My friend went to work in Egypt in May 2006. I know that he was wanting to exclude the maximum amount of income allowed. Due to his father's illness he has come back recently. For a Bona Fide Resident would his time start at January '07 ending December 31, 2007 to exclude for '07? Since he went in May '06 - I didn't think that he would qualify for the exclusion for '06 income because he would not have satisfied the entire tax year of 1/1 to 12/31 and partial years don't count. He is suppose to be there for 24 months. That would go up to May of '08 which is another partial year. Please set me straight. Thanks
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Your friend would not meet the bona fide resident test for 2006, but it is possible he might meet the physical presence test, depending upon the circumstances (see TTB page 14-10).
Under the physical presence test, you have to be physically present in a foreign country at least 330 full days in a period of 12 consecutive months. The 330 full days do not have to be consecutive.
So let’s say your friend was physically present in Egypt starting May 1, 2006. Due to his fathers illness, he came home September 1, 2006 and stayed here in the U.S. 30 full days. Then he returns to Egypt starting October 1, 2006, where he picks up his employment and remains in Egypt until April 30, 2007, at which time he returns home to the U.S. and does not return to Egypt.
He meets the physical presence test for both tax year 2006 and 2007 because between May 1, 2006, and April 30, 2007, he was physically present in Egypt for 335 full days (365 minus 30). Since he was not physically present for a full year in a foreign country for either 2006 or 2007, he would have to pro-rate his foreign earned income exclusion. For example, in your friend's case, he is physically present in a foreign country for 7 months during 2006. He qualifies for an up to $46,667 foreign earned income exclusion in 2006 ($80,000 max X 7 months divided by 12 months).
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