Automatic two-month extension to file return for those with tax homes outside the United States and Puerto Rico.

Regs. Sec. 1.6081-5 gives an automatic two-month extension of time for filing an income tax return and paying tax to U.S. citizens or residents whose tax homes and abodes, in a real and substantial sense, are outside the United States and Puerto Rico. Qualified taxpayers can file and pay the owed on June 15, instead of April 15. No application is needed for this special extension, but a statement must be attached to the taxpayer's return showing that he is a qualified individual. (Those who are temporarily out of the country must file a Form 4868, Application for Automatic Extension of Time to File U.S. Individuals Income Tax Return, to request an extension and must deposit at least 90% of the tax ultimately due by April 15 to validate the extension).

Definition of tax home

The term "tax home" has the same meaning it has for Sec. 162(a)(2), relating to the deduction of travel expenses away from home. It is (1) the taxpayer's regular or principal (if more than one) place of business, or (2) if the taxpayer has no regular or principal place of business, his regular place of abode in a real and substantial sense.

A taxpayer is not considered to have moved his "home" when on a temporary (as opposed to an indefinite or permanent) work assignment away from the regular place of employment. An assignment is temporary if its termination can be foreseen within a reasonably short period of time. Thus, a U.S. citizen or resident on an overseas assignment that will only last for a short period of time may be away from home temporarily and not eligible for the automatic extension.

But how long an assignment is needed to exceed the Sec. 162 concept of "temporary" for this purpose? On Oct. 24, 1992, the Energy Policy Act of 1992 changed Sec. 162(a)(2) to restrict the deduction of travel expenses away from home to assignments lasting one year or less. In other words, any overseas assignment that lasts more than one year is now considered indefinite and permanent; the taxpayer on such assignment will be deemed to have moved his tax home overseas. Based on the guidelines in Rev. Rul. 83-82, if a taxpayer anticipates an overseas assignment to last for less than one year, whether the employment is temporary will be determined on the basis of the facts and circumstances.

Observation

For an assignment lasting less than a year, whether a taxpayer has moved his tax home overseas must be determined from the facts and circumstances. Some taxpayers may want to structure foreign assignments to have a foreign tax home, so they can claim the cash flow advantage of the filling and payment extension. (Note that the extension does not change the obligation to make a first quarter estimated tax payment for the current year on March 15.) But a foreign tax home may not be desirable to acquire from another viewpoint, i.e., the ability to claim travel and living expenses during temporary assignments away from home. Such situations require a detailed review of the benefits available under Sec. 911.