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									2002                                                                                                                               Department of the Treasury
                                                                                                                                   Internal Revenue Service

Instructions for Form
Foreign Earned Income Exclusion

General Instructions                                            3. You do not have a housing deduction              Additional Information
                                                           carryover from 2001.
                                                                                                                    Pub. 54, Tax Guide for U.S. Citizens and
           Do not include on Form 1040, line 62                 4. You meet e  ither the bona fide residence
                                                                                                                    Resident Aliens Abroad, has more information
           (Federal in come tax withheld), any             test (see the instructions for lines 1a and 1b on
                                                                                                                    about the bona fide residence test, the physical
           taxes a foreign employer withheld from          page 2) or the physical presence test (see the
                                                                                                                    pres ence test, and the foreign earned income
your pay and paid to the foreign country’s tax             instructions for lines 2a and 2b on page 2).
                                                                                                                    exclusion. You can get this publication from mos t
authority instead of to the U.S. Treasury.                      5. You meet the tax home test (see the
                                                                                                                    U.S. embassies and consulates or by writing to:
                                                           instructions for line 3 on page 2).
                                                                                                                    Eastern Area Dis tribution Center, P.O. Box 85074,
A Change To Note                                                                                                    Richmond, VA 23261-5074. You can als o
                                                           Note: If y our only earned income from w ork
The maximum foreign earned income exclusion                                                                         download this publication (as well as other forms
                                                           abroad is pay you receiv ed from the U.S.
for 2002 has inc reas ed to $80,000.                                                                                and publications) from the IRS Web Site at
                                                           Government as its employ ee, you do not qualify
                                                           for the foreign earned income exclusion. Do not
Purpose of Form                                            file Form 2555-EZ.
If you qualify, you may use Form 2555-EZ instead                                                                    Waiver of Time Requirements
of Form 2555, Foreign Earned Inc ome, to exclude           Married Couples                                          If your tax home was in a foreign country and you
a l imited amount of your foreign earned income.                                                                    were a bona fide resident of, or physically pres ent
                                                           If both you and your spouse qualify for, and
You may not exclude more than your foreign                                                                          in, a foreign country and had to leave bec ause of
                                                           choose to claim, the foreign earned income
earned income for the year.                                                                                         war, civil unrest, or similar adverse conditions, the
                                                           exc lusion, figure the amount of the exclus ion
      Remember, U.S. citizens and U.S. resident            separately for each of you. You must each                minimum time requirements specified under the
aliens living in a foreign country are subject to the      complete separate Forms 2555-EZ.                         bona fide res idence and physical presence tests
same U.S. income tax laws that apply to citizens                                                                    may be waived. You must be able to show that you
and resident aliens living in the United States.           Community income. The amount of the                      reasonably could have expected to meet the
Foreign country. A foreign country is any                  exc lusion is not affected by the income-splitting       minimum time requirements i f you had not been
territory (including the air spac e, territorial waters,   provisions of community property laws. The sum           required to leave. Each year the IRS will publish in
seabed, and s ubsoil) under the sovereignty of a           of the amounts figured separately for each of you        the Internal Revenue Bulletin a list of countries
government other than the U nited States. It does          is the total amount excluded on a joint return.          and the dates they qualify for the waiver. If you lef t
not include U.S. possessions or territories.                                                                        one of the countries during the period indicated,
Note: Specific rules apply to determine if you are
                                                           Violation of Travel                                      you c an claim the foreign earned inc ome
                                                                                                                    exclusion on Form 2555-EZ, but only for the
a resident or nonresident alien of the United              Restrictions                                             number of days you were a bona fide resident of,
States. See Pub. 519, U.S. Tax Guide for Aliens,           Generally, if you were in a foreign c ountry in          or physic ally present in, the foreign country.
for details.                                               violation of U.S. travel restrictions, the following
                                                           rules apply.                                                  If you can claim the foreign earned income
Who Qualifies                                                                                                       exclusion because of the waiver of time
                                                                1. Any time spent in that country may not be        requirements, attac h a statement to your return
You may use Form 2555-EZ to claim the foreign              counted in determining if you qualify under the          explaining that you expec ted to meet the
earned income exclusion if all five of the following       bona fide residence or physic al presenc e tes t and     applicable time requirement, but the conditions in
apply.                                                          2. Any income earned in that country is not         the foreign country prevented you from the normal
    1. You meet the seven conditions listed at the         cons idered foreign earned income. See the list          c onduct of business. Also, enter “Claiming
top of Form 2555-EZ.                                       below for countries to which U.S. travel                 Waiver” in the top margin on page 1 of your 2002
    2. Your total foreign earned inc ome rec eived         restrictions apply.                                      Form 2555-EZ.
in 2002 is reported on Form 1040, line 7.
