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Posted by Alan on September 3, 2008, 11:35 am
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jmail7@andrewmitchel.com wrote:
>>> My residency is still officially italian, but I live in US form more
>>> that 183 days per year.
>> As Alan responded, you meet the substantial presence test to be considered a
>> U.S. resident for tax purposes because of your presence in the U.S. for more
>> than 183 days. Even though you clearly meet the substantial presence test,
>> you still can qualify to be taxed as a nonresident alien if you are able to
>> demonstrate a "Closer Connection" to Italy than to the U.S. If you assert a
>> closer connection exception to the substantial presence test, you must
>> attach IRS Form 8840 to your tax return. The closer connection exception
>> criteria are explained on page 7 of Publication 519.
>
> I agree with the earlier posters that you meet the substantial
> presence test and therefore would be treated as a resident of the U.S.
> if not for the treaty. The closer connection exception referred to by
> Condor is not part of the treaty and does not apply to your situation
> because you are in the U.S. for more than 183 days during the year
> (see instructions to Form 8840). You need to look at the "tie-
> breaker" provisions of the treaty to determine whether you can claim
> relief under the treaty to not be considered a resident of the U.S.
> If you do claim to not be treated as a U.S. resident under the treaty,
> you may need to file a separate form on your tax return claiming a
> treaty-based return position (I can't recall the form number right
> now).
>
> Also, if Italy is taxing you on the U.S. income, you will not qualify
> for the "normal" foreign tax credit rules because the income will not
> be "foreign source" income. As a result, you would need to look at
> the treaty to see what the provisions are for avoiding double
> taxation. These provisions may allow you to "resource" a portion of
> the US source income to be treated as foreign source income, or it may
> provide other rules.
>
> Andrew Mitchel, Esq.
> Essex, Connecticut
> http://www.andrewmitchel.com
> http://intltax.typepad.com
>
I should have realized this in my original post. As Italy is
electing to tax the compensation earned in the US by someone who
is a resident or citizen of Italy, it is foreign sourced income
to Italy. As such, under Article 23 of the treaty, Italy would
provide the foreign tax credit against its income taxes.
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