Revenue Ruling 83-23: The Expat Statement Rule

An Internal Revenue Service (IRS) interpretation addresses the U.S. tax residency status of American citizens living abroad. The guidance clarifies how a specific action can jeopardize an individual’s ability to claim tax benefits designed for expatriates. Its primary function is to prevent a taxpayer from claiming to be a non-resident of a foreign country to avoid that country’s taxes, while simultaneously claiming to be a resident of that same country to gain advantages on their U.S. tax return.

The Statement of Non-Residency Rule Explained

This IRS position is triggered when a U.S. citizen makes a statement to a foreign country’s authorities declaring they are not a resident. This action is interpreted by the IRS as being inconsistent with establishing a bona fide residence in that foreign nation. A statement can be as simple as checking a box on a foreign income tax return, submitting a form to claim a non-resident tax exemption, or making a formal declaration to an immigration office.

The term “foreign authority” is broad, encompassing any official government body of the foreign country. This includes national, provincial, or local tax offices, as well as immigration departments or any other government agency that deals with residency status. The key element is that the U.S. citizen has represented themselves as a non-resident to the foreign government, which then does not subject them to its tax laws as a resident.

Impact on Foreign Earned Income Exclusion

The most direct consequence of making a statement of non-residency relates to the Foreign Earned Income Exclusion (FEIE). The FEIE allows qualifying taxpayers to exclude a significant portion of their foreign-earned income from U.S. income tax. To qualify for the FEIE, a taxpayer must have a tax home in a foreign country and meet either the bona fide residence test or the physical presence test.

The bona fide residence test requires an individual to be a resident of a foreign country for an uninterrupted period that includes an entire tax year. Making a statement of non-residency to a foreign government directly undermines a taxpayer’s ability to meet this test. An individual cannot assert to a foreign government that they are a non-resident for that country’s tax purposes and then assert to the IRS that they are a bona fide resident of that same country. This act is viewed as conclusive evidence that the taxpayer has not established bona fide residence.

This rule does not automatically disqualify a taxpayer from claiming the FEIE. The exclusion remains available if the taxpayer can meet the physical presence test. This alternative is based on the number of days spent abroad, requiring a taxpayer to be physically present in a foreign country for at least 330 full days during any 12-month period to qualify, regardless of statements made about residency.

Interaction with Tax Treaties

The non-residency statement rule can be modified by an income tax treaty between the United States and the foreign country. Many U.S. tax treaties contain provisions to resolve situations where a person might be considered a resident of both countries. These provisions, called “tie-breaker” rules, establish a series of tests to assign tax residency to just one of the two countries.

These tie-breaker rules examine a hierarchy of factors, including:

• Where the individual has a permanent home available
• The location of their center of vital economic and personal interests
• Where they have a habitual abode
• Their citizenship

The outcome of these treaty rules can override the statement rule. If a U.S. citizen makes a non-residency statement, but the treaty’s tie-breaker rules determine them to be a resident of the foreign country, the IRS will generally respect this determination.

This treaty-based outcome preserves the individual’s ability to meet the bona fide residence test for the FEIE. Because the treaty’s determination of residency takes precedence, the individual could still claim to be a bona fide resident of the foreign country and qualify for the FEIE under that test.