Double Taxation Relief Manual: Guidance by country: United States of America: Claims under the old Agreement to 2003: Substantial presence
Where the claimant is a United States citizen and the ‘eleven month rule’ described in DT19859 is not satisfied, it is necessary to establish, as a separate matter, whether he is also a ‘resident of the United States’ by reference to US domestic law. Section 7701(b) of the US Tax Code determines residence in the United States for ‘aliens’ (that is non-US citizens).
Generally there is no need in the US to determine the residence status of citizens because citizens are taxable in the US on their world-wide income regardless of residence status. In the absence of clear rules for citizens, accountancy firms usually apply the tests in Section 7701(b) to clients who are US citizens to decide whether they are US resident or not. The terms of the test are set out below and if the US citizen passes the test for the period of the treaty claim then it may be accepted that he is a resident of the US.
If the US citizen is also resident in the UK during the period, see DT19862 below.
Section 7701(b)(3) contains a ‘substantial presence’ test which considers how frequently an individual is physically present in the US. To pass this test:
the claimant must be present in the US on at least 31 days in the calendar year under test; and
the sum total of days present in the US in the year under test and the two preceding calendar years must add up to at least 183 days. For the purposes of this calculation, a day spent in the US in the year of test counts as a whole day, a day in the preceding year counts as 1/3, and a day in the year before that counts as 1/6.
Part days of presence in the US should be counted as a whole day for (i) and (ii).
For example - ‘X’ spent 48 days in the US in 2002, 250 days in 2001 and 365 days in 2000. What is his residence position under US tax law for 2002?
Calendar year Days in US Fraction Outcome for S7701(b)(3)
2002 48 x 1/1 48
2001 250 x 1/3 84
2000 365 x 1/6 61
‘X’ has spent more than 31 days in the US in 2002 and has scored more than 183 in the weighted average test. Therefore, he is resident in the US for the calendar year 2002.
If the taxpayer does not pass the test, but still maintains that he is US resident, he should invited to approach the US tax authorities for their opinion concerning his residence status. The US Internal Revenue Service Representative in the UK is
Ms Linda M Garrard
Department of the Treasury
Internal Revenue Service
24 Grosvenor Square
London W1A 1AE
Claims under the new Agreement
As in DT19859 claims under the new Agreement should be sent Employment Income Technical, who will advise as necessary.