Foreign Students and the Five Year Rule

It is not uncommon for foreign individuals from abroad to attend university in the United States on a F-1 Student Visa.  In general, nonresident aliens who are present in the United States are taxed as a U.S. resident for tax purposes if they meet the substantial-presence test.  Treasury Regulation § 301.7701(b)-1 states that a person meets the substantial-presence test if they are present in the United States for 31 days during the current year and 183 days during a three-year period including the current year and using a weighted average for the preceding two years.  Presence is considered any physical presence in the United States at any time during the day, including the days of arrival and departure from the United States.  Treasury Regulation § 301.7701(b)-1(c)(2).

Certain individuals are exempt from counting their days for the substantial-presence test; one such exception is for foreign nationals who are in the United States on a valid student visa.  Treasury Regulation §§ 301.7701(b)-3(a)(1), (b)(1)(iii).  A student is defined under the regulations as an individual (and his/her immediate family) who is admitted temporarily to the United States a nonimmigrant pursuant to certain sections of the Immigration and Nationality Act and who substantially complies with the requirements of being admitted.

There is, however, an exception to this exemption from counting days.  Individuals present in the United States while on an exempt visa only maintain their exempt status for the first 5 calendar years they are present in the United States.  If one is present in the United States for any part of the year for more than 5 calendar years while on a student visa, they must begin counting their days unless they are able to establish that they do not intend to reside in the United States permanently.  Treasury Regulation § 301.7701(b)-3(a).  To do so, the student must file Form 8843 Statement for Exempt Individuals and Individuals with a Medical Condition.  The instructions state that the facts and circumstances considered to determine intent of residency are:

  1. Whether you have maintained a closer connection to a foreign country than to the United States, and
  2. Whether you have taken affirmative steps to change your status from non-immigrant to lawful permanent resident.”

Following these rules, a student can remain in the United States past a planned departure date and still avoid subjecting themselves to U.S. taxation as long as they can prove they do not intend to permanently reside in the United States.