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Related topics & pages: 
Alien Tax Intro - Nonresident Alien - Sourcing Income Rules
- Aliens and US Taxes - define resident-nonresident
- Nonresident Aliens - treatment of income - Nonresident Aliens - treatment of income
- Nonresident Aliens - Income Exclusions
- Aliens useful forms
Alien Residency Status Testing
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Since resident and nonresident aliens are taxed differently, it is
important for you to determine your status.
What it does:
Since resident and nonresident aliens are taxed differently, it is important for you to determine your status. You are considered a nonresident alien for any period that you are neither a U.S. citizen nor a U.S. resident alien.
You are considered a resident alien if you met one of two tests for the calendar year.
The first test is the green card test. If at any time during the calendar year you were a lawful permanent resident of the United States, according to the immigration laws, and this status has not been rescinded, or administratively or judicially determined to have been abandoned, you are considered to have met the green card test.
The second test is the substantial presence test. To meet this test, you must have been physically present in the United States on at least 31 days during the current year, and 183 days during the 3 year period that includes the current year and the 2 years immediately before. To satisfy the 183 days requirement, count all of the days you were present in the current year, and one-third of the days you were present in the first year before the current year, and one-sixth of the days you were present in the second year before the current year. Do not count any day you were present in the United States as an exempt individual. An exempt individual may be anyone in the following categories:
· A foreign government-related individual,
· A teacher or trainee with a J or Q visa who substantially complies with the requirements of the visa,
· A student, with an F, J, M, or Q visa who substantially complies with the requirements of the visa; or
· A professional athlete temporarily present to compete in a charitable sports event.
Also, do not count any day you were present in the United States only because of a medical condition. Even if you meet the substantial presence test, you can be treated as a nonresident alien if you are present in the United States for fewer than 183 days during the current calendar year, you maintain a tax home in a foreign country during the year, and you have a closer connection to that country than to the United States. This does not apply if you have applied for status as a lawful permanent resident of the United States, or you have an application pending for adjustment of status. Sometimes, a tax treaty between the United States and another country will provide special rules for determining residency. An alien whose status changes during the year from resident to nonresident, or vice versa, generally has a dual status for that year, and is taxed on the income for the two periods under the provisions of the law that apply to each period. Topic 852 provides more information on the dual status tax year.
If you are a nonresident alien, you must file Form 1040NR or Form 1040NR-EZ if you are engaged in a trade or business in the United States, or have any other U.S. source income on which the tax was not fully paid by the amount withheld. If you had wages subject to income tax withholding, the return for 1999 is due by April 17, 2000, provided you file on a calendar-year basis. If you did not have wages subject to withholding and file on a calendar-year basis, you are required to file your 1999 return by June 15, 2000. File Form 1040NR or Form 1040NR-EZ with the Internal Revenue Service Center, Philadelphia, Pennsylvania 19255-0002.
If you are a resident alien, you must follow the same tax laws as U.S. citizens. You are taxed on income from all sources, both within and outside the United States. You will file Form 1040EZ, 1040A, or 1040 depending on your tax situation. The return for 1999 is due by April 17, 2000, and should be filed with the service center for your area.
You are treated as present in the United States on any day you
are physically present in the country at any time during the day.
However, there are exceptions to this rule. Do not count the
following as days of presence in the United States for the
substantial presence test.
Days of Presence in the United States
Regular commuters from Canada or Mexico. Do not count the days on which you commute to work in the United States from your residence in Canada or Mexico if you regularly commute from Canada or Mexico. You are considered to commute regularly if you commute to work in the United States on more than 75% of the workdays during your working period.
For this purpose, "commute" means to travel to work and return to your residence within a 24-hour period. "Workdays" are the days on which you work in the United States or Canada or Mexico. "Working period" means the period beginning with the first day in the current year on which you are physically present in the United States to work and ending on the last day in the current year on which you are physically present in the United States to work. If your work requires you to be present in the United States only on a seasonal or cyclical basis, your working period begins on the first day of the season or cycle on which you are present in the United States to work and ends on the last day of the season or cycle on which you are present in the United States to work. You can have more than one working period in a calendar year, and your working period can begin in one calendar year and end in the following calendar year.
