ALI-ABA Course of Study International Trust and Estate Planning ...

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For purposes of the substantial presence test, the "United States" is defined to include the states,
the District of Columbia, and the territorial waters of the United States. 14 For this purpose,
"United States" does not include the possessions and territories of the United States or the air
space over the United States. 15
b. Closer Connection Exception
An alien who meets the substantial presence test for the current year may
nevertheless avoid being classified as a U.S. resident if: (i) he is present in the United States for
fewer than 183 days during the current year; (ii) he maintains a tax home in a foreign country 16
during the entire current year; (iii) he has a closer connection during the current year to the
foreign country in which his tax home is located than to the United States; and (iv) he has not
personally applied, or taken other affirmative steps, to change his status to that of a lawful
permanent resident of the United States and timely files Form 8840. 17 While the first and fourth
prongs of this "closer connection" exception are relatively self-explanatory, the second and third
prongs require some elaboration.
(i)
Tax Home
For purposes of the second prong of the closer connection exception, an alien’s
tax home is considered to be located at his regular or principal (if he has more than one regular)
place of business. 18 If the alien has no regular or principal place of business because of the
nature of his business (or because he is not engaged in carrying on a trade or business), then his
tax home is considered to be located at his "regular place of abode in a real and substantial
sense." 19 This tax home must be in existence "for the entire current year . . . [and] must be
located in the same foreign country for which the individual is claiming to have the closer
connection." 20
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§7701(b)(5); Treas. Reg. §301.7701(b)-3(b). There are limitations on the length of time
that an alien can qualify as an exempt individual by reason of being a teacher, trainee, or
student. See §7701(b)(5)(E); Treas. Reg. §301.7701(b)-3(b)(7).
Treas. Reg. §301 .7701(b)-1(c)(2)(ii). Also included in this definition are the seabed and
subsoil of those submarine areas that are adjacent to the territorial waters of the United
States and over which the United States has exclusive rights, in accordance with
international law, with respect to the exploitation of natural resources. Id.
Id.
For this purpose, "foreign country" includes possessions and territories of the United
States, any territory under the sovereignty of the United Nations, any territory under the
sovereignty of a foreign government, the territorial waters of a foreign country (as
determined under U.S. law), and the seabed and subsoil of those submarine areas that are
adjacent to the territorial waters of a foreign country and over which the foreign country
has exclusive natural resource exploration and exploitation rights under international law.
Treas. Reg. §301.7701(b)-2(b).
§7701(b)(3)(B) & (C). Is timely filing necessary?
Treas. Reg. §301.7701(b)-2(c)(1).
Id.
Treas. Reg. §301.7701(b)-2(c)(2).
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