Are you an expat looking to claim the Closer Connection Exception? Do you want to avoid paying taxes in the US?
The Closer Connection Exception is a great way for expats to avoid paying taxes in the US while living abroad. However, it’s important to understand the evidence needed to claim the exception.
At Creative Advising, we are certified public accountants, tax strategists, and professional bookkeepers. We are here to help you understand what evidence is needed to claim the Closer Connection Exception.
The Closer Connection Exception is used to prove that you have a closer connection to a foreign country than to the US. This means that you are not considered a US resident and you are not obligated to pay taxes in the US.
To claim the Closer Connection Exception, you must provide evidence that you have a closer connection to a foreign country. The evidence you need to provide will vary depending on your individual circumstances.
Generally, you must provide evidence that you:
• Have a residence in a foreign country
• Spend more days in the foreign country than in the US
• Have family and/or business ties in the foreign country
• Have a driver’s license and/or bank account in the foreign country
• Have a foreign passport
It’s important to note that you must provide evidence for all of these factors. The more evidence you provide, the more likely you are to be successful in claiming the Closer Connection Exception.
At Creative Advising, we can help you understand what evidence is needed to claim the Closer Connection Exception and ensure that your application is successful. Contact us today to find out more.
Definition of Closer Connection Exception
The Closer Connection Exception is a tax provision that allows for taxpayers who spend time in the US and abroad to choose which country will be their primary tax home. Under the exception, the taxpayer must prove that he or she has a closer connection to one of the two countries than to the other. This will generally be determined by factors such as where they permanently reside, work, and have financial connections such as a bank account.
To be eligible for the Closer Connection Exception, taxpayers must fulfill certain criteria. They must have a closer connection to one foreign country than the US, have a habitual abode in such foreign country, and have a tax home in that foreign country. If all of the criteria are met, the taxpayer can then claim the Closer Connection Exception and consider themselves exempt from US tax.
What evidence is needed to claim a Closer Connection Exception? To claim the Closer Connection Exception, taxpayers must provide evidence such as immigration documents, proof of permanent residence in the foreign country, and proof of employment in that country. Taxpayers should also provide copies of their bank statements, business and wage income records, investments and property holdings, rental records, and utility bills to demonstrate their more established connection to one foreign country than the US. Taxpayers must also submit completed IRS Form 8840 to document their eligibility.
By providing this evidence to the IRS, taxpayers can claim the Closer Connection Exception and reduce their US tax liability. It is important to note that the Closer Connection Exception does not exempt taxpayers from US income, gift, and estate tax, among others. To fully understand any applicable tax obligations, taxpayers should consult with a qualified tax expert for assistance and guidance.
Requirements for Closer Connection Exception
The Closer Connection Exception is an exception to the general rule of U.S. taxation that states anyone who lives in the U.S. for more than 183 days must pay taxes on their worldwide income. This exception allows certain nonresident aliens to be exempt from certain taxes on income earned in the U.S. if there is sufficient evidence that the person has closer ties to another foreign country than to the United States.
To be eligible to claim the Closer Connection Exception the nonresident alien must meet certain requirements. The nonresident alien must prove that they have maintained closer or stronger connections to another foreign country than the U.S. throughout the year. This requires showing that the nonresident alien’s everyday life is mostly based in the foreign country, including family ties, employment, residence and social associations.
The nonresident alien must also provide evidence that a valid U.S. visa was never requested, as well as evidence that the alien resided in and had meaningful connections to the other country throughout the year. This includes evidence? such as a current foreign passport, local driver’s license, rental agreement in the other country, utility bills in the other country, proof of local employment in the other country, and similar proof of residence.
In addition, the nonresident alien must be able to show that they did not have a substantial presence in the U.S. and that the person did not stay in the U.S. for more than 183 days during the tax year. Lastly, the nonresident alien must show ties to the foreign country that are independent of the personal or economic ties to the U.S.
What evidence is needed to claim a Closer Connection Exception?
When claiming the Closer Connection Exception, nonresident aliens must provide sufficient evidence that they maintained closer ties to a foreign country throughout the year than to the U.S. This includes providing evidence that the nonresident alien had a valid foreign passport, proof of a local driver’s license, rental agreement in another country, utility bills in the other country, proof of local employment in the other country, and similar proof of residence. In addition, the nonresident alien must be able to provide evidence that they did not have a substantial presence in the U.S. nor did they stay in the U.S. for more than 183 days during the year. Further evidence must demonstrate that there is a clear relationship to the foreign country that is independent of U.S. financial ties.
At Creative Advising, we understand how complex the Closer Connection Exception is and the significant role evidence plays throughout the process. As such, we strive to ensure that our clients understand every aspect of the Closer Connection Exception—from the applicable requirements to the documentation needed to claim the exception. With our team of CPAs, tax strategists, and bookkeepers by your side, you can trust that the evidence you have collected is sufficient enough to claim the Closer Connection Exception to benefit you and your finances.
