Accountant says we dont qualify for 2555EZ

[prenouveau 46]

Hi all, my husband moved to the US in July 2016 on a K-1 visa. We are filing "married filing jointly." I have seen many times in this forum, the recommendation that couples like us file the 2555EZ to exclude foreign income. I brought this up with my accountant, and he disagrees. Here's what my accountant said:

 

"In order to file jointly, you must claim his worldwide income for all of 2016.
He needs to be considered a resident alien to take advantage of the earned income exclusion.
He is considered, due to filing joint, a resident alien as of 1/1/16.
Of the time he was a resident alien, he was not abroad for 330 days."

 

Has anyone else ever had pushback on this? I think the wording in the 2555EZ instructions is ambiguous and could be interpreted either way, but it seems like many VJ members have filed this form successfully. My husband earned only a small amount in the UK before he got his visa, but it still would be nice to not have to pay taxes on it. I realize we could just file on our own, but I have very complicated taxes this year due to moving and having freelance and non-freelance income, so it would be a headache...

[Suss&Camm 2,213]

18 minutes ago, prenouveau said:

Hi all, my husband moved to the US in July 2016 on a K-1 visa. We are filing "married filing jointly." I have seen many times in this forum, the recommendation that couples like us file the 2555EZ to exclude foreign income. I brought this up with my accountant, and he disagrees. Here's what my accountant said:

 

"In order to file jointly, you must claim his worldwide income for all of 2016.
He needs to be considered a resident alien to take advantage of the earned income exclusion.
He is considered, due to filing joint, a resident alien as of 1/1/16.
Of the time he was a resident alien, he was not abroad for 330 days."

 

Has anyone else ever had pushback on this? I think the wording in the 2555EZ instructions is ambiguous and could be interpreted either way, but it seems like many VJ members have filed this form successfully. My husband earned only a small amount in the UK before he got his visa, but it still would be nice to not have to pay taxes on it. I realize we could just file on our own, but I have very complicated taxes this year due to moving and having freelance and non-freelance income, so it would be a headache...

Tell your accountant that you can send a first year election statement with your mailed in tax documents, that allows your husband to be considered a US person for tax purposes for the entire year of 2016 - this is an option for spouses of USC.

 

https://www.irs.gov/individuals/international-taxpayers/nonresident-spouse-treated-as-a-resident

 

"If you make this choice, the following rules apply:

• You and your spouse are treated, for federal income tax purposes, as residents for all tax years that the choice is in effect.  You and your spouse are treated as residents for your entire tax year for the purpose of your federal individual income tax return, and for the purpose of withholding federal income tax from your wages. However, you may still be treated as a nonresident alien for the purpose of withholding Social Security and Medicare tax. Refer to Aliens Employed in the U.S. – Social Security Taxes
• You must file a joint income tax return for the year you make the choice (but you and your spouse can file joint or separate returns in later years), and 
• Each spouse must report his or her entire worldwide income on the joint income tax return.
• Generally, neither you nor your spouse can claim tax treaty benefits as a resident of a foreign country for a tax year for which the choice is in effect. However, the exception to the saving clause of a particular tax treaty might allow a resident alien to claim a tax treaty benefit on certain specified income."

[Suss&Camm 2,213]

First year election statement

 

Date xx/xx/2017

 

 

Filing address

Department of the Treasury
Internal Revenue Service
Austin, TX  73301-0002 – Check where you’re supposed to send

 

 

 

 

 

To Whom It May Concern,

 

 

In the tax year 2016, I was a non-resident for tax purposes but was married to a U.S. citizen.
My spouse and I therefore choose for me to be treated as U.S. resident for the entire tax year of 2016.

 

 

 

Signature       _________________________________________
Printed name                        Spouse’s #1 name
SSN               XXX-XX-XXXX

Address          101 Immigration St

                       Taxville, AA 555 88
 

 

 

Signature        _________________________________________
Printed name                         Spouse’s #2 name
SSN               XXX-XX-XXXX

Address          101 Immigration St

                       Taxville, AA 555 88
 

 

[mlh 93]

We got married in 2014 and while my husband didn't move until July 2015, we filed for the foreign income exclusion for both 2014 and 2015 when we filed Married Filing Jointly.  You just need to type and sign a letter stating that he wants to be considered a resident for the full year.  You won't be able to file your taxes online because of the letter being included, but it can be done.   Here is the template that we used.

