An individual is a U.S. tax resident if they meet either the below tests.
1. Lawful permanent resident test: An individual who holds a green card is considered a resident for tax purposes for the period of time that he was a lawful permanent resident
2. Substantial presence test: An individual that spends at least 31 days during the current calendar year; and the sum of the total number of US presence days in the current year, plus 1/3 of the total US presence days in the preceding year, plus 1/6 of the US days during the second preceding year equals or exceeds 183 days.
U.S. tax residents must pay income tax on worldwide income. There are exceptions available for individuals who otherwise be considered U.S. tax residents to be treated as non-residents. One such exception is the closer connection exception to the substantial presence test.
Closer connection exception
An individual who meets the substantial presence test due to the 3 year period, but does not have more than 183 days in the U.S. in the current year may be able to avail themselves to the closer connection exception if he:
(1) is present in the United States for fewer than 183 days in the current year;
(2) maintains a tax home in a foreign country during the current year; and
(3) has a closer connection during the current year to a single foreign country in which he maintains a tax home than to the United States.
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.
Establishing A Closer Connection
Closer connection is determined by weighing the contacts the individual has with the United States against those with the foreign country. It’s an uncertain and fact-driven position that should be weighed carefully and should be used only if there are no other exceptions available.
In determining whether an individual has maintained more significant contacts with a foreign country than the United States, the facts and circumstances to be considered include, but are not limited to, the following:
(i) The location of the individual’s permanent home;
(ii) The location of the individual’s family;
(iii) The location of personal belongings, such as automobiles, furniture, clothing and jewelry owned by the individual and his or her family;
(iv) The location of social, political, cultural or religious organizations with which the individual has a current relationship;
(v) The location where the individual conducts his or her routine personal banking activities;
(vi) The location where the individual conducts business activities (other than those that constitute the individual’s tax home);
(vii) The location of the jurisdiction in which the individual holds a driver’s license;
(viii) The location of the jurisdiction in which the individual votes;
(ix) The country of residence designated by the individual on forms and documents; and
(x) The types of official forms and documents filed by the individual, such as Form 1078 (Certificate of Alien Claiming Residence in the United States), Form W-8 (Certificate of Foreign Status) or Form W-9 (Payer’s Request for Taxpayer Identification Number).
Note: It does not matter whether your permanent home is a house, an apartment, or a furnished room. It also does not matter whether you rent or own it. It is important, however, that your home be available at all times, continuously, and not solely for short stays.
When You Cannot Claim Closer Connection to a Foreign Country
You cannot claim you have a closer connection to a foreign country if either of the following applies:
- You personally applied, or took other steps during the year, to change your status to that of a Lawful Permanent Resident, or
- You had an application pending for adjustment of status to Lawful Permanent Resident during the current year.
Indications of Intent to Change Your Status
If you have filed any of the following forms, this is an indication that your intent is to become a Lawful Permanent Resident of the United States, and is an indication that you are not eligible for the Closer Connection Exception.
- Form I-508, Waiver of Rights, Privileges, Exemptions and Immunities
- Form I-485, Application to Register Permanent Residence or Adjust Status
- Form I-130, Petition for Alien Relative
- Form I-140, Immigrant Petition for Alien Worker
- Form ETA-750, Application for Alien Employment Certification
- Form OF-230, Application for Immigrant Visa and Alien Registration
How to Claim the Closer Connection Exception
You must file Form 8840, Closer Connection Exception Statement for Aliens, to claim the Closer Connection Exception. If you are filing a U.S. federal income tax return please attach Form 8840 to the income tax return. If you do not have to file a U.S. federal income tax return, send Form 8840 to the Internal Revenue Service Center (indicated in the instructions attached to Form 8840) by the due date for filing the income tax return.
Requirement to File Form 8840
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.