Another Tax & AOS Question

[Liam and Sam 2]

Ok, I've already run into my first question... On TurboTax - when you enter in Wages - I'm putting down the Gross salary right. How about Box 2 - Federal Income Tax withheld. My fiance paid Australian income taxes on that gross salary - so do I put that value in box 2? Or are they only talking about US federal income withheld...

[BTalley 0]

According to Form 2555, to meet the bona fide test . . .

A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1–December 31, if you file a calendar year return). See Pub. 901, U.S. Tax Treaties, for a list of countries with which the United States has an income tax treaty in effect.

Svetlana arrived in the USA in October. Thus, she was not a bona fide resident of Russia "for an uninterrupted period that includes an entire tax year."

So how can anyone who arrived in the USA in 2008 meet this test? What am I missing?

[Liam and Sam 2]

According to Form 2555, to meet the bona fide test . . .

A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1–December 31, if you file a calendar year return). See Pub. 901, U.S. Tax Treaties, for a list of countries with which the United States has an income tax treaty in effect.

Svetlana arrived in the USA in October. Thus, she was not a bona fide resident of Russia "for an uninterrupted period that includes an entire tax year."

So how can anyone who arrived in the USA in 2008 meet this test? What am I missing?

As far as I know - if she lived in Russia her whole life before migrating to the US then she was a bona fide resident of Russia. the "uinterrupted period" includes years before 2008, not just 2008 alone.

[Mint518 0]

Hello VJ'ers,

We just returned from getting our taxes filed at H&R Block. The tax preparer insisted that unless Samuel could show his green card that he is a non-resident alien. I did a significant amount of reading before we went and I even tried to show her the tax publication. She politely told me that she knew her job. My questions are: Will this come back to haunt us later, or should I leave this alone since we will receive a very nice refund?

Umm... Did the tax preparer asked the date of entry of your husband to the U.S.? If he entered to the U.S. on 2008-06-15 (as shown in your timeline), I think he is a resident for tax purposes becasue he meets "substantial presence test " (He stayed in the US (i) over 31 days during 2008, AND (ii) 183 days during the period 2008 2007, and 2006, counting all the days of physical presence in 2008, but only 1/3 the number of days of presence in 2007 and only 1/6 the number of days in 2006.

How did you file the tax return? Since non-resident alien cannot file joint tax return, both you and your husband filed "married filing separately"?

The bolded text is plain wrong. As Nich-Nick, said, read IRS publication 529 as it clearly states a non-resident alien can be trated as a U.S. citizen for "tax purposes" only. Both the USC and the non-resident alien must file a joint income tax return. I am confused where the misinformation comes from. The IRS publication, although long and boring, is clear. People need to do their homework before commenting wrong information.

Just a little comment on this. The bolded text is true in the strictest sense. It's just that there is a loophole whereby the actual non-resident alien can get treated as a resident alien if they are married to a US citizen. So I think the bolded comment was to the original poster who was told by H&R Block that her husband was strictly non-resident, no exceptions. So if he was a strictly non-resident like H&R Block said, then they shouldn't have filed jointly. Makes H&R Block look a bit uninformed.

Thank you Nich-Nick. My post was meant to be addressed to Ricca711 (the original poster). I meant if their tax return was filed under filing married jointly status, that means the tax preparer of H&R Block treated her husband as a resident despite his/her remarks he is non-resident (so, nothing to worry about). If tax return was filed under married separately, that means the tax preparer, in fact, treated him as non-resident.

[Liam and Sam 2]

If someone decides that filing married separate/non resident alien for tax purposes is best for their situation and the fiance made absolutely NO US income in 2008 - they fill nothing out right?

In order to claim him as an exclusion I have to mark that he will not be filing a US tax return. But I don't have to do any special papers on the side saying he has no income right?

[BTalley 0]

I seriously believe that people are engaging in wishful thinking re: the foreign income exclusion.

I read instruction after instruction and example after example, and it's obvious this exclusion is primarily meant for AMERICANS who earn income abroad (Joe the Plumber from Ohio is transferred to London for 15 months . . . ). I know it says "For use by U.S. Citizens and Resident Aliens Only", but by resident alien they mean someone who has spent a LONG TIME in the USA, not someone who just emigrated to the USA in the fall of 2008 and wants to be considered a resident alien "for tax purposes."

Just look at the questions on Part II of the Bona Fide Residence Test (and how I would have to answer them):

--- Date bona fide residence began (Oct. 4, 1971, Svetlana's date of birth).

--- Kind of living quarters in foreign country (the apartment where Svetlana was born).

--- Did any of your family live with you abroad during any part of the tax year (well, Svetlana's mom visited her for a week).

--- Have you submitted a statement to the authorities of the foreign country where you claim bona fide residence that you are not a resident of that country? (Is this something a Russian citizen would submit to Russian authorities? Hardly.)

I will double check with my tax man and have him tell me specifically why Svetlana does not qualify. Then I will report back here.

