The "proper care and feeding of the Green Card": Tax Filing Edition – Use of the 911 Foreign Earned Income Exclusion

Leave a reply

Introduction: The Purpose and Limited Scope Of This Post
This post focuses on Green Card holders who are filing the 1040 tax return. The 1040 is the return that is filed by all individuals unless you are a “nonresident aliens”. Non-resident aliens file the 1040-NR. This post does NOT discuss (1) when it could be advantageous for a Green Card holder to file a 1040-NR (using a tax treaty tie breaker provision) and (2) what the (DANGEROUS) consequences of filing a 1040-NR (from both a tax and immigration perspective) could be. For a Green Card holder, there can be both disadvantages and also substantial advantages to using a tax treaty tiebreaker to file a 1040-NR.
This post assumes that the Green Card holder is filing a 1040 and is specifically focused on the following question:
Is it wise for a Green Card holder who is temporarily outside the United States to use the Foreign Earned Income Exclusion found in Section 911 of the Internal Revenue Code (as opposed to the Section 901 Foreign Tax credits) when filing the 1040?
(Most tax practitioners agree, that in general, it is better to use the Sec. 901 foreign tax credits and and not sue the S. 911 Foreign Earned Income Exclusion. Here is a post that explains why this is so. So, why would anybody ever use the FEIE? The answer is that some people live in countries where there is income tax and therefore no foreign tax credit to use against income that is taxable from a U.S. perspective.)

Introduction: The Green Card and the Internal Revenue Code
U.S. tax laws and regulations are confusing, complicated and penalty laden. In many cases people are NOT able to determine what is required of them. The problems magnify when any “foreign” element is introduced. The tax laws are complicated. The immigration laws are complicated. When the two meet, the complexity can be almost impenetrable. Those aspiring to become “permanent residents” of the United States should understand (from a tax, form and penalty perspective):
First, what steps should be taken prior to obtaining the “permanent resident” visa and moving to the United States,
Second, what requirements one must be aware of while actually living in the United States on a “permanent resident” visa
Third, that those with “immigrant visas” who have a “permanent resident visa” for 8 or more years, become “long term residents” will be subject to the S. 877A Expatriation Tax if they try to move from the United States
Fourth, how the S. 877A Exit Tax rules may confiscate a significant percentage of their assets.
It’s unfortunate that people don’t “read the fine print” before getting that Green Card. In some cases, the Internal Revenue Code is driving Green Card holders out of the United States.
If you are a Green Card holder (you have the right to live permanently in the United States), please remember (at a bare minimum) the following:
1. As a Green Card holder you are subject to taxation on your worldwide income, as a U.S. resident, according to the rules of the Internal Revenue Code. You will continue to be subject to U.S. taxation as a U.S. resident, until you meet the requirements in S. 7701(b)(6) of the Internal Revenue Code. Please note that neither moving from the United States nor failing to renew your Green Card mean that your U.S. tax obligations cease. This is reinforced in Topsnik 1.
2. If you are a Green Card holder, who is also a “long term resident“, and you cease to be a lawful permanent resident of the United States, you may be subject to the S. 877A Expatriation Tax rules. This is reinforced in Topsnik 2.
A right to live permanently in the United States comes with both advantages and disadvantages. I recently reinforced the disadvantages realities of “worldwide taxation” and the S. 877A Exit Tax in this Quora post.
Read John Richardson's answer to What are the benefits of getting a "green card"? How has your life changed after being a green card holder? on Quora

U.S. citizenship and permanent residence is primarily about taxation
As a “lawful permanent resident” you are required to file a tax return and meet all requirements of the Internal Revenue Code every year. In order to maintain your status of being a “lawful permanent resident” of the United States you are required to “intend” to live permanently in the United States. The failure to file a tax return, many be considered to be evidence that one did NOT intend to live permanently in the United States. To put it in “people talk”:
If you don’t file a U.S. tax return, the failure to file, could be construed to be evidence that you do NOT intend to live permanently in the United States (resulting in the loss the Green Card).
Individuals will file either:
1. A 1040 – filed by U.S. citizens and residents (those who meet the test for “residence” under S. 7701(b)); or
2. A 1040-NR – filed by “nonresident aliens” who have U.S. source income.
Green Card holders are required to have the intent to live permanently in the United States. Filing a “1040” is evidence of that intent.
Green Card holders should be very careful about filing a 1040-NR. Filing a 1040-NR can trigger both immigration and tax problems and should not be done without a full consideration of the circumstances and consequences!


