Bona fide resident status for the earned income exclusion is now available to foreign nationals under certain U.S. treaties.

• Author: Zink, William J.

Rev. Rul. 91-58 allows foreign nationals to use the bona fide residence test for purposes of computing the foreign earned income exclusion under Sec. 911.

Sec. 911 allows a "qualified individual" to elect to exclude an amount of foreign earnings from U.S. gross income. To exclude such income, a U.S. citizen must meet certain tess: (1) The individual's tax hme must be in a foreign country for an uninterrupted period that includes an entire tax year (the bona fide residence test) or (2) the individual's tax home must be a foreign country, and he must be present in the foreign country during at least 330 full days of any 12-consecutive-month period (the physical presence test).

Before 1978, the Sec. 911 exclusion was available only to U.S. citizens. Only by applying the nondiscrimination article in certain income tax treaties between the United States and foreign countries could an alien individual residing in the United States qualify under the physical presence test.

Rev. Rul. 72-330 provided that the nondiscrimination article in a particular treaty would be applied without regard to the savings clause in such treaty, as long as there was no specific provision to the contrary. (A savings clause provides that either party to the treaty may tax its residents and its nationals as if the treaty was not in effect.)

The Foreign Earned Income Act of 1978 provided that an alien individual resident in the United States may qualify for Sec. 911 benefits by satisfying the physical presence test.

Sec. 7701(b) was added by the Deficit Reduction Act of 1984. This section provides a statutory definition of a resident alien individual. In order to be considered to be a lawful permanent U.S. resident, the individual must meet the substantial presence test of Sec. 7701(b)(3), or must make an election to be treated as a U.S. resident. Thereore, it is now possible, for purposes of the Sec. 911 exclusion, to be a U.S. resident (as defined in Sec. 7701(b)), as well as a bona fide resident of a foreign country under Regs. Sec. 1.871-2(b).

Rev. Rul. 91-58 deals with a U.S. corporation that provides specialized services in the United States and foreign countries. The company employs citizens of the United Kingdom...