If general understanding of what constitutes a “U.S. Taxpayer” under the Internal Revenue Code existed, millions of individuals would not currently be unaware that they may be facing heavy penalties and fines and possible prosecution for not complying with their International U.S. tax reporting obligations.
The first part of the law is the easiest to comprehend. A U.S. Citizen is a U.S. Taxpayer. It doesn’t matter where you live, how often you travel, to whom you are married or even if you declare and pay taxes in another country. There are no exceptions. However, being a U.S. Taxpayer doesn’t necessarily mean that you have to pay taxes. What it means is that if you have international earnings or assets, individually or jointly, as in a business structure outside the U.S., which surpass a certain aggregate amount, you are obligated to report these in regular annual returns to the U.S. IRS.
A Lawful Permanent Resident (LPR) of the U.S. is also a U.S. Taxpayer with the same tax reporting ob- ligations as those of a U.S. Citizen. These obligations will only discontinue if you begin residing outside the U.S, become subject to that country’s tax regime and notify the Secretary of the U.S. IRS. For your change in status to be accepted, the foreign country involved must have a tax treaty with the U.S. to which you have not previously waived your rights.
The final category is referred to as “Foreign Person”(FP), anyone who is not a U.S. Citizen or a Lawful Permanent Resident, but may come under the U.S. Taxpayers regime because they:
Are traveling to the U.S. and have spent more days in the U.S. than is established by the IRS threshold (substantial presence test).
Have not have crossed the IRS Threshold, but are in the process of applying for a change of status to become a Legal Permanent Resident.
The IRS day’s threshold calculation can be explained as follows. Consider the existing calendar year (the tax year being reported) and the previous two years. As a minimum, you need to have been in the U.S. during the existing calendar year (including travel days) for 31 days. Then take the actual days you were in the U.S. during the existing year, the days for the 1st preceding year (divided by 3) and then those of the 2nd preceding year (divided by 6) and add the three together. If the total number of days you have been in the U.S. over the existing calendar year and the two preceding years is equal to or more than 183 days, you are considered to have the reporting obligations of a U.S. Taxpayer. Furthermore, if you are an FP and you are in the U.S. for more than 180 days during any calendar year you have crossed the IRS threshold for that year.
This would not be considered true tax legislation if it were not accompanied by a numberof complex exceptions. Here are some of them:
If you are a Foreign Citizen or Resident commuting daily into the U.S., your travel days may not be counted in the above number of days to determine whether or not you meet the threshold. (Example: Canadian or Mexican residents legally working in the U.S.)
Foreign Government related individuals, their families, teachers, trainees and students may also be exempted from counting their days physically in the U.S. again for the purpose of determining whether or not they have surpassed the threshold.
Foreign Persons receiving medical treatment or who have had their departure delayed for medical reasons may not have to have these days counted.
Transportation Crews, who are in transit and are not engaging in any business in the U.S., can also have their layover days excluded.
If you believe that you may be out of compliance regarding your obligations as a U.S.Taxpayer, do not wait for the IRS to contact you. Consult a U.S. licensed Legal Tax Attorney and CPA to enquire.
Stanley Foodman, CEO, Foodman CPAs & Advisors is a recognized forensic accounting and litigation support practitioner, specializing in international tax. A pioneer in the field, he has served as an expert witness and forensic accountant for some of the nation’s most complex, high-profile economic crime cases. Mr. Foodman is a former auxiliary special agent for the Florida Department of Law Enforcement with specialization in economic crime – money laundering, bank fraud, public corruption and discovery of hidden assets. He serves on the advisory board of the International Association for Asset Recovery (IAAR).
Foodman CPAs & Advisors is a full service accounting and litigation support firm, specializing in forensic accounting and international tax. One of the top 25 accounting firms in South Florida, Foodman represents clients locally, nationally and internationally.