Rev. Rul. 55-171

SECTION 1. PURPOSE.

The purpose of this Revenue Ruling is to supersede Revenue Ruling 291, C.B. 1953-2, 42 (published also as a pamphlet entitled Income Tax Guides for United States Citizens Abroad ) and in conformity with the Internal Revenue Code of 1954 to include additional information for use in providing assistance and guidance to United States citizens, residing or physically present in foreign countries, in the preparation of their Federal income tax returns.

SEC. 2. SCOPE.

The information set forth herein relates only to the tax problems peculiar to United States citizens residing or physically present in foreign countries for taxable years beginning on or after January 1, 1951, and is intended to supplement information issued by the Internal Revenue Service for taxpayers generally. Therefore, in the preparation of their Federal income tax returns and other forms, such citizens should follow the instructions issued in connection with the forms insofar as they are applicable. The guides set forth in this Revenue Ruling do NOT apply to (1) taxable years beginning prior to January 1, 1951, except to the extent hereinafter noted; (2) resident aliens temporarily absent from the United States; and (3) citizens performing civilian or military services for the United States or any agency or instrumentality thereof. A resident alien temporarily absent from the United States is, in general, taxable on income derived from all sources. Compensation for personal services performed by a citizen as an employee of the United States, or any agency or instrumentality thereof, is required to be included in gross income regardless of where the services are performed. (For Federal income tax purposes, the nonappropriated fund activities of the Armed Forces, such as the Army and Air Force Exchange Service, the Navy Exchange, officers' and enlisted men's clubs and other similarly organized activities under the jurisdiction of the Armed Forces, are agencies of the United States.)

SEC. 3. APPLICABILITY OF TAX TO UNITED STATES CITIZENS ABROAD.

.01 Taxable years beginning on or after January 1, 1954, and ending after August 16, 1954 .-The right of the United States to impose income tax upon its citizens, wherever resident, is based on citizenship. United States citizens residing or physically present in foreign countries are taxable in the same manner as those residing within the United States, unless they can satisfy the requirements of section 911 of the Internal Revenue Code of 1954 . If the citizen meets either the `foreign residence' test or the `presence in a foreign country' test provided by section 911, he is entitled to exclude from gross income amounts received as `earned income' for personal services rendered outside the United States.

.02 Taxable years beginning on or after January 1, 1951, and fiscal years ending in 1954 .-Section 116(a) of the Internal Revenue Code of 1939, as amended by the Revenue Act of 1951 and the Technical Changes Act of 1953, is, in substance, identical with section 911 of the 1954 Code, except that in the definition of earned income, in a situation where both personal services and capital are material income-producing factors, the limitation is 20 percent, as contrasted to 30 percent under the present law.

SEC. 4. EXCLUSION UNDER SECTION 911(a)(1) BASED UPON BONA FIDE RESIDENCE IN FOREIGN COUNTRIES.

01 General .-A United States citizen is entitled to exclude from gross income under section 911(a)(1) of the 1954 Code, his `earned income' (as defined in sec. 7 of this Revenue Ruling) if-

(a) He has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year; and

(b) Such income is-

(1) Received for personal services rendered outside the United States;

(2) Attributable to such uninterrupted period; and

(3) Not paid by the United States or any agency or instrumentality thereof.

All of these requirements must be met by the citizen in order to claim the exclusion from gross income. For example, a privately employed citizen was a bona fide resident of a foreign country for an uninterrupted period, as hereinafter defined, beginning August 1, 1952, and ending June 30, 1954, and files his returns on the calendar year basis. He is entitled to exclude from gross income the amount of compensation received for personal services rendered abroad during such period. (These same rules are also applicable to taxable years beginning on or after January 1, 1951, which fall within the scope of the 1939 Code. See par. .04 of this section for rules applicable to prior taxable years.)

