A recent tax court decision (Powertex, TC Memo 1998-231), provides guidance on the U.S.-Canadian residency tiebreaker provisions.
Despite the amendments to Article IV of the U.S.-Canada treaty, and recent developments concerning green-card holders, this is an interesting case for Canadian southbounders.
There are two ways to attain U.S. residency--either to pass the substantial physical presence test (183-day rule) or to be lawfully admitted for permanent residence (green-card test). Once a person attains tax residency, it can be overridden by a tax residency treaty-tiebreaker provision.
Although recent immigration legislative developments indicate greencard holders using the treaty-tiebreaker provision could result in the loss of green cams, these developments did not apply in Powertex. But the factors discussed in the case remain relevant in today's environment.
In Powertex, a Canadian citizen applied for U.S. resident alien immigration status, which was granted through Dec. 31, 1990. During 1990, the taxpayer was a minority owner and vice president of two companies, one in Montreal and the other in South Carolina; he was also a minority owner in two partnerships that owned and leased property in the U.S.
In January 1990, the taxpayer met a woman (whom he would marry the following year), who was a resident of Fort Lauderdale. During 1990, the taxpayer spent only 120 days in Montreal; the rest of the time was spent living in Florida (160 days) and traveling throughout the U.S. attending trade shows.
In March 1990, one of the corporations purchased a mobile telephone service for the taxpayer's use at his girlfriend's apartment, where he kept a desk and fax machine to conduct business while in Florida.
In May, the taxpayer transported a boat he co-owned with his brother and docked it at the marina in Florida that serviced his girlfriend's apartment. The taxpayer obtained an insurance policy on the boat and listed his girlfriend's apartment as his address.
While in Florida, the taxpayer drove a company car and, in August, obtained a Florida driver's license that identified his address as his girlfriend's apartment.
During 1990, however, the taxpayer also shared an office with his brother at the family home in Canada. He maintained a room and kept personal belongings there, including two cars (both of which were registered in Montreal).
The taxpayer retained his Montreal driver's license and Canadian health insurance. He saw a...