[Code of Federal Regulations]
[Title 26, Volume 15]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR31.3401(a)(8)(A)-1]

[Page 202-204]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 31_EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE--Table of Contents
 
              Subpart E_Collection of Income Tax at Source
 
Sec. 31.3401(a)(8)(A)-1  Remuneration for services performed outside 
the United States by citizens of the United States.

    (a) Remuneration excluded from gross income under section 911. (1) 
(i) Remuneration paid for services performed outside the United States 
for an employer (other than the United States or any agency thereof) by 
a citizen of the United States does not constitute wages and hence is 
not subject to withholding, if at the time of payment it is reasonable 
to believe that such remuneration will be excluded from gross income 
under the provisions of section 911. The reasonable belief contemplated 
by the statute may be based upon any evidence reasonably sufficient to 
induce such belief, even though such evidence may be insufficient upon 
closer examination by the district director or the courts finally to 
establish that the remuneration is excludable from gross income under 
the provisions of section 911. The reasonable belief shall be based upon 
the application of section 911 and the regulations thereunder in Part 1 
of this chapter (Income Tax Regulations).
    (ii) Remuneration paid by an employer to an employee constitutes 
wages, and hence is subject to withholding only to the extent that the 
remuneration is expected to exceed the aggregate amount which is 
excludable from the employee's gross income under section 911(a). For 
amounts paid after December 31, 1984, the determination of the amount 
subject to withholding shall be made by applying the excludable amount, 
on a pro rata basis, to each payment of remuneration to

[[Page 203]]

the employee. For this purpose, an employer is not required to ascertain 
information with respect to amounts received by his employee from any 
other source; but, if the employer has such information, he shall take 
it into account in determining whether the earned income of the employee 
is in excess of the applicable limitation. For purposes of section 
911(d)(5) and Sec. 1.911-2(c), relating to an employee who states to 
the authorities of a foreign country that he is not a resident of that 
country, the employer is not required to ascertain whether such a 
statement has been made; but if an employer knows that such a statement 
has been made, he shall presume that the employee is not a bona fide 
resident of that country, unless the employer also knows that the 
authorities of the foreign country have determined, notwithstanding the 
statement that the employee is a resident of that country. For purposes 
of section 911(d)(1) or Sec. 1.911-2(a) relating to the definition of a 
qualified individual, the reasonable belief contemplated by the statute 
may be based on a presumption as set forth in subparagraph (2) or (3) of 
this paragraph. For purposes of sections 911(a)(2) and 911(c)(2) and 
Sec. 1.911-4(b) and (d)(1), relating to the housing cost amount 
exclusion and the definition of housing expenses, the reasonable belief 
contemplated by the statute may be based on the presumption set forth in 
subparagraph (4) of this paragraph.
    (2)(i) The employer may, in the absence of cause for a reasonable 
belief to the contrary, presume that an employee will maintain a tax 
home in a foreign country or countries and be a bona fide resident of a 
foreign country or countries, within the meaning of section 911(d)(1), 
for an uninterrupted period which includes each taxable year of the 
employee, or applicable portion thereof, in respect of which the 
employee properly executes and delivers to the employer a statement that 
the employee meets or will meet the requirement of Sec. 1.911-2(a) 
relating to maintaining a tax home and a bona fide residence in a 
foreign country for the taxable year. This statement must set forth the 
facts alleged as the basis for this determination and contain a 
declaration by the employee that the statement is made under the 
penalties of perjury. Sample forms of acceptable statements may be 
obtained by writing to the Foreign Operations District, Internal Revenue 
Service, Washington, D.C. 20225 (Form IO-673).
    (ii) If the employer was entitled to presume for the two consecutive 
taxable years immediately preceding an employee's current taxable year 
that such employee was a bona fide resident of a foreign country or 
countries for an uninterrupted period which includes such preceding 
taxable years, he may, if such employee is residing in a foreign country 
on the first day of such current taxable year, presume, in the absence 
of cause for a reasonable belief to the contrary, and without obtaining 
from the employee the statement prescribed in subdivision (i) of this 
subparagraph, that the employee will be a bona fide resident of a 
foreign country or countries in such current taxable year.
    (3) The employer may, in the absence of cause for a reasonable 
belief to the contrary, presume that an employee will maintain a tax 
home in a foreign country or countries and be present in a foreign 
country or countries during at least 330 full days during any period of 
twelve consecutive months, within the meaning of section 911(d)(1), and 
that such period includes each taxable year of the employee, or 
applicable portion thereof, in respect of which the employee properly 
executes and delivers to the employer a statement that the employee 
meets or will meet the requirements of Sec. 1.911-2(a) relating to 
maintaining a tax home and being physically present in a foreign country 
for the taxable year. This statement must set forth the facts alleged as 
the basis for this determination and contain a declaration by the 
employee that the statement is made under the penalties of perjury. 
Sample forms of acceptable statements may be obtained by writing to the 
Foreign Operations District, Internal Revenue Service, Washington, D.C. 
20225 (Form IO-673).
    (4) The employer may, in the absence of cause for a reasonable 
belief to the contrary, presume that an employee's housing cost amount 
will be the amount shown on a statement properly

