Substantial Presence Test United States Definition | International Tax Lawyer Minneapolis
Foreigners who satisfy the Substantial Presence Test constitute a an important and very large category of resident aliens for US tax purposes. Substantial Presence Test is based on the number of days that an individual is physically present in the country. The definition of “United States” varies depending on a particular Internal Revenue Code (IRC) provision. This brief essay explores the Substantial Presence Test United States definition.
Substantial Presence Test United States Definition: Background Information
In a previous article, I explored in detail the Substantial Presence Test. I will only provide a summary of the test in this essay.
In reality, there are two substantial presence tests; if an individual meets either test, he is a US tax resident unless an exception applies.
The first substantial presence test is met if a person is physically present in the United States for at least 183 days during the calendar year. 26 USC §7701(b)(3).
The second test (the so-called “lookback test”) is satisfied if two conditions are met: (1) the person is present in the United States for at least 31 days during the calendar year; and (2) the sum of the days on which this person was present in the country during the current and the two preceding calendar years (multiplied by the fractions found in §7701(b)(3)(A)(ii)) equals to or exceeds 183 days. 26 USC 7701(b)(3)(A).
Let’s discuss how exactly the lookback test works. The way to determine to determine whether the 183-day test is met is to add: (a) all days present in the United States during the current calendar year (i.e. the year for which you are trying to determine whether the Substantial Presence Test is met) + (b) one-third of the days spent in the United States in the year immediately preceding the current year + (c) one-sixth of the days spent in the United States in the second year preceding the current calendar year. See 26 USC §7701(b)(3).
Substantial Presence Test United States Definition: Definition of United States
Treas. Regs. §301.7701(b)-1(c)(2)(ii) define “United States” for the purposes of the Substantial Presence Test. In particular, the regulations state that “United States” includes all fifty states of the United States and the District of Columbia. Moreover, the definition of “United States” also includes: “the territorial waters of the United States and the seabed and subsoil of those submarine areas which 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 exploration and exploitation of natural resources”. Id.
Moreover, the regulations specifically exclude all possessions and territories of the United States as well as the air space over the United States. Id. For example, time spent in Puerto Rico will not count toward the substantial presence test. Similarly, if an alien flies over the United States on a plane and never lands, then the IRS will exclude this day from the count.
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