2003 HTML Instructions for Form 2555,

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Table of Contents

Do not include on Form 1040, line 61 (Federal income tax withheld), any taxes a foreign employer withheld from your pay and paid to the foreign country's tax authority instead of to the U.S. Treasury.

Purpose of Form

If you are a U.S. citizen or a U.S. resident alien living in a foreign country, you are subject to the same U.S. income tax laws that apply to citizens and resident aliens living in the United States. But if you qualify, use Form 2555 to exclude a limited amount of your foreign earned income. Also, use it to claim the housing exclusion or deduction. You may not exclude or deduct more than your foreign earned income for the tax year.

You may be able to use Form 2555-EZ, Foreign Earned Income Exclusion, if none of your foreign earned income was from self-employment, your total foreign earned income did not exceed $80,000, you do not have any business or moving expenses, and you do not claim the housing exclusion or deduction. For more details, see Form 2555-EZ and its separate instructions.

Foreign country. A foreign country is any territory (including the air space, territorial waters, seabed, and subsoil) under the sovereignty of a government other than the United States. It does not include U.S. possessions or territories.

Note:

Specific rules apply to determine if you are a resident or nonresident alien of the United States. See Pub. 519, U.S. Tax Guide for Aliens, for details.

Who Qualifies

You qualify for the tax benefits available to taxpayers who have foreign earned income if both 1 and 2 apply.

You meet the tax home test (see below).
You meet either the bona fide residence test (see page 2) or the physical presence test (see page 2).

Note:

If your only earned income from work abroad is pay you received from the U.S. Government as its employee, you do not qualify for either of the exclusions or the housing deduction. Do not file Form 2555.

Tax home test. To meet this test, your tax home must be in a foreign country, or countries, throughout your period of bona fide residence or physical presence, whichever applies. For this purpose, your period of physical presence is the 330 full days during which you were present in a foreign country, not the 12 consecutive months during which those days occurred.

Your tax home is your regular or principal place of business, employment, or post of duty, regardless of where you maintain your family residence. If you do not have a regular or principal place of business because of the nature of your trade or business, your tax home is your regular place of abode (the place where you regularly live).

You are not considered to have a tax home in a foreign country for any period during which your abode is in the United States. However, if you are temporarily present in the United States, or you maintain a dwelling in the United States (whether or not that dwelling is used by your spouse and dependents), it does not necessarily mean that your abode is in the United States during that time.

Example. You are employed on an offshore oil rig in the territorial waters of a foreign country and work a 28-day on/28-day off schedule. You return to your family residence in the United States during your off periods. You are considered to have an abode in the United States and do not meet the tax home test. You may not claim either of the exclusions or the housing deduction.

Violation of Travel Restrictions

List of Countries To Which Travel Restrictions Apply

	Time Periods
Country	Beginning	and	Ending
Cuba	January 1, 1987		Still in effect
Iraq*	August 2, 1990		Still in effect
Libya	January 1, 1987		Still in effect
*Individuals whose activities in Iraq are permitted by a specific or general license issued by the Office of Foreign Assets Control are not in violation of U.S. law. Accordingly, the restriction does not apply to such individuals with respect to the activities permitted by the license.

Generally, if you were in a foreign country in violation of U.S. travel restrictions, the following rules apply:

Any time spent in that country may not be counted in determining if you qualify under the bona fide residence or physical presence test,
Any income earned in that country is not considered foreign earned income, and
Any housing expenses in that country (or housing expenses for your spouse or dependents in another country while you were in that country) are not considered qualified housing expenses.

See the list on this page for countries to which U.S. travel restrictions apply.

Additional Information

Pub. 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, has more information about the bona fide residence test, the physical presence test, the foreign earned income exclusion, and the housing exclusion and deduction. You can get this publication from most U.S. embassies and consulates or by writing to: Eastern Area Distribution Center, P.O. Box 85074, Richmond, VA 23261-5074. You can also download this publication (as well as other forms and publications) from the IRS website at www.irs.gov.

Waiver of Time Requirements

If your tax home was in a foreign country and you were a bona fide resident of, or physically present in, a foreign country and had to leave because of war, civil unrest, or similar adverse conditions, the minimum time requirements specified under the bona fide residence and physical presence tests may be waived. You must be able to show that you reasonably could have expected to meet the minimum time requirements if you had not been required to leave. Each year the IRS will publish in the Internal Revenue Bulletin a list of countries and the dates they qualify for the waiver. If you left one of the countries during the period indicated, you can claim the tax benefits on Form 2555, but only for the number of days you were a bona fide resident of, or physically present in, the foreign country.

If you can claim either of the exclusions or the housing deduction because of the waiver of time requirements, attach a statement to your return explaining that you expected to meet the applicable time requirement, but the conditions in the foreign country prevented you from the normal conduct of business. Also, enter “Claiming Waiver” in the top margin on page 1 of your 2003 Form 2555.

When To File

A 2003 calendar year Form 1040 is generally due April 15, 2004.

However, you are automatically granted a 2-month extension of time to file (to June 15, 2004, for a 2003 calendar year return) if, on the due date of your return, you live outside the United States and Puerto Rico and your tax home (defined on page 1) is outside the United States and Puerto Rico. If you take this extension, you must attach a statement to your return explaining that you meet these two conditions.

The automatic 2-month extension also applies to paying the tax. However, interest is charged on the unpaid tax from the regular due date (April 15, 2004, for a 2003 calendar year return) until it is paid.

Special extension of time. The first year you plan to take the foreign earned income exclusion and/or the housing exclusion or deduction, you may not expect to qualify until after the automatic 2-month extension period described earlier. If this occurs, you may apply for an extension to a date after you expect to qualify.

To apply for this extension, complete and file Form 2350, Application for Extension of Time To File U.S. Income Tax Return, with the Internal Revenue Service Center, Philadelphia, PA 19255, before the due date of your return. Interest is charged on the tax not paid by the regular due date as explained earlier.

Choosing the Exclusion(s)

To choose either of the exclusions, complete the appropriate parts of Form 2555 and file it with your Form 1040 or Form 1040X, Amended U.S. Individual Income Tax Return. Your initial choice to claim the exclusion must usually be made on a timely filed return (including extensions) or on a return amending a timely filed return. However, there are exceptions. See Pub. 54 for details.

Once you choose to claim an exclusion, that choice remains in effect for that year and all future years unless it is revoked. To revoke your choice, you must attach a statement to your return for the first year you do not wish to claim the exclusion(s). If you revoke your choice, you may not claim the exclusion(s) for your next 5 tax years without the approval of the Internal Revenue Service. See Pub. 54 for more information.

Earned income credit. You cannot take the earned income credit if you claim either of the exclusions or the housing deduction.

General Instructions