An IRS Form 8833 Question... Do I need to file?

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Sent: Monday, October 13, 2003 5:03 PM
Subject: An IRS Form 8833 Question... Do I need to file?
Originally sent to c/o the centa.com website, and then via david@david-ingram.com. If already seen, my apologies for the repetition(s)...
Hi David:
I'm a new correspondent who just happened to pick a bad time (yesterday evening) to send you a question via the Centa-Pede website's 'ask the expert' feature. Who knew that would be your last day after 34 years? Anyway, my condolences on your marital split and business upset. Hope it all resolves itself positively for both of you, in whatever ways that may require.
Here's a repeat of the message I sent yesterday. In hindsight, I might have been able to cut to the chase a little faster (but then I'm not the expert and the devil's often in the details). I think my main uncertainty over the need file a Form 8833 comes from having exceeded the IRS 'substantial presence' threshold in 2002 (while successfully claiming the 'closer connection' exemption). My original message follows below:
(ps. I've been working with new automotive technologies in various capacities as a professional engineer for the past many years, and I'll throw in my two cents worth on the Ballard Power System/fuel cell/alternative fuel business just a soon as I get a chance. Your last correspondent's comments on hydrogen fuel were partly on the mark, but may have missed some bigger and more important commercial issues -- and the auto industry always defers to commercial concerns. More later, I hope.)
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Oct. 9, 2003
Hi David:
I've been reading and enjoying your CEN-TAPEDE correspondence over the past several months. Yours is the best reference source I've come across in the 10+ years that I've spent trying to come to grips with U.S. employment, tax and visa issues from the "little (Canadian) guy's" perspective. Thanks, and keep up the great work.
I have a question specific to the October 15th IRS Form 8833 filing requirement. I've been working in the U.S. on and off for the past 10 years under TN visa status, with three different U.S. employers at various times during that period. 1040-NR returns have always been filed (on-time) for any U.S. earnings.
I've always done this U.S. work on a "commuter" basis, retaining my (rented) residence in Canada on an uninterrupted basis. Also, I've always been 'on the road' while working in the U.S., so I've never bought or rented a residence there (more detail below).
As I understand it, any possible need to file a Form 8833 would have to do with whether I could be classified as a "resident for tax purposes" of the U.S.A. I don't think this to be the case, but I have two niggling worries that I'd like to put to rest:
  a.. I had two years with U.S. employment (2000 and 2001) where I had to claim (successfully) the "Closer Connections" exemption as part of my 1040-NR return. 
  b.. (Unrelated to the previous item) Last year, I started getting an annual statement from the U.S. Social Security Administration, noting that I'd earned credits (24 of 40 required) towards retirement benefits entitlement and listing my several years worth of SS and Medicaire earnings and taxes paid to date. More on this below. 
My two questions up front, before the detail:
1. Do I need to file Form 8833 for the 2002 tax year?
A - The 8833 should be filed whenever you are claiming a US/Canada Income tax Treaty exemption.  In your case, you are claiming an exemption under Article IV of the Treaty.  Filing the 8833 is likely the simplest form in the system.  Failure to file it can result in a fine of $1,000 to $10,000. Are you likley to be fined for failure to file it? No!
2. (Secondary) What should I make of the U.S. Social Security statement that I received?
[Note: My understanding is that I'd have to live in the U.S. for 3 years - non-stop? -- to earn any entitlement anyway. True?]
A - Your Social Security statement should come about three months before your birthday each year.  It is what it is, a statement of your credits. Once in a while, you will be getting a CPP statement as well.  I have been doing this over 30 years now and have never head of a three year residency rule for collecting Social Security.  What did pass on Sept 30, 1996 was a rule that said that you have to prove you were contributing legally when you made your contributions.  This means that you should be keeping all your TN records to prove you were in the US legally.
When you do go to apply, the worse that will happen is that the US figures will be added to the CPP and increase  your CPP under the Social Security Treaty beteeen the US and Canada.
 
