IRS Closer-Connection Rules Explained for Individual Taxpayers in 2025
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📌 Introduction
Many foreign nationals spend significant time in the United States each year but do not intend to become U.S. tax residents. The IRS uses the Substantial Presence Test (SPT) to determine residency. However, if you meet the SPT but can demonstrate a closer connection to a foreign country, you may file Form 8840 (Closer Connection Exception Statement) to maintain nonresident status.
Understanding the closer-connection exception is critical for students, professionals, retirees, and snowbirds who want to avoid being taxed as U.S. residents when they primarily live abroad.
📝 What is the Closer-Connection Exception?
The Closer-Connection Exception allows individuals who spend time in the U.S. but maintain stronger ties to another country to avoid being treated as U.S. tax residents. To claim it:
- You must be present in the U.S. for fewer than 183 days in the current year.
- You must have a tax home in a foreign country.
- You must demonstrate closer personal and economic connections to that foreign country.
- You must file Form 8840 with the IRS by the due date of your U.S. tax return (including extensions).
📊 Factors the IRS Considers
The IRS looks at various indicators to determine if you have a closer connection to a foreign country, including:
- Where your permanent home is located.
- Where your family members live.
- Location of your personal belongings (car, furniture, etc.).
- Where you vote, bank, or hold licenses.
- Where your business or employment is based.
📑 Form 8840: Filing Requirements
To successfully claim the Closer-Connection Exception, you must:
- File Form 8840 with the IRS by the regular tax filing deadline (typically April 15, 2025, or June 15 for nonresidents abroad).
- Provide detailed information about your ties to a foreign country.
- Ensure accuracy—failure to file Form 8840 may result in being taxed as a U.S. resident, subject to worldwide income taxation.
🌍 Treaty vs. Closer-Connection Exception
If your country has a tax treaty with the U.S., you may alternatively use the treaty tie-breaker rules to claim nonresident status. However, if no treaty applies, the closer-connection exception via Form 8840 may be your only option.
Key difference:
- Form 8840: Used when you have fewer than 183 days in the U.S. and strong ties to another country.
- Treaty tie-breaker: Applies even if you exceed 183 days, but only when a treaty exists.
💡 Tax Planning Tips
- Keep a record of your U.S. days of presence.
- Maintain documentation of your foreign home, bank accounts, and family ties.
- If you think you may qualify, file Form 8840 annually—failure to file may cost you the exception.
- Combine with tax treaty provisions if available for maximum benefit.
🔍 Why It Matters
Being taxed as a U.S. resident alien subjects you to tax on your worldwide income. By successfully claiming the closer-connection exception, you can remain a nonresident alien for tax purposes and limit U.S. taxation to only U.S.-source income, often at favorable treaty rates.