                                                                                                                    When To File
                     List of Countries To Which Travel Restrictions Apply                                           Form 1040 is generally due April 15, 2003.
                                              Time Periods                                                              However, you are automatically granted
                                                                                                                    a 2-month extension of time to file (to J une 16,
Country                                       Beginning                     and                     Ending
                                                                                                                    2003) if , on the due date of your return, you live
Cuba                                          January 1, 1987                                    Still in effec t   outside the U nited States and Puerto Ric o and
Iraq                                          Augus t 2, 1990                                    Still in effec t   your tax home (defined later) is outside the
                                                                                                                    United States and Puerto Rico. If you take this
Libya                                         January 1, 1987                                    Still in effec t

STF FED4601I.1
extension, you must attach a s tatement to your                                                                        To figure the minimum of 330 full days ’
return explaining that you meet these two
conditions .                                             Specific Instructions                                    pres ence, add all separate periods you were
                                                                                                                  pres ent in a foreign country during the 12-month
    The automatic 2-month extension also applies                                                                  period in which thos e days occurred. The 330 full
to paying the tax. However, interest is c harged on      Lines 1a and 1b                                          days may be interrupted by periods when you are
the unpaid tax from the regular due date until it is                                                              traveling over international waters or are otherwise
                                                         Bona Fide Residence Test                                 not in a foreign country. See Pub. 54 for more
paid.                                                    To meet this test, you must be one of the                information and examples.
Special extension of time. The first year you            following:
plan to take the foreign earned income exclusion,                                                                 Note: A nonresident alien who, with a U .S. citizen
                                                         c A U.S. c itizen who is a bona fide resident of a
you may not expect to qualify until after the                                                                     or U.S. resident alien spouse, choos es to be
                                                         foreign country, or countries, for an uninterrupted      taxed as a resident of the United States may
automatic 2-month extension period described             period that inc ludes an entire tax year (J anuary 1
above. If this oc curs, you may apply for an                                                                      qualify under this test if the time requirements are
                                                         - December 31) or                                        met. See Pub. 54 for details on how to make this
extension to a date after you expect to qualify.
                                                         c A U.S. resident alien who is a citizen or national     c hoic e.
     To apply for this extension, complete and f ile     of a c ountry with which the United States has an
Form 2350, Application for Extension of Time To
File U.S. Income Tax Return, with the Internal
                                                         income tax treaty in effect and who is a bona f ide      Line 3
                                                         resident of a foreign c ountry, or c ountries, for an
Revenue Service Center, Philadelphia, PA 19255,          uninterrupted period that includes an entire tax         Tax Home Test
before the due date of your return. Interest is          year (J anuary 1 - December 31). See Pub. 901,           To meet this test, your tax home must be in a
charged on the tax not paid by the regular due                                                                    foreign country, or countries, throughout your
                                                         U.S. Tax T reaties, for a list of countries with which
date as explained earlier.                               the United States has an income tax treaty in            period of bona fide residenc e or physical
                                                         effect.                                                  pres ence, whichever applies. For this purpose,
Choosing the Exclusion                                                                                            your period of physical presence is the 330 full
                                                              No specific rule determines if you are a bona
To choose the foreign earned income exclusion,                                                                    days during w hich you were present in a foreign
                                                         fide resident of a foreign country because the
complete the appropriate parts of Form 2555-EZ                                                                    c ountry, not the 12 consecutive months during
                                                         determination involves your intention about the
and file it with your Form 1040 or Form 1040X,                                                                    which those days occurred.