.02 Bona fide foreign residence .-No specific rule can be stated for determining whether a United States citizen is a bona fide resident of a foreign country, since it involves his intentions with respect to the length and nature of his stay. The intention of the taxpayer to establish a bona fide residence in a foreign country may be evidenced by words and acts, but where they conflict, more emphasis will be placed on the acts than on the words. Generally, a citizen who goes to a foreign country for a definite purpose, which is of a temporary nature, and who returns to the United States after it has been accomplished, is not a bona fide resident of such foreign country. However, if his purpose is of such a nature that an extended and indefinite stay may be necessary for its accomplishment, and to that end he establishes residence in the foreign country, he may be a bona fide resident of such foreign country for Federal income tax purposes. For example, American citizens who go to foreign countries to work on construction projects, which are obviously of a temporary nature, cannot be classified as bona fide residents of such countries for the purposes of section 911(a)(1) of the 1954 Code, even though they remain abroad for an entire taxable year or longer. (For information as to whether the `earned income' attributable to such personal services rendered abroad is excludable under the `presence in a foreign country' rule, see sec. 5 of this Revenue Ruling.) However, citizens of the United States who are permanently assigned to foreign divisions of business concerns and who establish and maintain their residence in a foreign country or countries for a period of indefinite duration may be classified as bona fide residents of a foreign country or countries for the purposes of section 911(a)(1) of the 1954 Code.

.03 Temporary absence from foreign country .-Once bona fide residence in a foreign country or countries has been established, temporary visits to the United States or elsewhere on vacation or business trips will not necessarily deprive the citizen of his STATUS as a bona fide resident of a foreign country. (But see sec. 8 of this Revenue Ruling for the effect of such trips on source of income.) Such absences must not be unreasonable in length, there must be full intention on the part of the individual to return to his foreign post, and there must be substantial evidence that the foreign residence has not been relinquished. Long periods of time spent in the United States or any possessions thereof would be considered as evidence that the citizen had relinquished bona fide residence in a foreign country.

.04 Prior law relating to `bona fide foreign residence .'-For taxable years beginning on or after January 1, 1951, which are subject to the provisions of the 1939 Code, the law in effect with respect to the exclusion under the `bona fide foreign residence' rule was, in substance, identical with such exclusion under section 911(a)(1) of the 1954 Code, except for the revision from 20 percent to 30 percent regarding the definition of `earned income.' (See sec. 7.02 of this Revenue Ruling.) Under the law in effect prior to January 1, 1951 (and after 1942), a United States citizen was permitted to exclude earned income from sources outside the United States if he had been a bona fide resident of a foreign country or countries `during the entire taxable year.' Therefore, a citizen who established residence in a foreign country in the course of the taxable year was not entitled to such exclusion for such taxable year. However, if he had been a bona fide resident of a foreign country or countries for a period of at least two years before the date on which he ceased to be resident of such foreign country or countries, he could exclude from gross income, for the year in which he relinquished his foreign residence, earned income from sources outside the United States attributable to that part of such period of foreign residence before the date of relinquishment. However, under section 116(a)(1) of the 1939 Code, as amended by the Revenue Act of 1951, a citizen who was a bona fide resident of a foreign country or countries for an uninterrupted period which included an entire taxable year is entitled to exclude from gross income the amount of compensation received on or after January 1, 1951, for personal services rendered abroad, attributable to such uninterrupted period. For example, a privately employed citizen, who files his returns on the calendar-year basis, was a bona fide resident of a foreign country for an uninterrupted period beginning July 1, 1949, and ending October 31, 1951. Under section 116(a)(1) of the 1939 Code, as amended by the Revenue Act of 1951, the taxpayer is entitled to exclude the `earned income' attributable to such period and received on or after January 1, 1951, since his period of bona fide foreign residence includes an entire taxable year (1950).

SEC. 5. EXCLUSION UNDER SECTION 911(a)(2) BASED ON PRESENCE IN A FOREIGN COUNTRY.

