If you are a U.S. citizen or resident alien living or traveling outside the United States, you generally are required to file income tax returns, estate tax returns, and gift tax returns and pay estimated tax in the same way as those residing in the United States.

Your income, filing status, and age generally determine whether you must file a return. Generally, you must file a return for 2000 if your gross income from worldwide sources is at least the amount shown for your filing status in the following table:

Filing Status	Amount
Single	$7,200
65 or older	$8,300
Head of household	$9,250
65 or older	$10,350
Qualifying widow(er)	$10,150
65 or older	$11,250
Married filing jointly	$12,950
Not living with spouse at end of year	$2,800
One spouse 65 or older	$13,800
Both spouses 65 or older	$14,650
Married filing separately	$2,800
If you are the dependent of another taxpayer, see the instructions for Form 1040 for more information on whether you must file a return.

Gross income. This includes all income you receive in the form of money, goods, property, and services that is not exempt from tax.

In determining whether you must file a return, you must consider as gross income any income that you exclude as foreign earned income or as a foreign housing amount. If you must file a return and you exclude all or part of your income under these rules, you must prepare Form 2555, discussed later. You may be able to file Form 2555-EZ if you are claiming only the foreign earned income exclusion.

Self-employed individuals. If you are self-employed, your gross income includes the amount on line 7 of Schedule C (Form 1040), Profit or Loss From Business, or line 1 of Schedule C-EZ (Form 1040), Net Profit From Business.

If your net self-employment income is $400 or more, you must file a return even if your gross income is below the amount for filing purposes listed above.

65 or older. You are 65 on the day before your 65th birthday. If your 65th birthday is on January 1, you would be 65 on December 31 of the previous year.

When To File and Pay

If you file on the calendar year basis, the due date for filing your return is April 15 of the following year. (Because April 15, 2001, falls on Sunday, the due date for your 2000 return will be April 16.) If you file on a fiscal year basis (a year ending on the last day of any month except December), the due date is 3 months and 15 days after the close of your fiscal year. In general, the tax shown on your return should be paid by the due date of the return, without regard to any extension of time for filing the return.

A tax return delivered by the U.S. mail or a designated delivery service that is postmarked or dated by the delivery service on or before the due date is considered to have been filed on or before that date.

You can use certain private delivery services designated by the IRS to meet the "timely mailing as timely filing/paying" rule for tax returns and payments. See your Form 1040 or Form 1040A instructions for a list of designated delivery services.

Extensions

You can be granted an extension of time to file your return. In some circumstances, you can also be granted an extension of time to file and pay any tax due.

However, if you pay the tax due after the regular due date, interest will be charged from the regular due date until the date the tax is paid.

Automatic 2-month extension. You may be allowed an automatic 2-month extension to file your return and pay any federal income tax that is due. You will be allowed the extension if you are a U.S. citizen or resident and on the regular due date of your return:

1. You are living outside of the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico, or
2. You are in military or naval service on duty outside the United States and Puerto Rico.

If you use a calendar year, the regular due date of your return is April 15.

Service in a combat zone. If you served in a combat zone or qualified hazardous duty area, see Extension of deadline in Publication 3.

Married taxpayers. If you file a joint return, either you or your spouse can qualify for the automatic extension. If you and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies.

How to get the extension. To use this automatic 2-month extension, you must attach a statement to your return explaining which of the two situations listed earlier qualified you for the extension.

4-month extension. If you are not able to file your 2000 return by the due date, you may be able to get an automatic 4-month extension of time to file. To get this automatic extension, you must file Form 4868 or pay the tax due by credit card (see the form instructions).

You may not be eligible. You cannot use the automatic 4-month extension of time to file if:

• You want the IRS to figure your tax, or
• You are under a court order to file by the regular due date.

When to file. Generally, you must request the 4-month extension by the regular due date for your return.

