david ingram's US/Canadian Newsletter Pages 175-178
U.S. Banks reporting Canadian owned bank accounts to IRS (& Revenue Canada) Page 175
Commuter Green Cards - Live in Canada - Work in USA - keep B C Medical Page 175
U.S. Banks reporting Canadian Owned Accounts to I R S
Two years ago, I became aware that the Canadian Government had given the U.S. IRS a copy of information slips issued by Canadians to Americans. I became aware because the IRS wrote letters to two of my clients asking why they had not reported "X" number of dollars on their U.S. returns. In both cases, the situation was that our property management division had actually issued the slips to the U.S. resident and sent copies of the slips to the CANADIAN government, not the IRS. Revenue Canada had in turn sent the information automatically to the IRS. (The IRS did, however, provide the details of all Social Security benefits paid to Canadian addresses.)
It was interesting to note that the monies had been clearly reported on the U.S. return as "Gross Rental" income in U.S. dollars on a Schedule "E". Because of legitimate rental expenses, the net income did not match the gross and was therefore not easily identifiable by line number when the computer generated notice was sent. (A human should have spotted that the monies were reported immediately.)
The letters were not consistent with regard to exchange. One letter looked for the Canadian Dollar amount and the other letter had converted the Canadian dollar amount to U.S. dollars. The wording of the letters was identical however, and both items had left our office on the same reporting form.
The same thing is about to happen from U.S. sources to Canada. From Jan 1, 1996 (and in accordance with the new tax treaty which took effect the same day (for a copy ask for Dec 95, CEN-TAPEDE) U.S. banks will be reporting the details of all Canadians with U.S. bank accounts to the IRS. The IRS will then AUTOMATICALLY send this information to REVENUE CANADA TAXATION.
COMMUTER GREEN CARDS
The following "Guest Article" is by Immigration Attorney Greg Boos, J.D., Esq, of Bellingham, Washington. He can be reached for further information at (360) 671-5945 or fax at (360) 676-5459. This article is Copyright 1995 by Clark Boardman Callaghan (1-800-323-1336). All rights reserved. Reprinted by permission of Clark Boardman Callaghan Immigration Law Report Volume 14, Number 22, prepared by the law firm of Fragomen, Del Ray & Bernsen.
ALIEN COMMUTERS: U.S. RESIDENT STATUS WITHOUT U.S. RESIDENCE
Aliens admitted to the United States as lawful permanent residents (LPRs) or as special agricultural workers (SAWs) with temporary residence may reside in either Canada or Mexico and commute to places of employment in the United Sates without loss of immigration status. Such "alien commuter" status may be obtained either at the time of original entry as a resident of the United States, or thereafter, if the alien has LPR or SAW status.
This article reviews the basics of alien commuter status as well as some of its associated benefits and drawbacks. Practitioners can use the alien commuter category to add creativity and flexibility to immigration options available to their clients who reside in Canada and Mexico (particularly those whose employment is relatively close to the border). Alien commuter status allows such clients to retain their foreign residences and proximity to relatives and loved ones, benefit from tax laws on concurrent business concerns in both the United Sates and the home country, and for Canadians, maintain subsidized health insurance coverage and other social benefits.
Status by tradition
Alien commuters enter the United Sates as special immigrants (INA 101(a)(27)) - a privilege that does not require actual residence in the United States if LPR status has not previously been surrendered or otherwise lost. INA 101(a)(20). The ability to live in a contiguous country and commute to work into the United States is available to both daily and seasonal commuters.
Although there is no specific statutory authority for alien commuter status, the Immigration and Naturalization Service (INS) and predecessor agencies have traditionally permitted resident aliens who reside in contiguous countries to commute to work in the United States. (Note: Contiguous territory is any country sharing a common boundary with the United States; because the nations and territories of the Caribbean are considered "adjacent islands" their citizens are not eligible for commuter status.) In 1985, the last year for which the INS collected statistics, there were almost 50,000 alien commuters traveling between the United States and Mexico, and approximately 7,500 between the United Sates and Canada. With the recent publication of regulations authorizing the expansion of dedicated commuter lanes and other programs to speed border crossing by frequent, low risk travelers, alien commuter status is likely to become even more attractive. For details of these regulations, see the November 1, 1995 Immigration Law Report (ILR).