.01 General .-A citizen of the United States may exclude from gross income under section 911(a)(2) of the 1954 Code, amounts constituting `earned income' (as defined in sec. 7 of this Revenue Ruling) if-

(a) He is present in a foreign country or countries during a total of at least 510 full days during any period of 18 consecutive months; and

(b) Such earned income is-

(1) Received for personal services rendered outside the United States;

(2) Attributable to such 18-month period; and

(3) Not paid by the United States or any agency or instrumentality thereof.

All of these requirements must be met in order for the citizen to qualify for the exclusion. The excluded gross income may be attributable to any 18-consecutive-month period during which the citizen is in a foreign country or countries for 510 full days. For example, a citizen of the United States, privately employed, arrives in a foreign country on August 3, 1953, and remains there continuously until his departure therefrom on December 27, 1954, a period during which he is present in the foreign country 510 full days. The citizen may exclude from gross income the `earned income' from sources without the United States that is attributable to any 18-consecutive-month period which includes the above 510 full days, notwithstanding that the citizen was actually present in the foreign country for a period of less than 18 months. For example, the exclusion would be applicable but not limited to the following 18-month periods: an 18-month period which commences August 4, 1953, and ends February 3, 1955; an 18-month period which commences June 28, 1953, and ends December 27, 1954; or an 18-month period which commences July 1, 1953, and ends December 31, 1954.

.02 Limitation on amount excludable .-The amount excluded from gross income under the provisions of section 911(a)(2) of the 1954 Code shall not exceed $20,000 in those cases in which the 18-month period includes the entire taxable year. In those cases in which the 18-month period does not include the entire taxable year, the $20,000 annual limitation shall be prorated in the following manner: The amount excluded from gross income under such section for such taxable year shall not exceed an amount which bears the same ratio to $20,000 as the number of days in the part of the taxable year within the 18-month period bears to the total number of days in such year. For example, a taxpayer was present in a foreign country 510 full days during the 18-month period ending June 30, 1954, during which the requirements of section 911(a)(2) of the 1954 Code were satisfied. During the calendar year 1953 he received $26,000, and during the period January 1, 1954, through June 30, 1954, he received $13,000 as salary. If the taxpayer reported on a calendar year basis, only $20,000 of the $26,000 received during 1953 would be excludable, and only $9,917.81 ( 181/365 of $20,000) would be excludable in 1954. The balance of $6,000 would be includible in the taxpayer's gross income for 1953 and $3,082.19 for 1954. (There is no limitation upon the amount of `earned income' which may be excluded from gross income under the `bona fide foreign residence' rule.)

.03 Computation of 510 full days presence in foreign country .-In computing the minimum of 510 full days presence in a foreign country or countries, all separate periods of such presence during the 18-month period are to be aggregated. For the purpose of section 911(a)(2) of the 1954 Code, if an individual travels over international waters from one place in a foreign country to another place in the same country, or to a place in another foreign country, and if such travel extends over a period of less than 24 hours and does not involve travel within the United States or any possession thereof, such individual shall not be deemed outside a foreign country during the period of such travel. For example, a citizen of the United States, privately employed, departs by aircraft from Tokyo, Japan, at 11 p.m. on July 23 and arrives in Manila, Philippines, at 8 a.m. on the following morning. The citizen, for the purpose of section 911(a)(2) of the 1954 Code, will not be deemed outside a foreign country during the period of travel from Tokyo to Manila, inasmuch as such period of travel is less than 24 hours. On the other hand, if a privately employed citizen of the United States departs by vessel from Genoa, Italy, on August 20 and arrives in Naples, Italy, on August 22, the citizen, for the purpose of section 911(a)(2) of the 1954 Code, will be deemed outside a foreign country for a period of 3 days from August 20 to August 22. The 510 full days need not be consecutive, but may be interrupted by periods during which the citizen is not present in a foreign country. Time spent in a foreign country in the employment of the United States Government will count toward satisfaction of the 510 full-day requirement, even though amounts paid by such Government are not excludable from gross income. The period during which the citizen was present in a foreign country, or countries, prior to January 1, 1951, may be taken into account in determining whether such citizen is present in a foreign country or countries during at least 510 full days during any 18-month period. However, the income attributable to the period prior to January 1, 1951, is not excludable from gross income if received before such date, since the exclusion is applicable only to taxable years beginning on or after January 1, 1951.