[[Page 204]]

executed and delivered to the employer. This statement must set forth 
the employee's estimation of the following items: housing expenses (as 
defined in Sec. 1.911-4(b)), the housing cost amount exclusion (as 
defined in Sec. 1.911-4(d)(1)), and the qualifying period (as defined 
in Sec. 1.911-2(a)). The statement must contain a declaration by the 
employee that it is made under the penalties of perjury. Sample forms of 
acceptable statements may be obtained by writing to the Foreign 
Operations District, Internal Revenue Service, Washington, D.C. 20225 
(IO-673). The employer may not rely on a statement from an employee if 
the employer, based on his or her knowledge of housing costs in the 
vicinity of the employee's tax home (as defined in Sec. 1.911-2(b)), 
believes the employee's housing expenses are lavish or extravagant under 
the circumstances.
    (b) Remuneration subject to withholding of income tax under law of a 
foreign country or a possession of the United States. (1) Remuneration 
paid for services performed in a foreign country or in a possession of 
the United States for an employer (other than the United States or any 
agency thereof) by a citizen of the United States does not constitute 
wages and hence is not subject to withholding, if at the time of the 
payment of such remuneration the employer is required by the law of any 
foreign country or of any possession of the United States to withhold 
income tax upon such remuneration. This paragraph, insofar as it relates 
to remuneration paid for services performed in a possession of the 
United States, applies only with respect to remuneration paid on or 
after August 9, 1955.
    (2) Remuneration is not exempt from withholding under this paragraph 
if the employer is not required by the law of a foreign country or of a 
possession of the United States to withhold income tax upon such 
remuneration. Mere agreements between the employer and the employee 
whereby the estimated income tax of a foreign country or of a possession 
of the United States is withheld from the remuneration in anticipation 
of actual liability under the law of such country or possession will not 
suffice.
    (3) The exemption from withholding provided by this paragraph does 
not apply by reason of withholding of income tax pursuant to the law of 
a territory of the United States, of a political subdivision of a 
possession of the United States, or of a political subdivision of a 
foreign state.
    (4) For provisions relating to remuneration for services performed 
by a permanent resident of the Virgin Islands, see paragraph (b)(12) of 
Sec. 31.3401(a)-1.
    (c) Limitation on application of section. This section has no 
application to the remuneration paid to a citizen of the United States 
for services performed outside the United States as an employee of the 
United States or any agency thereof.

(Approved by the Office of Management and Budget under control number 
1545--0067)

(Sec. 911, 95 Stat. 194; 26 U.S.C. 911), sec. 7805 (68A Stat. 917; 26 
U.S.C. 7805) of the Internal Revenue Code of 1954)

[T.D. 6516, 25 FR 13032, Dec. 20, 1960, as amended by T.D. 6697, 28 FR 
13745, Dec. 17, 1963; T.D. 8006, 50 FR 2977, Jan. 23, 1985]