To meet the test, the general requirements of the Substantial Presence Test are as follows:
- Person must be in the US for 31 days during the current year, and
- Person must be in the US for 183 days during the 3-year period that includes the current year and the 2 years immediately before that, by a special counting system:
- Count all the days you were present in the current year, plus: count one-third of the days you were present in the first year before the current year, plus: count one-sixth of the days you were present in the second year before the current year.
If the non-resident alien (NRA) was physically present in the US for 300 days in 2007, 330 days in 2008, and 31 days in 2008, he would be considered a resident alien in both 2007 and 2008 because he spent more than 183 days in the US for each of those years. In order to determine if he was a resident in 2009, we would perform the following calculation:
31 + (330 x 1/3) + (300 x 1/6) =
31 + (110) + (50) = 191
Because 191 is greater than the 183-day statutory requirement, he is also deemed to a resident alien for calendar year 2009 in this example.
If the NRA was physically present in the US for 120 days in 2007, 120 days in 2008, and 120 days in 2008. In order to determine if he was a resident in 2009, we would perform the following calculation:
120 + (120 x 1/3) + (120 x 1/6) =
120 + (40) + (20) = 180
Because 180 is less than the 183-day statutory requirement, he is not deemed to a resident alien for calendar year 2009 in this example.
Closer Connection Exception
There is an important exception when determining residency in this context called the “Closer Connection Exception”. Under this exception, an individual is not deemed to have met the Substantial Presence Test in any calendar year which:
- The individual is in the US for fewer than 183 days; and
- It can be established that the individual had a “tax home” in a foreign country and has a closer connection to that country than the US.
The term “tax home” is a term of art that is somewhat ambiguous. IRS regulations indicate that the term refers to the individual’s principle place of business. This exception cannot be used for individuals who have taken steps to apply for permanent resident (green card) status.
As with most matters concerning tax law, there are a myriad of nuances and cases which can affect the overall analysis. If you would like to make sure you are fully compliant, we recommend that you contact our firm for a comprehensive consultation to discuss the issues. Lastly, the discussion in this letter pertains to income tax obligations and not transfer tax obligations such as estate and gift taxes. The latter, is more subjective and intent-based.