July 05, 2022

I Left My Home in Georgia: New Guidance on Becoming a Bona Fide Resident of Puerto Rico


The US Tax Court’s June 23, 2022, decision in Morgan v. Commissioner1 addressing whether a taxpayer had a tax home in Saudi Arabia didn’t directly consider whether an individual was a bona fide resident of Puerto Rico, but it hit pretty close to home. An individual who is a bona fide resident of Puerto Rico isn’t subject to US federal income tax on items of Puerto Rico-source income.2 An individual can achieve this exalted status only if they satisfy three tests: (i) the presence test, (ii) the tax home test, and (iii) the closer connection test. In Morgan, supra, the court shed light on when an individual satisfies the tax home and closer connection tests. Accordingly, the case is instructive for individuals seeking to be treated as bona fide residents of Puerto Rico.

In Morgan, the taxpayer was both an immigrant to the United States and a US Army veteran. He retired from the Army in 2008 and bought a home in Georgia.3 He resided at the house with his daughter until 2013, at which time he moved. His daughter stayed in the house. The taxpayer’s other family members also resided in the northern Georgia/Chattanooga, Tennessee, area.

In 2013, the taxpayer took a job with Vinnell Arabia (“Vinnell”) in Saudi Arabia training Saudis to pilot helicopters. Our taxpayer was hard-working, putting in nine-hour days, five days per week. Vinnell stated that the taxpayer’s performance was excellent. He joined a charitably-minded Saudi-based social club and was active in Saudi charitable outreach programs. He stayed in Vinnell-provided housing in Saudi Arabia and spent his time using amenities (gym, grocery store, etc.) at the housing compound. At the time of the trial, the taxpayer was still living in Saudi Arabia and was engaged to a woman who had lived and worked in Saudi Arabia for over 20 years. The taxpayer had Saudi Arabian medical insurance and a Saudi Arabia resident alien card (Iqama) and driver’s license. Except for value-added taxes, the taxpayer did not pay any Saudi Arabian tax.

The taxpayer did not relinquish his US driver’s license. He used his vacation time to visit his daughter (at the home he owned in Georgia) and mother in the US. The taxpayer also kept his veteran’s US health insurance.

The taxpayer claimed that his income from Vinnell was exempt “foreign earned income” within the meaning of Code § 911(a)(1) and, therefore, not subject to US federal income tax. The foreign earned income exclusion only is available if the taxpayer has a “tax home in a foreign country.” The tax home for bona fide residents of Puerto Rico directly incorporates the tax home test set forth in Code § 911.4 Accordingly, authorities interpreting the tax home test for purposes of the foreign earned income exclusion are directly relevant to applying the tax home test for bona fide residents of Puerto Rico.

The foreign earned income exclusion defines an individual’s tax home by way of a cross reference to the rules for determining deductible business expenses.5 The general rule is that an individual's tax home is the individual's place of business, employment, station or post of duty, even though the individual's family residence may be in a different place.6 For purposes of the foreign earned income exclusion, an individual will not be considered to have a tax home outside of the United States if his abode is within the United States (unless the individual is in the armed forces in a combat zone).7

The requirement that an individual not maintain an abode in the United States to be considered to have satisfied the tax home test is not applicable to the determination of whether an individual has a tax home in Puerto Rico.8 The closer connection test applicable to bona fide residents of Puerto Rico, however, does consider whether the taxpayer has an abode in the United States in determining whether that test is met.9 In Morgan, supra, the court applied the same factors that bona fide residents of Puerto Rico use to determine compliance with the closer connection test to determine whether the taxpayer maintained an abode in the United States.

Specifically, in Morgan, supra, the court “compared and contrasted” the taxpayer’s domestic ties to his ties to Saudi Arabia. The following facts supported the conclusion that the taxpayer’s Saudi Arabia ties were stronger than his US ties:

  1. His Saudi community involvement and recreational activities were “relatively significant” compared to the same activities in the United States;
  2. He obtained a Saudi Arabia residency card;
  3. He had Saudi Arabian medical insurance;
  4. He had a Saudi Arabia driver’s license;
  5. He did not seek work outside of Saudi Arabia;
  6. He had limited visits to his family in the United States;
  7. He did not visit doctors in the United States;
  8. The US home he owned was occupied on a full-time basis by his daughter; and
  9. He was not financially responsible for any US relatives.

The taxpayer’s relevant US ties included the following:

  1. He owned a home in the United States;
  2. He retained his US driver's license;
  3. He maintained a US bank account (but the account was required by Vinnell);
  4. He retained his US citizenship; and
  5. He retained US health insurance.

The US Internal Revenue Service (“IRS”) zeroed in on the fact that the taxpayer continued to own the home in Georgia and expected to return there after his Saudi Arabian employment ended. The court held that the determination of whether the taxpayer maintained a US tax home (closer connection) to the United States was made by examining the taxpayer’s situation in the year in question. Accordingly, the court held that, even though he would likely return there at some point in the future, the continued ownership of the Georgia home did not cause the taxpayer to have an abode in the United States. It is worth noting that under the closer connection test, a home owned by a taxpayer does not indicate that the taxpayer has a closer connection to the United States if the taxpayer can only access the home “solely for stays of short duration.”10

The Morgan case highlights the challenges that continuing US contacts, including home ownership and financial ties, pose to individuals seeking to be treated as bona fide residents of Puerto Rico. It appears that in Morgan, the taxpayer would have had an easier time with the IRS if he had gifted the home to his daughter after he moved abroad and relinquished his US driver’s license. The closer connection test is stricter than the “abode” prong of the tax home test applicable to the foreign earned income exclusion; however, it is likely that the IRS will focus on similar factors for purposes of auditing taxpayers that claim to have a closer connection to Puerto Rico than to the United States. Accordingly, individuals seeking to be treated as bona fide residents of Puerto Rico should carefully consider which US contacts they should keep following a move to Puerto Rico.


Mark Leeds (mleeds@mayerbrown.com; (212) 506-2499) and Juan Lopez Valek (jlopezvalek@mayerbrown.com; (212) 506-2471) are tax lawyers with the New York office of Mayer Brown. Mark and Juan regularly advise businesses and individuals on the US tax considerations applicable to moving operations and changing residences to Puerto Rico.



1 TC Memo 2022-10 (June 23, 2022).

2 Section 933(1) of the Internal Revenue Code of 1986, as amended (the “Code”).

3 Our title borrows a lyric from Otis Redding and Steve Cropper’s (Sitting on) The Dock of the Bay (Stax Volt 1967).

4 Treas. Reg. § 1.937-1(d). The tax home test for bona fide residents of Puerto Rico eliminates the rule that prevents the taxpayer from satisfying the tax home test if they have an abode in the United States. Id.

5 Code § 911(d)(3) cross-referencing Code § 162(a)(2).

6 The court cited Mitchell v. Comm’r, 74 TC 578, 591 (1980) for this proposition. There are myriad cases that use the same test. See, e.g., Barnhill v. Comm’r, (1945, CA4) 148 F2d 913; Putnam v. U.S., (1994, CA5) 32 F3d 911 rev’g (1993, DC LA) 826 F Supp 988; Walter Priddy, (1940) 43 BTA 18, acq 1941-1 CB 7; Arnold P. Bank, (1946) 6 TC 851.

7 Code § 911(d)(3).

8 Treas. Reg. § 1.937-1(d).

9 Treas. Reg. § 1.937-1(e)(1)(i), incorporating the rules in Treas. Reg. § 301.7701(b)-2(d).

10 Treas. Reg. § 301.7701(b)-2(d)(2).

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