Example. Maria Perez lives in Mexico and works for Compania ABC in its office in Mexico. She was assigned to her firm's office in the United States from February 1 through June 1. On June 2, she resumed her employment in Mexico. On 69 days, Maria commuted each morning from her home in Mexico to work in Compania ABC's U.S. office. She returned to her home in Mexico on each of those evenings. On 7 days, she worked in her firm's Mexico office. For purposes of the substantial presence test, Maria does not count the days she commuted to work in the United States because those days equal more than 75% of the workdays during the working period (69 workdays in the United States divided by 76 workdays in the working period equals 90.8%).
Days in transit. Do not count the days you are in the United States for less than 24 hours and you are in transit between two places outside the United States. You are considered to be in transit if you engage in activities that are substantially related to completing travel to your foreign destination. For example, if you travel between airports in the United States to change planes en route to your foreign destination, you are considered to be in transit. However, you are not considered to be in transit if you attend a business meeting while in the United States. This is true even if the meeting is held at the airport.
Crew members. Do not count the days you are temporarily present in the United States as a regular crew member of a foreign vessel engaged in transportation between the United States and a foreign country or a U.S. possession. However, this exception does not apply if you otherwise engage in any trade or business in the United States on those days.
Medical condition. Do not count the days you intended to leave, but could not leave the United States because of a medical condition or problem that developed while you were in the United States. Whether you intended to leave the United States on a particular day is determined based on all the facts and circumstances. For example, you may be able to establish that you intended to leave if your purpose for visiting the United States could be accomplished during a period that is not long enough to qualify you for the substantial presence test. However, if you need an extended period of time to accomplish the purpose of your visit and that period would qualify you for the substantial presence test, you would not be able to establish an intent to leave the United States before the end of that extended period.
In the case of an individual who is judged mentally incompetent, proof of intent to leave the United States can be determined by analyzing the individual's pattern of behavior before he or she was judged mentally incompetent.
If you qualify to exclude days of presence because of a medical condition, you must file a fully completed Form 8843 with the IRS. See Form 8843, later.
You cannot exclude any days of presence in the United States under the following circumstances.
Exempt individual. Do not count days for which you are an exempt individual. The term "exempt individual" does not refer to someone exempt from U.S. tax, but to anyone in the following categories.
The specific rules for each of these four categories are discussed next.
Foreign government-related individuals. A foreign government-related individual is an individual (or a member of the individual's immediate family) who is temporarily present in the United States:
An international organization is any public international organization that the President of the United States has designated by Executive Order as being entitled to the privileges, exemptions, and immunities provided for in the International Organizations Act. An individual is a full-time employee if his or her work schedule meets the organization's standard full-time work schedule.
An individual is considered to have full-time diplomatic or consular status if he or she:
Members of the immediate family include the individual's spouse and unmarried children (whether by blood or adoption) but only if the spouse's or unmarried children's visa statuses are derived from and dependent on the exempt individual's visa classification. Unmarried children are included only if they:
Teachers and trainees. A teacher or trainee is an individual, other than a student, who is temporarily in the United States under a "J" or "Q" visa and substantially complies with the requirements of that visa. You are considered to have substantially complied with the visa requirements if you have not engaged in activities that are prohibited by U.S. immigration laws and could result in the loss of your visa status.
Also included are immediate family members of exempt teachers and trainees. See the definition of immediate family, earlier, under Foreign government-related individuals.
You will not be an exempt individual as a teacher or trainee if you were exempt as a teacher, trainee, or student for any part of 2 of the 6 preceding calendar years. However, you will be an exempt individual if you were exempt as a teacher, trainee, or student for any part of 3 (or fewer) of the 6 preceding calendar years and:
If you qualify to exclude days of presence as a teacher or trainee, you must file a fully completed Form 8843 with the IRS. See Form 8843, later.
Example. Carla was temporarily in the United States during the year as a teacher on a "J" visa. Her compensation for the year was paid by a foreign employer. Carla was treated as an exempt teacher for the past 2 years but her compensation was not paid by a foreign employer. She will not be considered an exempt individual for the current year because she was exempt as a teacher for at least 2 of the past 6 years.
If her compensation for the past 2 years had been paid by a foreign employer, she would be an exempt individual for the current year.
Students. A student is any individual who is temporarily in the United States on an "F," "J," "M," or "Q" visa and who substantially complies with the requirements of that visa. You are considered to have substantially complied with the visa requirements if you have not engaged in activities that are prohibited by U.S. immigration laws and could result in the loss of your visa status.
Also included are immediate family members of exempt students. See the definition of immediate family, earlier, under Foreign government-related individuals.
