Am I a non-resident of the US?
For this entrepreneurs and expats that are successfully splitting their time between two or more countries the question that often follows, ‘Am I a resident?’ is ‘Am I a non resident and what does that mean?’
If an individual is not a citizen, the holder of a green card or resident by virtue of the substantial presence test (see my previous blog on ‘Am I a US tax resident’, and they are spending time within the US they will be a non resident for US tax purposes and only taxable on US sourced income.
They will only need to file an income tax return if they have US sourced income. The relevant form is form 1040NR.
If an individual is a resident by virtue of green card or the substantial presence test they may also be a non resident if they have a tax home in another country or if they have closer connections to another country as determined by a income tax treaty.
It is extremely important for individuals to understand that just because you are a non resident for treaty purposes does not mean you do not have an obligation to file information returns. There are certain forms that are normally attached to a 1040 tax return that are used by the IRS and treasury to gather information associated with US taxpayers. These forms (Fincen 114, 3520, 3520-A, 5471, 5472) carry significant penalties if they are not filed and can often put people into the world of tax remediation (i.e. streamlined offshore and streamlined onshore programs) if they get this wrong.
It is also critical to properly disclose any treaty based return position on a form 8833. Getting that wrong can also be costly.