§ 8.1 U.s. Tax Residency

• Library: Rights of Foreign Nationals (OSBar) (2020 Ed.)

§ 8.1 U.S. TAX RESIDENCY

When considering how the tax law will apply to a foreign national, the first determination is whether the taxpayer is a resident or nonresident. For federal income tax purposes, a person is considered a resident if he or she is one of the following:

(1) a U.S. citizen;

(2) a lawful permanent resident (LPR) of the United States (i.e., green card holder); or

(3) physically present in the United States for at least 183 days or more by the substantial-presence test (SPT) formula (see below). IRC § 7701(b)(1), (3); see IRS Publ'n 519 (U.S. Tax Guide for Aliens) 3-4 (2019).

CAVEAT: The U.S. Tax Guide for Aliens is an official IRS publication that provides useful guidance for aliens filing income taxes. The attorney should be aware that the 2019 edition is being referenced and that future editions may contain different rules and formulas.

Item (2) deems a foreign national to be a resident for income tax purposes based on an immigration status, but item (3) is irrespective of immigration status. See IRC § 7701(b)(1).

Under the SPT, an individual is considered a U.S. resident if the individual is present in the United States for at least 31 days during the current calendar year, and the total number of days the individual was present in the United States during the current year and preceding two calendar years equals or exceeds 183 days. The SPT formula is calculated as follows:

• 100 percent of the current year's U.S. days (e.g., 122 days) (multiplier of 1)
• One-third of the first prior year's U.S. days (e.g., 123 ÷ 3 = 41) (multiplier of 1/3);
• One-sixth of the second prior year's U.S. days (e.g., 121 ÷ 6 = 20) (multiplier of 1/6).

IRC § 7701(b)(3); IRS Publ'n 519 at 4.

EXAMPLE: If a taxpayer had 122 U.S. days in 2018, 123 U.S. days in 2017, and 121 U.S. days in 2016, the formula would yield 183 days for the 2018 tax year (122 + 41 + 20 = 183 days, by formula).

The formula does not apply if the taxpayer is present on fewer than 31 days during the current year. In that case, the taxpayer will be considered a nonresident based on physical presence even if the formula yields a result of 183 days or more. For example, if the taxpayer was in the United States 30 days in 2018, 365 days in 2017, and 365 days in 2016, then the taxpayer's formula for 2018 would be 30 days + 122 days + 61 days = 213 days, but because the taxpayer has fewer than 31 days in the current year, the taxpayer would be considered a nonresident if he or she was not a...