Taxes/First year choice etc

[MikeandRong]

To file married filing jointly, you need to be married by Dec 31st. The rest is all stuff that you don't need to worry about, unless you would like to make a donation to the IRS in Christine's and your own name.

 

She does not even have to have been in the country at all this year.

 

 

i second that, that's what i heard.

That's one way, IRS Publication 519, Tax Guide for Aliens presents the law on filing.

 

Married filing jointly is proper if you were married before the end of the year, but being able to claim a full year residency when you do not meet the rules for alien residency would not stand up under a simple audit review by the IRS.

 

So I ask again, is it worth the risk of having your LPR spouse being charged with Tax Fraud just to avoid writing a simple letter? Remember you are having them sign the return as well.

 

While I doubt the IRS would do more than fines and penalties, they have the option to take it further and any criminal charges can have a dramatic affect on Immigrants by the USCIS.

 

Yes, and ignorance of the law is not a valid excuse if it were to come up later either.

 

See you tonight Lee.

[Randy W]

Why would she need to claim residency? I do not see the connection between this document and a return where the spouse did not have any income.

 

Lee, implying immigration difficulties is under-handed and uncalled for. I may need to use your button here.

[LeeFisher3]

Why would she need to claim residency? I do not see the connection between this document and a return where the spouse did not have any income.

 

Lee, implying immigration difficulties is under-handed and uncalled for. I may need to use your button here.

The tax laws address the laws concerning aliens in the US are available for free in IRS Publication 519 which helps aliens understand their filing requirements and specifically covers partial year residency along with the options available to an alien who is married to an LPR or US Citizen.

 

Residency and income have no relationship concerning the first year declaration. The relationship that exists is residency and filing status. The first year declaration addresses this issue.

 

I am sure that many tax preparers and accountants have incorrectly advised filing a tax return by applying the rules for US citizens to Aliens.

 

IRS Publication 519 does not address all the rules for married filing jointly, but it does address exclusions for Aliens desiring to file this way. Married filing jointly allows you and your spouse to combine income which can have significant benefits if the incomes are extremely different, especially if one has no income to claim.

 

I have only provided direction in where to look in IRS Publication 519 that spells out the rules we are discussing. It is obvious you have not taken the time to read it before declaring the information as invalid and incorrect, and as has been stated "ignorance of the law is no excuse." Immigration judges are more than happy to inform people of this every day.

 

Most of us have seen the stories about the USCIS being extremely unfair in their deportation orders of people based on an explainable conviction that few reasonable persons would believe were justified.

 

Do you think that any of the people caught up in the USCIS heavy handed enforcement of the law ever expected a simple court case would have caused them to be deported years later?

 

Plain and simple the USCIS doesn't care, it's a self-serving organization and will act erratically in enforcement of the immigration laws.

 

You wouldn't advise someone to lie on their immigration forms so why do you argue with direction on where to find the rules concerning filing taxes when it's blatantly obvious you haven't bothered to check the facts for yourself. The information has been filtered so you don't need to read the 72 page publication? So take the hour or so that is required to inform yourself on the rules for Aliens filing taxes Tax Return and filing a joint return, Procedures for making a first year choice so that you are able to argue the issue knowledgeably.

[Randy W]

Why would she need to claim residency? I do not see the connection between this document and a return where the spouse did not have any income.

 

Lee, implying immigration difficulties is under-handed and uncalled for. I may need to use your button here.

The tax laws address the laws concerning aliens in the US are available for free in IRS Publication 519 which helps aliens understand their filing requirements and specifically covers partial year residency along with the options available to an alien who is married to an LPR or US Citizen.

 

Residency and income have no relationship concerning the first year declaration. The relationship that exists is residency and filing status. The first year declaration addresses this issue.

 

I am sure that many tax preparers and accountants have incorrectly advised filing a tax return by applying the rules for US citizens to Aliens.

 

IRS Publication 519 does not address all the rules for married filing jointly, but it does address exclusions for Aliens desiring to file this way. Married filing jointly allows you and your spouse to combine income which can have significant benefits if the incomes are extremely different, especially if one has no income to claim.

 

I have only provided direction in where to look in IRS Publication 519 that spells out the rules we are discussing. It is obvious you have not taken the time to read it before declaring the information as invalid and incorrect, and as has been stated "ignorance of the law is no excuse." Immigration judges are more than happy to inform people of this every day.

 

Most of us have seen the stories about the USCIS being extremely unfair in their deportation orders of people based on an explainable conviction that few reasonable persons would believe were justified.

