Anyone know what is required to prove to IRS or CRA that you have established residency in another country? For example, if I lived in the Philippines I would probably keep renewing my tourist visa by leaving the country every two months. This seems a lot easier than arranging some other type of visa which based on my readings seems to be a hassle. Would the stamps on my passport be enough proof? Anyone know?

SALover

I don't have an answer to your question, but am curious as to what tax benefits you are expecting to receive from the IRS as a result of establishing residency in another country?

I have lived in Mexico for the past five years. You declare your residency to the IRS on your tax return every year. Typically, most use the IRS' bona fide residence test. Find out more about it here: id=96960%2C00.html,http://www.irs.gov/businesses/small/international/article/0,,id=96960,00.html

The biggest advantage is you do not pay U.S. income tax on foreign earned income up to $80,000. You are still responsible for taxes on any income earned in the U.S.

I'm not a tax accountant, nor do I play one on TV so do not take my word as gospel.

EA

"I'm not a tax accountant, nor do I play one on TV so do not take my word as gospel."

But did you stay at a Holiday Inn Express?

The requirements for residency in a foreign country to qualify for the income exclusion are fairly stringent. You definitely want to talk with a tax expert (and not just the putz that works at H&R Block).

Your entry and exit stamps may be good enough, but you would probably need to be able to demonstrate that you spent at least 330 days of the tax year in the Philippines to qualify. Otherwise you're taxed just like you lived in the States.

The reason I asked the question above is that it is hard to spin a legitimate scenario where you are making earned income that meets the IRS requirements for the income exclusion while at the same time you are on a tourist visa, which presumably precludes legally making earned income in the foreign country.

One thing Bwana mentions that might require further clarification is the statement that one would have to spend at least 330 days of the tax year in the Philippines to qualify. I suspect, but don't know for sure, that the requirement is 330 days out of the United States, not necessarily spent exclusively in a particular foreign country the whole time.

Bwana's correctly about the 330 days. They must be spent out of the U.S., not in a particular country. On my tax return, I must document each trip I make to the U.S., it's length and purpose. I do not have to submit any evidence of these trips. I have never had to show the IRS my work visa in Mexico, nor do I have to include a certified copy with my tax returns. (I have also never been audited - knock on wood - so don't know if I'd have to show these items in that instance.) There are actually two tests the IRS applies - the bona fide resident test or the physical presence test. Read about them and more here: id=97130%2C00.html,http://www.irs.ustreas.gov/businesses/small/international/article/0,,id=97130,00.html

It's not hard to imagine a scenario about making earned income outside of the U.S - I do it everyday. It IS difficult to imagine a scenario of doing so without a legitimate work visa in an appropriate country. But, of course, that happens daily as well.

If you want to stay legitimate it is not hard to comply with IRS regs - particularly if you earn less than $80,000 per year which I unfortunately do. I do know several expats who have "fallen off the grid" with the IRS. They do not claim their foreign earned income or do not file U.S. based tax returns at all. They are indeed playing with an evil and vengeful bitch. The IRS WILL bite them in the ass one day and it will not be pleasant for them. That is a dangerous game I am unwilling to play.

Again, talk to someone who really knows for I haven't even stayed at a Holiday Inn Express.

EA

Actually the reason why I asked the question is because I am thinking of converting my 401K to Roth IRA this year to take advantage of removal of the income threshold restriction which will be waived for this year only. Also, the “income” hit from converting 401K to Roth IRA can be split 50/50 over 2011 and 2012. Once money is in Roth IRA it will grow tax free and it is much more flexible as it is not bound by distribution rules. Canada will honor the intent of Roth IRA but only if the conversion is done while not a resident of Canada. So my question was really related to how to prove to CRA (Canada Revenue Agency) that I am a non resident of Canada. I would think whatever passes muster with IRS would probably be okay with CRA also.

SALover

I wouldn't even hazard a guess about Canadian tax law. As before, I suggest you contact a tax attorney. Sorry...Canadian residency rules, as relevant to tax issues, may be quite different from US rules.

The amount is now $91,400. Details are here:

id=97130%2C00.html,http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html