Resident and Non-Resident Aliens

Posted By: TheLoanRanger

Resident and Non-Resident Aliens - 04/20/16 03:40 PM

It is my understanding that if an individual does not qualify as a resident alien, that individual is a non-resident alien.

Since the government is so helpful, the IRS and USCIS have slightly different definitions as far as who qualifies as a resident alien.

The USCIS states a resident alien is a lawful permanent resident (essentially a "green card" holder), OR a conditional permanent resident ("green card" valid for two years), OR a returning lawful permanent resident who's been out of the U.S. for greater than 180 days.

The IRS states an individual is a resident alien if they are a lawful permanent resident (the "green card" test), OR satisfy the substantial presence test (according to their formula for days present in the U.S. in the last 3 years).

The IRS also states that their definitions are only to be used for tax treatment purposes.

So basically the USCIS says if you have a green card, you're a resident alien, if not, you're a non-resident alien. The IRS says even if you don't have a green card, you're a resident alien as long as you live here.

It would seem to me that the conservative approach would be to abide by the USCIS' definition/test. However, in completing the W8-BEN (required for NRAs) it is my understanding that the address listed should not be a U.S. address. This is a problem as we have accounts wherein the individual has no legal status to reside in the U.S., but does anyways. The USCIS says these individuals are NRA, the IRS says they are resident aliens.

Anyone have advice on which definition for resident alien to go with? Or have any enlightening experience with examiners on this issue? Or, if I'm mistaken in any of my assumptions please let me know.

It's a key distinction as an institution's numbers of NRAs (and the associated compliance/BSA concerns) can vary significantly depending on which definition the institution chooses to go with.
Posted By: TheLoanRanger

Re: Resident and Non-Resident Aliens - 04/20/16 04:16 PM

I think I've figured out my own question.

If the individual doesn't have a green card, they are a non resident alien and should be treated as such BUT if they satisfy the substantial presence test then that individual would not need to fill out a W8-BEN. So that individual is simultaneously a non resident alien and a resident alien, depending on who you ask.

Is this what other institutions are doing? In scanning the forums it seems like people are all over the map on this subject, so any experiences you've had...I'd love to hear about them.

My guess is a lot of institutions are drastically underreporting NRAs on their MLR and pointing to the substantial presence test to justify individuals as resident aliens instead of NRAs.
Posted By: RockChucker, CAMS

Re: Resident and Non-Resident Aliens - 04/20/16 04:54 PM

Welcome to Bankers Online TheLoanRanger!
Posted By: TheLoanRanger

Re: Resident and Non-Resident Aliens - 04/20/16 08:05 PM

Thanks RockChucker. I've been a long time lurker, but figured it's as good a time as any to jump in and get involved with the conversations.

Any helpful comments on the subject at hand? I can definitely imagine that some institutions are going only with the IRS definitions for NRA vs. RA and will do so until an examiner gives them grief. It's a decent argument and lowers the number of NRAs they'd have to report/monitor.
Posted By: Complycated

Re: Resident and Non-Resident Aliens - 04/20/16 09:23 PM

For what it's worth, we have been told by more than one examiner that we should just take whatever our customer says they are and go with it, even if the identification they provide doesn't necessarily seem logical for their alleged situation. We have been told banks are not supposed to care if their customers are legally in the country or not and we should continue to open the accounts.
Posted By: RockChucker, CAMS

Re: Resident and Non-Resident Aliens - 04/20/16 09:36 PM

We ask the customer if they are resident and document the identification provided by the customer. We haven't been criticized in this arena because we are consistent and have the documentation to prove it. But as with all things banking, if the wind blows the other direction tomorrow we might have to adjust course.
Posted By: rlcarey

Re: Resident and Non-Resident Aliens - 04/21/16 11:48 AM

If they don't have a green card, they are a non-resident - period end of story.

What IRS form they complete W-9 or W-8BEN is totally up to them (as it is their decision to figure out, not the banks) as that is an IRS regulation and had nothing to do with immigration status.
Posted By: TheLoanRanger

Re: Resident and Non-Resident Aliens - 04/22/16 09:26 PM

rlcarey, I must, respectfully, disagree with you.

The FFIEC BSA/AML Examination Manual states the following:

"For definitional purposes, an NRA is a non-U.S. citizen who: (i) is not a lawful permanent resident of the United States during the calendar year and who does not meet the substantial presence test, or (ii) has not been issued an alien registration receipt card, also known as a green card."

