Topic 48 - U.S. Taxpayers Living Abroad

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You will need IRS Publication 54 and FTB Publication 1031 to complete this topic.

Answer the following questions as accurately as possible.

1. As a U.S. citizen or resident alien, your worldwide income generally is subject to U.S. income tax, regardless of where you are living.

True False

2. An individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year.

a. A temporary resident.
b. A U.S. citizen.
c. A resident alien.
d. A permanent resident.

3. To be considered a resident alien an individual must meet which test (s)?

a. The green card test only.
b. The substantial presence test only.
c. Either the green card test or the substantial presence test.
d. No test is needed as long as the individual has U.S. income.

4. You are considered a U.S. resident if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least

a. 31 days during the current year.
b. 183 days during the current year and the 2 preceding years.
c. Counting all the days of physical presence in the current year, but only 1/3 the days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year.
d. All of the above.

5. Juan was physically present in the United States on 120 days in each 2005, 2006, and 2007. To determine if Juan meets the substantial presence test for 2007, count the full 120 days of presence in 2007, 40 days in 2006 (1/3 of 120) and 20 days in 2005 (1/6 of 120). As a result

a. Juan is considered a resident under the substantial presence test for 2007.
b. Juan is not considered a resident under the substantial presence test for 2007.
c. Juan's total for the 3-year period was 183 days so he is not considered a resident under the substantial presence test for 2007.
d. None of the above.

6. If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and for paying estimated tax are generally the same whether you are in the United States or abroad.

True False

7. Your income, filing status, and age generally determine whether you must file an income tax return. If you are single, age 27, you must file an income tax return if your income from worldwide sources is at least

a. $10,050.
b. $8,750.
c. $11,250.
d. $17,500.

8. You must make all federal income tax determinations in your functional currency. The U.S. dollar is the functional currency for all taxpayers except some qualified business units (QBUs). A QBU is a separate and clearly identified unit of a trade or business that maintains separate books and records. Even if you have a QBU, you functional currency is the dollar if

a. You conduct the business in dollars and the principal place of business is located in the United States.
b. You choose to or are required to use the dollar as your functional currency.
c. The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities are conducted.
d. Any of the above.

9. Make all income tax determinations in your functional currency. Use the exchange rate prevailing when you receive, pay, or accrue the item. If there is more than one exchange rate, 

a. Use the rate that is higher and more advantageous.
b. Use the rate that was previously approved by the IRS.
c. Use the rate that most properly reflects your income.
d. Either A or B are correct.

10. If your functional currency if not the U.S. dollar, make all income tax determinations in your functional currency. At the end of the year,

a. Report your income in your currency and write in red ink "Used my currency" across the top of the first page of your return.
b. Translate the results, such as income or loss, into U.S. dollars to report on your income tax return.
c. Postpone the reporting of the income until functional currency can be determined.
d. None of the above.

11. If, because of restrictions in a foreign country, your income is not readily convertible into U.S. dollars or into other money or property that is readily convertible into U.S. dollars or into other money or property that is readily convertible into U.S. dollars, your income is "blocked" or "deferrable" income. You can

a. Report the income and pay your federal income tax with U.S. dollars that you have in the United States or in some other country.
b. Postpone the reporting of the income until it becomes unblocked.
c. Use the one that most properly reflects your income.
d. Either A or B above.

12. If you choose to postpone the reporting of foreign income that is blocked, you must file an information return with your tax return. For this information return, you should use

a. Form 673.
b. Form 2555 or Form 2555-EZ.
c. Another Form 1040 labeled "Report of Deferrable Foreign Income, pursuant to Rev. Rul. 74-351".
d. All of the above.

13. If you choose to postpone reporting blocked income and in a later year you wish to begin including it in gross income although it is still blocked, you

a. Must obtain the permission of the IRS to do so.
b. Must file Form 2555  or Form 2555-EZ.
c. Should check to see whether that income is still blocked.
d. Must figure the amount you can pay to the IRS in nonconvertible foreign currency.

14. Returns with a foreign address cannot be e-filed.

True False

15. If, at the end of the tax year, you are married and one spouse is a U.S. citizen, or resident alien and the other is a nonresident alien, you can choose to treat the nonresident as a U.S. resident. If you make this choice, 

a. You and your spouse are treated, for income tax purposes, as residents for all tax years that the choice is in effect.
b. You must file a joint income tax return for the year you make the choice.
c. Neither of you can claim tax treaty benefits as a resident of a foreign country for a tax year for which the choice is in effect.
d. All of the above.

16. If you do not choose to treat your non-resident alien spouse as a U.S. resident, you may be able to use the

a. Single filing status.
b. Head of Household filing status.
c. Married filing jointly filing status.
d. Any of the above.

17. Sarah Jimenez, a U.S. citizen, is married to Arcadio, a non-resident alien. Sarah and Arcadio make the choice to treat Arcadio as a resident alien by attaching a statement to their joint return. Sarah and Arcadio must report their worldwide income for the year they make the choice and for all later years unless the choice is ended or suspended. For the year they make the choice, Sarah and Arcadio

a. Must file separate returns.
b. Can file either joint or separate returns.
c. Must file a joint return.
d. None of the above.

