughout . . . the period of bona fide residence . . . or the 330 full days of presence . . . " Thus, unfortunately, if you do not have a tax home outside the U.S. during the full 330 period, you will not qualify.

I don't think that the trip to Mexico helps if you do not have a tax home outside the U.S. during the 12 month period.

Andrew Mitchel, Esq. Essex, Connecticut

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Reply to
jmail7

Good point. But since my tax home is in Malaysia (I won't be returning to the USA or its territories to live or work until after the full 330 day period), that should not be an issue in this case, right?

I agree, but since my place of business (and my residence/abode) is in Malaysia, my tax home is there, until I return to the USA and either (a) begin living there as my primary "abode" location, or (b) begin working there as my "primary place of business". Since this would presumably happen at some time after the trip to Mexico (and thus after the end of the 330 day period) then this should be a non-issue, right?

Thanks again! This stuff is complex...

Reply to
JamesAndCourtney.bowen

Based on the facts you presented, you have established your tax home in Malaysia. As long as you spend 330 24 hour days on foreign soil for any reason during the year, you meet the physical presence test. Therefore, as long as you don't establish an abode in the US during the 330 day period, your tax home remains Malaysia and you would be eligible for the exclusion.

Reply to
namlak

"I am currently residing and working in Malaysia . . . . I started working and living here at the start of Feb. '08 . . . I intend to work/live here through early December"

"[S]ince my place of business (and my residence/abode) is in Malaysia, my tax home is there, until I return to the USA . . . "

I agree that your tax home is in Malaysia until December. I don't necessarily agree that your tax home is in Malaysia until you return to the U.S. If you leave your Malaysian job in December and aren't working at all, you likely don't have a tax home (principal place of business).

To be frank, I am not sure. I would need to look into the rules of tax home further, as well as get a better understanding of what your specific facts are. At a minimum, however, I think you have some risk.

Andrew Mitchel, Esq. Essex, Connecticut

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Reply to
jmail7

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