Previous 2-month extension. If you are unable to file your return within the automatic 2-month extension period, you may be able to get an additional 2-month extension of time to file your return, for a total of 4 months. The automatic 2-month and the 4-month extension start at the same time. You do not have to request the 4-month extension until the new due date allowed by the first extension, but the total combined extension will still only be 4 months from the regular due date.

Time to pay not extended. A 4-month extension of time to file is not an extension of time to pay. You must make an accurate estimate of your tax and send any necessary payment with your Form 4868 or pay the tax due by credit card. If you find you cannot pay the full amount due with Form 4868, you can still get the extension. You will owe interest on the unpaid amount.

You also may be charged a penalty for paying the tax late unless you have reasonable cause for not paying your tax when due. Interest and penalties are assessed (charged) from the original due date of your return.

Extension beyond the 4 months. If you qualify for the 4-month extension and you later find that you are not able to file within the 4-month extension period, you may be able to get 2 more months to file, for a total of 6 months.

You can apply for an extension beyond the 4-month extension either by sending a letter to the IRS or by filing Form 2688. You should request the extension early so that, if refused, you still will be able to file on time. Except in cases of undue hardship, Form 2688 or a request by letter will not be accepted until you have first used the 4-month extension. Form 2688 or your letter will not be considered if you send it after the extended due date.

To get an extension beyond the automatic 4-month extension, you must give all the following information.

• The reason for requesting the extension.
• The tax year to which the extension applies.
• The length of time needed for the extension.
• Whether another extension for time to file has already been requested for this tax year.

You can sign the request for this extension, or it can be signed by your attorney, CPA, enrolled agent, or a person with a power of attorney. If you are unable to sign the request because of illness or for another good reason, a person in close personal or business relationship to you can sign the request.

Extension granted. If your application for this extension is approved, you will be notified by the IRS.

If an extension is granted and the IRS later determines that the statements made on your request for this extension are false or misleading and an extension would not have been granted based on the true facts, the extension is null and void. You may have to pay the failure-to-file penalty if you file after the regular due date.

Extension not granted. If your application for this extension is not approved, you must file your return by the extended due date of the automatic extension. You may be allowed to file within 10 days of the date of the notice you get from the IRS if the end of the 10-day period is later than the due date. The notice will tell you if the 10-day grace period is granted.

Further extensions. You generally cannot get an extension of more than 6 months. However, if you are outside the United States and meet certain tests, you may be able to get a longer extension.

You can get an extension of time to file your tax return if you need the time to meet either the bona fide residence test or the physical presence test to qualify for either the foreign earned income exclusion or the foreign housing exclusion or deduction. The tests, the exclusions, and the deduction are explained in chapter 4.

You should request an extension if all three of the following apply.

1. You are a U.S. citizen or resident.
2. You expect to meet either the bona fide residence test or the physical presence test, but not until after your tax return is due.
3. Your tax home is in a foreign country (or countries) throughout your period of bona fide residence or physical presence, whichever applies.

Generally, if you are granted an extension, it will be to 30 days beyond the date on which you can reasonably expect to qualify under either the bona fide residence test or the physical presence test. However, if you have moving expenses that are for services performed in 2 years, you may be granted an extension to 90 days beyond the close of the year following the year of first arrival in the foreign country.

How to get an extension. To obtain an extension, you should file Form 2350 with the Internal Revenue Service Center, Philadelphia, PA 19255-0002, the local IRS representative, or other IRS employee.

You must file Form 2350 by the due date for filing your return. Generally, if both your tax home and your abode are outside the United States and Puerto Rico on the regular due date of your return and you file on a calendar year basis, the due date for filing your return is June 15.

What if tests are not met. If you obtain an extension of time and unforeseen events make it impossible for you to satisfy either the bona fide residence test or the physical presence test, you should file your income tax return as soon as possible because you must pay interest on any tax due after the regular due date of the return (even though an extension was granted).

You should make any request for an extension early, so that if it is denied you still can file your return on time. Otherwise, if you file late and additional tax is due, you may be subject to a penalty.