 

Do you think that any of the people caught up in the USCIS heavy handed enforcement of the law ever expected a simple court case would have caused them to be deported years later?

 

Plain and simple the USCIS doesn't care, it's a self-serving organization and will act erratically in enforcement of the immigration laws.

 

You wouldn't advise someone to lie on their immigration forms so why do you argue with direction on where to find the rules concerning filing taxes when it's blatantly obvious you haven't bothered to check the facts for yourself. The information has been filtered so you don't need to read the 72 page publication? So take the hour or so that is required to inform yourself on the rules for Aliens filing taxes Tax Return and filing a joint return, Procedures for making a first year choice so that you are able to argue the issue knowledgeably.

 

 

It's taking more than an hour there, Lee. What I did find is this little paragraph in the Instructions for Form 1040 that connects your filing status to the Pub. 519:

Nonresident aliens and dual-status aliens.

a husband and wife cannot file a

joint return if either spouse is a nonresident

alien at any time during the year. However,

if you were a nonresident alien or a

dual-status alien and were married to a U.S.

citizen or resident alien at the end of 2007,

you may elect to be treated as a resident

alien and file a joint return. See Pub. 519

for details.

Your spouse needs to be a resident alien in order to file jointly and use her for the deduction, but Pub. 519 provides several ways you can declare her as a resident alien.

 

You can file an amended return up to 3 years later to attach the letter, so there's no reason to delay filing in order to accommodate the letter.

 

I'm still going through that publication, and will report on that later.

 

But no, I'm not afraid of either the IRS or the USCIS. Sorry.

[Randy W]

It seems like this is the situation which applies to K-1's the most:

 

http://i3.tinypic.com/7wyqwk2.jpg

 

Doesn't require anything more than that you be married, and she be present at the end of the year, if I'm reading that correctly.

 

I couldn't copy the text - the image is slightly blurred (sorry 'bout that) - and yes, it does say "Resident Allen"

Edited December 21, 2007 by Randy W (see edit history)

[Randy W]

It looks like there's a similar situation a few pages later that would apply to a resident taxpayer, with a non-resident spouse that would allow them to file jointly, even if the spouse had never set foot in the US.

 

http://i16.tinypic.com/855c100.jpg

[LeeFisher3]

Now it's time to backup to Chapter 1 to find the definition of a Dual-Status Alien, where they require the substainial presence test.

[Randy W]

If this is your first or last year of residency, you may have a dual status for the year. See Dual-Status Aliens in chapter 1.

You can be both a nonresident alien and a resident alien during the same tax year. This usually occurs in the year you arrive in or the year you depart from the US.

 

This seems to apply no matter how many days (1 or more) you are present.

 

The substantial presence, and first year choice are available to those who meet those conditions. The "Choosing Resident Allen (sic) status" is available to those who are married to a USC or LPR and are physically present in the US on the last day of the year.

 

This last option allows you to "choose" to be treated as a US citizen for the entire year.

 

That's the way I read it.

[Randy W]

Here's a flow chart which illustrates what I'm seeing

 

Are you a

U.S. Citizen? NO

 

Have you been a lawful

permanent resident (green

card holder) of the U.S.

in at least 8 of the last 15

taxable years? NO

 

Were you a U.S. resident during

any period which includes 3

consecutive calendar years? NO

 

Were you a lawful

permanent resident

of the United States

(had a ¡°green card¡±)

at any time during

the calendar year? NO

 

Were you physically present

in the U.S. on at least 31

days during the calendar year? NO

 

At the close of the taxable

year are you married to a

citizen or resident of the U.S.? YES

 

Have you and your spouse

elected on a jointly filed tax

return to treat you as being

resident for the entire year? YES

 

You are a

resident alien

for the entire

calendar year.

 

Only one day of residence (and a marriage) required.

[IllinoisDave]

First, thanks to both Lee and Randy for your help with this. I'm sorry for the friction it's caused. This is a very difficult thing to get a grasp on which is why I asked about it and both of you have been very helpful. I've done some reading now myself thanks to the link Lee provided.

 

And thanks to that as well as Randy pointing out the flow chart, I may have figured out what the answer may be for people in our position, which is a foreign fiance coming here, getting married before the end of the year but not being here for six months to meet the substantial residence test. This is what I think I've figured out. Let me know if I've gone wrong somewhere. I think this situation applies to quite of few couples here so it may be important to make sure it's right.