.04 Computation of 18-month period .-The 18-consecutive-month period may be part of a longer period of presence in a foreign country and need not commence with the citizen's day of arrival therein or terminate with the day of his departure therefrom. For example, a citizen who arrives in a foreign country on January 1, 1953 and finally departs therefrom on February 14, 1955, may not be present in such country for 510 full days during the 18-month period commencing with January 1, 1953, and ending with the close of June 30, 1954, because of his visits to the United States during such period. However, he may satisfy the 510 full-day requirement during the 18-month period commencing with February 15, 1953, and ending with the close of August 14, 1954. In such event, the exclusion will apply to income attributable to the latter period, but not to income attributable to the period commencing with January 1, 1953, and ending with the close of February 14, 1953. The exclusion is applicable as long as there is a continuing period throughout which the citizen satisfies the requirement of 510 full days presence in a foreign country or countries during an 18-month period.

.05 Definitions .-The term `full day' means a continuous period of 24 hours commencing from midnight and ending with the following midnight. The term `18 consecutive months' means and 18-month period commencing with the beginning of any day of any month and ending with the close of the day preceding the corresponding day in the succeeding eighteenth month; or if there is no such corresponding day, with the close of the last day of the succeeding eighteenth month. For example, the period July 3, 1953, through January 2, 1955, and the period July 1, 1953, through December 31, 1954, would both be periods of `18 consecutive months.' The term `foreign country' includes only territory under the sovereignty of a government other than that of the United States; it does not include the territories (Hawaii and Alaska) or the possessions of the United States.

.06 Prior law relating to `presence in a foreign country .'-The exclusion under the `presence in a foreign country' rule is applicable only to taxable years beginning on or after January 1, 1951. Under the law in effect for taxable years beginning on or after that date and ending before January 1, 1953, there was no limitation upon the amount of earned income received during such period which could be excluded from gross income under the `presence in a foreign country' rule. However, for taxable years ending after December 31, 1952, but only with respect to amounts received after such date, the amount excluded from gross income under such rule, as under present law, could not exceed $20,000 in those cases in which the 18-month period included the entire taxable year. In those cases in which the 18-month period did not include the entire taxable year, the $20,000 annual limitation was subject to the same proration explained in section 5.02 of this Revenue Ruling. A special rule was applicable to a fiscal year beginning in 1952 and ending in 1953. (For taxable years beginning before January 1, 1951, a citizen was entitled to exclude earned income from sources outside the United States only if he could establish that he was a bona fide foreign resident.)

SEC. 6. INCOME DERIVED FROM POSSESSIONS OF THE UNITED STATES.

