Is a child of US expatriates attending university in the US still a foreign resident?

[MarkLondon]

Our 19 year old son lived offshore in the UK with us for three years before starting university in the US last year.  He is still considered a UK resident (under UK rules) because, in the UK, students living away from home while in university are resident at their parent's home as long as they are supported by their parents.  From reading posts related to students attending university in a US state different from their parents, it seems the child is  resident of their parents' state as long as they are still dependents of the parents.  Our son is still our dependent, however because he has earned income he has to file his own tax return.

Our son has income from his summer job in the UK and also income from a school job in the US.  If he is considered resident with his parents in the UK, we presume he would file a non-resident state tax return for his school job income.  Is that right?

But what about his summer UK earnings?  Despite spending nine months in the US going to school, does he still qualify as a bona fide non-US resident and entitled to the foreign income exclusion on the earnings from his UK job? He came back to the UK regularly on school breaks and during the summer.

[DaveF1006]

No, he wouldn't qualify for a Foreign Income Exclusion because he does not meet the Physical Presence Test during the year.

According to the IRS, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period including some part of the year at issue. You can count days you spent abroad for any reason, so long as your tax home is in a foreign country. Please see this IRS link for further details.

As far as to report his US earnings, he would report these as a US non resident.  If he files this, he can do so through sprintax.com.

[MarkLondon]

But what about the Bona Fide Residence Test? My son has been a full time resident of the UK since 2018 including a full calendar year (2019 and 2020).  His ties are to the UK (this is where his primary residence is), he returns to the UK for school breaks and intends to return to the UK once school is completed. He also has bank and investment accounts in the UK an has earned income in the UK through summer jobs.  He has a residence visa and is permitted to work in the UK.

While he won't meet the Physical Presence test, I think he meets the bona fide residence test but that's why I'm pinging this group.

[DaveF1006]

To qualify for the Foreign income Exclusion, he must meet the requirements for the Physical Presence Test or the Bona fide Residence Test. Now we know that he is does not meet the requirement for the Physical Presence Test, let's see if he qualifies under the Bona Fide Resident test.

According to IRS and their explanation of the Bona Fide Resident Test, you can use the bona fide residence test to qualify for the foreign earned income exclusion, the foreign housing exclusion and/or the foreign housing deduction only if you are either:

• A U.S. citizen, or
• A U.S. resident within the meaning of Internal Revenue Code (IRC) section 7701(b)(1)(A) who is a citizen or national of a country with which the United States has an income tax treaty in effect.

We know he is not a US Citizen but let's click on the link above to see if he qualifies as a US resident. In the link, it states that he is a resident if he meets the green card test or substantial presence test. Based on what you tell me, it sounds like he might be qualified in this test. 

According to the IRS, To qualify for bona fide residence, you must reside in a foreign country for an uninterrupted period that includes an entire tax year. An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business. You can read this by clicking on the Bona Fide Resident Test listed above. 

This is the opposite from what your son is doing. He is living in the US for 9 months on a student visa I assume and returning home to the UK during the summer.  Based on this, he does not meet the requirements for the test thus cannot claim the foreign income exclusion.

Hopefully I have laid the groundwork for your answer. Also I am not sure with his student visa if he declared himself an exempt individual from US taxation. There are a few caveats for foreign students coming to the US to pursue their educational goals. 

[MarkLondon]

I don’t think you have the facts right.  My son is a US citizen and has residency in the UK.  His legal address is his parents house in the UK.  He has right of abode and right to work in the UK.  

He has been a resident of the UK since 2018 and satisfied the requirements of bona fide residency in 2019 and 2020.  He graduated from high school in the UK in May 2021 and started college in the US in August 2021.  As a US citizen he does not need a US visa.  

He returned to the UK for a month over the XMAS holidays, will return to the UK for spring break and then return to the UK for summer break in 2022.  The UK is his home.  In the US he lives in the dorms.

He is a dependent of his parents who meet the bona fide resident test.  

So the question is whether attending college in the US with all permanent ties to the UK and with the intent to return home to the UK on a continuous basis constitutes a temporary visit under the bona fide residency test which entitles him to take the foreign income exclusion for his UK earned income from his summer jobs?

[Vanessa A]

No, he would not meet the foreign residency test if he is attending college in the US.  In order to maintain this status, you must be physically present in the foreign country for 330 days. Since he was in the US for 5 months in 2021, he would not qualify as an expat for 2021.

"You do not meet the physical presence test if you are not present in a foreign country or countries for at 330 full days in a 12-month period regardless of the reason for the failure, including illness, family problems, a vacation, or your employer's orders." 

[MarkLondon]

Vanessa - you are correct regarding the physical presence test, but there are completely different rules if you use the bona fide residence test.  Either test is permitted for the foreign income exclusion.  My son met the bona fide residence test for 2018, 2019 and 2020.  We're trying to figure out if attending college is a temporary absence under the bona fide residence test for 2021.

[DaveF1006]

I stick by my original statement that I quoted above. According to the IRS, To qualify for bona fide residence,  you must reside in a foreign country for an uninterrupted period that includes an entire tax year. An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business. Please read the Bona Fide Resident Test in it's entirety.

There does not appear to be an exception listed for attending college and attending college does not qualify as a brief or temporary trip back to the United States. Under these conditions, he will not qualify to claim a Foreign income Exclusion based on the Bona Fide Resident Test.

@MarkLondon