The Bona Fide Residence Test: Common Mistakes That Cost Expats the FEIE

The Bona Fide Residence Test requires that you have a bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, but a handful of common mistakes cause expats to fail the test and lose the Foreign Earned Income Exclusion. The most frequent mistake is telling the foreign government you are only a temporary resident, perhaps to maintain a simpler immigration status or reduce local taxes: if you tell the local tax authority you are not a tax resident, the IRS uses that statement against you in determining bona fide residence. Returning to the US for extended visits can also break the continuity of your foreign residence, especially if those visits suggest you are maintaining a US home base. Working under a fixed-term contract with a specific end date can indicate that your residence is temporary rather than indefinite, which is a factor against bona fide status. Expats who prefer the Bona Fide Residence Test over the Physical Presence Test should document their ties to the foreign country carefully, including a housing lease, local bank accounts, local driver's license, and anything else that demonstrates genuine, settled residence.