Income derived from possessions of the United States may, under certain circumstances, be excluded from gross income in accordance with the provisions of section 931 and section 933 and, in some rare instances, under section 911 of the 1954 Code. Generally, section 911 of the 1954 Code has no application to citizens of the United States performing personal services or engaged in a trade or business within the possessions. However, a citizen who has qualified for the `foreign residence' or `presence in a foreign country' exclusion under section 911 of the 1954 Code may exclude earned income attributable to a period he is temporarily present in a possession during such qualifying period. For example: A privately employed citizen arrived in Brazil on December 31, 1952, and remained there continuously until May 26, 1954, a period during which he qualified for the `presence in a foreign country' exclusion. (See sec. 5 of this Revenue Ruling.) On May 26, 1954, he left Brazil for a temporary assignment in the Panama Canal Zone, a possession of the United States, where he remained until July 15, 1954, when he returned to the United States for a permanent assignment. The citizen may exclude from gross income under the `presence in a foreign country' rule, the earned income attributable to the period beginning January 1, 1953, and ending June 30, 1954, subject to the limitation of $20,000, since he was present in a foreign country for 510 full days during such 18-month period and such income was for personal services rendered outside the United States. He may not exclude, under this rule, the earned income attributable to the period July 1 to July 15, 1954, since he did not qualify for the `presence in a foreign country' exclusion for an 18-month period which included such period. (However, such income may, under certain circumstances, be excludible under the provisions of sec. 931 of the 1954 Code.) For purposes of section 911, some of the more important possessions of the United States are the Panama Canal Zone, Guam, American Samoa, Wake, Midway Island, Puerto Rico, and the Virgin Islands.

SEC. 7. EARNED INCOME.

.01 Compensation for personal services rendered .-The term `earned income' means wages, salaries, professional fees, and other amounts received as compensation for personal services actually rendered. It does not include such income as dividends, other distributions of corporate earnings or profits, gambling gains, interest, rents, or gains or profits from dealing in real or personal property. For example, where a citizen performs personal services for a corporation in which he owns stock, `earned income' means only such portion of any income received from the corporation which represents a reasonable allowance as compensation for the personal services actually rendered . The entire amount received as professional fees by a citizen engaged in a professional occupation, such as a doctor or lawyer, may be treated as `earned income' even though he employs assistants in the performance of the services, if the patients or clients are those of the citizen and look to him as the person responsible for the services rendered, and capital is not a material income-producing factor.

.02 Profit from trade or business .-If a citizen is engaged in a trade or business, either as sole proprietor or as a member of a partnership, in which both personal services and capital are material income-producing factors, a reasonable allowance as compensation for the personal services actually rendered by him shall be considered to be `earned income,' but the amount which may be treated as `earned income' from such trade or business may not exceed 30 percent of his share of the net profits therefrom. To illustrate: A citizen qualifying for the `foreign residence' exclusion operates a retail sales outlet in a foreign country. Since capital is a material income-producing factor in the business, not more than 30 percent of the net profits from the business may be treated as `earned income' and excluded. The balance of the profits must be included in gross income for Federal income tax purposes. (For taxable years beginning before January 1, 1954, and for short taxable years beginning in 1954 and ending before August 17, 1954, not more than 20 percent of the net profits from such trade or business could be treated as `earned income.')

SEC. 8. SOURCE OF INCOME.

For the purpose of section 911 of the 1954 Code, the place where personal services are performed is considered to be the source of the income for such services, irrespective of the place where payment is made. Therefore, if `earned income' is attributable to a period in which the citizen satisfies either the `foreign residence' test or the `presence in a foreign country' test, the amounts of such income received for personal services rendered outside the United States may be excluded from gross income, subject to the limitations set forth in section 5.02 of this Revenue Ruling, even though received within the United States. Compensation for personal services rendered within the United States is taxable and is not excludable from gross income, regardless of the place where payment is made. For example, a United States citizen who is a bona fide resident of a foreign country returns to the United States on a business trip. The compensation for the services rendered while in the United States is taxable and includible in gross income, even though payment for such services may be received by the taxpayer after his return to the foreign country.

SEC. 9. INCOME RECEIVED IN FOREIGN CURRENCY.

The income reported on a Federal income tax return must be expressed in terms of United States dollars. Where income is actually or constructively received in foreign currency, the computation in terms of United States dollars must be based on the rate of exchange at the time of receipt by the citizen, or when credited to his account in the foreign country, even though not actually converted into United States currency at that time. (In the case of blocked foreign income, see sec. 10 of this Revenue Ruling.)

SEC. 10. BLOCKED FOREIGN INCOME.

