Closer Connections Requirement – Clearing up the Confusion

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Closer Connections Requirement – Clearing up the Confusion

By David Christianson,BA, CFP, R.F.P., TEP

Wellington West Total Wealth Management

If you spend a significant amount of time in the US each year, then the IRS (the American Internal Revenue Service) wants to know about you, and wants you to show them that you have a closer connection to Canada than to the US. 

If you do not file the required forms, then the IRS has the right to request you to file an actual US tax return.  You don’t want that.  

If you spent 31 days or more in the US in this year then the IRS filing requirements MAY apply to you, depending on how much time you spent there the previous two years before that..

If you spent more than 121 days in the US in each of the last three years, then this filing requirement absolutely applies to you.

First, you have to do a three-year calculation that determines whether or not you have a “substantial presence” in the US, based on the IRS rules.

What most Canadians don’t realize is that when they visit the US, they are travelling on a visitor’s visa, and they are there by permission of the US government.  If a person stays there 121 days and does that for three years in a row, then that person has established a “substantial presence” in the US, and should therefore be taxed as an American, unless that person has a “closer connection” to another country, like Canada.

People with such a “closer connection” are provided an exemption from filing a full US tax return if they file Form 8840 on time.   However, failure to file can result in denial of the exemption, and the resulting requirement to file a US return.

So, the process is to use IRS Form 8840, the Closer Connection Exception Statement for Aliens.

This helps you determine your status, and provides a list of questions to establish your closer connection to Canada.

You meet the substantial presence test if you are physically present in the US for at least:

- 31 days during the current year and

- 183 days during the period this year and the two years previous, counting all of the days of physical presence in this year, one third of the days of presence in last year and one sixth the number of days in for two years ago..

For example, 121 days each year looks like this:

- 2013 - 121 days

- 2012 -  40 days (one-third of 121)

- 2011 -  20 days (one-sixth of 121)

Total days – 181, and therefore, no substantial presence (but darn close.)

Don’t count days that you commute to work in the US, days travelling, or days you were unable to leave due to a medical problem that developed while you were in the US. 

If the total of your three years of visits adds up to 183 days based on the formula, then you have a “substantial presence.” If you wish to avoid filing a US tax return, you then must prove that you have a “closer connection” to Canada than to the US. 

To have your own fun with the IRS code, log onto and explore.  Like most aspects of life, tax compliance can seem more complicated all the time.  But this one is actually pretty simple and straightforward, once you have worked through it once or twice. 

Don’t be intimidated by it, or bury your head in the sand.  The IRS and Border Service are becoming more closely connected themselves, so it is best to comply voluntarily, before they ask.  In that case, they can deny the exemptions that normally apply. 

Even if you have missed the June 15 deadline to file the Form 8840, file one now and get in the system.  They will be more flexible with you if you have simply been late, as opposed to ignoring the requirement completely. 

This article is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.