I have a question in regards to taxation in the USA. Let`s assume following situation:
a) A German National can visit the USA on ESTA for extended periods during the Visa process. In fact, 5-6 months is not a problem per year with enough breaks inbetween.
b) On the 3. year, before receiving the green card, the German national passes the substantial presence test, as outlined by IRS:
c) However, the person has never worked in the USA, or received payment from US sources. All income is generated during the time outside the USA back home in Germany.
d) While passing the substantial presence test, the person has never spend more than 6 months in a year in the USA. Therefore, based on the double taxation treaty of the
two countries, the person would NOT be a tax resident in USA and would not own taxes on non-us source income.
You can not claim under US law a close connection to a foreign country during a green card process:
When You Cannot Claim Closer Connection to a Foreign Country
You cannot claim you have a closer connection to a foreign country if either of the following applies:
- You personally applied, or took other steps during the year, to change your status to that of a Lawful Permanent Resident, or
- You had an application pending for adjustment of status to Lawful Permanent Resident during the current year.
What prevails? The substantial presence test of the IRS or the double taxation treaty?
In my opinion, the Non Resident Alian will be required to submit a tax return in the USA once he passes the substantial presence test, but would not be subject to taxation
based on the double tax treaty. Please confirm / disconfirm.