Digital Nomad Tax

Substantial Presence Test for Foreign LLC Owners (2026-2027)

15 min readArticle

Written byLipai WangFounder · IRS-registered tax professional

Source hierarchy

Treaty benefit source hierarchy

How to support a treaty position back to primary sources.

Treaty article
The specific U.S. income-tax treaty provision you rely on.
Internal Revenue Code
How U.S. law interacts with the treaty position.
Treasury regulations & guidance
How the IRS interprets and applies the rule.
Disclose on Form 8833
Report a treaty-based return position when required.

Key formsForm 8833Form W-8BENTreaty article

Key Takeaways

A U.S. LLC does not decide its owner's personal U.S. tax residency.
Calculate all current-year days, one-third of the prior year's days, and one-sixth of the second prior year's days after confirming the 31-day minimum.
Excluded days are narrow and may require a timely Form 8843 with supporting evidence.
Form 8840 closer connection and a treaty tie-breaker are separate legal routes with different requirements.
A residency change can alter worldwide-income reporting, payer documentation, owner returns, state residence, and LLC compliance assumptions.

The LLC and the owner have separate residency questions

Owning a Delaware, Wyoming, or other U.S. LLC does not make an individual a U.S. tax resident. The owner's green-card and physical-presence facts determine personal federal residency, while the LLC can separately have Form 5472, payroll, partnership, state, or other filing duties. Run the owner test first and then map what a status change does to every W-8, W-9, return, withholding, and entity file.

Entity formation is not a substitute for a personal residency analysis.

IRS — substantial presence test Foreign-owned LLC filing roadmap

Build the weighted three-year calculation from a day ledger

The substantial presence test generally requires at least 31 days in the United States during the current year and 183 weighted days across the current and two preceding years. Count all current-year days, one-third of the first preceding year's days, and one-sixth of the second preceding year's days. Any part of a day generally counts unless a statutory exception applies.

Keep the raw calendar and the weighted calculation separately. The raw calendar supports Form 1040-NR Schedule OI, Form 8840, Form 8843, treaty work, and state-residency review even when the weighted total stays below 183.

IRS Publication 519 — U.S. Tax Guide for Aliens

Excluded days are rule-specific and can require Form 8843

The IRS lists limited categories that may not count, including certain days in transit for less than 24 hours between two places outside the United States, days a medical condition arising in the United States prevents departure, certain regular commuting days from Canada or Mexico, qualifying crew-member days, and days as an exempt individual. 'Exempt individual' is a statutory category tied to specified visa or status facts; it does not mean exempt from tax.

The IRS says a person excluding exempt-individual or medical-condition days generally must timely file Form 8843, even when no income-tax return is otherwise required. A late form can forfeit the exclusion unless the taxpayer meets the IRS's stated reasonable-action standard. Preserve the visa, medical, travel, and status evidence behind each excluded day.

IRS Form 8843 and instructions

Closer connection is a separate exception, not an automatic escape

Meeting the weighted test does not always end the analysis. A qualifying person present in the United States for fewer than 183 days in the current year may be able to claim a closer connection to a foreign country if the statutory tax-home, connection, immigration, and timely-filing requirements are met. Form 8840 is the claim vehicle. Missing one element can defeat the exception, so do not reduce it to 'my home is abroad.'

A treaty residence position is a different route governed by the actual treaty and its disclosure rules. It should be evaluated separately from statutory closer connection and never inferred from lifestyle or citizenship alone.

IRS Form 8840 and instructions Closer-connection guide Treaty disclosure guide

A status change affects more than the personal return

When an owner becomes a U.S. tax resident, review the residency starting date, possible dual-status year, worldwide-income reporting, foreign tax credits, information returns for foreign assets or entities, and state residence. Update payer and account documentation from foreign-status forms to the correct U.S.-person certification when required. For an LLC, recheck whether the owner change alters Form 5472 treatment, partnership foreign-partner withholding, payroll, or the classification and sourcing assumptions used earlier in the year.

The effective date matters. Do not rewrite the whole year as resident or nonresident without applying the arrival/departure and dual-status rules.

IRS — taxation of dual-status aliens Dual-status year guide Form 5472 recordkeeping workpaper

Use a residency evidence pack, not a reconstructed memory

Maintain a contemporaneous file with passport pages, I-94 travel history, flight and lodging records, a daily U.S.-presence and work-location ledger, visa/status documents, Forms 8843 or 8840, prior returns, permanent-home evidence, tax-home records, and family/economic-connection evidence. Reconcile discrepancies between I-94 data and the owner's own calendar before filing.

Escalate green-card applications, treaty tie-breakers, dual-status years, medical exclusions, frequent border commuting, missing forms, and state-domicile changes to a qualified cross-border adviser. This page is a routing and evidence guide, not a treaty or immigration conclusion.

U.S. Customs and Border Protection — I-94 travel history ForeignLLCTax editorial standards

Frequently Asked Questions

What are the main thresholds in the substantial presence test?

The IRS says you generally must be present at least 31 days in the current year and reach 183 weighted days: all current-year days, one-third of first-prior-year days, and one-sixth of second-prior-year days.

If I was in the U.S. only part of a day, does it count?

Usually yes. The IRS generally treats any day of physical presence as a day, subject to limited statutory exceptions such as qualifying transit, commuter, crew, medical-condition, or exempt-individual days.

Can I still be treated as a nonresident after meeting the test?

Potentially, but statutory closer connection and a treaty residence position are separate routes. Each has its own facts, forms, timing, and documentation requirements.

Does owning a U.S. LLC make me a U.S. tax resident?

No. Individual federal tax residency depends on the green-card and substantial-presence rules and any valid exception or treaty position. The LLC has a separate compliance analysis.

Do I file Form 8843 if I have no U.S. tax return?

The IRS says a person excluding exempt-individual or medical-condition days generally must send Form 8843 by the income-tax-return due date even when no return is otherwise required.

digital nomadtax residencysubstantial presencetreaty tie-breaker

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