Substantial Presence Test

Posted on February 15 2011 by admin

Even if you don’t hold a green card, you may be considered a U.S. resident if you are physically present in the U.S. for 183 days in a calendar year.  Even if you don’t meet the 183 days in one year, you could still be considered a U.S. resident if you fall under the look back rule.  This rule counts a day of presence in the current year as one full day, a day of presence during the first preceding year as one-third of a day, and a day of presence during the second preceding year as one-sixth of a day.  You would need to be present for at least 31 days during the current year and 183 days total during the current and preceding 2 years to be considered a resident in the current year. 

This boils down to being treated like a U.S. resident if you consistently spend just one-third of each year in the U.S.  The IRS has provided some relief to this test if you can prove you have a closer connection to another foreign country.  You may have a closer connection to another country if you spend less than 183 days in the U.S. during the year, your tax home is in another country, and you can prove a closer connection to the other country by looking at all your fact and circumstances.  For example, where is your permanent home?  Where are most of your personal and economic relations?  Form 8840 must be filed annually with the IRS if you are requesting relief under this exemption.

Since each country has its own definition of what represents a resident, a taxpayer may be considered a resident of the U.S. as well as a foreign country.  Don’t fret!  If you can’t meet the closer connection exemption, you might be eligible to qualify for exemption under the tie-breaker provision if your country of residence has a dual income tax treaty with the US.

Jill Helm, CPA

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