Basic Stuff
  a.. Canadian citizen, by birth. No other citizenships held or applied for, past or present. 
  b.. Have always maintained my permanent place of residence in Canada 
  c.. Do not and have never owned  real estate  (house, cottage, condo, etc.) in the U.S. 
  d.. Have never rented living quarters in the U.S. (outside of short-term hotel stays) 
  e.. No American relatives or 'entanglements' 
  f.. No U.S.-purchased investments, nor business done with U.S.-based investment brokers 
RRSP Stuff
  a.. Two Canadian RRSP's - one self-directed RRSP, the other a LIRA. Both have been in place for many years prior to 2002. 
  b.. No other retirement plans (e.g. employer RSP). 
  c.. Contribution made to the  RRSP in Feb. 2002. 
  d.. No loans, withdrawals, transfers or rollover activities for the RRSP or the LIRA in 2002 (or any other year, for that matter -- just money going in). 
2002 U.S. Employment
  a.. Worked in the U.S. for a few months under a TN visa as a contract employee (engineer) of a U.S. company. 
  b.. Filed a 1040-NR return for TY-2002 in April 2003, declaring this income (accepted as-filed by IRS) 
  c.. 2002 U.S. employment involved travel. Stayed in hotels throughout, so no U.S. office and no U.S. house or apt. 
  d.. Was well under the IRS "substantial presence" threshold for 2002. Using their three-year 1-3-6 formula, my 'IRS days' total for 2002 was 145. 
2001 & 2000 U.S. Employment
  a.. Worked both years in the U.S. under similar conditions to 2002 - that is, U.S. employer, TN visa status (engineer), partial-year travel-based contract employment 
  b.. Filed on-time 1040-NR returns for both years 
  c.. Exceeded the IRS "substantial presence" threshold somewhat in both years -- 200 and 185 'IRS days' respectively, again using the IRS 1-3-6 formula. However, I had significantly less than 183 actual days in the U.S. for each of these years and was thus able to file for the IRS "Closer Connections" exemption, using Form 8840 with each year's 1040-NR submission. 
  d.. Both returns, complete with the 8840's, were accepted as-filed by the IRS 
Pre-2000 U.S. Employment
  a.. Three other years with contract employment in the U.S. 
  b.. Never came close to crossing the IRS "substantial presence" threshold 
  c.. Filed timely 1040-NR returns in all cases -- all accepted as-filed by IRS. 
U.S. Social Security
  a.. I've held a U.S. social security card since 1994 (first year worked in the U.S. ? again, TN visa status). 
  b.. U.S. employers have always withheld fed/state taxes at source, along with Social Security and FICA contributions (usually way too much). I've claimed these back as a foreign tax credit on my Canadian T-1 returns every year. There've been a couple of years where the foreign tax credit's ratio-ing formula didn't let me claim back the full amount of U.S. withholdings. 
  c.. I started receiving an annual statement from the U.S. Social Security Administration last year, listing my "credits" and "Earnings Record" to date. Their earnings numbers are identical to my various W-2 earnings. and therefore seem to miss (?) the fact that I've claimed back via Cdn foreign tax credits as much of my U.S. social security contributions as possible. 
IRS Tests for Tax Residency
  a.. Having twice filled out Form 8840, I think I've seen  (and apparently passed) the various 'tests' for tax residency that the IRS applies. 
  b.. The only possible mitigating factor (small) I can think of is that I've had a U.S. bank account (and accompanying bank debit card) since 2001. I opened the account so that I could receive direct-deposit salary payments and accountable advances (to cover project road expenses) from my U.S. employer. The debit card was used extensively to pay project-related expenses (both reimbursable and personal) while working. The salary deposits were later deposited to my regular (Canadian bank) bank account by writing a cheque against the U.S. account. 
  c.. This U.S. bank account has never earned more than US$10 annually in interest, so I haven't noted it on my U.S. 1040-NR returns to date (including the Form 8840 submissions). When a project ended, the account went dormant. I basically just keep it around in case another U.S. contract job comes up. 
  d.. I've kept its balance pretty low (around US$500) since my last U.S. employment period ended in early 2002. I've used the associated debit card a couple of times in that period for purchases from U.S. vendors, and twice (2002 and 2003) to pay the annual membership dues for a U.S. technical society. In other words, it's small, little-used and not my regular bank account 
  e.. 
  That's it. Please keep my name confidential. And thank you very much for your time and your help.
  JXXXXXXXXXX 
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david ingram replies:
I have interspersed some answers in maroon in the body of your question.  You seem fine to me but there is no reason for you to worry about the RRSP reporting rules when you have maintained your residence in Canada and are filing a 1040NR.
Thank you for your kind comments.  I will take your name out and send it to the list and see if anyone else has anything to add. (about the three year rule in particular)
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
(604) 980-0321 
New email to davidingram@shaw.ca
www.centa.com www.david-ingram.com
Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
Be ALERT,  the world needs more "lerts"
 
This from "ask an income tax and immigration expert" from www.centa.com or www.jurock.com or www.featureweb.com. Davidi Ingram deals daily with tax returns dealing with:
multi jurisdictional cross and trans border expatriate problems  for the United States, Canada, Mexico, Great Britain, the United Kingdom, Kuwait, Dubai, Saudi Arabia, Thailand, Indonesia, Japan, China, New Zealand, France, Germany, Spain, Italy, Russia, Georgia, Brazil, Peru, Ecuador, Bolivia, Scotland, Ireland, Hawaii, Florida, Montana, Morocco, Israel, Iraq, Iran, India, Pakistan, Afghanistan, Mali, Bangkok, Greenland, Iceland, Cuba, Bahamas, Bermuda, Barbados, St Vincent, Grenada,, Virgin Islands, US, UK, GB, and any of the 43 states with state tax returns, etc.
  
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