 

First, we have to determine resident alien or nonresident alien for tax purposes. Since we don't meet either the green card test or substantial residence test, we are nonresident alien. (see pg. 4) That seems easy enough. The flow chart seems to bear this out. (see pg. 5)As I read it, Dual Status does not apply because it says you're dual status if you were a nonresident alien at some point during the year and resident alien at the end, which I take it to mean you got your green card at some time during that year. (see pg. 8)

 

Having determined that we're nonresident alien, we skip down to page 10 under the heading: "Nonresident Spouse Treated As Resident". Here it says: "If, at the end of your tax year, you are married and one spouse is a US citizen, or a resident alien and the other spouse is a nonresident alien (this is us), you an choose to treat the nonresident spouse as a US resident. (skip non-relavent info) If you make this choice,you and your spouse are treated for income tax purposes as residents for the entire tax year. (skip)You are both taxed on world-wide income. 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."

 

Having determined this, we skip down to where it says "How to make the choice." It says: "Attach a statement, yada yada,with the following information. 1-A declaration that one spouse was a nonresident alien and one a resident alien or US citizen on the last day of your tax year, and that you choose to be treated as residents for the entire tax year. (again, this is us) 2-The name,address yada yada."

 

Then it says you generally make this choice when you file your joint return but you can also amend etc.

 

So now we've determined that we are nonresident but can file as "nonresident spouse treated as resident" for the entire year. And that we need to attach the statement with the two bits of info. Simple enough.

 

Now the next question I had is about her income. Since we're not claiming any income for her, it's kind of a moot point. But I was curious as to what the rules were anyway and as I read through them, it seems kind of confusing and maybe further discussion here would help others who do claim some income.

 

On page 11, it lays out what income is taxable for resident and nonresident aliens. Basically, it says that resident aliens are taxed in the same manner as a US citizens, including any wages,interest tips etc earned within or outside the US. And for nonresidents, you're only taxed on income earned in the US.

 

My question is, in our case or someone similar to us, which are we considered to be? We determined earlier that for tax purposes we are nonresident alien. So it would seem that those rules would apply and thus any income earned in China would not be taxable here. But, since we're choosing to be considered as "Resident Alien" for the tax year, do the rules taxing ALL income apply? I scanned through the rest of the document but it never really seems to spell out which category we would be considered in as a nonresident filing to be considered a resident for tax purposes. Seems to me to be a kind of Catch 22. Maybe someone else has experience with this and can give a definitive answer?

 

So to sum up. As I understand what I've read, it seems both Randy and Lee are right in a way. We can file jointly with Christine considered as a resident for the entire year without having to wait to meet the substantial residence requirement, but we do need to attach the declaration letter.

 

The only thing left up in the air seems to be for those who are reporting income for their wife earned in China and whether or not they would be considered resident or nonresident.

 

Please feel free to let me know if I've mis-interpreted anything, or am just flat wrong. It wouldn't be the first time for either.

 

And thanks again to everyone who offered help.

[MikeandRong]

You 3 guys are really going overboard on the hours/research provided in this, Thank You big time!

 

I know for us there was no imcome received in China.

 

As far as proof there was zero, it is just our word. In the event of an IRS audit down the road, our only proof would be on the different forms we filled out over the years that showed current job for her. All were housewife/homemaker, so with that information being supplied to our goverment consistently, and them approving it consistently, that is what I would use as proof (as I doubt they could/would have the authority/ability to audit the China goverment tax system as a way to see if we were lieing).

 

Ideas??

[LeeFisher3]

Have you and your spouse

elected on a jointly filed tax

return to treat you as being

resident for the entire year? YES

 

You are a

resident alien

for the entire

calendar year.

 

Only one day of residence (and a marriage) required.

I stand corrected concerning the substantial presence test, which means there is no need to delay filing for those who don't meet that requirement. In that case the information I originally applied to CR-1 and K-3 also applies to K-1.

 

However, you still must submit a letter stating you are making the choice to have the non-resident spouse treated as a US Resident for the entire year. See "How to Make the Choice" at the bottom of page 10 in the 2006 Publication 519.

 

How To Make the Choice

Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following information.

• A declaration that one spouse was a nonresident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year, and that you choose to be treated as U.S. residents for the entire tax year.

• The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)

 

 

Now take the situation where a spouse arrived in June and at the end of the year does not have a green card. They fall into Dual Status and meet the substantial presence test so they too must submit a letter but of a different format.

 

The bottom line is that unless the spouse has a green card by 12/31 a letter must be sent declaring the choice to be treated as a US resident for the entire year and you must file jointly for that year. The content of the letter will vary based on the substantial presence test.

