Moving Back - Tax and LTR

I have moved back to Canada near the end of 2008 after living and working in US under various TN visas for different companies since 2000.
In a discussions with IRS over the last several days regarding how to handle my 2008 taxes I am getting mixed information, depending upon the agent I speak to, about whether or not I am considered a Long Term Resident {LTR}. Reading IRS publication 519 there are several references to: "A long-term resident who ceases to be a lawful permanent resident may be subject to special reporting requirements and t.ax provisions." and "Termination of residency after June 3, 2004.If you terminate your residency after June 3,2004, you will still be considered a U.S. resident for tax purposes until you notify the Secretary of Homeland Security and file Form 8854, Initial and Annual Expatriation Information Statement." . Two IRS tax specialists have indicated that these only relate to LEGAL US residents who have been in the US 8+ tax reporting years. However two other IRS tax specialists interpret this as anyone "qualified resident for tax purposes" who has been in the US 8+ tax years. AS I was a resident alien for the full time I lived and worked in the US I a qualified resident but not a LEGAL US resident. So I'm confused as to how to interpret these sections in publication 519, and related form 8854 and the instructions for form 8554. Can anyone assist me with this...

LTR/Form 8854 applies only to green card holders.

Long-term resident defined. You are a long-term resident if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your residency ends. In determining if you meet the 8-year requirement, do not count any year that you are treated as a resident of a foreign country under a tax treaty and do not waive treaty benefits.

I have to admit I thought it was anyone who had been in the country for more than 8 years. But "lawful permanent resident" means you actually claimed permanent residency in the US. That's a pretty clear legal term of art, it means you permanently reside there and on TN-1 you are there temporarily so I would say you do not have to file under the expat provisions.

It gets even more confusing because in talking to the IRS recently they're telling me they aren't even sure what TN-1 is legally allowed to file as. Under US law someone in TN-1 must maintain "non-immigrant intent" and that is based on a provision of the NAFTA treaty. That basically means you must maintain residential ties outside the US, which means under Article IV of the tax treaty you must file as a non-resident in the US.

However the tax treaty and NAFTA are both international treaties, so they both have the same standing in law. So it's not entirely clear if that means you can file as a resident taxpayer in the US. The IRS basically said to me they were going to seek clarification from the State Dept. None of their tax publications mention TN status.

The problem you're going to have is that because you've filed as a resident of the US, there's no way for the IRS to work out that you're not an LPR. However I wouldn't worry about it too much, unless you have significant US-source income you're not liable to any tax under the expat tax provision so it's merely a filing requirement. The IRS is not going to get too worked about a genuinely grey area of the law especially when there is no actual tax payment due anyway.

What I would do is file the rest of the paperwork that may be necessary to move your tax home back to Canada as the case may be, e.g. 1040-C, dual-status return (although you may not need to do that if you spent the whole of 2008 in the US), etc. and see if they pick up on the fact that you haven't filed an 8854 with your dual-status 1040NR. Or attach a note to your 1040NR saying that although you've filed nine 1040s you were never an LPR so the expat tax provisions don't apply and see what they write back.

Part of the confusion about this I think is because usually it's hard to stay in the US for 8 or more years without becoming an LPR, usually only E visa holders can do it but TN is one of the other categories that might do it.

Roy,
you can also contact Gary Gauvin. He is a US Canada tax expert that we have used often and he is very helpful (http://www.garygauvin.com). If you were part of a pension plan while in the US, you may have a few options to consider as well if you are here in Canada.

Thanks to all who posted. Your comments have eased my concerns somewhat and mirrored the findings I have come up with after a day spent on the phone.

Just to be clear I have met many, many individuals who have been living, working and filing as residents in the US who are doing so on back to back {and often multiple concurrent for different companies} TN visas for 8+ years. With the recent change of TN Visas going to 3 year terms I would suspect that this is going to be a bigger issue.

Does anyone know how I can get an official ruling {paper document} from IRS/State Department/homeland security as to whether or not I am an LTR. I'd hate to find in 20 years upon the disposition of my personal estate that the IRS shows up to stake a claim , or that in a couple of years I get sent a notice that I was expected to file 1040s because the IRS thinks I am a resident still. Failing this I guess I'll have to look at using a professional to get this final dual-status year in order.

The issue with being labeled as an LTR is very complicated since under some new rulings it appears that there are considerable expat tax consequences that one would end up falling under. From my reading these also appear {I am by no means an expert so take this as my stupid understanding at this point} to override the US-Canada tax treaty.

And believe me they do, because it happened to my uncle. He was an LPR, left the US and never filed a 1040-C and a few years later he got a letter saying he was being audited. He had to pay back taxes for all the years he had been an LPR until his status expired and he also asked the auditor to help him fill in the paperwork and the IRS charged him for it! This was before the expat provisions though, fortunately for him.

26 USC 877(e) says this:

(e) Comparable treatment of lawful permanent residents who cease to be taxed as residents

(1) In general

Any long-term resident of the United States who—
(A) ceases to be a lawful permanent resident of the United States (within the meaning of section 7701 (b)(6)), or
(B) commences to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and the foreign country and who does not waive the benefits of such treaty applicable to residents of the foreign country,
shall be treated for purposes of this section and sections 2107, 2501, and 6039G in the same manner as if such resident were a citizen of the United States who lost United States citizenship on the date of such cessation or commencement.

(2) Long-term resident

For purposes of this subsection, the term “long-term resident” means any individual (other than a citizen of the United States) who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year during which the event described in subparagraph (A) or (B) of paragraph (1) occurs. For purposes of the preceding sentence, an individual shall not be treated as a lawful permanent resident for any taxable year if such individual is treated as a resident of a foreign country for the taxable year under the provisions of a tax treaty between the United States and the foreign country and does not waive the benefits of such treaty applicable to residents of the foreign country.

26 USC 7701(b)(6) says:

(6) Lawful permanent resident
For purposes of this subsection, an individual is a lawful permanent resident of the United States at any time if—
(A) such individual has the status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws, and
(B) such status has not been revoked (and has not been administratively or judicially determined to have been abandoned).

So definitely 100% for sure the expat tax only applies to LPRs or US citizens who renounce citizenship who've been in the US for eight out of the last fifteen years. (I didn't quote the sections that deal with former citizens).