Since (ii) is the same as stating the individual is not a lawful permanent resident and (i) indicates that if you’re not a lawful permanent resident, you aren’t an NRA if you meet the substantial presence test, the manual (in my opinion) is stating that an individual who meets the substantial presence test is a resident alien, regardless of whether they hold a green card or not.

It's written poorly, as the use of "or" makes it seem like if you don't have a green card, you're an NRA, but the intention of this statement (in my opinion) is to indicate that meeting the substantial presence test makes you a resident alien as far as the BSA is concerned. Why even have the condition regarding the substantial presence test in (i) if (ii) is simply (i) without the substantial presence test condition?

Being able to prove an individual meets the substantial presence test is a separate issue, but it seems to me that if an individual provides an ITIN and a US Address as their permanent residence, I can consider them a resident alien because it can be reasonably assumed they meet the substantial presence test.
Posted By: rlcarey

Re: Resident and Non-Resident Aliens - 04/23/16 03:30 AM

How do you plan to prove they are here legally or illegally? If you want to go that far - knock yourself out. If they are here illegally you want to treat them as a US person for monitoring purposes because they might an IRS requirement? I prefer to keep things simple regardless of what the exam manual might say. Try teaching this to every new account representative.
Posted By: Elwood P. Dowd

Re: Resident and Non-Resident Aliens - 04/23/16 11:42 AM

rlcarey is right. The FFIEC BSA/AML Examination Manual is wrong or, at a minimum, grossly misleading.

The IRS (more accurately the Internal Revenue Code) simply does not have the power to change a person's residency status in the U.S. They do have the right to extract a pound of flesh because that person failed to go home in a timely manner. Flunking the "substantial presence test" makes you a resident alien for income tax purposes only; i.e. it makes you a U.S. taxpayer in dire need of an ITIN.

Resident aliens have a green card and an SSN. All other foreign born persons are non resident aliens for the purposes of being "customers subject to expanded examination overview" as described in the manual mentioned above. I do not know how the OCC defines "non resident alien" in the MLR, but do know that only those regulated by the OCC care.
Posted By: TheLoanRanger

Re: Resident and Non-Resident Aliens - 04/29/16 04:12 PM

I agree with both of you in terms of what you are saying regarding an individual's legal status. Yes, if you don't have a green card, USCIS says you're a non resident alien and if I was being examined by the USCIS then that's the test I would use.

Legal status isn't the issue here though. The issue is how resident aliens and non-resident aliens are defined for BSA/AML monitoring purposes. The manual says if an individual meets the substantial presence test, then that individual is a resident alien. The substantial presence test is basically just asking "Is your permanent address in the U.S.?" As far as training, that's all you would have to go over. If they give you a U.S. address and it matches the address on the documentation they provide in accordance with your CIP Policy...you're done. That's not exceedingly difficult.

I'm not denying that this makes illegal aliens/immigrants resident aliens (as long as they live here), but I prefer not to increase a customer's risk rating if I don't have to. Why would you want to have to treat every ITIN depositor (99% of them at least) as potentially elevated risk if you don't have to? I also do care about the MLR, but I can appreciate not everyone has to.

I agree 100% with you guys on the legal status issue. I'm not saying I'd give an ITIN holder a 30 year mortgage, but that has nothing to do with their "customer risk rating".

And Ken I have to disagree with you because the manual states if you meet the substantial presence test then you're a resident alien. If the manual wanted the test to be the green card test, the manual would simply define a non resident alien as an individual that doesn't hold a valid green card. It doesn't. It defines a non resident alien as an individual that doesn't hold a valid green card...and doesn't meet the substantial presence test.

I'm not trying to argue for the sake of arguing, but I think generally institutions prefer not to increase a customer's, or group of customer's in this case, risk rating. The manual allows me to consider an ITIN holder with a U.S. address as a resident alien, which is less significant of a risk factor relative to a non resident alien.

It's less monitoring overall any way you cut it. Why would you not take advantage of a definition, directly from the exam manual, that decreases your institution's monitoring burden?
Posted By: Elwood P. Dowd

Re: Resident and Non-Resident Aliens - 04/29/16 04:15 PM

Rely on it if you want to, but it's wrong either way. The "manual" is neither law nor regulation and it is readily outweighed by either.

I acknowledge that you are taking a very small risk as rlcarey is the only reviewer out there that I know of who would be smart enough to understand that you are wrong.
Posted By: RockChucker, CAMS

Re: Resident and Non-Resident Aliens - 04/29/16 06:33 PM

Originally Posted By Ken_Pegasus
The "manual" is neither law nor regulation and it is readily outweighed by either.