 

I recall reading that if the letter is not perfect and you missed a point or two it does not nullify the letter and you can't be penalized for not getting it right as long as you made the attempt to do it and didn't lie.

[IllinoisDave]

Have you and your spouse

elected on a jointly filed tax

return to treat you as being

resident for the entire year? YES

 

You are a

resident alien

for the entire

calendar year.

 

Only one day of residence (and a marriage) required.

I stand corrected concerning the substantial presence test, which means there is no need to delay filing for those who don't meet that requirement. In that case the information I originally applied to CR-1 and K-3 also applies to K-1.

 

However, you still must submit a letter stating you are making the choice to have the non-resident spouse treated as a US Resident for the entire year. See "How to Make the Choice" at the bottom of page 10 in the 2006 Publication 519.

 

How To Make the Choice

Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following information.

• A declaration that one spouse was a nonresident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year, and that you choose to be treated as U.S. residents for the entire tax year.

• The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)

 

 

Now take the situation where a spouse arrived in June and at the end of the year does not have a green card. They fall into Dual Status and meet the substantial presence test so they too must submit a letter but of a different format.

 

The bottom line is that unless the spouse has a green card by 12/31 a letter must be sent declaring the choice to be treated as a US resident for the entire year and you must file jointly for that year. The content of the letter will vary based on the substantial presence test.

 

I recall reading that if the letter is not perfect and you missed a point or two it does not nullify the letter and you can't be penalized for not getting it right as long as you made the attempt to do it and didn't lie.

 

I guess I'm not the only one who can't sleep.

 

I guess I was wrong about the dual-status/substantial presence part. I took it to mean that you were only dual-status if you obtained the green card during that calender year,thus changing from non-resident to resident.

 

Any thoughts on the income part?

[LeeFisher3]

I believe this clarifies the difference in filing taxes and making the first year choice. The definition of resident between the USCIS and IRS is a joyful read.

 

I have updated the prior post as follows:

Tax Return and filing a joint return, Procedures for making a first year choice

It's tax time again and as usual the IRS has not updated Publication 519 Tax Guide for Aliens, but there appear to be no changes since the 2005 publication. This information can be located on page 9 and 10 of Pub 519, before you file please verify this with the 2006 version of Publication 519(when released) just in case they modify one of the requirements. Many accountants and tax preparers are not familiar with this option, be sure to make them aware of this information.

DISCLAIMER: It is your responsibility to verify this information or point this out to your tax preparer. This is only a suggestion based on the tax code.

 

This applies to almost everyone who was married in 2006 regardless of visa category and can give you a significant difference in your tax return(refund).

 

If you file making the first year choice you surrender all options to handle your spouse's foreign income in any other manner because you will be claiming to have their worldwide income treated as US income and you MUST file a joint return.

Now if your spouse was not working in China, say only studying English in preparation to come to the US she would obviously not have any income to declare. You could also carefully explain to your spouse about taxes and taxable income and have them tell you how much money they made in China, as they don't issue W-2's there.

 

It is important to remember that if you make the first year choice you will NOT be able to e-file. This is a small price to pay for the tax benefit.

 

In all cases, if your spouse does not have a SSN you will need to complete the paperwork for an ITIN using form W7 and this will need to be submitted along with your tax return.

 

For K-1

Dual Status Alien

This applies if your spouse arrived early in the year and by the time you file has been in the US for 183 days. They are a Dual Status Alien for tax purposes.

This requires that they be present in the United States for at least 31 days in a row in 2006 and that you meet the Substantial Presence Test for 2007. For someone arriving on December 1, 2006 this would be met on or about May 1, 2007.

Dual-Status Aliens - First-Year Choice

Statement required to make the first-year choice. You must attach a statement to Form 1040 to make the first-year choice. The statement must contain your name and address and specify the following.

 

• That you are making the first-year choice.

• That you were not a resident in 2005.

• That you are a resident under the substantial presence test in 2007.

• The number of days of presence in the United States during 2007.

• The date or dates of your 31-day period of presence and the period of continuous presence in the United States during 2006.

• The date or dates of absence from the United States during 2006 that you are treating as days of presence.

 

You cannot file Form 1040 or the statement until you meet the substantial presence test for 2006. If you have not met the test for 2007 as of April 16, 2007, you can request an extension of time for filing your 2006 Form 1040 until a reasonable period after you have met that test.

