# claiming foreign earned inc excl upon returning to US



## andersson (Aug 1, 2020)

Hi, so I found out (when filing this year for the first time as a green card holder in the US for 2019 income) that I had an obligation to file taxes as a green card holder living outside the US prior to 2019. I've been trying to figure out how to get tax compliant but it seems none of the traditional 'amnesty' methods apply because I returned to and lived in the US toward the end of 2018 and in 2019.

One thing I can't wrap my head around is how the foreign earned income exclusion works retroactively for tax years when I exceeded 35 days inside the US (I never had any US sourced income during those years but I would visit family etc). So let's say I spent 40 days in the US in 2015 (January-February 2015), 0 days in the US in 2016, 70 days in 2017 (from 10 January to 20 March 2017) and then 40 days in the US in 2018 (from 20 October to 30 November 2018 and then lived in the US for almost all of 2019). From 2015 to 2017 I was a resident in 1 country and paid taxes there. For most of 2018 I lived in a different country, but returned to the US from 20 October to 30 November and then I moved back to the US in January 2019 for most of the rest of the year.

Is it accurate to say I can still claim the foreign earned income exclusion pro-rated for 2015, 2017 and 2018? Ie I spent 0 days in the US from February 2015 to 1 January 2017, and 10 days on vacation in the US from 10 March 2017 to 20 October 2018 which is more than 365 days in both cases but not more than 35 days in the US. So I would be eligible to claim a partial exclusion on foreign income for 2015, 2017 and 2018? And a full exclusion for 2016? 

Am I getting this right? 

Also, I never filed FBARs during those years. I understand the amnesty rule won't apply even if I file FBARs for 2015 to 2018. I hear penalties are sometimes waived for voluntary disclosures but what happens if not: how hight are the penalties? I made less than 50 K most of those years so I don't really have much in my account.

I should add I left the US earlier this year so I plan to file taxes for part of 2020 (and I guess I would claim the foreign earned income exclusion pro-rated for the rest of 2020 once I've spent 330 days abroad). I want to get compliant to renounce my green card (I am a long term resident. I studied in the US prior to 2015 but never had to file taxes those years).

Thoughts?


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## Moulard (Feb 3, 2017)

Remember that there are two tests that can be used, the physical presence test and the bona fide residence test. Each has different eligibility requirements and exclusion limits.

From what you describe, it sounds like you may well have established a new tax home outside of the United States in 2015 and may well have maintained it until you returned to live in the US in 2019.

The assumption being that when you left in March 2015, you moved your principal place of employment and the place you regularly lived outside the US.

If that is the case...

You would use the physical presence test for 2015 - using March 15 - Feb 16 as your presence dates.

The bona fide residence test for 2016-2018 - assuming you were not in the US on business, and did not work while there then your time in the US would be of no consequence.

2019 would be a standard resident tax return in light of the fact you were resident in the US that year

As for your 2020 return, you would file a dual status return.. a part year 1040 and a part year 1040-NR - or as you say you could simply file a full year 1040 waiting until you met the physical presence test.

As to your other question on penalties

Unless the IRS has already discovered you haven't filed, you can simply back-file up to 6 years worth of FBARs - for those years where your foreign financial accounts were above the reporting threshold. There won't be any penalties, unless the IRS has some other reason to be interested in you.


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## Bevdeforges (Nov 16, 2007)

Generally speaking, if you are outside the US for a year or more, your green card is supposed to become invalid. Now, the rules are apparently different for the IRS, and they very well may still consider you a "US taxpayer" until and unless you formally renounce your green card but I suspect that you may have some issues to resolve over and above your tax filings. 

But for tax purposes, you do want to claim the FEIE using the bona fide resident test if you possibly can - as Moulard has indicated. That way, your time spent in the US basically doesn't count unless you were working there.