Amen to that statement, if you read the first couple pages of the manual it says that it contains best practices etc...
Posted By: *W*W*

Re: Resident and Non-Resident Aliens - 08/05/16 04:19 PM

I have a related question. If we determine an applicant's SSN was issued in the last 12 years, would we apply our CIP requirements for permanent residents and request additional ID (DHS photo ID, US Citizenship and Immigration Services photo ID, etc.)? That seems reasonable, but I'm second guessing myself.
Posted By: rlcarey

Re: Resident and Non-Resident Aliens - 08/05/16 04:40 PM

Not sure what the issuance date of a SSN has anything to do with what ID documents you require??
Posted By: Elwood P. Dowd

Re: Resident and Non-Resident Aliens - 08/05/16 05:00 PM

I'm curious too, but it's a moot point. SSA started randomizing the issuance of the numbers a few years ago. Since then, their structure no longer indicates their year of issuance.
Posted By: Jessesgirl

Re: Resident and Non-Resident Aliens - 08/05/16 05:21 PM

I agree with Mr.Carey! If you follow your CIP policy at account opening and any ongoing due diligence requirements you set forth in it you should be good regardless of when the SSN was issued.

I have another related question....

I recently learned that the IRS has decided to start invalidating ITINs this year if they haven't been used on a U.S. tax form in the last 5 consecutive years. We do not open interest bearing accounts for foreign individuals and so we have not asked for ITINs in the past, but unfortunately we inherited some interest bearing accounts (with ITINs) with an acquisition a year or so back. Now I have the potential problem that all of these ITINs on my core may or may not be valid. Thank you to the IRS for complicating the subject of non-resident aliens even more.....

So anyways here goes with the questions!! We are leaning toward just removing all ITINs from our core so that we aren't dealing with potentially invalid ITINs going forward. If I'm understanding everything I've read correctly, the 1042-S form does not require an identifying number?? However, this all makes me question the purpose of an ITIN if it's not required on the 1042-S? Also, I'm curious what other institutions are doing in this situation?

Secondly, I would love to talk to someone who has a generally good comprehension of chapter 3 and chapter 4 reporting?? Anyone who wants to be my hero and offer some knowledge can PM me and I would love you forever!!
Posted By: Elwood P. Dowd

Re: Resident and Non-Resident Aliens - 08/05/16 05:24 PM

Unused ITINs Expire That's true, but any reaction to that by a bank is an overreaction. It is simply not your problem...
Posted By: Jessesgirl

Re: Resident and Non-Resident Aliens - 08/05/16 05:31 PM

I like that answer Ken!! So if I don't need to worry about the expired ITINs then I shouldn't worry about whether or not I have an ITIN on an interest bearing account right?

So I guess I can safely assume you're not going to touch the chapter 3 & 4 reporting questions....LOL!!
Posted By: Elwood P. Dowd

Re: Resident and Non-Resident Aliens - 08/05/16 05:38 PM

Noting that this is the BSA Forum, Chapters 3 and 4 of what?
Posted By: rlcarey

Re: Resident and Non-Resident Aliens - 08/05/16 05:40 PM

unfortunately we inherited some interest bearing accounts (with ITINs) with an acquisition a year or so back.

Convert them all to non-interest bearing accounts and it solves your problems next year and beyond.
Posted By: Jessesgirl

Re: Resident and Non-Resident Aliens - 08/05/16 05:40 PM

I'm actually learning that too...I'm helping out our operations department in trying to determine chapter filing codes for non-resident alien 1042-S reporting.
Posted By: Jessesgirl

Re: Resident and Non-Resident Aliens - 08/05/16 05:44 PM

That's been discussed in the past and I'm a fan of that solution as well!!
Posted By: *W*W*

Re: Resident and Non-Resident Aliens - 08/05/16 06:44 PM

In regards to SSN issuance - If I have a 30 year old applicant with a SSN issued 9 years ago, I'm guessing he's not a naturalized citizen. Should I then request the additional documents our CIP requires?
Posted By: rlcarey

Re: Resident and Non-Resident Aliens - 08/05/16 06:48 PM

Should I then request the additional documents our CIP requires?

Since we don't know what your CIP requires, I'm not sure that we can answer this question?

If an individual is a citizen of the US, what difference does it make when he got his SSN??? Maybe he didn't need one until he was 21 years old. Again, how do you know when it was issued?? It could have been yesterday.
Posted By: *W*W*

Re: Resident and Non-Resident Aliens - 08/05/16 07:17 PM

If an individual is a citizen of the US, what difference does it make when he got his SSN??? Maybe he didn't need one until he was 21 years old. Again, how do you know when it was issued?? It could have been yesterday.