Edited February 1, 2009 by BTalley

[Nich-Nick 3,354]

According to Form 2555, to meet the bona fide test . . .

A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1–December 31, if you file a calendar year return). See Pub. 901, U.S. Tax Treaties, for a list of countries with which the United States has an income tax treaty in effect.

Svetlana arrived in the USA in October. Thus, she was not a bona fide resident of Russia "for an uninterrupted period that includes an entire tax year."

So how can anyone who arrived in the USA in 2008 meet this test? What am I missing?

Bona Fide Resident For Part Of A Year

Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you will qualify as a bona fide resident for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. You could qualify as a bona fide resident for an entire tax year plus parts of 1 or 2 other tax years.

Example:

You were a bona fide resident of England from March 1, 2006, through September 14, 2008. On September 15, 2008, you returned to the United States. Since you were a bona fide resident of a foreign country for all of 2007, you also qualify as a bona fide resident from March 1, 2006, through the end of 2006 and from January 1, 2008, through September 14, 2008.

Source: http://www.irs.gov/businesses/small/intern...d=96960,00.html

This has some good information that I read a couple of weeks ago and I found it again.

http://www.irs.gov/businesses/article/0,,id=182017,00.html

[Nich-Nick 3,354]

Ok, I've already run into my first question... On TurboTax - when you enter in Wages - I'm putting down the Gross salary right. How about Box 2 - Federal Income Tax withheld. My fiance paid Australian income taxes on that gross salary - so do I put that value in box 2? Or are they only talking about US federal income withheld...

Only US income tax withheld. I only put the gross income.

[BTalley 0]

"Bona Fide Resident For Part Of A Year

Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you will qualify as a bona fide resident for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. You could qualify as a bona fide resident for an entire tax year plus parts of 1 or 2 other tax years.

Example:

You were a bona fide resident of England from March 1, 2006, through September 14, 2008. On September 15, 2008, you returned to the United States. Since you were a bona fide resident of a foreign country for all of 2007, you also qualify as a bona fide resident from March 1, 2006, through the end of 2006 and from January 1, 2008, through September 14, 2008."

But these examples are for people who MOVED to a foreign country and ESTABLISHED a "bona fide residence" there. Notice it says "returned to the United States (where you had been before)." It doesn't say "moved to the United States (where you have never lived before)."

It's not meant for people who are born in foreign countries, spend 99 percent of their lives there and then come to the USA in October 2008 and want to have their foreign income for 2008 excluded.

Edited February 2, 2009 by BTalley

[Nich-Nick 3,354]

It's whatever you think Talley and however you decide to file. I bet if you called the IRS three times, you would get three different opinions straight from the IRS. I do think the examples are geared toward US workers and making sure they pay all the taxes they should and there isn't a perfect example for a foreign born. I just personally interpret it that Nick was a bonafide resident of the UK when he earned his pay and so should not have to pay US taxes on UK earnings. So when I read that to file jointly, we must show worldwide income but some of that may be excluded, I looked for the way to exclude it. I feel okay that he shouldn't have to pay US taxes when he didn't work in the US and didn't work for a company that has anything to do with the US and he paid UK taxes. I feel okay in excluding that income.

I think the tax laws have some transition places. Like for example if you married a US wife on Dec. 31 or had a baby 1 minute before midnight Dec. 31, you get to claim them for the whole year. Kinda sucks if your baby was born one minute into the new year. The woman in the next bed in the maternity ward would have a $3500 exemption and you wouldn't. Not exactly fair but they have to have a basic rule in place to go by.

So they write a billion pages about resident aliens. Think about it. Alien would mean not born in the US, so why are they writing all this about aliens if it only applied to USCs? I think it means the rules apply to aliens in this statement:

To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must: ...(We can declare Nick a resident alien)

Have foreign earned income (income received for working in a foreign country), ...(Yes Nick worked in a foreign country)

Have a tax home in a foreign country, and ...(Yes he had a regular place of business in a foreign country)

Meet either the bona fide residence test or the physical presence test ... (Yes he meets both those)

It's just my opinion and interpretation. I'm not trying to change your mind. You just go with what you believe is right.

[TBoneTX 44,934]

A zillion thanks to the thorough, patient Nich. Here is a follow-on question about this:

If Mrs Tbone has basically no income, then don't even list it. Just press on like she's your US spouse who doesn't work.

Please elaborate; does this mean that Form 2555 isn't necessary? If the income was from a business (without detailed records, let alone exhaustive ones) and the best-guess estimate is a "wash" (net gain, zero or a few bucks), what is the procedure for taxes prepared manually (really high-tech, si man)?

[rin and john 71]

A zillion thanks to the thorough, patient Nich. Here is a follow-on question about this:

If Mrs Tbone has basically no income, then don't even list it. Just press on like she's your US spouse who doesn't work.

