Do I qualify as a bona fide resident as a postdoc?

Question

I'm a US citizen who is moving abroad soon to take up a postdoctoral fellowship. The fellowship is funded by a non-US university and I'll be living in the foreign country full-time and paying taxes there. I'd like to qualify for the Foreign Earned Income Exclusion in 2016, one way or another (bona fide residency or physical presence test), but I need to firm up some travel plans now that might affect my physical presence test.

Some descriptions of the "bona fide" residency test have me concerned because they mention that someone working on a fixed-term contract does not typically qualify. But, other internet sources seem to think that a multi-year postdoctoral position is sufficient to qualify. My fellowship contract is for 2 years, with an option for a third year, and it may be extended after that if I apply and my advisor agrees. My work visa in the country will be valid for 5 years. And if I mention that I'm considering applying for a permanent position in the country after my fellowship is up, does that affect the decision?

Answer 1

I disagree with the other two answers. Littleadv says you cannot be a bona fide resident if your presence is limited and restricted. Louis says you can be a bona fide resident on a fixed term contract.

I believe, regardless of your visa status, that you can be a bona fide resident if you have an open ended contract and a route to stay indefinitely. For example, as a lecturer in the UK my contract extended beyond my visa and there are procedures for me to continuely extend my visa. If I was a post doc on a fixed term contract, then I believe I would not meet the bone fide resident test as there would not be a route for me to stay indefinitely.

Answer 2

Yes, you will qualify. Though probably not in the first year.

I can confirm this anecdotally, in the sense that I know a number of people in the same situation (it is common) and they also qualify.

For those who want more sources, if you look at IRS publication 54 you will find:

If you go to a foreign country to work on a particular job for a specified period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for 1 tax year or longer. The length of your stay and the nature of your job are only two of the factors to be considered in determining whether you meet the bona fide residence test.

and also

To meet the bona fide residence test, you must show the Internal Revenue Service (IRS) that you have been a bona fide resident of a for- eign country or countries for an uninterrupted period that includes an entire tax year. The IRS decides whether you are a bona fide resident of a foreign country largely on the basis of facts you report on Form 2555. IRS cannot make this determination until you file Form 2555.

You don't give detail, but assuming that:

• You are working on a standard academic position, are in the health care system etc.
• Do not have a long-term arrangement with a US university (e.g., an accepted tenure-track job).
• Do not have other US-based income or businesses.
• Actually live full-time where you work.

Then the salient fact is that you have only the one job and no other employment connection with the US. You have no specific plan about the future, and there is no reason to think that you'll be moving back to the US. (The test is not that there is positive probability you'll move back. That would be true even if you had a tenured job at ETH or something similar.)

Edit: Since this seems confusing to people in the comments, the example from a tax preparation service's site (with which I have no connection) is pretty much standard (emphasis mine):

A US expat accepts a position in China for a period of time. After remaining in China for an entire calendar year, this person would be considered to meet the needs of the Bona Fide Resident test. This is only if he has no immediate plans to move back to the United States. This last part is key: “if he has no immediate plans to move back to the US.”

This is pretty much exactly the situation of the OP, who has a multi-year agreement to work outside of the US, not on a stipend, and apparently no plan at all for afterwards.

However, the first year will be different. The process that has been used successfully by a number of people in the same situation that I know is:

• Assume you move to Europe on Sept. 15, 2015 (this is the specific day you arrive)
• In April 2016, file an extension to Sept. 15, 2016 with a note that you are waiting to qualify under the physical presence test of form 2555.
• On Sept. 15, 2016, send a tax return with a form 2555 exempting the European part of your income from 2015.

As a caution with respect to this answer is that it's summarizing part of the academic samizdat for Americans working in Europe. I'm not a tax lawyer or preparer. You should, of course, verify with a professional. Again, anecdotally, this must be one who deals primarily with expats, since the others tend to completely botch the job, wasting a lot of time and money.

Answer 3

You cannot be bona fide resident of the country where your presence is limited and restricted. Generally, bona fide rules are for dual citizens who move to the other country of citizenship and become tax residents there.

You would probably be covered by the tax treaty the US has with that country (if any), otherwise the usual days' count rules apply. "considering applying for a permanent position in 5 years" doesn't affect your tax situation now.

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Since in the comments people got confused between "bona fide residency" and "physical presence" test, I think I should emphasize: You can qualify for the exemption with the "physical presence" test, even if you're not bona fide resident of a foreign country.

You cannot, however, claim being bona-fide residency elsewhere if your presence there is short term (2 years is short term) and you keep traveling back to the US. That just won't work.

And yes, don't trust "samizdat" people who have no idea what they're talking about and do talk to a licensed professional (US-licensed EA/CPA).

That said, the rules (including the IRS publications) are intentionally vague, and other than physical presence days' count, nothing is definitive and everything can be challenged in audit. Those who say that they claimed bona fide residency with 2 year presence in a foreign country are either lying or were playing audit roulette and haven't been caught. It doesn't mean you should be taking these risks yourself.