Generally, all income (other than that excludable by law) of United States citizens from sources within a foreign country or countries, whether in terms of United States dollars or foreign currencies, is includible in gross income for Federal income tax purposes, notwithstanding the fact that under the laws or regulations of the foreign country or countries conversion of such foreign income into United States dollars, or into other money or property which is readily convertible into United States currency, may be blocked. The citizen must include the blocked income in his gross income when such income is either actually or constructively received or is credited to his account in the foreign country, unless he takes affirmative action to elect to defer the reporting of such income until it ceases to be blocked. If he wishes to make such election and defer the income taxes otherwise due on such income he must comply with the procedural requirements of the Internal Revenue Service relating to blocked foreign income, including the filing, with his regular return, of a tentative return reflecting such blocked income, but on which no tax is computed. Details of the requirements are published in the Internal Revenue Bulletins. See Mimeograph 6475, C.B. 1950-1, 50, as amended by Mimeograph 6494, C.B. 1950-1, 54, and Mimeograph 6584, C.B. 1951-1, 19. Income ceases to be blocked and is includible in gross income when it is convertible, or has been converted, into United States dollars or into other money or property which is convertible into United States currency; or the citizen uses the income for his personal expenditures; or disposes of it by way of gift, bequest, devise or inheritance, or in some other manner.

SEC. 11. FILING OF INCOME TAX RETURNS.

.01 Gross income .-A citizen of the United States, wherever resident, who has gross income of $600 or more (other than income excluded by law) during the taxable year must file an income tax return, regardless of his marital status, the number of his dependents, or the amount of his deductions. For example, a citizen who qualifies for the `foreign residence' exclusion files his return on a calendar-year basis. For the year 1954 he received a salary of $10,000 for services performed in a foreign country, dividends of $500 from a foreign corporation, and interest of $200 from investments in foreign countries. The citizen must file a return for such year since he had gross income of $600 or more exclusive of the salary of $10,000 excludable under the provisions of section 911(a)(1) of the 1954 Code. A self-employed citizen not meeting the above requirements may nevertheless be required to file a return for purposes of the self-employment tax if he is engaged in a trade or business as defined in section 1402 of the 1954 Code, and has net earnings of $400 or more from self-employment. (See sec. 12.01 of this Revenue Ruling.)

.02 Deductions .-Any expenses, losses, and other deductions which are attributable to income properly excluded under section 911 are not allowable as deductions in a Federal income tax return. For example, a salesman residing and traveling abroad, who properly excluded from gross income under section 911 of the 1954 Code income earned abroad, may not deduct in his Federal income tax return traveling and other expenses incurred by him in earning such excluded income. Expenses, losses, and other deductions which cannot be identified as being attributable exclusively to either includible or excludable income but are attributable to both must be allocated or apportioned.

.03 Income taxes paid to foreign countries .-If a citizen is required to include in his Form 1040, Individual Income Tax Return, income from foreign sources on which income taxes to a foreign country or countries are paid or accrued, he may claim credit for such foreign income taxes against his United States income tax in accordance with the provisions of section 901 of the Internal Revenue Code, provided he does not claim the standard deduction or compute his tax by the use of the optional tax table included in the instructions for Form 1040. The foreign tax credit should be claimed on the line provided therefor (line 9 of the 1954 Form 1040) at the bottom of page 3 of the return. The method of computing the foreign tax credit allowable under section 901 of the 1954 Code is explained on Form 1116, which must be filed with the income tax return by every taxpayer claiming credit under that section. If credit is claimed under section 901 of the 1954 Code and a redetermination of the taxpayer's foreign income tax liability discloses that he has overpaid or underpaid such tax, he should immediately notify the Commissioner of Internal Revenue in order that appropriate adjustment may be made of the foreign tax credit claimed on his Federal income tax return. As an alternative to claiming the foreign income tax as a direct credit against his United States income tax, the taxpayer may claim the amount of income taxes paid to a foreign country or countries as a deduction on page 3 of Form 1040 in computing his taxable income, provided he itemizes his deductions. In most cases, however, it will be to the taxpayer's advantage to claim foreign income taxes as a credit against the Federal tax under section 901 of the 1954 Code. Taxpayers who claim the foreign income taxes either as a credit or as a deduction may not also have the benefit of the standard deduction.