18. If you choose to treat your non-resident alien spouse as a U.S. resident attach a statement, signed by both spouses to your joint return for the first tax year for which the choice applies. The statement should contain

a. A declaration that one spouse was a non-resident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year.
b. A declaration that you choose to be treated as U.S. residents for the entire tax year.
c. The name, address, and social security number (or individual taxpayer identification number) of each spouse.
d. All of the above.

19. The choice to be treated as a resident alien does not apply to any later tax year if neither of you is a U.S. citizen or resident alien at any time during the later tax year.

True False

20. Once made, the choice to be treated as a resident applies to all later years and cannot be suspended.

True False

21. In general, U.S. social security and Medicare taxes do not apply to wages for services you perform as an employee outside of the United States unless

a. You perform the services on or in connection with an American vessel or aircraft and either you entered into your employment contract in the U.S. or the vessel or aircraft touches at a U.S. port while you are employed on it.
b. You are working in one of the countries with which the U.S. has entered into a bi-national social security agreement.
c. You are working for a U.S. employer or you are working for a foreign affiliate of an American employer under a voluntary agreement entered into between the U.S. employer on the U.S. Treasury Department.
d. Any of the above.

22. A U.S. employer does not include

a. The U.S. government or any of its instrumentalities.
b. A partnership of which at least two-thirds of the partners are U.S. residents.
c. A trust of which all the trustees are U.S. residents.
d. None of the above.

23. 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. As a result,

a. You can claim the foreign earned income exclusion.
b. You can claim the foreign housing exclusion or deduction.
c. You cannot claim either of the exclusions or the housing deductions.
d. None of the above.

24. You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country, and

a. The authorities hold that you are not subject to their income tax laws as a resident.
b. The authorities have not made a final decision on your status.
c. The authorities have an international agreement that will not itself prevent you from being a bona fide resident of a foreign country.
d. Both A and B above.

25. This is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. It is also the place where you are permanently or indefinitely engaged to work as an employee or a self-employed individual.

a. Your residence.
b. Your tax home.
c. Your country.
d. None of the above.

26. You are in business abroad as a consultant and qualify for the foreign earned income exclusion. Your foreign earned income is $95,000, your business deductions total $27,000 and your net profit is $68,000.

a. You don't need to pay self-employment tax on all of your net profit because the income from abroad is an amount you can exclude. 
b. You must pay self-employment tax on all of your net profit, including the amount you can exclude from income.
c. You must pay self-employment tax on all of your net profit, except on the amount you can exclude from income.
d. None of the above.

27. If you are present in a foreign country in violation of U.S. law, you will not be treated as a bona fide resident of a foreign country or as physically present in a foreign country while you are in violation of law.

True False

28. Foreign earned income includes the following amounts.

a. The value of meals an lodging that you exclude from your income because it was furnished for the convenience of your employer.
b. Pension or annuity payments you receive, including social security benefits.
c. Pay you receive as an employee of the U.S. government.
d. None of the above.

29. The foreign earned income exclusion is voluntary. You can choose the exclusion by completing the appropriate parts of Form 2555. Your initial choice of the exclusion on Form 2555 (or Form 2555-EZ) generally must be made with 

a. A return filed by the due date (including any extensions).
b. A return amending a timely-filed return.
c. A return filed within 1 year from the original due date of the return (determined without regard to any extensions).
d. Any of the above.

30. You can take either a credit or a deduction for income taxes paid to a foreign country or a U.S. possession.

True False

31. Generally, your state of reference is where you have your closest connections.

True False

32. Until September 2007, you were a resident of California. At that time, you declared yourself to be a resident of Nevada, where you have a summer home. You continue to spend six or seven months each year at your home in California, which you have retained. You spend only three to four months in Nevada and the rest of the time traveling in other states or countries. You transferred your bank accounts to Nevada. However, you continue to maintain your social club and business connections in California. As a result,

a. Your declaration of residency in another state establishes residency in that state.
b. Your bank accounts are in Nevada so your connections are now in a new state and thus you are a resident of Nevada now.
c. You are a resident of California and are taxed on your income from all sources.
d. None of the above.

33. You are a California resident. As a representative for your employer, you spent two weeks in Georgia to give training. You were paid by a Georgia corporation while you were in Georgia. As a result,

a. Because you were a California resident, you are taxed on all income, regardless of source.
b. The income is taxable by California, even though it has a source in Georgia.
c. The income is non-taxable by California since it has a source in Georgia.
d. Both A and B above.

34. The gain or loss from the sale of real estate has a source where the property is located. If you sell your California real estate and move out of state, the gain is taxable by California.

True False

35. If you are a resident of a foreign country and perform services in California and/or receive income from California sources, you do not have a California income tax filing requirement if you do not have a federal filing requirement.

True False

36. A tax treaty between the U.S. government and a foreign country may exempt some types of income from federal taxation. Generally, unless the treaty specifically excludes the income from taxation by California, the income is taxable for California.

True False

37. Tax treaties between the United States and other countries which expressly limit their application to federal income taxes also apply to California.

True False

38. California does not allow a foreign tax credit or a foreign earned income exclusion.

True False

39. Flight personnel who are California residents are taxed on all wages received regardless of where the flight time is spent.

True False

40. Avoid making time-consuming and costly mistakes by reporting your AGI from all sources as if you were a resident of California for the entire year.

True False