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July 22, 2016 - Phil Hodgen

Former green card holder returning to the United States as a visitor

If you sign up for one of my email newsletters, you will get a bot-response from me, thanking you for signing up.  But if you ask a question, the response is remarkably lifelike, because I actually write the answer.  🙂

Today reader S.J. signed up and here is what he wanted to know.  I have edited his comments slightly for formatting and clarity, but mostly to hide identifying information.

1 – What’s the single most important question you have about international tax?

I abandoned my LPR green card in ______, 2015 (delivered my Green Card with Form I-407 to the US embassy) and was given a visitor visa. I have children and grandchildren in the US.  What are the maximum days I can be in the US in 2016 without being regarded by the IRS as resident by presence and obligated to file tax return.

2 – Why would this make a difference in your life to get a good answer to this question, or find a solution to this problem?

I am __ years old and would like to spend time, as much as I can, with my children and grandchildren.

3 –  How difficult has it been for you to find an good answer to your question to date? (Not at all difficult, somewhat difficult, very difficult).

Very difficult. I searched the IRS publications in the internet. It is very confusing.

I told S.J. that I would answer as a blog post because this is a question that faces a lot of people.

Preliminary Comment About Expatriation

S.J., I hope you checked to see if you are required to file Form 8854 as an expatriate.  As a general principle, if you acquired your green card in 2008 or earlier, you probably are a “long-term resident”, and when you filed Form I-407, you terminated that status as a “long-term resident” and became an “expatriate”.

If you are an “expatriate” you need to decide if you are a “covered expatriate”.  If you are a “covered expatriate” then in addition to filing Form 8854, you may have some tax to pay to the U.S. government.

There are exceptions to these rules so do not take what I just said as Ultimate Truth.  My suggestion is that you look into this question for yourself.

What Makes You a U.S. Resident for Income Tax Purposes?

There are three ways that you, S.J., can be treated as a U.S. resident for income tax purposes:

  • You apply for — and receive — another green card.
  • You voluntarily make an election to be a U.S. resident taxpayer using Internal Revenue Code Section 6013(g) or Section 6013(h).
  • You spend too many days in the United States.

You will not, I am sure, apply for a new green card. 🙂 And I also assume that you will not voluntarily elect to be a U.S. resident taxpayer.  That leaves only the “how many days” method for becoming a resident of the United States for income tax purposes.

How You Become a Resident Because of “Too Many Days”

There is a semi-complicated little formula that looks at three years of your life (this year and the two prior years).  You do some math.  If the result of the math = 183 or more, then you are a U.S. resident in the current year.

Here is the formula in a little table. Print this table, fill in the blanks, and you will have your answer for whether you are a resident in the United States this year.

Year Number of Days in USA Divide By   Result
Current Year  
1
=
 
Last Year  
3
=
 
Year Before Last Year  
6
=
 
Total        

Here is an example. I am making up the numbers just to show you how the math works. Pretend that you were physically present in the United States for sixty days every year in 2014, 2015, and 2016. You want to decide whether you are a U.S. resident for income tax purposes in 2016.

Year Number of Days in USA Divide By Result
2016
60
1
=
60
2015
60
3
=
20
2014
60
6
=
10
Total 90

The total, after the required arithmetic, is 90. You are a resident of the United States in 2016 only if the total is 183 or more. Since 90 is less than 183, you are not a resident of the United States in 2016.

So What’s the Answer?

OK. You know how the arithmetic works for the substantial presence test. You just want an answer. How many days can you be in the United States every year, visiting your grandchildren, without becoming a U.S. resident taxpayer because of the substantial presence test?

There are two answers:

  • It depends; and
  • 121 or fewer.

“It depends” means that you will not be able to predict your maximum number of days in the United States for this year without knowing what happened in your life in the two previous years, and how many days you were in the United States during those years. You must do the math.

But there is an easy answer: 121. If you are in the United States for 121 or fewer days every year, then you will always be a nonresident of the United States for income tax purposes under the substantial presence test. Let’s prove it . . . with math!

Proving “121” is the Magic Number

Let us pretend that you, S.J., were in the United States for exactly 121 days every year in 2014, 2015, and 2016. In that case, here is how the math will work:

Year Number of Days in USA Divide By Result
2016
121
1
=
121
2015
121
3
=
40 1/3
2014
121
6
=
20 1/6
Total 181 1/2

The total, after the required arithmetic, is 181 1/2. Note that I did not round off the fractions. You are a resident of the United States in 2016 only if the total is 183 or more. Since 181 1/2 is less than 183, you are not a resident of the United States in 2016.

Now let’s compare the result if you stay in the United States for 122 days exactly in 2014, 2015, and 2016. Again, it requires a bit of math.

Year Number of Days in USA Divide By Result
2016
122
1
=
122
2015
122
3
=
40 2/3
2014
122
6
=
20 2/6
Total 183

The total, after the required arithmetic, is 183. Note that I did not round off the fractions. You are a resident of the United States in 2016 only if the total is 183 or more. Since 183 is exactly 183, you hit the target exactly. Congratulations, you are a U.S. resident taxpayer for calendar year 2016.

An Example of the “It Depends” Math

I said there are two answers to “How many days can I stay in the United States every year and not be a U.S. resident taxpayer?” One of those answers was the entirely unsatisfactory “It depends” answer. Because we are doing a weighted average calculation, your days of presence all matter, but some matter more than others.

Let’s take our last example and move one number around. Instead of spending 122 days in the United States every year, let’s pretend that you spent 122 days in 2014, 124 days in 2015, and 120 days in 2016.

In other words, over the three year time period you spent the same number of days in the United States (366 days over three years).

The only difference is that I moved two days out of 2016 and added them to 2015. Let’s see what that does to the math.

Year Number of Days in USA Divide By Result
2016
120
1
=
120
2015
124
3
=
41 1/3
2014
122
6
=
20 2/6
Total 182

Note that the math now yields a total under the substantial presence test of 182. Since you must have a total of 183 or more to be a U.S. income tax resident under the substantial presence test, you will be treated as a nonresident of the United States for calendar year 2016.

I hope this demonstrates a simple truth for the “It depends” answer. If you spend extra days in the United States this year, you had better cut the number of days that you spend in the United States next year.

Do the math every year. You can predict your resident status this year, and you can also predict the safe number of days you can remain in the United States — without triggering resident status — for next year.

I love math.

Exceptions and Escapes

There are a bunch of exceptions to the substantial presence test. Some days that you are in the United States do not count as days of presence for the substantial presence test. For instance, if you hold the right kind of visa (hint hint get a student visa) the days you are in the United States will not count toward “days of presence” under the substantial presence test.

Additionally, even if you trigger the substantial presence test, there may be ways to extricate yourself from paying resident-level income tax to the United States. Look at the closer connection exception (Form 8840) and the treaty exception (Form 8833) as ways for you to tell the IRS “Yes, I may be a resident but I’m going to be taxed as a nonresident.

Thanks

Thanks for the email S.J. I hope this explanation helped.1


1. For those of you who are mortally offended by the clunky HTML I used for the tables . . . too bad. I was too lazy to muck about with the CSS to make the tables pretty. And yes, I know the <td></td> tags are not supported in HTML5. Get off my lawn.

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