Should I file a 1040NR for this Canadian resident?

[Thetaxrookie23]

I have a something that I would like a little clarification on. I'm preparing a return for a client who is a resident of Canada and is here as a religious instructor in the U.S. I prepared her return for her in 06 also, and at that point, she hadn't been in the U.S. long enough to meet the substantial presence test or the green card test. However, she has been here around 240 days in 07, which if I understand correctly, she now meets the substantial presence test and must file as a resident alien. I'm confused with the article 15 of the treaty between U.S. and Canada that says if the person earns less then $10,000, such earnings are exempt from tax in that state. Does this mean that even if she passes the substantial presence test, she is exempt from U.S. tax if she earns less then $10,000 which she has? How does this affect FICA taxes? She has no Social Security or Medicare withheld on her W2. Hopefully my question is clear.

Any help would be appreciated.

[Koss]

Treaty

The terms of the treaty may conflict with regular federal tax law, and the IRS understands and accepts this.

If your client qualifies to claim the benefits of the treaty, and chooses to do so, then you file Form 1040NR. Your client is "taking a treaty-based position." There is an additional form that must be attached to the return for this... don't remember the form number right now...

[Thetaxrookie23]

Thankyou

Thankyou for your help. That does clarify things for me.