This post is largely inspired by a post written by Virginia La Torre Jeker and expands on the question she raises. How might a Green Card holder’s use of the “Foreign Earned Income Exclusion” under Internal Revenue Code Section 911, jeopardize one’s status as a “lawful permanent resident”? As a reminder, the Section 911 Foreign Earned Income Exclusion would be used as part of filing the 1040.
Let’s consider specifically how:
1. The use of the Foreign Earned Income Exclusion could negatively impact the “right to reside permanently” in the United States; and
2. The use of the Foreign Earned Income Exclusion could negatively impact the “right to naturalization”.
Please note that my purpose in writing this post is to “identify” a possible issue and NOT to resolve that issue. U.S. tax and immigration issues are context specific. Your specific circumstances must be considered individually and with appropriate counsel.
Part A – Immigration: Rights and opportunities under the Immigration and Nationality Act – Why U.S. residence and physical presence matters


The key point is:
Once you are issued an “immigrant visa” you may lose that “immigrant visa” if it is determined that you cease to have the intention to live permanently in the United States. Continuous residence in the United States is NOT required to maintain the “immigrant visa”. The continuous INTENTION to reside permanently in the United States is required to maintain the “immigrant visa“.


Part B: The Right To Naturalize As A U.S. Citizen
Continuous U.S. residence and applications for U.S. citizenship
The “residence” requirements to naturalize as a U.S. citizen are found in
The key point is that physical presence in the United States is relevant in the process of naturalizing as a U.S. citizen.
Part C – Taxation: The “necessary” conditions to be eligible to use the Section 911 Foreign Earned Income Exclusion
In its most simple terms, the “Foreign Earned Income Exclusion”, found in Internal Revenue Code Sec. 911, allows “U.S. tax residents” to EXCLUDE from their income, some but NOT ALL kinds of foreign income. It is of particular value to U.S. citizens who live in parts of the world that do NOT have income taxes.


The Foreign Earned Income Exclusion is found here and includes:

(d) Definitions and special rules For purposes of this section—
(1) Qualified individual The term “qualified individual” means an individual whose tax home is in a foreign country and who is—
(A) a citizen of the United States and establishes to the satisfaction of the Secretary that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or
(B) a citizen or resident of the United States and who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in such period.
(3) Tax home
The term “tax home” means, with respect to any individual, such individual’s home for purposes of section 162(a)(2) (relating to traveling expenses while away from home). An individual shall not be treated as having a tax home in a foreign country for any period for which his abode is within the United States.

Okay, let’s look at Sec. 162 of the Internal Revenue Code.

(a) In general There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including—
(2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business;

Therefore:
1. If a person has an “abode” in the United States, the FEIE cannot be used; and
2. If no abode in the United States then the individual must otherwise have a “tax home” in a foreign country.
3. IF NO ABODE in the United States AND a TAX HOME in another country, THEN the individual may qualify to use the FEIE, as either a person who is:
(A) a citizen of the United States and establishes to the satisfaction of the Secretary that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, or
(B) a citizen or resident of the United States and who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days in such period.
(Note that the “physical presence test in (B) is available to BOTH citizens and Green Card holders. The “Bona fide residence” test in (A) is available to “citizens” by statute and is available to Green Card holders who can benefit from the non-discrimination clause in an applicable tax treaty. (Note that without a “tax treaty” then the bona fide residence test is not available to Green Card holders.) See specifically Revenue Ruling 91-58 1991-2 C. B. 340 which confirmed that:

“Because citizens of the United States may be treated as qualified individuals for purposes of section 911(d) of the Code under either the bona fide resi­dence test or the physical presence test, requiring nationals of the United King­dom to satisfy the physical presence test subjects them to a requirement connected with section 911 which is more burden­some than the taxation and connected requirements to which citizens of the United States in the same circumstances are subjected. Accordingly, nationals of the United Kingdom must be treated as qualified individuals for purposes of sec­tion 911 if they satisfy the requirements of the bona fide residence test.”

Conclusion: For a Green Card holder to utilize the 911 Foreign Earned Income Exclusion, the individual must represent to the IRS that:
He does NOT have an “abode” in the United States AND His “tax home” is outside the United States. Furthermore, he has spent 330 days or more outside the United States or actually is a bona fide residence of another country!
In a practical sense this could impact both:
– the person’s eligibility to live as a permanent resident of the United States
– the person’s eligibility to become a citizen of the United States
In closing:
It is reasonable to conclude that (unless absolutely necessary) that when filing a U.S. 1040 tax return that Green Card holders should NOT make use of the Foreign Earned Income Exclusion “FEIE”. If the “FEIE” is used, one should avoid relying on the “bona fide residence” test and justify the claim based on having spent 330 days outside the United States.
The use of the Section 901 Foreign Tax Credit rules are better anyway …
If a Green Card holder has paid “foreign tax” on “foreign income”, it would be advantageous to use the Foreign Tax Credit (“FTC”) rules found in Internal Revenue Code Sec. 901. Further the use of the Sec. 901 FTC rules will allow the individual to “build up” foreign tax credits to offset U.S. tax that might otherwise be payable.
John Richardson

Leave a Reply