anyone else get audited by IRS?

[bevray 0]

My wife, who is from England, and I were married in dec 2006 and she recieved her green card and moved to the US in July of 2007. To help prove we are really married for the visa and because we thought it was the right thing to do we filed our US taxes for 2006 married filing jointly. When filling out the forms we were led to believe by the IRS as was our accountant that my wife's UK income was exempt. This week we get audited because, according to the auditor, of her foriegn earned income. The auditor explains that she studied the tax codes for a week and thinks that because she was a nonresident alien her income is not exempt and is therefore subject to double taxation, here and in the UK! As you might quess we were shocked! Our accountant argued that if that is the case we filed that way due erroneous advice from the IRS and we should be able to amend that return to married filing seperately, and I would lose her deduction but her income would be exempted. It is not allowable to amend a return married filing jointly to married filing seperate so that was left up in the air. The next day the auditor, who I will say was extremely nice and very helpful, called to let us know that although waiting for the absolute final answer it looks like we have in fact filed properly and we won't be subject to a huge tax burden. Has anyone else had any experience in this area we would be very interested to know how it was handled. And for anyone in this situation double, triple and quadruple check with your accountant and the IRS ( take names, dates and times!) before filing. Our auditor said they must be targeting foriegn earned income because she had four more files like ours on her desk! Thanks in advance for any input!

Bev and Ray

[sweetpiano 0]

How much was your wife's foreign income? If it was under $85,700 for 2007 ($82,400 for 2006), then she has no tax liability. (Because you are using an accountant for your tax returns, something tells me that she makes more than that, but I could be wrong).

Anyway, if your wife did not reside in the US during the time she earned that income, then she has no obligation to report it to the IRS. However, as the spouse of a USC, she has the option of being treated as a resident alien for tax purposes, use Form 2555-EZ (to report the foreign income) and file a joint tax return with you, which I understand you have done in order to have documentation of a bona fide marriage. Any of her (or your) foreign income which is less than the amounts I quoted above (also find them on Form 2555-EZ) are exempt from US taxes and are reported on Form 1040 as Foreign Earned Income exclusion. Anything over the limit is taxable.

As to how the excess is taxed, I don't know. To my mind, there must be some kind of double taxation treaty between the US and the UK which would prevent people from being double-taxed, subject to certain conditions. You would have to research if there is such a treaty and what are the conditions.

[payxibka 10,047]

You probably filed correctly.... that is why there is a foreign income exclusion and a foreign tax credit form (individual facts and circumstances will determine which form is the proper one for you to use) ... Worst case, you may end up paying tax on her income at US rates, but you can deduct the taxes paid to another country (up to a certain limitation) to offset, so as to prevent "dual" taxation.

Edited October 17, 2008 by payxibka

[bevray 0]

Her income was under the limit and we did file the foriegn income exclusion form but there is some confusion on the part of the IRS how to interpet thier own rules. Evidentily they think that if you are a resident alien you are exempt but if you are a nonresident alien you are not exempt. We were married in 2006 but as you all know the visa process is often long and she did not move to the US, get a green card and become a resident alien until 2007. The last we've heard from the IRS they are considering calling her a resident alien as soon as we got married and therefore we have filed properly and we have no more tax liability, but and that is a big but, that is not the final ruling. We were told by our IRS auditor that they are waiting for a reply from someone in Texas that is the only "expert" on this in the entire country. How does the average citizen have a chance at figuring this out if only one person in our goverment knows???? This is a very serious matter since if this income is taxed here, even if foriegn taxes can be deducted, it will be a huge amount and amending our 2006 return may not be allowed. Thanks for your replies and again, they may be targeting foriegn earned income and this may have huge implications for all of us here on visa journey so be advised.

Bev and Ray

[tanyaru 3]

My wife, who is from England, and I were married in dec 2006 and she recieved her green card and moved to the US in July of 2007. To help prove we are really married for the visa and because we thought it was the right thing to do we filed our US taxes for 2006 married filing jointly. When filling out the forms we were led to believe by the IRS as was our accountant that my wife's UK income was exempt. This week we get audited because, according to the auditor, of her foriegn earned income. The auditor explains that she studied the tax codes for a week and thinks that because she was a nonresident alien her income is not exempt and is therefore subject to double taxation, here and in the UK! As you might quess we were shocked! Our accountant argued that if that is the case we filed that way due erroneous advice from the IRS and we should be able to amend that return to married filing seperately, and I would lose her deduction but her income would be exempted. It is not allowable to amend a return married filing jointly to married filing seperate so that was left up in the air. The next day the auditor, who I will say was extremely nice and very helpful, called to let us know that although waiting for the absolute final answer it looks like we have in fact filed properly and we won't be subject to a huge tax burden. Has anyone else had any experience in this area we would be very interested to know how it was handled. And for anyone in this situation double, triple and quadruple check with your accountant and the IRS ( take names, dates and times!) before filing. Our auditor said they must be targeting foriegn earned income because she had four more files like ours on her desk! Thanks in advance for any input!

Bev and Ray

I amended my tax return from "married filing jointly" to "married filing separately" in 2005 without any problems but had to pay the difference back.

[tom&tata 2]

Her income was under the limit and we did file the foriegn income exclusion form but there is some confusion on the part of the IRS how to interpet thier own rules. Evidentily they think that if you are a resident alien you are exempt but if you are a nonresident alien you are not exempt. We were married in 2006 but as you all know the visa process is often long and she did not move to the US, get a green card and become a resident alien until 2007. The last we've heard from the IRS they are considering calling her a resident alien as soon as we got married and therefore we have filed properly and we have no more tax liability, but and that is a big but, that is not the final ruling. We were told by our IRS auditor that they are waiting for a reply from someone in Texas that is the only "expert" on this in the entire country. How does the average citizen have a chance at figuring this out if only one person in our goverment knows???? This is a very serious matter since if this income is taxed here, even if foriegn taxes can be deducted, it will be a huge amount and amending our 2006 return may not be allowed. Thanks for your replies and again, they may be targeting foriegn earned income and this may have huge implications for all of us here on visa journey so be advised.

Bev and Ray

In 2006, your wife can opt to be treated as resident for tax purposes as we was married by Dec 31st, 2006 by making a a joint statement.

http://www.irs.gov/businesses/small/intern...d=96370,00.html