Note: Do not attempt to handle an IRS audit on your own; hire an experienced and competent tax professional to represent you.
5. Filing
All US citizens and noncitizens of the US that are residents (referred to as resident aliens) are required to file a US tax return if they meet certain income thresholds. To be clear, if you are considered a resident of the US, you are subject to the tax laws of the US, even if you are here illegally. You are a resident alien if you meet one of the following tests:
• Legal Permanent Resident (e.g., Green Card holder).
• You meet a 183-day substantial presence test. This is a two-part test and if you fail the first part of the test, you are generally a US resident, with limited exceptions. If you fail only the second part of the test, you can file Closer Connection Exception Statement for Aliens (Form 8840) to claim a closer connection to a foreign country (Canada) and will not be considered a US resident, assuming that in fact you do have a closer connection to Canada.
• Part 1 of the test: You are physically present in the US at least 183 days during the calendar year. Note that each partial day counts as one day. The only exception is if you are traveling by plane and you simply pass through the US on your way to another foreign destination.
• Part 2 of the test: You are physically present in the US for at least 183 days using the following three-year formula:
• Year 1: Each day counts as one day.
• Year X-1: Each three days counts as one day.
• Year X-2: Each six days counts as one day.
For example, if you spent 122 days each year, each of the last three years, this is what you would have:
• In 2011, you spent 122 days, times 1/1 = 122 days.
• In 2010, you spent 122 days, times 1/3 = 41 days.
• In 2009, you spent 122 days, times 1/6 = 20 days.
Total number of days using the formula, equals 183 days and you fail Part 2 of the test and are considered a US resident unless you file Form 8840.
Note: If you arrive in the US on November 1 and leave on March 31, you would have been in the US a total of 121 days. If you did this year in and year out, you would pass the second part of the test most years. Every leap year, you would have stayed in the US 122 days and therefore failed the test and must therefore file Form 8840 to avoid being considered a US resident and subject to tax.
What makes this rule confusing are primarily two things: the fact that the test has two parts, and the fact that immigration has different rules. Remember that being in the US for less than 183 days is only one part of the test, if you are in the US every year for 122 days or more, you have failed part two of the test and must file Form 8840 to show the IRS that you are not a US resident. If you fail the second part of the test and do not file Form 8840, you are a US taxpayer and subject to US tax. In the Introduction, we mentioned that there is an estimated 1 million Canadians in the US that are residents who are not filing returns. It is this group of Canadians that spend four months or more each year in the US and do not file Form 8840 that we are mostly referring to.
There is another set of rules that you need to be concerned about: the immigration rules. These are the rules that the customs agents at the border are concerned with. These rules use a rolling 12-month period instead of the calendar year the IRS uses. For example, if you stay in the US from October 1 through April 1, you would have been in the US 183 consecutive days, yet only be in the US for 92 days in the first year and 91 days in the second year. If you assume no other days in the US in either year, you clearly passed both parts of the residency test for tax purposes, but failed the test for immigration purposes. To make matters worse, the Customs agents are not consistent in their application of the rules. Fortunately, you are typically looking at only being hassled by the Customs agents and nothing serious comes of it, but it does make it confusing for you when you are constantly getting conflicting answers.
If you are a resident or citizen, you still may not have to file a tax return if your income is less than certain thresholds. Table 1 shoes the income thresholds for two categories. (If these categories do not apply to you, you may fall into another category and corresponding threshold.)
Table 1: INCOME THRESHOLDS FOR FILING
| Category | You must file if gross income is at least |
| Single: Younger than age 65 Age 65 or older | $9,500 $10,950 |
| Married filing jointly and living together: Both spouses younger than age 65 One spouse younger than age 65 Both spouses age 65 or older | $19,000 $20,150 $21,300 |
Note: The US defines marriage as a man and a woman who are legally married. However, some states and many countries recognize common-law marriage, so the IRS will recognize common-law marriages if that marriage met, and continues to meet the requirements of that jurisdiction; allowing the couple to file jointly.
While some states and many countries recognize same-sex relationships, the IRS will not recognize them and those couples will not be allowed to file a joint return.
5.1 When to file your Individual Income Tax Return (Form 1040)
The normal due date for filing individual income tax returns (Form 1040) is April 15 of the year following the tax year. If this date falls on a weekend, the due date is the Monday following the weekend. You can get an automatic six-month extension of time to file your return by filing Application for Automatic Extension of Time to File US Individual Income Tax Return (Form 4868) by the due date, typically April 15. By filing this form in a timely fashion, your time to file will be extended to October 15.
An extension provides only an extension of time to file, not pay your taxes. You must calculate and pay any taxes due by April 15 (or the adjusted date) to avoid penalties. If you are required to make estimated (installment) tax payments, you must make those payments even though your return is on extension.
Not all forms that you may need to file have the same due date. Those forms will in turn have their own forms to complete for an extension for that form, and that form only. Not only do some forms have different due dates, some forms do not allow for an extension of time to file. For example, the Annual Information Return of Foreign Trust with a US Owner (Form 3520-A) for reporting foreign trusts is due on March 15; and Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns (Form 7004) is required for the six-month extension, which means that the ultimate filing deadline is September 15, not October 15 like most of the rest of your return. Also, Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1) is due June 30 and cannot be extended.
Filing an extension does not increase your chance of being audited. If fact, if you cannot get your tax information to the accountant early in the season, you may want the accountant to file an extension so that the accountant can prepare the return after April 15 when there is less pressure and he or she hasn’t been working 12- to 16-hour days for the previous two months!
5.2 Electronic filing
Paid preparers are now required to file all tax returns electronically, when possible. However, some returns have forms or situations that