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International Tax Concepts: Tax Residency Status



International Tax Concepts: Tax Residency Status

U.S. Tax Residency Status

As a general matter, all U.S. citizens and U.S. residents are treated as U.S. tax residents.  A non-U.S. citizen is generally classified as a nonresident for U.S. tax purposes unless they satisfy one of two tests: the green card test or the substantial presence test.  The U.S. residence tests are generally applied on an annual calendar-year basis.

The Green Card Test

An alien individual satisfies the green card test if, at any time during the calendar year, they are a lawful permanent resident (“LPR”) of the United States under U.S. immigration law. An individual is considered a LPR if the U.S. Citizenship and Immigration Services (“USCIS”) (or its predecessor) has granted them the privilege of residing permanently in the United States.  Generally, an individual has this status if USCIS has issued an alien registration card — also known as a “green card.”  Note that the expiration of a “green card” does not, in and of itself, terminate residence for tax purposes.

The Substantial Presence Test

An alien individual satisfies the substantial presence test if they are physically present in the United States for at least:

  1. 31 days during the current calendar year; and
  2. 183 days during the 3-year period that includes the current calendar year and the 2 immediately preceding calendar years counting:
  • All days of physical presence in the United States during the current calendar year, and
  • 1/3 of the days the individual was present in 1st preceding year; and
  • 1/6 of the days the individual was present in 2nd preceding year.

Residency Elections

The tax law, however, provides for several potential elections that may, where made, override the green card test and the substantial presence test.  Those elections include the following:

  • First-Year Election To Be Treated as a Resident – A nonresident who qualifies as a U.S. resident under the substantial presence test may elect to be treated as a dual-status resident for the prior tax year, if certain tests are met, by filing a proper election statement making the first-year election.
  • Nonresident Spouse Treated as a Resident
  • Closer Connection To a Foreign Country
  • Tax Treaties

Note that special rules may apply with respect to dual-status taxpayers.

Have a question? Contact Jason Freeman, Freeman Law.

Freeman Law International Tax Symposium

Readers may be interested in the Freeman Law International Tax Symposium scheduled to take place virtually on October 20 and 21, 2022.  Attendees will qualify for CLE, CPE, and CE and the slate of presenters includes well-recognized speakers and panelists, such as the IRS Commissioner, a prior Chief Counsel of the IRS, a former Acting Assistant Attorney General of the U.S. Department of Justice Tax Division, and many others in government and private practice.

To Register for the Freeman Law International Tax Symposium, please visit www.its2022.freemanlaw.com.

Mr. Freeman is the founding and managing member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney. Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service.
He was honored by the American Bar Association, receiving its “On the Rise – Top 40 Young Lawyers” in America award, and recognized as a Top 100 Up-And-Coming Attorney in Texas. He was also named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas” by AI.

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