July
1996
the
CEN-TAPEDE
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.
Key
considerations
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.
Potential benefits
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.
Problem areas
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).
Procedural
considerations
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).
