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August 6, 2006 -- I am a citizen of France who has been in the United States for a short time. I am a nonresident alien. Will I have to pay USA taxes?

You won't be required to file a U.S. income tax return if you are a nonresident alien who isn't engaged in a trade or business in the U.S.

If you don't have a green card, you will be treated as a U.S. resident alien if you have a substantial presence in the U.S. Substantial presence occurs if you are physically present in the U.S. in the current year for 183 days. Substantial presence also occurs if you are physically present in the U.S. during the current year for 31 days and the total of your presence for the current year, as determined under a mathematical formula, totals 183 days. Under this formula, you count the number of days for the current year, one-third of the number of days from the first previous year and one-sixth of the number of days from the second previous year.

Example: G, an Italian, was physically present in the U.S. for 120 days in the current year, 135 days in the first previous year, and 150 days in the second previous year. G's day of presence in the U.S. are counted as follows:

• 120 days for the current year;

• 45 days (1/3 of 135) for the first previous year;

• 25 days (1/6 of 150) for the second previous year.

The 190 total days (120 + 45 + 25) is at least 183, so G has a substantial presence in the U.S. for the current year and must file a U.S. tax return for the year.

In addition, even if you otherwise meet the substantial presence test for a year, you won't have to file a U.S. return for the year if you have a closer connection to a foreign country. You must satisfy three requirements to qualify for this "closer connection" exception: (1) your presence in the U.S. during the current year must be less than 183 days; (2) you must have a tax home in a foreign country during the current year; and (3) during the current year, you must have a closer connection to the foreign country where your tax home is located than you have to the U.S.

Example: Assume the same facts as in the example above, except that during the current year, when G is physically present in the U.S. for 120 days, G's tax home is in Italy. G also establishes that, for the current year, he has a closer connection to Italy (where G's spouse and children live) than he does to U.S. Since G's presence in the U.S. during the current year is less than 183 days, G may claim the closer connection exception for the year. Thus, even though G otherwise meets the substantial presence test for the current year, he doesn't have to file a U.S. tax return for the year.

Please bear in mind that even if you aren't treated as a U.S. resident for the year, you still must file a return if you are engaged, or considered to be engaged, in a trade or business in the U.S. during the year.

Whether you have a trade or business in the U.S. depends on your activities in the U.S. The performance of personal services as an employee in the U.S. is treated as a U.S. trade or business, unless you are present in the U.S. for less than 90 days, you receive less than $3,000 in compensation and you work for a foreign entity or foreign office of a U.S. entity. Your other business activities are treated as a U.S. trade or business if your activities, or those of your agent or a partnership in which you are a partner, are sufficiently regular and continuous, as determined by the facts and circumstances. Trading in stocks, securities or commodities for your own account or through a resident broker is not treated as a U.S. trade or business, as long as you are not a dealer of these items.

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