For aliens, U.S. federal tax law provides two tests for determining whether or not an alien is a tax resident of the U.S. during a particular year and subject to U.S. federal taxation on worldwide income. These two tests are known as the “green card test” and the “substantial presence test.”
Green Card Test. Under Internal Revenue Code Section 7701(b)(1)(A)(i), an alien will generally be treated as a tax resident of the U.S. during any year in which he or she is considered a lawful permanent resident of the U.S. by the immigration authorities. The only way to avoid U.S. residency is through the application of a treaty “tie-breaker” rule. A treaty tie-breaker is contained in many tax treaties. Our firm has substantial experience in determining if an alien can take advantage of a treaty tie-breaker provision.
Substantial Presence Test. An alien will generally be considered a tax resident during any calendar year in which he or she is present in the U.S. for 183 days or more. For purposes of this rule, the 183 day count includes one-third of the days present during the first preceding year and one-sixth of the days during the second preceding year. In some limited circumstances, an alien can avoid the consequences of the substantial presence test if he or she has a closer connection to a country other than to the U.S. Our tax law firm has considerable experience advising aliens if they can utilize a closer connection test to avoid being classified as a U.S. resident for tax purposes.
U.S. Treatment of Non-Resident Aliens
Non-resident aliens (aliens that do not satisfy the green card test and the substantial presence test) are taxed under an entirely separate regime than the one which applies to U.S. citizens and resident aliens. Under this special regime, income is categorized under two distinct definitions: income which is effectively connected with a U.S. trade or business, and income which is not effectively connected with a U.S. trade or business. Each of these two categories of income is subject to U.S. tax under a different set of rules. We are well versed in these rules and have substantial experience advising non-resident aliens regarding these rules. Contact us now for a consultation!