 

 

1.     We declare that one spouse was a non-resident alien, and the other spouse a U.S. citizen, or lawful permanent resident (green card holder) on the last day of the tax year 2014, and we choose to be treated as U.S. residents for the entire year; and

 

2.     Our names, addresses, and social security/ taxpayer identification numbers are as follows:

Name: Jane Doe

SS/TIN#: xxxxx



Name: John Doe


SS/TIN#: xxxxx



Address:

 

100 Pine St

Somewhere, ST  11111


Signatures:

X __________________________________ Date: ________________________


X _________________________________ Date: ________________________ 

[prenouveau 46]

Thanks to both of you. We are choosing to consider him a resident for the entire tax year, and my accountant isn't arguing with that. However, he is saying that because we are making that choice, we don't qualify to exclude my husband's foreign income with a 2555EZ. He's saying that since my husband is considered a resident for 2016, we have to pay US taxes on income he earned in the UK 2016, before he moved to the US. Hope that makes sense.

[Suss&Camm 2,213]

1 minute ago, prenouveau said:

Thanks to both of you. We are choosing to consider him a resident for the entire tax year, and my accountant isn't arguing with that. However, he is saying that because we are making that choice, we don't qualify to exclude my husband's foreign income with a 2555EZ. He's saying that since my husband is considered a resident for 2016, we have to pay US taxes on income he earned in the UK 2016, before he moved to the US. Hope that makes sense.

No, you have to report it - then you exclude it as foreign income using 2555EZ, which he is entitled to use as a US tax person. It is precisely this that the election allows you to do.

Edited April 6, 2017 by Suss&Camm

[Suss&Camm 2,213]

The qualifying days (12 months) don't all have to be in the year 2016, they just have to end in 2016. So to qualify using physical presence test you use the 12 month period from the day he arrived and counting back 12 months.

 

The qualifying days do just this, qualify you. Then the number of days out of these that were in 2016 are divided by 366 and multiplied by $101,300 to get the amount he is qualified to exclude. Which ever amount is less out of the amount he made and the amount he is qualified to exclude will be the excluded income on LIne 18 of the form.

[Suss&Camm 2,213]

Also - Don't forget the 8965-health care overage exemption form, so that you will not be fined for the months he was still in his country (Fill out Part III and use exemption C, include the month in which he arrived).

[prenouveau 46]

Ok. So the accountant is saying that he interprets it as, the resident alien must be in a foreign country for 330 days *while* he is a resident alien, to qualify for the exemption. Meaning my husband, being considered a resident alien for all of 2016, would not pass the 330-day test, since he was only out of the country for 6 months in 2016. I disagree with this interpretation. But I'm unable to find any statement in IRS documentation that addresses this specifically.

[Suss&Camm 2,213]

4 minutes ago, prenouveau said:

Ok. So the accountant is saying that he interprets it as, the resident alien must be in a foreign country for 330 days *while* he is a resident alien, to qualify for the exemption. Meaning my husband, being considered a resident alien for all of 2016, would not pass the 330-day test, since he was only out of the country for 6 months in 2016. I disagree with this interpretation. But I'm unable to find any statement in IRS documentation that addresses this specifically.

This is wrong. He is not claiming anything from the year 2015, the taxes are for 2016 - the only requirement for physical presence is physical presence. The requirement for being a LPR is only in regards to the current tax year he is claiming for.

[Suss&Camm 2,213]

Had it been a situation of dual-status in the same tax year then your accountant is correct.

[Suss&Camm 2,213]

If it helps - there is a chart at the top of page 13 that helps you determine this eligibility: https://www.irs.gov/pub/irs-pdf/p54.pdf

 

Also read "Physical Presence test" on Page 15

 

"Physical Presence Test
You meet the physical presence test if you are
physically present in a foreign country or countries
330 full days during a period of 12 consecutive
months. The 330 days don’t have to be
consecutive. Any U.S. citizen or resident alien
can use the physical presence test to qualify for
the exclusions and the deduction.
The physical presence test is based only on
how long you stay in a foreign country or countries.
This test doesn’t depend on the kind of
residence you establish, your intentions about
returning, or the nature and purpose of your
stay abroad."

Edited April 6, 2017 by Suss&Camm

[mlh 93]

Maybe find a new accountant...

[prenouveau 46]

 Thanks guys!

[wm2731 1]

Fire your accountant!