Living abroad temporarily, taxes and naturalization

[Terri and Seb 0]

Hi everyone,

Wow, it's been a long time since I've posted here! As you can see from my timeline, my British husband and I got married in 2009. In mid 2010, we temporarily moved back to the UK so I could do an 11-month masters degree in England. I'm just about finished, but for now we're still living in the UK. We made an InfoPass appointment to see if we needed a travel document and were assured that since we would be in the UK for less than a year, we'd be fine. We wanted to keep up my husband's residency, so he's made one trip back to the U.S. to make sure he enters every 6 months and is flying out tomorrow to make his second trip. He's permanently moving back to the States at the beginning of July since he has a job offer, and I'll be joining him in late August to start my new job. With any luck, we'll remove conditions this summer and apply for naturalization next year.

The trick is, taxes have been an absolute nightmare! My husband was self-employed from January 2010- May 2010 and then worked in England for the rest of the year. I was a student the whole time, but did take a very temporary part-time job in England. We declared all of our U.S. and foreign income on our federal and state returns and have taken the foreign income credit to offset the outrageous taxes we've paid to the UK. Even though we've been living in England, we filed as though we were resident in Pennsylvania as to not jeopardize anything. However, our local taxes are very confusing. I called to ask how to report our foreign income and no one knew. The form says a W2 is vital and a return without one will be discarded, and we obviously don't have a W2. I also wanted information on how to get a tax credit for the taxes we've paid to England so we're not double taxed. After speaking to about 5 different managers who didn't have a clue, I was eventually told that there's no such assistance for foreign income and we're responsible for double taxes on this income (which seems very unlikely given that state and federal offer it?). UK tax is like 20%- and paying local tax on our overseas income means we'd owe our local tax jurisdiction an additional $500 on top of that. And we haven't even been living there!

Long story short, we are considering filing our local taxes as a part-year resident even though we've filed our state and federal taxes as resident. I can't get anyone to answer my questions, the forms are incredibly confusing, we've fired one tax professional already for not knowing what they were doing, and it seems absurd to pay double tax. I know this is not tax fraud or anything since we really WERE living in England and can prove it, but there's a question on the naturalization form that asks if you've ever filed as a part-year resident and I don't know if saying 'yes' automatically throws out your application.

Could filing this way for local taxes only seriously jeopardize my husband's naturalization applications? Any help is really appreciated- I'm a mess over this!