Please elaborate; does this mean that Form 2555 isn't necessary? If the income was from a business (without detailed records, let alone exhaustive ones) and the best-guess estimate is a "wash" (net gain, zero or a few bucks), what is the procedure for taxes prepared manually (really high-tech, si man)?

Not sure how to handle the business part, but in our case, Rin had $0 foreign income for the year she moved here, so we did not submit a 2555. No problems.

[rin and john 71]

"Bona Fide Resident For Part Of A Year

Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you will qualify as a bona fide resident for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. You could qualify as a bona fide resident for an entire tax year plus parts of 1 or 2 other tax years.

Example:

You were a bona fide resident of England from March 1, 2006, through September 14, 2008. On September 15, 2008, you returned to the United States. Since you were a bona fide resident of a foreign country for all of 2007, you also qualify as a bona fide resident from March 1, 2006, through the end of 2006 and from January 1, 2008, through September 14, 2008."

But these examples are for people who MOVED to a foreign country and ESTABLISHED a "bona fide residence" there. Notice it says "returned to the United States (where you had been before)." It doesn't say "moved to the United States (where you have never lived before)."

It's not meant for people who are born in foreign countries, spend 99 percent of their lives there and then come to the USA in October 2008 and want to have their foreign income for 2008 excluded.

For an alien moving to the USA, the best Publications to know are 519 and 54. The key things to understand:

1) Residency -

If an alien spouse is a non-resident alien, then the foreign income is not reported (since they essentially wouldn't even file a USA tax return).

However, a foreign spouse can be a resident alien, either via "substantial presence", "green card test", or through written declaration (see pub 519 - pg 10 - Nonresident Spouse Treated as a Resident).

2) Sources of Income - A 'resident alien' is generally subjected to the tax requirements in the same manner as an USC - interest, dividends, wages, other compensation, etc are taxable income (pub 519 - page 11)

3) Exclusions from gross income - If you are physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months, you may qualify for the foreign earned income exclusion. (Pub 519 - page 15)

4) Requirements to claim the foreign earned income exclusion - i) Tax home is a foreign country (true if they lived there prior to coming to the USA), ii) You must have foreign earned income (true, if they worked or had income. If no income then no need to worry about the exclusion); iii) On page 12, under "Requirements - 3c" - A USC or US resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months (true for most; i.e. if your spouse moved here in October 2008, from October 2007 to October 2008 would be their 12 consecutive months).

When completing the 2555, the resident alien spouse would complete part III, not part II (only one of these sections needs to be filled in). Part III would be Oct 2007 to October 2008 for the example above. Part VII would be a prorated amount for exclusion based on how much of the 12 month period overlaps with the US tax year. In this case, 302 days of 366 for 2008, so the maximum exclusion would be $87,600 times 302/366 = $72,282 of foreign income exclusion. Form 2555EZ calculations are the same (for those with simple income and no foreign housing exclusion - this would apply to many foreign spouses).

The confusion would be on selecting either part II or part III of form 2555. Since part III is the one that applies, part II is left blank, thus the examples on "Bonafide Resident Test" are not applicable.

Edited February 2, 2009 by rin and john

[rin and john 71]

Hello VJ'ers,

We just returned from getting our taxes filed at H&R Block. The tax preparer insisted that unless Samuel could show his green card that he is a non-resident alien. I did a significant amount of reading before we went and I even tried to show her the tax publication. She politely told me that she knew her job. My questions are: Will this come back to haunt us later, or should I leave this alone since we will receive a very nice refund?

Next question, I checked our AOS status today and the date was changed back to January 12th? Has anyone experienced this and what was the outcome?

Thanks,

Erika

Erika - Your H&R Block Rep cost you money (you can get a larger refund!). First, your husband can be a resident alien even if he has never set foot in the USA (see pub 519, page 10). We did this for TY 2006 (the year Rin and I got married) even though Rin did not set foot in the USA until April 2007.

So what was your filing status? At the very least you lost out on the exemption your husband should receive AND the Recovery Tax Rebate from last year's stimulus rebate. Does your husband have a SSN? If not, get one (once you have either the EAD or GC) and file. He will be eligible to get his $600 rebate.

http://www.irs.gov/newsroom/article/0,,id=186065,00.html

The H&R Block Rep is doing the simplest return possible without wanting to add anything that might generate an audit. Since they guarantee legal backing if you are audited it would cost them money if you were audited. So simplifying your return may cost you money, but saves them potential costs in the future. Many tax prep services work on a very similar principle. But in this case, the tax code clearly is on your side, even if H&R Block is not.

[canary 0]

USCIS and IRS definitions of "resident" are very different. You maybe an illegal alien according to USCIS definition but still be a resident for tax purposes.

H&R Block or other tax mills are not the best places for even a little complicated tax returns. Most tax preparers work there get minimum training before they start working there. You can do better yourself with a tax software. I suggest you to go to a CPA or an Enrolled Agent.

Edited February 4, 2009 by canary