We have a foreign customer that has lived in the USA since 1999. They consider their status of a resident alien since they meet the "substantial presence test", where they reside in the USA for more than 183 days each calendar year.
They have filed US tax returns on form 1040 during each year since fiscal 2000. Before that date, they had filed 1040NR returns because, although they did have an E2 visa, their main home was abroad and they only spent a few weeks per year in the US at that time. That made them nonresident aliens at that time.

Being a resident alien since fiscal 2000, they are now not subject to foreign withholding taxes, and they claim they do not need to file a W-8 form which is not designed for resident aliens.

My question is: since they don't have green cards, how do I prove that they are resident aliens based on the substantial presence test? Can I let them sign a W-9?

If the account is interest bearing, the individual is going to either sign a W8BEN or a W9.

The W-9 contains this language:

1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and
2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and
3. I am a U.S. citizen or other U.S. person (defined below), and
4. The FATCA code(s) entered on this form (if any) indicating that I am exempt from FATCA reporting is correct.

Your customer is not a U.S. citizen. He's not a resident alien unless he has a green card. He simply cannot sign the W-9. Actually, he cannot sign the W8BEN either - he's been here too long.

The substantial presence test is not intended to grant people a right to be in the U.S. or avoid taxes in their home country due to the passage of time. It is intended to cause them problems, just as it's doing here.

What does it mean "he cannot sign the W8BEN because he has been here too long". What is the timing?

Also, do other banks bear the responsibility of doing the presence test or only utilize the green card? Best practice would seem only the green card.

What is the timing?

Rather than repeat it, See Publication 519.

https://www.irs.gov/publications/p519/

This may be a silly question, but here is my confusion - I have a customer, not a US citizen, who wanted to open a deposit account January 15th. They do not have a green card and they do not have a TIN. The first question on the substantial presence test is: Were you present in the US 31 days during the current year?
Well, there has only been 15 days in 2016 so far, so how would they ever pass the substantial presence test?
Do I look to the number of days that they resided in 2015 (1/3 of days) and 2014 (1/6 of days) to determine if they were present a total of 183 days?

Why do you care?? Why are you trying to make this determination?

We are trying to determine if this customer is a resident alien or a non-resident alien. My understanding is, that if they are a resident alien that passes the substantial presence test, we should use the W9 and ask them get a TIN. If they are a non-resident alien, we would require a W8BEN.

There is your problem. You give them the form and the instructions and they are suppose to make the determnation - not the bank. The instructions say:

Who Must Provide Form W-8BEN

You must give Form W-8BEN to the withholding agent or payer if you are a nonresident alien who is the beneficial owner of an amount subject to withholding, or if you are an account holder of an FFI documenting yourself as a nonresident alien.

You should not be providing them advice on which form to give you.

If you customer has a green card, he's a resident alien. If he doesn't, then, no matter what he claims, he is not.

The substantial presence test has absolutely nothing to do with being a resident alien. It's about income tax status, nothing more. As rlcarey suggests, "the substantial presence test" is a mine field where banks simply don't belong.

Thanks to both of you for your insight and advice. Just to be clear, if a customer wants to open an account and they have a green card they will also have a TIN and we should use the W9 form. If they do not have a green card, we should use the W8BEN, regardless of whether they have a TIN or not. We should not use the substantial presence test at all. Do I understand this correctly now?

Unless they say, wait a minute the instructions on the W8-BEN say that I should complete a W-9 because of the substantial presence test, you are done.

Ok - so if they say, hey wait a minute, I'm a resident alien and want to complete the W9 - they should already have a TIN - and if they don't have a TIN, they should have applied for a TIN.

According to our policy, we can open an account for a customer with an applied for TIN. If we do not receive the TIN in 60 days, we close the account.

I think I'm getting it now. Should we not even bother with the substantial presence test, unless the customer asks?

Alas - if you have a US address on file in your systems for the person, the W8 would be deemed invalid unless you have a reason IN WRITING from the person that can explain why a US address is acceptable.

for example: student (and they can show a student Visa)

see publication 515, Standards of Knowledge

if you have a US address on file in your systems for the person,

That is not a correct statement. There is no reason a NRA cannot have a US mailing address.

Epiphany, maybe people would understand it better if we said:

Overstaying your welcome in the U.S. and falling victim to the "substantial presence test" does not turn you into a resident alien who has a right to be here. Instead it turns you into a "U.S. Person" who is obligated to pay income taxes here.

Way to go, Bro!

^^^ THIS!!

Hi all, I just read the IRS Alien Residency Examples on their website. In Example 2 they state: For tax purposes it does not matter that she later became a Lawful Permanent Resident on 09-15-2014 because she had already become a resident alien under the substantial presence test on 12-14-2013." Below is the link to the page. My concern, don't we have an obligation to make sure our 1099-INT reporting is accurate. If we have knowledge that the customer meets the substantial presence test but we ignore that and allow them to complete a W-8BEN aren't we facilitating incorrect (missing) 1099 reporting?

https://www.irs.gov/individuals/international-taxpayers/alien-residency-examples

The requirements for which form a customer needs to fill is on their head, not yours. You have no obligation but to report interest income on a 1099INT or a 1042S based on the information provided to you by the customer. Why any bank gets caught up in all of this is a little beyond me.