Constructive Presence Would Count Under Proposed Residency Rules

For purposes of the presence test for determining whether an individual is a bona fide resident of a U.S. territory, the IRS would consider an individual to be present in the U.S. territory for up to 30 days during which the individual is outside of both the United States and the relevant U.S. territory under rules proposed on Wednesday (REG-109813-11).

Generally, an individual is considered a bona fide resident of a U.S. territory if the individual meets a presence test, a tax home test, and a closer connection test. To meet the presence test, an individual must be present in the U.S. territory for at least 183 days during the tax year (183-day rule), unless regulations provide otherwise.

Current regulations contain the following alternatives to the 183-day rule: (1) The individual is present in the U.S. territory for at least 549 days during the three-year period consisting of the current tax year and the two immediately preceding tax years, as long as the individual is present in the U.S. territory for at least 60 days during each tax year of the three-year period; (2) the individual is present in the United States no more than 90 days during the tax year; (3) the individual has no more than $3,000 of earned income from U.S. sources and is present for more days in the U.S. territory than in the United States during the tax year; or (4) the individual has no significant connection (voter registration, permanent home, spouse, or minor child) in the United States during the tax year.   

In addition, under the current rules, certain days count constructively as presence in the U.S. territory, even if the individual is not present. The proposed rules would add a new constructive presence rule, allowing an individual to be constructively present in the U.S. territory for up to 30 days during which the individual is neither in the U.S. territory or the United States.

This rule will not apply if the individual is considered to be present more days in the United States during the tax year than in the U.S. territory, determined without taking into account any days for which the individual would be treated as present in the U.S. territory constructively. Furthermore, the 30-day constructive presence rule would not apply in calculating the minimum 60-days-of-presence test to meet the 549-day test. An individual must otherwise be considered to have been present at least 60 days in the U.S. territory in each of the three years to qualify for the 30-day constructive presence rule.

—Sally P. Schreiber (sschrieber@aicpa.org) is a Tax Adviser senior editor.