automatic extension of time -- until June 15, 2000 -- in which to file their 1999 US Federal individual income tax return.

However, the extension of time to file the United States tax return does not carry with it an extension of time to pay any 1999 tax due, or the first quarter estimated tax payment for 2000.

Foreign Earned Income Exclusion There is a common misconception that if you earn less than $74,000, that you do not have to file a US income tax return. The foreign-earned income exclusion is elective, and must be elected with a timely filed tax return.

For purposes of this election, a timely filed tax return is defined as making the election within one year of the original due date of the tax return. The election is made by completing Form 2555 and attaching it to Form 1040. For 1999 tax returns, the election must be made by filing the tax return, and making the election on or before April 15, 2001.

The regulations do contain a procedure for making an election at a later date.

However, in the interim, if the US Internal Revenue Service inquires as to why you have not filed a tax return, they will treat a later filed tax return as having been filed without the election being made.

For example, if your compensation for 1999 is $70,000, and you file a tax return and make the election, all of your earned income will be excluded. If you do not file the tax return and the Internal Revenue Service finds you, you will likely pay tax on the $70,000, plus penalty and interest on the unpaid tax.

How Do I Qualify For the Foreign Earned Income and Housing Exclusions? An individual qualifies for the foreign earned income and housing exclusions by meeting one of two tests: 1. By being a resident of a foreign country for an entire calendar year 2. By being physically present outside the US for 330 days in a 365 day period The first test is used by the majority of US expatriates. Once you have lived in Bermuda for a full calendar year, you qualify for the exclusion, retroactive to the first day you became a resident.

For example, if you moved to Bermuda on February 1, 1999, you will not qualify for the exclusion unless you are still residing in Bermuda (or another country outside the United States) on December 31, 2000. If you meet this test, you would then be entitled to elect a $67,700 foreign earned income exclusion on your 1999 tax return.

The second test is more difficult to meet. With the proximity of Bermuda to the United States, most expatriates are back and forth several times a year.

Under the physical presence test, you need to be present outside the United States for 330 full days (a full 24 hours) in a 365 day period.

The confusing part of this test is that it can be any 365 day period. Using the above facts, if an individual came to Bermuda on February 1, they intially would look at the period February 2, 1999 ( if one arrived on February 1, February 2 would be the first full day outside the United States) to February 1, 2000.

Initially, you need to count forward 330 full days spent outside the United States, and then count back 365 calendar days. This day then becomes the first day of your qualifying period.

As an example, suppose that the individual was in the United States from June 1 to 3, and in Bermuda the remainder of the time. Starting with February 2, the 330th full day outside the United States is December 31, 1999. Counting back 365 days brings you to January 1, 1999. As illogical as this may seem to be, January 1, 1999 is the first day used for determining the 1999 exclusion.

In this example the individual can claim a $74,000 foreign earned income exclusion for 1999.

From a planning viewpoint, the physical presence test can give an individual a greater exclusion in the first and last year outside the United States.

Extension of Time To File the 1999 Tax Return An individual who moved to Bermuda in 1999, will usually not want to file their 1999 tax return until they qualify for the exclusion. This can be accomplished by filing Form 2350 with the Internal Revenue Service, who will routinely grant an extension until 30 or 120 days after the qualifying period for the foreign earned income exclusion is met, in which to file the U.S. tax return. Thus, most US citizens who moved to Bermuda in 1999 will not file their 1999 US tax return until January 30, 2001.

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own US tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.

James Paul Sabo, CPA, is the President of ETS Ltd., PO Box HM 1574, Hamilton HM KX, Bermuda.