March 2013 Archives

March 27, 2013
Posted by Michael Brooks

Canadians Visiting the Palm Springs Area, Remember, if You're in the United States between 4 to 6 Months Every Year, Fill out the IRS Form 8840 Now! (Part 2)

So, like so many Canadians in the Palm Springs/ Palm Desert area, you've determined you probably should fill out the Form 8840. Why? Because you're in the United States year in, year out, over 4 months but less than 6 months in a calendar year (and if you're in the Coachella Valley right now, let's face it, who wouldn't want to be here as much as possible...save July and August that is). And if you are in the US more than 4 months every (calendar) year, and you don't fill out the Form 8840, the risk you take is that the IRS will deem you a US tax resident for the taxable year (as they are permitted to do if you are here, year in, year out, over 4 months a calendar year). While that may not be the end of the world (you can always hire a guy like me to get you out of that situation, and it will not lead to a double tax (once in Canada and once in the US)), it will lead to a logistical headache, which you will have to straighten out. So, be safe, complete the Form 8840 if you're in the US every year between 4 to 6 months, like so many Canadian snowbirds are in this area of California.

When is the Form 8840 Due?

You must complete the Form 8840 by June 15 (the due date of the IRS Form 1040NR) of the year after the year for which you are reporting (so for the 2012 Form 8840, you should send it in by June 15, 2013). You actually have until the due date (June 15) plus extensions, which would be months later (so, yes, you could send in your 2012 Form 8840 in July 2013). But let's not do that. You want to get the Form 8840 in by June 15 of the year after the year to which the form relates (so for 2012, let's send them in by June 15, 2013).

Where do you send in the IRS Form 8840?
You mail it to the following address:
Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215

Do a husband and wife fill out 1 Form 8840 or 2?
Each person fills out their own Form 8840, so a husband and wife will out a total of two forms 8840.

What Questions Does the Form 8840 Ask?

On the First Page of the 8840
On the first page of the form they ask about the amount days you've been in the US for the last 3 years (i.e., the form you're filling out in 2013 asks you how many days you spend in the US in 2012, 2011, 2010). DO NOT GO CRAZY TRYING TO FIGURE OUT HOW MANY DAYS YOU SPENT IN THE US THE LAST 3 YEARS. ESTITMATE AS BEST YOU CAN. PROVIDED YOU HAVE NOT BEEN IN THE US IN ANY CALENDAR YEAR OVER 182 DAYS, THEN THE EXACT AMOUNT OF DAYS REALLY DOESN'T MATTER. ALL THE CALCULATION OF DAYS TEST IS TRYING TO FIGURE OUT IS WHETHER YOU SHOULD FILL OUT THE FORM 8840 TO BEGIN WITH...AND YOU'RE OBVIOUSLY FILLING IT OUT, SO THAT'S A REDUNDANT QUESTION...OVER 4 MONTHS IN THE US, LESS THAN 6, YEAR IN YEAR OUT, FILL OUT THE FORM 8840. DONE.

We'll walk through the questions asked on the critical second page of the Form 8840, and we'll get into how the US-Canada Tax Treaty impacts the Form 8840 (and the determination of US versus Canada residency period), in the 3rd and final part of our series on completing the Form 8840.

March 11, 2013
Posted by Michael Brooks

Canadians Visiting the Palm Springs Area, Remember, if You're in the United States between 4 to 6 Months Every Year, Fill out the IRS Form 8840 Now! (Part 1)

We've talked about the need for Canadians (or any non-US citizen who regularly spends between 4 to 6 months in the US) to fill out the Closer Connection Form (the IRS Form 8840) before. Well, it's a good time of year (Spring) to review this rule again.

Who Needs to Fill Out the Closer Connection Form?

Any non US citizen individual who has a "substantial presence" in the US must fill out the Form 8840 (every year they have a substantial presence). Is there a mathematical formula designed to determine whether you have substantial presence" in the US (and then need to fill out the Form 8840)? Yes. And I'm going to spell out the formula in a moment. BUT IF YOU ARE IN THE UNITED STATES EVERY YEAR BETWEEN 4 AND 6 MONTHS, FORGET THE FORMULA AND JUST FILL OUT THE 8840...THE FORMULA IS JUST DESIGNED TO DETERMINE WHETHER YOU SHOULD HAVE A SUBSTANTIAL US PRESENCE AND NEED TO FILL OUT THE 8840 TO BEGIN WITH. IF YOU ARE IN THE US EVERY YEAR, YEAR IN YEAR OUT,BETWEEN 4 AND 6 MONTHS, DON'T WORRY ABOUT THE FORMULA AND JUST FILL IT OUT EVERY YEAR!!!

Here is the Formula Designed to Determine Whether You Have a Substantial Presence in the US and You Then Must Fill out the Form 8840 (but again, if you're in the US between 4 to 6 months every calendar year, just fill out the Form 8840 and do not go crazy about the exact days and the mathematical test).

An individual has a substantial presence in the US if the individual is present in the US at least 31 days during the current year and at least 183 days for the three-year period ending on the last day of the current year using a weighted average approach (the weighted average approach works as follows: the number of days spent in the US in the current year are given full weight; the number of days spent in the US in the last year are multiplied by 1/3; and the number of days spent in the US two years ago are multiplied by 1/6....add up the total for the three years and if it equals or exceeds 183 days, the nonresident alien has a substantial presence in the US. For example, an individual who spent exactly 124 days in the US this year and the previous two years would have a total of 187 days under the substantial presence test:
Last Year (2012): 124 x 1= 124
2 Years Ago (2011): 124 x 1/3= 42
3 Yrs Ago (2013): 124 x 1/6= 21
Total= 187 days. Substantial presence test of 183 days exceeded...

What does this mean?

The non-US citizen (probably Canadian) needs to fill out the IRS Form 8840, that's all!

We'll walk through the IRS Form 8840 in our next post.

One final note before we close this post-

We count days for this purpose in the calendar year: January 1 to December 31 of each year is the period when we determine how many days the Canadian (or any non-US citizen) was in the US. And, keep in mind, it should never be more than 182 days in any calendar year (for the purposes of being deemed a US tax resident). We are assuming even those Canadians in the US a lot ever year are not here more than 182 days in any calendar year (for tax reasons...remember the immigration rule is no more than 180 days in any 365 day period, which is not necessarily the calendar year).