Our debit bureau and other reports we pull tell us when the SSN was available for issuance. Other times the report tells us the SSN was issued to a permanent resident immigrant. Our CIP requires us to obtain certain additional documents if the person is permanent resident or NRA. In the example I provided earlier, to me the SSN issuance would be an indicator we may have a permanent resident or non-resident alien, thus triggering our additional documentation requirements.

As I'm typing this I'm thinking it's a matter of our CSRs asking the relevant questions (country of origin, resident status) when we have a situation like this.
Posted By: rlcarey

Re: Resident and Non-Resident Aliens - 08/05/16 07:41 PM

Our debit bureau and other reports we pull tell us when the SSN was available for issuance.

What are they basing that on - the SSA has gone to a random issue of numbers and there is no longer a way to tell when a number was issued that I am aware of.
Posted By: edAudit

Re: Resident and Non-Resident Aliens - 08/05/16 07:45 PM

The SSN number could have also been issue while the customer was in the US at a prior time with a different visa classification that required a SSN (rare but possible)
Posted By: *W*W*

Re: Resident and Non-Resident Aliens - 08/05/16 07:49 PM

The SSNs I'm looking at were available for issuance prior to the SSN randomization. At any rate, I think we need to go back to the applicant and verify residency status to ensure we've complied with our CIP policy.
Posted By: Elwood P. Dowd

Re: Resident and Non-Resident Aliens - 08/08/16 11:57 AM

Quote:
the SSA has gone to a random issue of numbers and there is no longer a way to tell when a number was issued


To illustrate, according to the old SSA charts, an SSN that begins with 305-56 was issued in Indiana in 1966. However, another SSN with the same first 5 digits could have been issued last week in Arizona.
Posted By: StevenD

Re: Resident and Non-Resident Aliens - 08/08/16 06:22 PM

The ITIN expiration document from the IRS (Notice 2016-48) states that banks will not be penalized for information reporting that includes an expired ITIN. You will find this paragraph near the end of the document.

USE OF AN ITIN SOLELY ON AN INFORMATION RETURN
An individual whose expired ITIN is used only on information returns filed and furnished by third parties, such as Forms 1099, is not required to renew the ITIN. ITINs may continue to be used for information return purposes regardless of whether they have expired for individual income tax return filing purposes. If the individual is later required to file a tax return, however, the individual’s ITIN will have to be renewed at that time. Additionally, the third parties who file and furnish information returns with an expired payee ITIN will not be subject to information return penalties under sections 6721 or 6722 solely because the ITIN is expired.

As Ken said, "It is not your problem."
Posted By: morirse de risa

Re: Resident and Non-Resident Aliens - 02/05/18 03:34 PM

Does anyone have any procedures or policy regarding resident aliens or non-resident aliens that they would be willing to share?
Posted By: Elwood P. Dowd

Re: Resident and Non-Resident Aliens - 02/06/18 10:58 AM

Seriously, my policy would not go beyond "No U.S. TIN, no account. If you give me an SSN or an ITIN I'll give you an account and a hug!"

Simultaneously applying BSA's and the Internal Revenue Code's TIN requirements is like playing three dimensional chess. Doing it right is going to cost your bank more money than it makes off these relationships unless they are truly a significant part of your customer base.
Posted By: Susielou

Re: Resident and Non-Resident Aliens - 03/26/18 04:27 PM

On our BSA /AML/CIP Risk Assessment there has been a statement of how many of our customers are not US citizens. We have very few. We moved to a new database that doesn't give that information. Should I be tracking this information?
Posted By: P*Q

Re: Resident and Non-Resident Aliens - 03/26/18 04:30 PM

We do, both in core and our automated AML system. It comes up often.
Posted By: Elwood P. Dowd

Re: Resident and Non-Resident Aliens - 03/26/18 07:04 PM

Citizenship? is the "fifth question" banks must ask individual customers, right after name, address, identifying number and DOB. There is no point in asking if you cannot keep track of the response.

Honestly, I cannot imagine your software does not record the information. Contact the vendor to be certain...
Posted By: Sherlocked

Re: Resident and Non-Resident Aliens - 03/27/18 04:55 PM

Code the ones from your old database, then I guess you could pull a report (by ID maybe?) from your core to be able to code the customers who are not US citizens. We use a specific BSA risk code for ours.