The administrative practice underlying alien commuter status dates from 1927, when the Bureau of Immigration, then a division of the Department of Labor, ruled that commuters who became immigrants could cross the border without the usual residence restrictions. According to Vol. IV, No. 13 of Interpreter Releases (May 2, 1927), prior to this ruling, non U.S. citizens who habitually crossed the border could obtain identification cards that assured them easy entry and exit, and were not required to conform with quota or other immigration restrictions then in effect. After the Bureau of Immigration's 1927 policy took effect, such aliens seeking to enter the United Sates for purposes of employment had to do so as immigrants. Although native-born Canadians and Mexicans were not subject to quota limitations because they were natives of the Western Hemisphere, they were subject to literacy requirements - a burden which fell more heavily on Mexicans than Canadians. The new policy had an even greater impact on third country aliens resident in Canada or Mexico, generally of European birth, who were subject to quotas. Nearly fifty years later, the Supreme Court in Saxbe v. Bustos, 419 U.S. 65, 74, (1974), upheld the administrative grant of "alien commuter" status based on longstanding tradition and on Congressional acquiescence to the practice.
Current administrative practice regarding alien commuters is set out in the form of regulations and operations instructions (OIs), primarily 8 C.F.R. 211.5 and OI 211.3 and 211.4, which cover how alien commuter status may be gained and lost as well as required documentation. These rules incorporate several administrative court rulings that form the parameters of alien commuter status.
All alien commuters must have employment in the United States that is "regular and stable." The INS interprets this to mean that the commuter is not required to have full-time employment, but may have part-time or even intermittent work if it is regular and stable. An alien commuter who has been unemployed in the United Sates continuously for more than six months may lose LPR status, despite any entries made into the United States within that six-month period; however, if the unemployment results from a reason beyond the alien's control, such as illness, the alien does not lose resident status. Upon loss of LPR status, the alien must relinquish Form I-151 or I-551, Alien Registration Receipt Card, or I-688, Temporary Resident Card, to an immigration officer.
In addition to enjoying unrestricted employment authorization, some alien commuters residing in Canada may avoid paying thousands of dollars in U.S. social security taxes by seeking coverage under the Canadian Pension Plan. Both Canada and the United States have social security systems that are supported through taxation and afford benefits to their respective residents. The U.S.- Canada Totalization Agreement rescues many people who are covered by the Canada Pension Plan from paying U.S. social security tax for work performed in the United States, although there is debate about whether the U.S. Medicare contribution must still be paid by these individuals. Unlike the North American Free Trade Agreement, the Totalization Agreement may also benefit third country nationals who reside in Canada.
Under the rules of the U.S. - Canada Totalization Agreement, self-employed persons are taxed according to their place of residence, while those who are employed by others are normally taxed based on place of employment. Alien commuters resident in Canada may be employed by others are normally taxed based on place of employment. Alien commuters resident in Canada may be employed in both Canada and the United States. Additionally, when employees are transferred from one country to the other on a temporary assignment of five years or less, they may be still taxed according to their place of normal employment. Thus, self-employed commuters, commuter employees of Canadian businesses transferred to work in the United States for less than five years as well as commuters who work for both a U.S. business and a Canadian business may, under some circumstances, remain exclusively subject to Canada Pension Plan payments and seek exemption from U.S. social security taxes.
This is an important consideration because U.S. social security tax may be several thousand dollars higher than its Canadian counterpart. The exemption from U.S. social security taxation under the Totalization Agreement is not automatic, generally, one seeking the exemption obtains a Certificate of Coverage from Revenue Canada to present to the Internal Revenue Service (IRS). Additionally, an individual spending fewer than 183 days in a calendar year in the United States may be exempt from U.S. social security taxation. Practitioners may desire to refer a client who is considering assuming or abandoning "alien commuter" status to an international tax specialist for an assessment of the tax consequences of such a move. For more on the tax implications of commuter status, see page 178.
Alien commuters do not enjoy the full rights enjoyed by traditional permanent residents. There are three major limitations:
* Time spent in "alien commuter" status does not count toward residence requirements for naturalization purposes. 8 C.F.R. 211.5(C); 8 C.F.R. 316.5 (b)(3).
* Alien commuters may not petition for immigration benefits on behalf of relatives. 8 C.F.R. 211.5 (c).
* INA 212(c) waivers (discretionary relief available to many permanent residents who have a continuous, unrelinquished U.S. domicile of seven years or more who have become excludable) are not available to alien commuters, as they do not have the U.S. domicile required for such relief. Matter of Garcia-Quintero, 15 I&N Dec. 244, (BIA 1975).