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## andersson (Aug 1, 2020)

Thanks for your replies. I'm trying to figure out if the +1 year absence has other non-tax consequences, seems this is a really gray area. On tax specifically I'd have a few additional questions:
1. On the bona fide test, I think that's probably the way to go for 2015 to 2017 but I am not sure about 2018. Do you think it's realistic for me to claim bona fide residence abroad in 2018 if I started renting an apartment in the US in October of that year? I left my country of residence before moving to the US in October and then went on vacation in December 2018 so it seems a bit of a stretch to say I had my bona fide residence abroad that entire year. Seems like I could only claim the presence test for part of that year (until October) or am I being too literal about these requirements?
2. Moulard says "There won't be any penalties, unless the IRS has some other reason to be interested in you." I don't see why they would be interested in my FBARs but now that I am going through past years, one year is awkward in that I got a year's worth of income as a lump sum (due to the way the funding institution pays), so the maximum amount in my account is going to be misleadingly high that year (+ 60 K). Is that the kind of thing that will trigger additional Qs? It probably means I also need to file a FATCA form. There's nothing I can do about this it seems, but I wonder if I should expect additional questions?
3. Does anyone know if I can actually file for 2016 (0 days in the US) as a non-resident and claim tax treaty benefits retroactively? Is it possible to claim treaty benefits retroactively? It occurred to me that if I do this for 2016 and a previous year, I wouldn't meet the long term residence test for the green card and could avoid expatriation. But is claiming treaty benefits retroactively allowed? Can't find this anywhere.

Thanks again for your suggestions.


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## Moulard (Feb 3, 2017)

andersson said:


> 1. On the bona fide test, I think that's probably the way to go for 2015 to 2017 but I am not sure about 2018. Do you think it's realistic for me to claim bona fide residence abroad in 2018 if I started renting an apartment in the US in October of that year? I left my country of residence before moving to the US in October and then went on vacation in December 2018 so it seems a bit of a stretch to say I had my bona fide residence abroad that entire year. Seems like I could only claim the presence test for part of that year (until October) or am I being too literal about these requirements?


I was just taking a guess, based on the circumstances and you described them. 
If my guess was wrong, then file in a way that matches your circumstances.

If you returned to the US in October of that year with the intention of staying their indefinitely then your tax home is likely to have changed then.. You are right, you would instead use a physical presence test based on the period Nov 17 to Oct 18.



> 2. Moulard says "There won't be any penalties, unless the IRS has some other reason to be interested in you." I don't see why they would be interested in my FBARs but now that I am going through past years, one year is awkward in that I got a year's worth of income as a lump sum (due to the way the funding institution pays), so the maximum amount in my account is going to be misleadingly high that year (+ 60 K). Is that the kind of thing that will trigger additional Qs? It probably means I also need to file a FATCA form. There's nothing I can do about this it seems, but I wonder if I should expect additional questions?


The forms are reporting Maximum value in an account, NOT your overall financial liquidity. One year, one of my forms appeared to report a tripling of my financial assets in one year. That year I received a small inheritance, the estate dropped it into one account, I parked it in another while I figured out what I was going to do with it, and then placed it more permanently in a third... same dollars, reported three times... 

So long and the short, It won't draw any additional questions unless perhaps (and it is just a perhaps) you are talking about 7+ figures). FinCen own the FBAR, they are interested in large financial crimes, not pension funds. Its why they handed the administration of it to the IRS. The IRS isn't going to go looking at FBARS unless there is something about your tax return that piques there interest AND the ROI on doing so warrants it.

I did the sums the other day, the IRS' entire operating budget amounts to less than $50 per tax return. They aren't resourced to go after anything other than low hanging fruit.

Particularly if you are doing this in order to expatriate.



> 3. Does anyone know if I can actually file for 2016 (0 days in the US) as a non-resident and claim tax treaty benefits retroactively? Is it possible to claim treaty benefits retroactively? It occurred to me that if I do this for 2016 and a previous year, I wouldn't meet the long term residence test for the green card and could avoid expatriation. But is claiming treaty benefits retroactively allowed? Can't find this anywhere.


You indicate you became a permanent resident in 2019 right? If that is the case then you are not a long-term resident for the purposes of expatriation. Your time in the US as a resident alien does not count.

You are an Long Term Resident if you were a lawful *permanent resident * of the United States in at least 8 of the last 15 tax years ending with the year your status as an LTR ends. 

You generally only have this status if you have been issued an alien registration card, also known as a “green card,”

So if you became a permanent resident/green card holder in 2019 then, by definition you are not a long term resident.


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