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Canada Tax Foreign Income

Registered Tax Return Preparer Study Covers Vital Details about Foreign Citizens

An individual starting a tax preparation business in any state should expect to encounter foreign citizens working in the US. The initial step in these situations is determining whether the taxpayer is a resident or nonresident alien. Knowing the difference is an essential part of a Registered Tax Return Preparer study course.

All foreign citizens are required to file tax returns reporting their taxable income in the US. In addition, any citizen of another country who possesses permanent US residence status under immigration laws is considered a resident alien. This is the so-called “green card test” addressed in Registered Tax Return Preparer training. As long as foreign citizens have not had this status rescinded or have not abandoned it, they file tax returns just like US citizens – reporting their income from all domestic and foreign sources.

The other qualification measure for resident alien status is the “substantial presence test” covered in Registered Tax Return Preparer study. The calculation requires the number of days that a foreign citizen is present in the US. This includes the District of Columbia plus US possessions, territories, airspace, or territorial waters.

To qualify as a resident alien, a foreign citizen must have a physical presence in the US for 31 days of the current year as well as 183 days during the period consisting of the current year and the preceding two years.

The unusual manner for counting these days is contained in a Registered Tax Return Preparer study guide. Only the days in the current year are considered full days. Each day present in the immediately preceding year counts as one-third of a day. Then, the days present two years ago count as one-sixth of a day.

Foreign citizens will find the computation is further complicated by the exclusion of some days. Therefore, an important part of Registered Tax Return Preparer work is remembering that physical presence days do not include regular commuting to work in the US by an alien who resides in Canada or Mexico. A regular commute occurs when it constitutes more than 75 percent of all workdays.

Alien physical presence also is not days in the US for less than 24 hours while passing through between international destinations. US presence also does not count for crewmembers of foreign vessels, foreign government officials, and some professional athletes as well as teachers, students, or trainees with temporary visas. An RTRP also knows to exclude days that an alien is stuck in the US due to uncontrollable circumstances such as an illness.

Some countries have treaties with the US with overriding rules for determining residency status. Moreover, when residency status changes during the year, aliens may have dual status for that year. This results in different taxation of income for the two periods.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

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