Return filed before test is met. If you file a return before you meet the bona fide residence test or the physical presence test, you must include all income from both U.S. and foreign sources and pay the tax on that income. If you later qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction under the bona fide residence or physical presence rules, you can file a claim for refund of tax on Form 1040X. The refund will be the difference between the amount of tax already paid and the tax liability as figured after the exclusion or deduction.

Foreign Currency

You must express the amounts you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U.S. dollars. How you do this depends on your functional currency. Your functional currency generally is the U.S. dollar unless you are required to use the currency of a foreign country.

You must make all federal income tax determinations in your functional currency. The U.S. dollar is the functional currency for all taxpayers except some qualified business units. A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. Unless you are self-employed, your functional currency is the U.S. dollar.

Even if you are self-employed and have a qualified business unit, your functional currency is the dollar if any of the following apply.

• You conduct the business in dollars.
• The principal place of business is located in the United States.
• You choose to or are required to use the dollar as your functional currency.
• The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted.

If your functional currency is the U.S. dollar, you must immediately translate into dollars all items of income, expense, etc. (including taxes), that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Use the exchange rate prevailing when you receive, pay, or accrue the item. If there is more than one exchange rate, use the one that most properly reflects your income. You can generally get exchange rates from banks and U.S. Embassies.

If your functional currency is not the U.S. dollar, make all income tax determinations in your functional currency. At the end of the year, translate the results, such as income or loss, into U.S. dollars to report on your income tax return.

Blocked Income

You generally must report your foreign income in terms of U.S. dollars and, with one exception (see Fulbright grants, later), you must pay taxes due on it in U.S. dollars.

If, because of restrictions in a foreign country, your income is not readily convertible into U.S. dollars or into other money or property that is readily convertible into U.S. dollars, your income is "blocked" or "deferrable" income. You can report this income in one of two ways:

1. Report the income and pay your federal income tax with U.S. dollars that you have in the United States or in some other country, or
2. Postpone the reporting of the income until it becomes unblocked.

If you choose to postpone the reporting of the income, you must file an information return with your tax return. For this information return, you should use another Form 1040 labeled "Report of Deferrable Foreign Income, pursuant to Rev. Rul. 74-351." You must declare on the information return that the deferrable income will be included in taxable income in the year that it becomes unblocked. You also must state that you waive any right to claim that the deferrable income was includible in income for any earlier year.

You must report your income on your information return using the foreign currency in which you received that income. If you have blocked income from more than one foreign country, include a separate information return for each country.

Income becomes unblocked and reportable for tax purposes when it becomes convertible, or when it is converted, into dollars or into other money or property that is convertible into U.S. currency. Also, if you use blocked income for your personal expenses or dispose of it by gift, bequest, or devise, you must treat it as unblocked and reportable.

If you have received blocked income on which you have not paid the tax, you should check to see whether that income is still blocked. If it is not, you should take immediate steps to pay the tax on it, file a declaration or amended declaration of estimated tax, and include the income on your tax return for the year in which the income became unblocked.

If you choose to postpone reporting blocked income and in a later tax year you wish to begin including it in gross income although it is still blocked, you must obtain the permission of the IRS to do so. To apply for permission, file Form 3115, Application for Change in Accounting Method. You also must request permission from the IRS on Form 3115 if you have not chosen to defer the reporting of blocked income in the past, but now wish to begin reporting blocked income under the deferred method. See the instructions for Form 3115 for information.

Fulbright grants. All income must be reported in U.S. dollars. In most cases, the tax must also be paid in U.S. dollars. If, however, at least 70% of your Fulbright grant has been paid in nonconvertible foreign currency (blocked income), you can use the currency of the host country to pay the part of the U.S. tax that is based on the blocked income. To determine the amount of the tax that you can pay in foreign currency, get Publication 520. You may also be able to get details of these arrangements from the U.S. Educational Foundations or Commissions in foreign countries.

Where To File

If any of the following situations apply to you, file your return with the:

Internal Revenue Service Center
Philadelphia, PA 19255-0215.

