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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
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Experience:  Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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I am attempting to qualify for the physical presence test. Ive

Resolved Question:

I am attempting to qualify for the physical presence test.

I've learned that if I travel between two foreign countries
(even if I pass through the US) the time counts as in a foreign country so
long as I am not traveling for 24 hours and over international waters.
Does this mean that my itinerary has to be under 24 total hours, or just
the period when I am over international waters / traveling through the US?

I'm working in the Middle East and would like to travel to the carribean this year, but most itineraries would have me traveling though London, Miami, and finally to my destination in abut 28 hours since leaving Bahrain. Does the 24 hour clock start when I leave my original destination or once I'm over international waters off the British coast?
Submitted: 1 year ago.
Category: Tax
Expert:  Barbara replied 1 year ago.

Welcome and thank you for giving me the opportunity to assist you with your tax question.

 

The following contains the IRS criteria for meeting the substantial presence test, and it addresses your concerns with on point examples.

 

http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---Physical-Presence-Test

 

Please review the information and examples and come back to me here if you have any follow-up questions.

 

Thank you and best regards,

Barb

Customer: replied 1 year ago.


Barb,


 


I'd read that before I asked the question and have reviewed all the examples. My question is particularly about a detail within those examples that requires interpretation. I was hoping some type of familiarity with the intricacies of PPT tax circumstances would be built into the answer. There seem to be components of the interpretation I am hoping for built into some examples, but nothing specifically states what kicks off the 24 hour window of international travel.


 


The IRS says:


"You can move about from one place to another in a foreign country or to another foreign country without losing full days. But if any part of your travel is not within a foreign country or countries and takes 24 hours or more, you will lose full days."


 


and


 


"If you are in transit between two points outside the United States and are physically present in the United States for less than 24 hours, you are not treated as present in the United States during the transit. You are treated as traveling over areas not within any foreign country."


 


My specific quesiton is are the two points my original departure and my destination, or can my two points be interpreted as my intermediate / layover departure and my destination. Does the 24 hours of travel start when I leave Bahrain? or after I cross into international waters after my layover in London?


 

Expert:  Barbara replied 1 year ago.

Hi, Ryan.

 

The 24 hours starts when you leave Bahrain, but if it takes you longer than 24 hours to get to your destination, you lose a full day. In your initial question, you said it would take 28 hours, so you would lose a day.

 

See the following example given in the link:

 

You leave Norway by ship at 10:00 p.m. on July 6 and arrive in Portugal at 6:00 a.m. on July 8. Since your travel is not within a foreign country or countries and the trip takes more than 24 hours, you lose as full days July 6, 7, and 8. If you remain in Portugal, your next full day in a foreign country is July 9.

 

I hope this explanation is clearer. Let me know if it is not, and I will be happy to further clarify this for you.

 

Thank you,

Barb

Customer: replied 1 year ago.


I understand that example, but just for confirmation, my layover in London would not count me as being in the United Kingdom, but would count as traveling internationally? The reason I ask is because the ship example travels internationally continuously. The layover creates a different set of circumstances. The example below seems to treat being over airspace as in a foreign country.


"Passing Over Foreign Country


If, in traveling from the United States to a foreign country, you pass over a foreign country before midnight of the day you leave, the first day you can count toward the 330-day total is the day following the day you leave the United States."


 


This example sets the precedent that being over a foreign country is in a foreign country, by that same logic wouldnt being in an airport (not in the United States) be considered in a foreign country?


 


 

Expert:  Barbara replied 1 year ago.

Hi, Ryan.

 

I understand what you're saying, but read further:

 

You leave the United States by air at 9:30 a.m. on June 10 to travel to Spain. You pass over a part of France at 11:00 p.m. on June 10 and arrive in Spain at 12:30 a.m. on June 11. Your first full day in a foreign country is June 11.

 

Further a full day is considered to be 24 consecutive hours.

 

Thank you,

Barb

Customer: replied 1 year ago.