.04 Where right to exemption not yet established .-If a citizen employed abroad has not been there long enough to qualify for exemption under either the `foreign residence' rule or the `presence in a foreign country' rule at the time his income tax return is due to be filed, he must either include the compensation in his gross income and pay the Federal tax due thereon, or obtain an extension of time for the filing of his return. (See par. .06 of this section.) If he elects to include the compensation in his gross income, he may, after he has met the statutory requirements for exemption and within the statutory period, file an amended return or a claim on Form 843 for refund or credit of any tax thus overpaid. For example, a citizen was a bona fide resident of a foreign country from November 1, 1953, through January 31, 1955, during which period he performed personal services abroad. He would be required to include in his 1953 return, filed on the calendar year basis, all income for the year, including the `earned income' received during the period November 1, 1953, through December 31, 1953, since he had not met the requirements of section 911(a)(1) of the 1954 Code as of the due date for the filing of such return. However, since the requirements of that section would be met as of December 31, 1954, he would then be entitled to a refund or credit of any overpayment of tax resulting from the exclusion of the `earned income' received during the period November 1, 1953, through December 31, 1953, and a claim on Form 843, Claim for Abatement, or Refund, or an amended return should then be filed.

.05 Due date for filing returns .-Citizens of the United States who, on April 15, are residing or traveling outside of the United States and who file their returns on the calendar year basis are automatically allowed an extension of time until June 15 for filing the return for the preceding taxable year. Similarly, an extension of 2 months is granted to fiscal-year taxpayers. A taxpayer who takes advantage of this extension must attach to his return a statement showing that he was residing or traveling outside the United States on the due date (April 15, for calendar-year taxpayers), and he must pay interest at the rate of 6 percent per annum on the unpaid tax, if any, from the due date until paid.

.06 Extensions of time for filing returns .-An extension of time for filing income tax returns may be granted for more than 6 months in the case of citizens of the United States who are abroad. A citizen desiring an extension of time, in addition to the 2 months automatically granted, for filing his return until after the completion of the qualifying period under section 911 of the 1954 Code should make application therefor with the district director of internal revenue with whom the return is required to be filed. The application must be in writing, properly signed by the taxpayer or his duly authorized agent, and must be made before the due date for filing the return with respect to which the extension is requested. The application should set forth the facts relied upon to justify the extension of time requested and should include a statement as to the earliest date the taxpayer expects to be in a position to determine whether he will be entitled to the exclusion provided by section 911 of the 1954 Code.

SEC. 12. SELF-EMPLOYMENT TAX

.01 Taxable years ending on or before December 31, 1954 .-In general, a citizen of the United States, wherever resident, who derives income during the taxable year from a trade or business carried on by him or from a partnership of which he is a member is subject to the self-employment tax. Such citizen is required to file a return on Form 1040 for the purpose of reporting the self-employment tax if he has net earnings from self-employment of $400 or more, even though he may not have sufficient income to require the filing of an income tax return. For self-employment tax purposes, `earned income' which qualifies for either the `bona fide foreign residence' exclusion or the `presence in a foreign country' exclusion is not to be taken into account in computing net earnings from self-employment. A schedule for the computation of the tax is provided on page 3 of separate Schedule C of the income tax return (Form 1040), and instructions for its completion are shown on page 4 of the Schedule. `Net earnings from self-employment' is the gross income derived by an individual from any trade or business carried on by him, less the allowable deductions attributable to such trade or business, plus his share of self-employment net earnings (or loss) from a partnership of which he is a member. The deductions for personal exemptions are not allowable in determining the net earnings from self-employment. The term `trade or business' as used herein includes all self-employment activities of the citizen except those specifically excluded by law. Some of the self-employment activities so excluded by law for taxable years ending before January 1, 1955, are the practice of certain professions, such as the medical, accounting and legal professions; or services as a minister or member of a religious order; or farming. For a list of excluded activities and income, see `EXCLUSIONS' on page 4 of separate Schedule C (Form 1040).