You will not be an exempt individual as a student if you have been exempt as a teacher, trainee, or student for any part of more than 5 calendar years unless you establish to the satisfaction of the IRS district director that you do not intend to reside permanently in the United States and you have substantially complied with the requirements of your visa. The facts and circumstances to be considered in determining if you have demonstrated an intent to reside permanently in the United States include, but are not limited to:
If you qualify to exclude days of presence as a student, you must file a fully completed Form 8843 with the IRS. See Form 8843, later.
Professional athletes. A professional athlete who is temporarily in the United States to compete in a charitable sports event is an exempt individual. A charitable sports event is one that meets the following conditions:
In figuring the days of presence in the United States, you can exclude only the days on which you actually competed in a sports event. You cannot exclude the days on which you were in the United States to practice for the event, to perform promotional or other activities related to the event, or to travel between events.
If you qualify to exclude days of presence as a professional athlete, you must file a fully completed Form 8843 with the IRS. See Form 8843, next.
Form 8843. If you exclude days of presence in the United States because you fall into any of the following categories, you must file a fully completed Form 8843.
Attach Form 8843 to your 1999 income tax return. If you do not have to file a return, send Form 8843 to the Internal Revenue Service Center, Philadelphia, PA 19255, by the due date for filing an income tax return. The due date for filing is discussed in chapter 7.
If you do not timely file Form 8843, you cannot exclude the days you were present in the United States as a professional athlete or because of a medical condition that arose while you were in the United States. This does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing requirements and significant steps to comply with those requirements.
Even if you meet the substantial presence test, you can be treated as a nonresident alien if you:
Closer connection to two foreign countries. You can demonstrate that you have a closer connection to two foreign countries (but not more than two) if you meet all of the following conditions:
Tax home. Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work.
For determining whether you have a closer connection to a foreign country, your tax home must also be in existence for the entire current year, and must be located in the same foreign country for which you are claiming to have a closer connection.
Foreign country. In determining whether you have a closer connection to a foreign country, the term "foreign country" means:
Establishing a closer connection. You will be considered to have a closer connection to a foreign country than the United States if you or the IRS establishes that you have maintained more significant contacts with the foreign country than with the United States. In determining whether you have maintained more significant contacts with the foreign country than with the United States, the facts and circumstances to be considered include, but are not limited to, the following.
You cannot claim you have a closer connection to a foreign country if either of the following applies:
Form 8840. You must attach a fully completed Form 8840 to your income tax return to claim you have a closer connection to a foreign country or countries.
If you do not have to file a return, send the form to the Internal Revenue Service Center, Philadelphia, PA 19255, by the due date for filing an income tax return. The due date for filing is discussed later in chapter 7.
If you do not timely file Form 8840, you cannot claim a closer connection to a foreign country or countries. This does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing requirements and significant steps to comply with those requirements.
The rules given here to determine if you are a U.S. resident do not override tax treaty definitions of residency. If your residency is determined under a treaty and not under the rules discussed here, you must file a fully completed Form 8833 if the payments or income items reportable because of that determination are more than $100,000. If you are a dual resident taxpayer, you can still claim the benefits under an income tax treaty. A dual resident taxpayer is one who is a resident of both the United States and another country under each country's tax laws. The income tax treaty between the two countries must contain a provision that provides for resolution of conflicting claims of residence. If you are treated as a resident of a foreign country under a tax treaty, you are treated as a nonresident alien in figuring your U.S. income tax. For purposes other than figuring your tax, you will be treated as a U.S. resident. For example, the rules discussed here do not affect your residency time periods as discussed, later, under Dual Status Aliens.
Information to be reported. If you are a dual resident taxpayer and you claim treaty benefits, you must timely file a return (including extensions) using Form 1040NR or Form 1040NR-EZ, and compute your tax as a nonresident alien. You must also attach a fully completed Form 8833. See Reporting Treaty Benefits Claimed in chapter 9 for more information on reporting treaty benefits.
Why it works:
Reserved
This is about Activity Based Taxplanning - maximizing deductions,
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Activity Based Taxplanning (ABT) is a methodology developed by Bob Parrish CPA,
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place). The, research is compiled from the myriad of sources to help
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protect your objectives.
Tax is a subject that many view in order to cut costs. Taxes are a cost just as any other cost. It happens this cost is somewhat intangible and is defined by legislation without a tangible item to view and control. The money is spent and the control of the expenditure is more appropriately administered by someone trained in the law.
This is about Activity Based Costing - methods to cut costs,
management accounting, management information systems, decision support systems - in
general about being a manager.
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