                                                         length and nature of your stay. Evidence of your
Amended U.S. Individual Income Tax Return. Your          intention may be your words and acts. If thes e               Your tax home is your regular or principal
initial choice to claim the exc lusion mus t usually     conflict, your acts c arry more weight than your         place of business, employm ent, or pos t of duty,
be made on a timely filed r eturn (inc luding                                                                     regardless of where you maintain your family
                                                         words. Generally, if you go to a foreign c ountry for
extensions) or on a return amending a timely                                                                      residence. If you do not have a regular or principal
                                                         a definite, temporary purpose and return to the
filed return. However, there are exceptions. See                                                                  place of business becaus e of the nature of your
                                                         United States after you acc omplish it, you are not
Pub. 54 for more information.                                                                                     trade or business, your tax home is your regular
                                                         a bona fide resident of the f oreign country. If
      Once you choose to claim the exc lusion, that      accomplishing the purpose requires an extended,          place of abode ( the place where you regularly
choice remains in effec t for that year and all future   indefinite stay, and you make your home in the           live).
years unless it is revoked. To revoke your c hoice,      foreign country, you may be a bona fide resident.             You are not considered to have a tax home in
you must attach a statement to your return for the       See Pub. 54 for more information and examples.           a foreign country for any period during which your
first year you do not wish to c laim the exclusion. If        If you s ubmitted a s tatement of nonresidence      abode is in the United States . However, if you are
you revoke your choice, you may not claim the            to the authorities of a foreign country in which you     temporarily pres ent in the United States, or you
exclusion for your next 5 tax years without the          earned income and the authorities hold that you          maintain a dwelling in the United States (whether
approval of the Internal Revenue Service. See            are not subject to their income tax laws by reason       or not that dwelling is used by your spouse and
Pub. 54 for details.                                     of nonresidency in the foreign country, you are not      dependents), it does not necessarily mean that
Earned income credit. You cannot take the                cons idered a bona fide resident of that country.        your abode is in the U nited States during that
earned income credit if you claim the exc lusion.             If you submitted such a statement and the           time.
Foreign tax credit or deduction. You may not             authorities have not made an advers e                    Example. You are employed on an offshore oil rig
claim a credit or deduction for foreign income           determination of your nonresident status, you are        in the territorial waters of a foreign country and
taxes paid on income you exc lude. If all of your        not considered a bona fide resident of that              work a 28-day on/28-day off schedule. You r eturn
foreign earned income is excluded, you may not           country.                                                 to your family residence in the United States
claim a credit or deduction for the foreign taxes                                                                 during your off periods. You are considered to
                                                         Line 1b. If you answered “Yes” on line 1a, enter
paid on that inc ome. If only part of your inc ome is                                                             have an abode in the U nited States and do not
                                                         the dates your bona fide res idence began and
excluded, you may not claim a credit or deduction                                                                 meet the tax home test. You may not claim the
                                                         ended. If you are still a bona fide resident, enter
for the foreign taxes allocable to the excluded          “Continues” in the spac e for the date your bona         foreign earned income exc lusion.
income. For details on how to figure the amount          fide residence ended.
allocable to the excluded income, see Pub. 514,                                                                   Line 12
Foreign Tax Credit for Individuals.                      Lines 2a and 2b                                          Complete c olumns (a) through (d) if you were
IRA deduction. If you claim the exclusion, special                                                                pres ent in the United States or any of its
rules apply in figuring the amount of your IRA           Physical Presence Test                                   possessions in 2002. Do not include time spent in
deduction. For details, see Pub. 590, Individual         To meet this test, you must be a U.S. citizen or         the United States or its possess ions before your
Retirement Arrangements (IRAs).                          resident alien who is physically present in a            period of bona fide residenc e or physical
                                                         foreign country, or countries, for at least 330 full     pres ence, whichever applies, began or af ter it
                                                         days during any period of 12 months in a row. A          ended.
                                                         full day means the 24-hour period that starts at         Column (d). Enter, in U.S. dollars, the amount of
                                                         midnight.                                                income earned in the U nited States on business
                                                                                                                  (suc h as meetings or conventions). Attac h a
                                                                                                                  s tatement s howing how you determined the amount.
                                                                                                                  Do not include this income on line 17. Even if you

STF FED4601I.2
live and work in a foreign country, any income          services you performed in a foreign country during     excluding under this rule, you may have to amend
earned during the time spent in the U nited States      the period for which you meet the tax home test        y our 2001 income tax return to adjust the amount
on business is considered U.S. source inc ome           and either the bona fide res idence test or the        c la imed. To do this, file Form 1040X.
and may not be excluded.                                physic al presence test.