1. You claim the foreign earned income exclusion.
2. You claim the foreign housing exclusion or deduction.
3. You claim the exclusion of income for bona fide residents of American Samoa.
4. You live in a foreign country or U.S. possession and have no legal residence or principal place of business in the United States.

The exclusions and the deduction are explained in chapter 4.

If you do not know where your legal residence is and you do not have a principal place of business in the United States, you can file with the Philadelphia Service Center. The address for the Philadelphia Service Center is shown above.

However, you should not file with the Philadelphia Service Center if you are a bona fide resident of the Virgin Islands or a resident of Guam or the Commonwealth of the Northern Mariana Islands on the last day of your tax year.

Resident of Virgin Islands

If you are a bona fide resident of the Virgin Islands on the last day of your tax year (even if your legal residence or principal place of business is in the United States), you generally are not required to file a U.S. return. However, you must file a return with the Virgin Islands and pay your tax on income you have from all sources to the: Virgin Islands Bureau of Internal Revenue 9601 Estate Thomas Charlotte Amalie St. Thomas, Virgin Islands 00802.

Non-Virgin Islands resident with Virgin Islands Income. If you are a U.S. citizen or resident and you have income from sources in the Virgin Islands or income effectively connected with the conduct of a trade or business in the Virgin Islands, and you are not a bona fide resident of the Virgin Islands on the last day of your tax year, you must file identical tax returns with the United States and the Virgin Islands. File the original return with the United States and file a copy of the U.S. return (including all attachments, forms, and schedules) with the Virgin Islands Bureau of Internal Revenue.

The amount of tax you must pay to the Virgin Islands is figured by the following computation:

Form 8689, Allocation of Individual Income Tax to the Virgin Islands, is used for this computation. You must complete this form and attach it to your return. You should pay any tax due to the Virgin Islands when you file your return with the Virgin Islands Bureau of Internal Revenue.

You should file your U.S. return with the Internal Revenue Service Center, Philadelphia, PA 19255-0215.

See Publication 570, Tax Guide for Individuals With Income From U.S. Possessions, for information about the filing requirements for residents of the Virgin Islands.

Resident of Guam

If you are a resident of Guam on the last day of your tax year, you should file a return with Guam and pay your tax on income you have from all sources to the: Department of Revenue and Taxation Government of Guam P.O. Box 23607 GMF, GU 96921.

However, if you are a resident of the United States on the last day of your tax year, you should file a return with the United States and pay your tax on income you have from all sources to the Internal Revenue Service Center, Philadelphia, PA 19255-0215.

See Publication 570, Tax Guide for Individuals With Income From U.S. Possessions, for information about the filing requirements for residents of Guam.

Resident of the Commonwealth of the Northern Mariana Islands

If you are a resident of the Commonwealth of the Northern Mariana Islands on the last day of your tax year, you should file a return with the Northern Mariana Islands and pay your tax on income you have from all sources to the: Division of Revenue and Taxation Commonwealth of the Northern Mariana Islands P.O. Box 5234, CHRB Saipan, MP 96950.

However, if you are a resident of the United States on the last day of your tax year, you should file a return with the United States and pay your tax on income you have from all sources to the Internal Revenue Service Center, Philadelphia, PA 19255-0215.

See Publication 570 for information about the filing requirements for residents of the Commonwealth of the Northern Mariana Islands.

Terrorist or Military Action

U.S. income taxes are forgiven for U.S. Government military or civilian employees who die as a result of wounds or injuries sustained outside the United States in a terrorist or military action directed against the United States or its allies. The taxes are forgiven for the deceased employee's tax years beginning with the year immediately before the year in which the injury or wounds were incurred and ending with the year of death.

If the deceased government employee and the employee's spouse had a joint income tax liability for those years, the tax must be divided between the spouses to determine the amount forgiven.

For more information on how to have the tax forgiven or how to claim a refund of tax already paid, see Publication 559, Survivors, Executors, and Administrators.

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