I understand the full day is 24 hours and understood that in my original question. The source you are reading never addresses layovers, and that is the question I have. I'll be traveling for 24 hours total, but not over international waters / in the United States for 24 hours. I'll be over
Europe for 8, on the ground in Europe for 2, back in the air for 8, in the US for 2, and then back in the air for 6 more. That is 16 hours spent over international waters / in the United States en route to a foreign coutry from a foeign country.


 


I've read the IRS guide carefully 20+ times, and it just doesnt address or mention layovers and multi stage trips. I appreciate your help but refering me to something I've read 20 times that ignores the circumstance at the heart of my question doesn't meet my standard of expert advice. Can my question be elevated to someone more familiar with the physical presence test?

Expert:  Barbara replied 1 year ago.

I apologize if my answer is not clear to you. I will opt out and let another expert address your question. You do not have to respond to me further since that will delay the response from another expert.

 

Thank you.

Expert:  Robin D. replied 1 year ago.

Hello and thank you for using Just Answer,

You are correct the publication does not specifically address a lay over but you must look at the specifics of your physical location. The rule is to be not just outside the US but physically in another country. The 16 hours you would be in international air space would not count because you are not in another country. A foreign country usually is any territory (including the air space and territorial waters) under the sovereignty of a government other than that of the United States. You are allowed to move about between countries and not lose a day in your counting as long as you are not in the US for 24 hours. In taking the rule at it's face value, you would need to be in the US for less than 24 hours during that time. In your original question you asked about when the clock starts. It starts when you leave then midnight would start a new day. If you have a layover in UK then that still means you are outside the US and in a foreign country. No loss of time there.

To simplify, if you are over international waters for the 16 hours then that is not counted against you because you are not leaving the US nor in the US for more than 24 hours. You would not lose a day in your counting. I can point you to court cases and rely on my experience to further the interpretation.

As I pointed out above, if you are in transit between two points outside the United States and are physically present in the United States for less than 24 hours, you are not treated as present in the United States during the transit. So, if the trip, including the stop-over in the U.S., takes less than 24 hours, you do not lose any physical presence test days.

My interpretation is based on experience in the Form 2555 with past clients that traveled.

Expert:  taxmanrog replied 1 year ago.

The expert above is correct. And the information IS actually in an IRS publication. Look at: http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---Physical-Presence-Test

 

About 2/3 of the way down the page, it says:

 

In United States while in Transit

If you are in transit between two points outside the United States and are physically present in the United States for less than 24 hours, you are not treated as present in the United States during the transit. You are treated as traveling over areas not within any foreign country.

So, you won't lose any days on your trip! This Publication is also very good for other aspects of the Physical Presence test. The IRS uses clock hour days, so your location at midnight is what matters.

 

Just thought you should have a source to point to. I've been doing about 200 expat returns every year for the past 25+ years. When they last rewrote the §911 regs, the author called me to discuss some of the issues. So this is an area near and dear to my heart. It is always better to be able to point to something than to just say "I think".

 

Good luck! Make sure you rate the prior expert well!

taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 423
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
taxmanrog and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

Thats perfect Rog, but I'm still worried about the travel being over 24 total hours... and the clause about 2 points outside the united states & over international waters.


 


Once again I've seen nothing defining either the original departure point or plane passing over international waters as the starting point for the 24 hour clock in the "Change of Location" clause. Seems to me "Change of Location" and "In United States While In Transit" clauses fail to address a trip that travels through the US, has a total duration over 24 hours, but less than 24 hours is spent in US and international waters. Can you provide any further info to set my mind at ease, obviously theres about 30,000 dollars on the line for me if I screw this up and I'd really prefer not to make that mistake.

Expert:  Robin D. replied 1 year ago.
Hi again,
This is TaxRobin, the expert Rog agreed with before he went offline.
The departure point is just that, where you depart from when you are not coming from the US. Each 24 hours starts at midnight. Just because you are traveling through the US does not mean that you are departing from the US. As long as you are not physically in the US for 24 hours then you would not need to count that day as being in the US.
Your total travel may cover more than 24 hours but is the 24 hours in the same Midnight to midnight time frame?
You would still use the default for the less than 24 hours in the US while you are travelling between foreign countries.
You would not lose a day.

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