                                                        c Wages, salaries, tips, and bonuses.
                                                                                                               Paperwork Reduction Act Notice. We ask for
Line 14                                                 c Noncash income (suc h as a home or car) if
                                                                                                               the information on this form to carry out the
Enter the number of days in your qualifying period      reported as income on Form 1040, line 7.               Internal Revenue laws of the United States. You
that fall within 2002. Your qualifying period is the    c Allowances or reimbursements if reported as
                                                                                                               are required to give us the information. We need it
period during which you meet the tax home test          income on Form 1040, line 7.
                                                                                                               to ensure that you are complying with these laws
and either the bona fide residence test or the               Foreign earned inc ome does not include —
                                                                                                               and to allow us to figure and c ollect the right
physical presence test.                                 c Amounts from line 12, column (d),
                                                                                                               amount of tax.
                                                        c Amounts paid to you by the U.S. Government or
Example. You establish a tax home and bona fide                                                                      You are not required to provide the information
                                                        any of its agencies if you were an employee of the
residenc e in a foreign country on Augus t 14,                                                                 requested on a form that is subjec t to the
                                                        U.S. Government or any of its agencies,
2002. You maintain the tax home and residence                                                                  Paperwork R eduction Act unless the form
                                                        c Amounts that are actually a dis tribution of
until January 31, 2004. The number of days in           corporate earnings or profits rather than a            displays a valid OMB control number. Books or
your qualifying period that fall within 2002 is 140     reasonable allowance as c ompensation for your         records relating to a form or its instructions must
(August 14 through December 31, 2002).                  personal s ervices, or                                 be retained as long as their contents may become
                                                        c Amounts received af ter the end of the tax year      material in the administration of any Internal
Line 17                                                 following the tax year in which you performed the      Revenue law. Generally, tax returns and return
Enter the total foreign earned income you earned        services.                                              information are confidential, as required by
and received in 2002. Report the amount in U.S.                                                                Internal Revenue Code section 6103.
                                                        Income earned in prior year. Foreign earned
dollars us ing the exchange rates in effec t when                                                                   The time needed to complete and file this
                                                        income received in 2002 for services you
you actually received the inc ome. Be s ure to report                                                          form will vary depending on individual
                                                        performed in 2001 may be exc luded from your
on Form 1040 all income you received in 2002                                                                   c ircumstanc es. The estimated average time is:
                                                        2002 gross income if, and to the extent, the
regardless of when you earned it.                                                                              Recordkeeping . . . . . . . . . . . . . . . . . . . 26 min.
                                                        income would have been exc ludable if you had
     Income is earned in the year you performed         received it in 2001.                                   Learning about the law or the
the services for which you received the pay. But if                                                            form . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 min.
                                                             If you are exc luding income under this rule,
you r eceived your last wage or salary payment for                                                             Preparing the form . . . . . . . . . . . . . . . . 42 min.
                                                        do not inc lude this income on line 17. Ins tead,
2001 in 2002 because of your employer’s payroll                                                                Copying, assembling, and
                                                        attac h a statement to Form 2555-EZ showing
period, that income may be treated as earned in                                                                sending the form to the IRS . . . . . . . . . 31 min.
                                                        how you figured the exclusion. Enter the amount
2002. If you c annot treat that wage or salary                                                                      If you have comments concerning the
                                                        that would have been excludable in 2001 on
payment as earned in 2002, the rules explained on                                                              accuracy of these time estimates or suggestions
                                                        Form 2555-EZ to the left of line 18. Next to the
this page under Income earned in prior year                                                                    for making this form s impler, we would be
                                                        amount enter “Exclusion of Income Earned in
apply. See Pub. 54 for more details.                                                                           happy to hear from you. See the Instructions for
                                                        2001.” Include it in the total r eported on line 18.
Foreign earned income. For purpos es of this                                                                   Form 1040.
                                                        Note: If y ou c la imed any deduction, credit, or
form, foreign earned inc ome means only the
                                                        exclusion on your 2001 return that is defin itely
following types of inc ome received for personal
                                                        related to the 2001 foreign earned income you are

STF FED4601I.3

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