I have been over and over Publication 54 and it is absolutely useless. I am trying to investigate what happens in the following situation.
Scenario: An American expat, call him John, has lived overseas for 20 years. He has permanent residency in a foreign country, a foreign wife, 2.3 children, a dog and a hideously expensive mortgage in this foreign country. He hasn't been back to the USA in over a decade. He files his taxes and takes the overseas income exemption based on physical presence.
He is in discussions with an American company to take a full time, permanent position that would split his time equally between a new subsidiary office they are creating in the foreign jurisdiction and the home office in the USA. His family will not be coming to the USA. He will be staying at a serviced apartment paid by the company when he visits the USA.
Due to work permit requirements in the foreign jurisdiction, all salary must be paid to him in the foreign country through the foreign subsidiary. He will receive no income directly from the American parent.
Now, the question:
How does John file his taxes?
It seems obvious he is a bonafide resident of the foreign country. That is where he is paid his salary and where he pays his taxes. He has lived there for 20 years and has no intention of returning to the USA permanently. But could he also a bonafide resident in the USA? Publication 54 implies there are minimum requirements for being overseas for both physical presence and bonafide residence tests. It clearly states the minimum time is 330 days for the physical presence test. But it never states anywhere a threshold days in a foreign country for the bonafide resident test.
Can anyone advise what John's tax situation is? With equal time spent in the foreign country and the USA, does he qualify for the foreign earned income exclusion?
The next question. The tax rate in the foreign jurisdiction is actually higher than the USA, but retirement fund deductions that are recognized in the foreign country but not by the IRS reduce taxes paid overseas to less than what would be paid in the USA sans retirement fund. So if John does not qualify for the foreign earned income exclusion, his overseas taxes paid can not completely offset USA taxes due. In this case, is there anything John can do so he is not unnecessarily penalized for contributing to his overseas retirement account?
Finally, does the company paid serviced apartment he will stay in while in the USA qualify as income or would it simply be a company expense just like a hotel?
There seems to be alot of information on the IRS website of how to apply the rules when an American lives in the US and is sent overseas, but almost nothing about what to do when an American lives overseas and is sent to the USA. Any advice on how to properly file taxes in a situation like this is appreciated.
Scenario: An American expat, call him John, has lived overseas for 20 years. He has permanent residency in a foreign country, a foreign wife, 2.3 children, a dog and a hideously expensive mortgage in this foreign country. He hasn't been back to the USA in over a decade. He files his taxes and takes the overseas income exemption based on physical presence.
He is in discussions with an American company to take a full time, permanent position that would split his time equally between a new subsidiary office they are creating in the foreign jurisdiction and the home office in the USA. His family will not be coming to the USA. He will be staying at a serviced apartment paid by the company when he visits the USA.
Due to work permit requirements in the foreign jurisdiction, all salary must be paid to him in the foreign country through the foreign subsidiary. He will receive no income directly from the American parent.
Now, the question:
How does John file his taxes?
It seems obvious he is a bonafide resident of the foreign country. That is where he is paid his salary and where he pays his taxes. He has lived there for 20 years and has no intention of returning to the USA permanently. But could he also a bonafide resident in the USA? Publication 54 implies there are minimum requirements for being overseas for both physical presence and bonafide residence tests. It clearly states the minimum time is 330 days for the physical presence test. But it never states anywhere a threshold days in a foreign country for the bonafide resident test.
Can anyone advise what John's tax situation is? With equal time spent in the foreign country and the USA, does he qualify for the foreign earned income exclusion?
The next question. The tax rate in the foreign jurisdiction is actually higher than the USA, but retirement fund deductions that are recognized in the foreign country but not by the IRS reduce taxes paid overseas to less than what would be paid in the USA sans retirement fund. So if John does not qualify for the foreign earned income exclusion, his overseas taxes paid can not completely offset USA taxes due. In this case, is there anything John can do so he is not unnecessarily penalized for contributing to his overseas retirement account?
Finally, does the company paid serviced apartment he will stay in while in the USA qualify as income or would it simply be a company expense just like a hotel?
There seems to be alot of information on the IRS website of how to apply the rules when an American lives in the US and is sent overseas, but almost nothing about what to do when an American lives overseas and is sent to the USA. Any advice on how to properly file taxes in a situation like this is appreciated.
