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The Internal Revenue Code provides that anyone who spends more than 182 days in the United States may be classified as a resident alien, subject to US taxation on their worldwide income. This rule is known as the “Substantial Presence Test.” The rule is not nearly as user-friendly as merely counting the days spent in the US in the current year. Instead, there is a formula where one has to count all of the days in the present years, add 1/3 of the days of the prior year and 1/6 of the days of two years ago. Under this formula, a person fails the Substantial Presence Test if such person is present in the US for 122 days in three consecutive years. (122 + 122/3 + 122/6 = 183 days),

If a person fails the test under the above provided example (by exceeding an average of 122 days spent in the US) such person may avoid being classified as a resident alien if such person does not spend more than 182 days in the US in the current year. In such a situation, this person must file Form 8840, Closer Connection Exception Statement, with the Internal Revenue Service. This Form is used to certify that one has a closer connection to another country and therefore should not be subject to taxation in the US under the Substantial Presence Test.

Disclaimer: This Article is for general information purposes only and is not intended as legal advice. All situations are unique. Thus before taking any action, you should consult with legal counsel on the applicability of the above to your circumstances

It is well known that Green Card holders are United States Residents for income tax purposes and thus subject to US-taxation on their worldwide income. Taxpayers may be able to avoid US taxation through Tie-Breaker-Rules found in Tax Treaties, though this may place the green card in jeopardy.
Less known is that under the Bank Secrecy Act of 1970, all US citizens or residents must annually file Form TDF 90-22.1, Foreign Bank Account Reporting Form (“FBAR”) to report all foreign financial accounts if their aggregate value exceeds $10,000 at any time of the year. Failure to file this form carries stiff civil penalties and potential criminal sanctions. Even non-willful failures carry a $10,000 penalty.

​The Regulations provide that a resident under tax laws is also considered a resident for FBAR purposes. Unfortunately, for FBAR purposes, residency tie-breakers under an Income Tax Treaty are ignored and thus, while possibly being able to avoid US Taxation on worldwide income because of a treaty election, taxpayers are still required to file FBARs (and various other Information returns) and may be subjected to penalties for failing to do so.

​Because many people were not aware of their filing obligations, the Internal Revenue Service offers varied programs that allow taxpayers to become compliant. The IRS has signaled that the time to come forward and cure these delinquencies is now.

Disclaimer: This Article is intended for general information purposes only and is not intended as legal advice. Each circumstance is unique and especially in the area of FBARs and Voluntary Disclosures, the advice of a licensed attorney can be invaluable