Bona Fide Residence and Physical Presence Test
So what is the bona fide Residence test and physical presence test that you have to pass to claim foreign income exclusion or a foreign housing exclusion?
The physical presence is test is actually a simple one. The basis of the test is just number of days. If you are a US citizen or a resident alien and physically present at least 330 out of the annual tax year of 365 days in a foreign country or countries then you pass the physically present test. The days on which you are in US due to family issues, health issues, assignment from employer or vacation will not count. The 330 days need not be consecutive and the purpose for being in the foreign nation can be any not just work related.
The Bona Fide residence test is not so simple. The requirements for you to qualify as a bona fide resident of a foreign nation are:
You should have no future plan to come back to US. This means that your foreign work should not be of a definite time. If you are sent to an alien country for a predefined period then that means you would be coming back to US and in that case you are not bona fide resident. If your work arrangement says you have been sent for unlimited period then after one year you can qualify for bona fide resident.
You need to be a US citizen or a resident alien.
The IRS needs to verify your intentions and motives for residing in the foreign country, if they are convinced you are resident worthy depending upon your actions, reason for the trip and the time duration for which you have been there then you can qualify as resident worthy.
The duration of your stay in the foreign country must be at least the complete tax year.
If you qualify all the above criteria than you can apply for a bona fide resident test and chances are you will pass it. Then you would be eligible for exclusions on foreign earned income.