Documentation Needed to Claim Closer Connection Exception
When a taxpayer is living overseas or traveling for an extended period of time they may be required to provide evidence of a closer connection to a foreign country than the United States in order to avoid U.S. tax residency. The Closer Connection Exception essentially allows these individuals to avoid the taxes that taxpayers who are US citizens are required to pay.
In order to be able to demonstrate to the IRS that a taxpayer has a Closer Connection Exception to a foreign country, there’s certain documentation that must be presented. This includes documentation showing that the individual spends more days living, working, and traveling in the foreign country than in the U.S. The best way to prove this is by providing bank statements, pay stubs, Identification cards, and credit card bills from the foreign country. In addition, the individual must provide proof of their ties to a foreign country, such as a home address, a telephone number, and information from the local government where they live.
The IRS requires that taxpayers have a valid passport to prove that they resided in the foreign country and they must also be able to demonstrate that they are engaging in social, cultural, and economic activities there. These activities are typically proven by providing proof of any clubs, organizations, or associations the individual is involved with, and also by providing proof that the individual visits the country on a regular basis. Finally, the taxpayer must be able to provide evidence of their intent to stay in the foreign country in the future, such as lease agreements and proof of employment.
In summary, the evidence that is required to be able to claim the Closer Connection Exception includes bank statements, pay stubs, Identification cards, credit card bills, a valid passport, proof of social activities, and proof of intent to stay in the foreign country in the future. All of this documentation must be thoroughly scrutinized by the IRS in order to ensure that the individual is living in the foreign country more than in the United States.
Closer Connection Exception
The Closer Connection Exception defined by the IRS applies to foreign persons in the US who are not considered residents for tax purposes. This exception allows a foreign person to still be considered a non-resident alien (NRA) for the time spent in the US if certain criteria are met. The criteria essentially state that the person must have a closer connection to a foreign country than to the US in question. The foreign person must show the following elements to meet the Closer Connection Exception:
1. The person must have maintained a tax home in the foreign country during the US tax year.
2. The person must have had a closer connection to the foreign country than to the US.
3. The person must have spent no more than a total of 35 days in the US during the current year (exempting days of transit).
For each person claiming the Closer Connection Exception, it is important to have proper evidence that meets the requirements. The proof must show that the person maintained a tax home in the foreign country during the US tax year and can support that the person had a closer connection to the foreign country than to the US for the current year. Evidence including foreign tax returns, foreign bank accounts, business ties, and other documents that prove a connection to the foreign country may be sufficient. In addition, sufficient proof of time spent in the US, such as records of entry and exit from the US, may be necessary to show no more than 35 days in the US during the year.
By submitting an application for the Closer Connection Exception, the applicant must also submit documentation that the foreign country recognizes the individual as a tax resident of that country and other evidence of ties to the foreign country. In addition, other factors may be considered, such as the type of visa, nature of the work performed, and location of family, in order to determine the residence status of the individual in question.
Tax Implications of Closer Connection Exception
The Closer Connection Exception is a powerful tool to help individuals become tax exempt in the United States. It can help you avoid double taxation when you have two residences – one in the United States and one in another country. But this also means that you are still subject to the tax laws and regulations of the country in which you maintain your closer connection. You will be responsible for filing and paying taxes in the country where you have a closer connection, in addition to filing a U.S. tax return that reflects foreign taxes due.
In order to be eligible for the Closer Connection Exception, you must satisfy certain requirements and provide certain documentation to the IRS. The IRS has specific regulations about what constitutes a closer connection, and you may be required to document activities such as visits to the U.S. and your employment for the foreign country. Once it is determined that you have a closer connection to the foreign country, you must provide evidence that you are abiding by the foreign country’s tax laws.
In terms of taxation, the Closer Connection Exception may have different implications depending on the specific country. For example, some countries impose more taxes on income earned in the U.S., while others may allow for deductions due to a double-tax agreement between the country and the U.S. Additionally, some countries may have more favorable tax rates than the U.S., which may benefit individuals avoiding double taxation.
What evidence is needed to claim a Closer Connection Exception? The evidence needed to establish a closer connection to a foreign country depends on the specific country. Generally, an individual will need to provide evidence of their visits to the foreign country, business and employment activities, and family ties. The individual will also need to provide evidence of their foreign tax filing, such as tax returns and other documentation. Additionally, the individual may need to provide a statement as to why they have a closer connection to the foreign country than to the United States. Finally, if the individual is claiming exemption from double taxation, they must provide a copy of the double taxation agreement between the country and the US.
“The information provided in this article should not be considered as professional tax advice. It is intended for informational purposes only and should not be relied upon as a substitute for consulting with a qualified tax professional or conducting thorough research on the latest tax laws and regulations applicable to your specific circumstances.
Furthermore, due to the dynamic nature of tax-related topics, the information presented in this article may not reflect the most current tax laws, rulings, or interpretations. It is always recommended to verify any tax-related information with official government sources or seek advice from a qualified tax professional before making any decisions or taking action.
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Please consult with a qualified tax professional or relevant authorities for specific advice tailored to your individual circumstances and to ensure compliance with the most current tax laws and regulations in your jurisdiction.”
