Streamlined Filing for Canadian Snowbirds Who Became US Tax Residents Without Knowing: The Track Problem and the Treaty Solution

The snowbird's catch-up is the hardest streamlined case because the snowbird usually does not fit the program. A Canadian who spent 130 days a year in Florida for three years met the substantial presence test in the third year and every year since, was a US resident for tax purposes in each of those years, and filed nothing: no Form 8840 (the closer connection exception must be filed on time), no 1040, no FBAR. The foreign track requires 330 days outside the US in one of the three years; the snowbird had about 235. The domestic track requires filed returns; there are none. The exit is the treaty: Article IV assigns a dual resident to the country of their permanent home and centre of vital interests, which for a snowbird is Canada, and a late 1040-NR with Form 8833 claiming that position reports the snowbird as a non-resident for each year. The FBARs are still required, and the delinquent FBAR procedure handles them.

Key takeaways

• The snowbird's status: a US resident under the substantial presence test for each year the weighted count reached 183, from the first day of presence in the year, unless the closer connection exception was claimed on a timely Form 8840 (it was not) or the treaty tie-breaker applies.
• Neither track fits: SFOP's 330-day test fails (the snowbird was in the US four months); SDOP's filed-return requirement fails (nothing was filed).
• The treaty route: for each affected year, file a Form 1040-NR with Form 8833 claiming residence in Canada under Article IV(2) (permanent home in Canada, or centre of vital interests in Canada), reporting only US-source income (usually none, or the Florida condo's rent under the 871(d) election). The snowbird is a treaty non-resident for income tax; no worldwide income; no Form 8938 (the IRS's instructions exempt treaty non-residents who file 1040-NR).
• FBARs still apply: FinCEN's definition of a US person does not recognize the treaty election; a snowbird who met the substantial presence test was a US person for FBAR purposes and must file FBARs for those years. If all income was reported (in Canada; there is no US income to report), the Delinquent FBAR Submission Procedures apply with no penalty.
• The late Form 8840 alternative: the closer connection exception is unavailable on a late Form 8840 unless the IRS accepts a reasonable-cause showing; the treaty position does not have a timeliness requirement and is the stronger route.
• Going forward: Form 8840 by June 15 every year; a day budget; or the treaty position annually on a 1040-NR if the days exceed 182.

Why the tracks fail

SFOP requires, for a non-citizen, failing the substantial presence test in at least one of the three most recent years; a snowbird who met it in all three does not qualify. (For a citizen or green card holder the test is 330 days abroad, which a snowbird fails too.) SDOP requires an original return filed for each of the three years; a snowbird who filed nothing cannot amend nothing. The snowbird who has already used a US preparer and filed 1040s as a resident for those years (rare) would use SDOP.

The treaty position

Article IV(2) assigns a person who is a resident of both countries under their domestic laws to one of them: the country of the permanent home; if both, the centre of vital interests; if indeterminate, the habitual abode; then citizenship. A snowbird has a permanent home in Canada and, if they own the Florida condo, one in the US; the centre of vital interests (family, social life, licences, health coverage, most assets, most of the year) is Canada. The snowbird is assigned to Canada.

The mechanics: for each year in which the substantial presence test was met, file a Form 1040-NR (late) with Form 8833 disclosing the treaty-based position under Article IV, stating the facts. The return reports US-source income only: none for most snowbirds, or Florida rental income under the 871(d) election. No worldwide income; no Form 8938 (treaty non-residents filing 1040-NR are exempt from Form 8938 under its instructions); no Forms 3520 or 8621 (those apply to US persons for income tax, and the treaty non-resident is not one). The Form 8833 penalty for a missed disclosure ($1,000) is the exposure on a late filing, and the reasonable-cause explanation is that the snowbird did not know they had met the test.

The IRS accepts late treaty positions; the closer connection exception, by contrast, is conditioned on a timely Form 8840.

The FBARs

FinCEN defines a US person for FBAR purposes by reference to residency under section 7701(b) and states that the treaty tie-breaker does not change it. A snowbird who met the substantial presence test was a US person for each such year and owed an FBAR on Canadian accounts exceeding $10,000 in aggregate (which is every snowbird). The FBARs for the six most recent years are filed under the Delinquent FBAR Submission Procedures: electronically, with "Other" and an explanation ("Taxpayer is a resident of Canada who unknowingly met the substantial presence test; all income was reported and taxed in Canada; no US income tax was due under the treaty"). The procedure's condition, that all income from the accounts was reported and taxed, is met by the Canadian returns (the income was taxed by Canada, and under the treaty no US tax applied). No penalty.