 

If you do not follow the procedures discussed here for making the first-year choice, you will be treated as a nonresident alien for all of 2006. However, this does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing procedures and significant steps to comply with the procedures.

 

For K-3 and CR-1

Spouse does not meet the Substantial Presence Test and you were married by December 31.

Does not require your spouse to be in the US.

Nonresident Spouse Treated as a Resident

If, at the end of your tax year, you are married and one spouse is a U.S. citizen or a resident alien and the other spouse is a nonresident alien, you can choose to treat the nonresident spouse as a U.S. resident.

 

If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire tax year. Neither you nor your spouse can claim under any tax treaty not to be U.S. resident. You are both taxed on worldwide income. 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.

 

Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following information.

• A declaration that one spouse was a nonresident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year, and that you choose to be treated as U.S. residents for the entire tax year.

• The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)

 

Thanks to RandyW for arguing the point, we get to have our cake and eat it too.

[IllinoisDave]

I believe this clarifies the difference in filing taxes and making the first year choice. The definition of resident between the USCIS and IRS is a joyful read.

 

I have updated the prior post as follows:

Tax Return and filing a joint return, Procedures for making a first year choice

It's tax time again and as usual the IRS has not updated Publication 519 Tax Guide for Aliens, but there appear to be no changes since the 2005 publication. This information can be located on page 9 and 10 of Pub 519, before you file please verify this with the 2006 version of Publication 519(when released) just in case they modify one of the requirements. Many accountants and tax preparers are not familiar with this option, be sure to make them aware of this information.

DISCLAIMER: It is your responsibility to verify this information or point this out to your tax preparer. This is only a suggestion based on the tax code.

 

This applies to almost everyone who was married in 2006 regardless of visa category and can give you a significant difference in your tax return(refund).

 

If you file making the first year choice you surrender all options to handle your spouse's foreign income in any other manner because you will be claiming to have their worldwide income treated as US income and you MUST file a joint return.

Now if your spouse was not working in China, say only studying English in preparation to come to the US she would obviously not have any income to declare. You could also carefully explain to your spouse about taxes and taxable income and have them tell you how much money they made in China, as they don't issue W-2's there.

 

It is important to remember that if you make the first year choice you will NOT be able to e-file. This is a small price to pay for the tax benefit.

 

In all cases, if your spouse does not have a SSN you will need to complete the paperwork for an ITIN using form W7 and this will need to be submitted along with your tax return.

 

For K-1

Dual Status Alien

This applies if your spouse arrived early in the year and by the time you file has been in the US for 183 days. They are a Dual Status Alien for tax purposes.

This requires that they be present in the United States for at least 31 days in a row in 2006 and that you meet the Substantial Presence Test for 2007. For someone arriving on December 1, 2006 this would be met on or about May 1, 2007.

Dual-Status Aliens - First-Year Choice

Statement required to make the first-year choice. You must attach a statement to Form 1040 to make the first-year choice. The statement must contain your name and address and specify the following.

 

• That you are making the first-year choice.

• That you were not a resident in 2005.

• That you are a resident under the substantial presence test in 2007.

• The number of days of presence in the United States during 2007.

• The date or dates of your 31-day period of presence and the period of continuous presence in the United States during 2006.

• The date or dates of absence from the United States during 2006 that you are treating as days of presence.

 

You cannot file Form 1040 or the statement until you meet the substantial presence test for 2006. If you have not met the test for 2007 as of April 16, 2007, you can request an extension of time for filing your 2006 Form 1040 until a reasonable period after you have met that test.

 

If you do not follow the procedures discussed here for making the first-year choice, you will be treated as a nonresident alien for all of 2006. However, this does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing procedures and significant steps to comply with the procedures.

 

For K-3 and CR-1

Spouse does not meet the Substantial Presence Test and you were married by December 31.

Does not require your spouse to be in the US.

Nonresident Spouse Treated as a Resident

If, at the end of your tax year, you are married and one spouse is a U.S. citizen or a resident alien and the other spouse is a nonresident alien, you can choose to treat the nonresident spouse as a U.S. resident.

 

If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire tax year. Neither you nor your spouse can claim under any tax treaty not to be U.S. resident. You are both taxed on worldwide income. 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.

 

Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following information.

• A declaration that one spouse was a nonresident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year, and that you choose to be treated as U.S. residents for the entire tax year.

• The name, address, and identification number of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)

 

Thanks to RandyW for arguing the point, we get to have our cake and eat it too.

 

Yep. That clears it up much better than I did obviously.

Thanks Lee. And Randy.