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Form 8840

In U.S. taxation practices, compliance with various forms and regulations is critical for both residents and non-residents. One such form that holds particular importance is Form 8840, the Closer Connection Exception Statement for Aliens.

Form 8840 is a document used by non-resident aliens to demonstrate that they have a closer connection to a foreign country than to the United States. This form is crucial for individuals who are physically present in the U.S. for a substantial portion of the year but do not wish to be classified as U.S. residents for tax purposes. The classification as a U.S. resident can lead to a more extensive tax liability, including being taxed on worldwide income.

The regulations governing Form 8840 fall under the Internal Revenue Code (IRC), specifically Section 7701(b). This section defines the criteria for determining whether an individual is a resident or non-resident for tax purposes. By filing Form 8840, individuals can claim an exemption from being classified as a U.S. resident under the substantial presence test, provided they meet the requirements of having a closer connection to another country.

Obligation

Form 8840 should be filed by any non-resident alien who meets the substantial presence test but wishes to avoid being classified as a U.S. resident for tax purposes. The substantial presence test is a method used to determine whether an individual should be considered a resident based on the number of days they have been physically present in the United States.

To meet the substantial presence test, an individual must be physically present in the U.S. for at least:

  • 31 days during the current year and
  • 183 days during the three-year period that includes the current year and the two preceding years, calculated using the following formula:
    • All the days present in the current year
    • 1/3 of the days present in the previous year
    • 1/6 of the days present in the year before that

If the individual meets these criteria but maintains a closer connection to another country, filing Form 8840 allows them to avoid U.S. resident status, thereby limiting their tax obligations.

Process of Filing Form 8840

The process of filing Form 8840 involves several critical steps that must be carefully followed to ensure compliance. The steps are as follows:

  1. Determination of Substantial Presence: The first step involves calculating the days of physical presence in the U.S. using the substantial presence test formula. This calculation will determine if the individual meets the criteria for residency based on physical presence.
  2. Establishing a Closer Connection: Once it has been determined that the substantial presence test is met, the next step is to establish a closer connection to a foreign country. This can be demonstrated through various factors such as the location of the individual’s permanent home, the country where their family resides, the country where they hold a driver’s license and where their personal belongings are located.
  3. Completion of Form 8840: The form itself requires detailed information, including personal information, the calculation of days present in the U.S. and the declaration of a closer connection to another country. All relevant sections must be completed accurately to avoid potential issues.
  4. Submission: Form 8840 should be filed with the IRS by the due date, which is generally the same as the individual’s tax return deadline. For most individuals, this will be April 15th. If an extension for filing a tax return has been granted, the same extension applies to Form 8840.
  5. Retaining Documentation: Supporting documentation that substantiates the closer connection claim should be retained. This documentation may include copies of travel records, evidence of a foreign residence and other relevant information that supports the claim.

Key Takeaways

Several important points should be considered when dealing with Form 8840:

  • Accurate Record-Keeping: Maintaining precise records of days spent in the U.S. and abroad is essential to ensure that the substantial presence test is accurately calculated. Errors in this calculation can lead to unintended tax obligations.
  • Closer Connection Criteria: The closer connection to another country must be convincingly established. The IRS will look for consistency in the factors that determine the closer connection, so all claims should be well-supported.
  • Timely Filing: Form 8840 must be filed on time to avoid penalties and complications. Late filings can result in the loss of the exemption from U.S. residency status.
  • Impact on Worldwide Income: If Form 8840 is not filed or if the individual is classified as a U.S. resident, there may be an obligation to report worldwide income, which can significantly increase the tax burden.

Our Services

We provide several professional services to ensure that Form 8840 is correctly filed and that all related tax obligations are met. Our services include:

  • Consultation: We offer consultations to determine whether an individual meets the substantial presence test and whether filing Form 8840 is the appropriate course of action.
  • Calculation Assistance: We provide assistance with the precise calculation of days spent in the U.S. and abroad to ensure accurate completion of the form.
  • Documentation Support: We help in gathering and organizing the necessary documentation to substantiate the closer connection claim.
  • Form Preparation: Completing and reviewing Form 8840 to ensure that all information is accurate and complete before submission.
  • Filing Services: Submitting Form 8840 on behalf of the client to ensure timely and proper filing with the IRS.
  • Audit Support: Providing support in the event of an IRS audit or inquiry related to the closer connection claim or residency status.

Conclusion

Form 8840 plays a very important role for non-resident aliens who wish to avoid being classified as U.S. residents for tax purposes. The professional services we offer related to Form 8840 would provide valuable support in assisting all the aspects of U.S. tax law, ensuring compliance and peace of mind.

With proper guidance and attention to detail, the filing of Form 8840 can be a straightforward process and allow non-resident aliens to effectively manage their tax responsibilities in the United States.

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