When the treaty route fails

A green card. A snowbird who obtained a green card is a resident under the green card test, and the treaty position carries expatriation consequences for a long-term resident and immigration consequences for any. Different analysis.

A US permanent home and vital interests. A snowbird who sold the Canadian home, moved most assets to the US, and spends more time in Florida than Canada may be assigned to the US under the tie-breaker; the position is then not available, and the years are US-resident years with worldwide income, requiring the delinquent-return route with reasonable cause (neither streamlined track fits).

US-source income beyond the condo. US wages or business income are taxable on the 1040-NR regardless of the treaty position; the snowbird files and pays.

Going forward

File Form 8840 by June 15 every year the substantial presence test is met with fewer than 183 current-year days; keep a day budget; if a year exceeds 182 days, file a 1040-NR with Form 8833 claiming the treaty position for that year. Consider a day budget that keeps the weighted count under 183 so no filing is needed.

Worked example

A Kelowna couple have spent 135 days a winter in Palm Desert for eight years, own the condo (not rented), have never filed any US form, and hold Canadian accounts, RRSPs, and TFSAs.

• Status. Substantial presence test met since year three; US residents under US law for six years; no Form 8840 filed.
• Tracks. SFOP: 230 days outside each year; fails. SDOP: no returns; fails.
• Treaty. Permanent home in both; centre of vital interests in Canada (family, friends, doctors, licences, MSP, all investments, eight months a year). Assigned to Canada. Six late 1040-NRs (the IRS's six-year policy) each with Form 8833; no US-source income; no tax.
• FBARs. Six years under the delinquent FBAR procedure; all income taxed in Canada; no penalty.
• Not required. Forms 8938, 3520, 8621; the TFSA's income is not US income for a treaty non-resident.
• Forward. Form 8840 every June; or reduce to 120 days so the weighted count stays under 183.

Official sources

"You will be considered a United States resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States (U.S.) on at least: 31 days during the current year, and 183 days during the 3-year period that includes the current year and the 2 years immediately before that." — Internal Revenue Service, Substantial Presence Test, https://www.irs.gov/individuals/international-taxpayers/substantial-presence-test

"Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows: (a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both States or in neither State, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests); (b) if the Contracting State in which he has his centre of vital interests cannot be determined, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode; (c) if he has an habitual abode in both States or in neither State, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and (d) if he is a citizen of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement." — Canada-United States Tax Convention, Article IV(2), https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997.html

31 CFR 1010.350(b) defines a "United States person" as "a citizen of the United States" or "a resident of the United States," and "a resident of the United States is an individual who is a resident alien under 26 U.S.C 7701(b)." The regulation refers only to Internal Revenue Code residency and makes no exception for a tax-treaty tie-breaker election, so a treaty non-resident remains a US person for FBAR purposes. — Financial Crimes Enforcement Network, FBAR Regulations, 31 CFR 1010.350, https://www.ecfr.gov/current/title-31/subtitle-B/chapter-X/part-1010/subpart-C/section-1010.350

The IRS states that it "will not impose a penalty for the failure to file the delinquent FBARs if you properly reported on your U.S. tax returns, and paid all tax on, the income from the foreign financial accounts reported on the delinquent FBARs, and you have not previously been contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARs are submitted." — Internal Revenue Service, Delinquent FBAR Submission Procedures, https://www.irs.gov/individuals/international-taxpayers/delinquent-fbar-submission-procedures

Practitioner note

The snowbird is the client who does not fit the program, and the treaty is the exit: a late 1040-NR with Form 8833 for each year, no worldwide income, and delinquent FBARs with no penalty. We run the tie-breaker facts first, because a snowbird who has moved most of their life south may be assigned to the US, and then the answer is a delinquent-return file with worldwide income and a reasonable-cause argument, which is a different conversation.

See also: New to catching up? Start with what the Streamlined Foreign Offshore Procedure is and whether you qualify, and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the substantial presence and tie-breaker analysis for each year, the late 1040-NRs with Form 8833, the delinquent FBARs, and the forward-year Form 8840 plan. See cross-border pricing or book a call.