.02 Taxable years ending after December 31, 1954 .-The Social Security Amendments of 1954 brings certain self-employed individuals, previously excluded, within the social security system. These changes are effective for taxable years ending after December 31, 1954. A citizen who is a Christian Science practitioner, architect, accountant, funeral director, engineer, minister, member of a religious order, or a farmer and reports his income on the basis of a fiscal year beginning in 1954 and ending in 1955 should communicate with the district director of internal revenue with whom he files his return for detailed information regarding the changes in the law which affect his liability for self-employment tax.

SEC. 13. DECLARATION OF ESTIMATED TAX.

.01 Who must file .-Every citizen of the United States who, for taxable years beginning on or after January 1, 1955, expects to receive more than $100 of gross income during the taxable year from sources other than wages subject to withholding must file a declaration of estimated tax on Form 1040-ES if his gross income from all sources (exclusive of income exempt from tax) is reasonably expected to exceed the sum of $600 multiplied by the number of exemptions to which he is entitled, plus $400. A citizen who expects no more than $100 of gross income during the taxable year from sources other than wages subject to withholding is required to file a declaration if his gross income is reasonably expected to exceed $5,000 in the case of a single individual or a married person filing a separate declaration, $10,000 for a person who qualifies as a head of household or surviving widow or widower, and $5,000 in the case of a married person who files a joint declaration and the total income of both husband and wife can reasonably be expected to exceed $10,000. Specific instructions for the preparation and filing of the declaration are printed on Form 1040-ES and, with the exceptions mentioned herein, should be followed by citizens outside the United States.

.02 Due date for filing declarations .-The declaration is required to be filed on or before the 15th day of the 4th month of the taxable year for which it is made. However, a citizen traveling or residing in a foreign country on the due date for filing the declaration is allowed an extension of time to and including the 15th day of the 6th month of the taxable year (June 15, for calendar-year taxpayers) for filing the declaration and payment, without interest, of all installments of estimated tax then due.

SEC. 14. WHERE RETURNS AND DECLARATIONS SHOULD BE FILED.

Income tax returns and declarations of estimated tax should be filed with the district director of internal revenue for the district in which the taxpayer's legal residence or principal place of business in the United States is located, or if he has no legal residence or place of business in the United States, with the District Director of Internal Revenue, Baltimore 2, Maryland, U.S.A.

SEC. 15. PENALTIES.

Citizens of the United States residing or present in foreign countries are liable, to the same extent as taxpayers within the United States, for all the penalties and additions to the tax imposed by law, including penalties and additions to the tax in respect of declarations and payments of estimated tax.

SEC. 16. WHERE FORMS MAY BE OBTAINED.

Necessary forms for the filing of returns, declarations, and/or claims for refund may be obtained from any district director of internal revenue and from most United States embassies and consulates.

SEC. 17. CORRESPONDENCE.

Any taxpayer desiring additional information concerning this Revenue Ruling or information relating to the law or regulations applicable to taxable years for which no return has been filed, may address a communication to the Commissioner of Internal Revenue, Attention: Assistant Commissioner (Technical), Washington 25, D.C. A taxpayer desiring information relating to a taxable year for which a return has been filed should communicate with the DISTRICT DIRECTOR OF INTERNAL REVENUE with whom his income tax return was filed.

SEC. 18. EFFECT ON OTHER DOCUMENTS.

Revenue Ruling 291, C.B. 1953-2, 42, is superseded by this Revenue Ruling