Aliens in traditional LPR or SAW status may convert to commuter status and "commence" residing in a foreign contiguous territory; however, there are no rules or instructions regarding procedures to be followed in such cases. In practice, an alien commuter surrenders the alien registration card at the Port of Entry, along with Form I-90 application to Replace Alien Registration Card, three ADIT-style photographs, and a letter from an employer establishing qualifying regular and stable employment in the United States. The alien must write in after Item 2.e of Form I-90 the following. "I desire to become an alien commuter" (previous editions of Form I-90 had a box marked "Other" in which the above was written in, but this has been deleted from the current version). INS gives the alien a temporary card for entry to the United States. A new alien registration card reflecting "commuter" status is processed and sent to the alien in care of the U.S. employer.
An alien entering the United States as a permanent resident for the first time who desires commuter status presents the following to INS officials at the border: the sealed visa envelope issued by the U.S. consulate, a letter requesting commuter status, and a letter from a U.S. employer verifying qualifying employment. The alien will be issued a Form I-551 coded to reflect "commuter" status.
Alien commuters must satisfy the INS that, absent factors beyond their control, they have not been unemployed in the United Sates for more than six months at a time. To this end, every six months the INS requires proof of regular and stable U.S. employment from those in commuter status. Often this proof takes the form of a letter from a U.S. employer confirming continuing employment. An "alien commuter" may challenge loss of permanent resident status in exclusion proceedings.
An "alien commuter" may at any time abandon commuter status and take up actual residence in the United States. To do so, the alien files form I-90 to obtain a "green card" that is coded to reflect actual U.S. residence. 8 C.F.R.. 211.5(c); 8 C.F.R. 264.1(c)(2)(H). To become resident in the United States, the alien commuter must establish a residence in the United States and must have the intention to reside there permanently. Alien commuters engaged in seasonal work will be presumed to have taken up U.S. residence if they are present in the United States for more than six months during any twelve-month period.
Alien commuters are required to present a valid Form I-151, I-551, or I-688 at the time of each entry into the United States, but they are not required to present an immigrant visa or passport after the initial entry. Aliens must also present a properly endorsed and dated Form I-178, Commuter Status Card, the document through which the INS monitors the date when the commuter must again present evidence of regular and stable employment in the United States. The I-178 Commuter Status Card is coded with the alien's "A" number and is also numbered 1 through 12 to reflect the month in which the alien must present evidence of regular and stable employment. It must be carried at all times while the alien is in the United States.
As previously noted, an alien commuter is precluded from petitioning for immigration benefits on behalf of relatives; however, if an alien originally enters the United States as a commuter and later converts to traditional LPR status, a qualifying spouse and children may follow to join. There is no statutory time limit within which a spouse or child may follow to join the principal alien. 9 Foreign Affairs Manual (FAM) 40.1, Note 7. Thus, if an alien opts for commuter status upon original entry to the United States and later abandons commuter status for regular permanent resident status, qualifying derivative relatives may "follow to join" the principal alien in the United States. Generally, to qualify as one following to join, the relationship between the principal and the derivative relative must have existed before the principal alien's original entry into the United States as a permanent resident. Matter of G-, 7 I&N Dec 731 (BIA 1958); 9 FAM 40.1, Notes 7.1, 7.2.-2. Should a spouse and children fail to qualify for status under the following to join rule, a lawful permanent resident who has abandoned commuter status and assumed residence in the United States may file immigrant visa petitions for dependents subject to quota backlogs.
TAX IMPLICATIONS OF ALIEN COMMUTER STATUS
Under regulations adopted in April 1992, the IRS re-affirmed and clarified two tests for U.S. income tax residency that may impact many alien commuters. These tests are referred to as the "green card" test and the "substantial presence" test. For an overview of these tests and other general tax issues facing non-U.S. citizens, see the April 15, 1995 Immigration Law Report and various back issues of the CEN-TAPEDE.
IRS Rev. Rule 76-82, 1976-1 CB 192, holds that since non-SAW alien commuters from Mexico and Canada are permanent residents of the United States, they are prima facie tax residents of the United states pursuant to the "green card" test. However, alien commuters often avoid U.S. tax residency status and are treated instead as tax residents of their home countries under special rules of the tax treaties in effect with Canada and Mexico.
The recently promulgated United States tax residency rules allow many commuter SAWs to avoid U.S. tax residency under the "substantial presence" test. Under the new rules, a SAW who regularly commutes to the United States from a residence in Mexico or Canada on more than 75% of the workdays spent in the United states during the tax period is not present in the United States for tax purposes. 25C.F.R. S 301.7701(b)-3(e)(1).