Academic journal article Journal of Accountancy

Tax Issues for Nonresident Aliens

Academic journal article Journal of Accountancy

Tax Issues for Nonresident Aliens

Article excerpt

Inadvertent consequences for unwary foreign nationals.

Many foreign nationals working in the United States may have a problem: They inadvertently could become resident aliens. This change in status can have serious tax ramifications--a resident alien might be taxed on his or her worldwide income and be subject to U.S. estate and gift taxes. In addition, becoming a resident alien for tax purposes may differ from becoming a legal resident alien, and significant reporting requirements may exist for those with interests in certain foreign corporations, partnerships or trusts.


The Internal Revenue Code treats an individual as a resident alien if he or she meets one of three tests.

Green card test. A resident alien is a person who is a legally permanent resident alien at any time during the calendar year. Such an individual by law can reside permanently in the United States as an immigrant. This residency status continues unless it is rescinded or administratively or judicially ruled abandoned.

Substantial presence test. An individual may establish a substantial presence in the United States for any calendar year if he or she has been present in this country for at least 183 days during a three-calendar-year period and 31 days during the current calendar year. The 183-day period is determined based on the sum of the days the individual is present in the current year, plus one-third of the days present in the first preceding year plus one-sixth of the days present in the second preceding year.

Under this test, an individual is deemed a resident on the first day during the calendar year on which he or she is present in the United States.

Certain individuals are exempt from this test: foreign government-related individuals, teachers and trainees, students, and professional athletes temporarily in the United States to compete in a charitable sports event. …

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