Taxes

[bcagney 0]

First of all, thanks to everyone for the responses to my tax extension question. My wife is due to receive her SSN in a few days, so it looks like we will be able to meet the April 15th filing deadline anyway. So, here's the next one...

A little background info: She is from Australia and their tax year ran from July 1, 2008 to June 30, 2009. She worked that period up until April 2009, arriving here in the U.S. in May 2009.

My first question is regarding whether she should be considered a resident alien or nonresident alien. According to Pub. 519, you are considered a resident alien if you meet either the Greed Card or Substantial Presence test...she's been here over 183 days in 2009, so she meets the presence test, and the way I understand it she would automatically be considered a resident alien. However, I called the IRS help line and was told that she is a Dual-Status Alien and that we would have to make the First-year choice to be a resident, which requires a statement attached to our return. It doesn't make sense to me to have to declare it if she already meets the Substantial Presence test. Am I missing something?

Second question...assuming she is a resident alien I am required to report her foreign income. Since the U.S. tax year runs on the calender year, I would think that I would only have to include her income from January 2009 until she stopped working and came here (she had no U.S. income for 2009). Are we allowed to claim the Foreign Earned Income Exclusion? From reading past posts here on the forums I would say so, but once again, the lady on the IRS help line confused me...she said that since she would be considered a U.S. resident alien, we could not claim the exclusion because her Tax Home was here in the U.S. for 2009. I disagree...she only worked in Australia for 2009 and was taxed on that income already. Please help!

Thanks!

[Nich-Nick 3,353]

You can call the IRS three times and get three different answers.

It was the 2008 tax year that I super-studied the tax info and read the Publications a bazillion times, so I'm possible fuzzy on some of the details. I know the rules are different for a dual status year which is normally the first year. You don't have to report the income while a non-resident alien, but you also can't file jointly if you're doing the dual status thing. I remember that the dual status thing didn't work out best for us because the advantages of joint filing out did every other way.

So in order to not be dual status, you both can submit the statement electing for her to be treated as a resident alien for the entire tax year. (That's the key...the entire tax year.) Then you throw out all the dual status rules and just file like a normal married filing jointly couple.

Her income is what she earned Jan 1 to Dec 31 from any source. It has nothing to do with her foreign tax year. Give it the best estimate you can and pick a good exchange rate, ideally what was in effect when she earned the money. There are websites that show historical exchange rates, or averages by month. Make some notes to file away how you came up with the amounts (income and exchange rates) in case you needed to explain it to the IRS in the future. (You don't send any documents to the IRS that show her income.) Frankly they won't look at it twice...they aren't as strict as people fear. But have your notes filed away in case you should be audited.

And the tax home thing. Again, I'm fuzzy since it was a year ago. She was a national of that country and held a passport for that country. And you establish how long her tax home was abroad. Well if she was born there, then the date part you fill in is [birth date] to [date entered US]. It's explained in Instructions for 2555EZ if you want to study it. I really, really studied it for my husband's first year and I'm sure your spouse qualifies, but read up on it if you don't want to trust a stranger on a forum. As a side note, this stuff is also written for Americans who work abroad. All the rules and length of stay are more geared toward making sure the American doesn't double dip tax advantages by claiming to have a tax home abroad if they really don't. Your wife did truly have her tax home abroad.

You might want to review Publication 519. The dual status stuff starts on page 33.

[bcagney 0]

I asked this same question on the forums at www.visataxes.com. They seem to think that we don't qualify for the Foreign Earned Income Exclusion, and would have to take the Foreign Tax Credit instead. Based on what I've read here on visajourney, it seems as though everyone claims the exclusion. Not sure what we're going to do yet, but I'm leaning towards the exclusion since everyone on here goes that route. If anyone is interested, here is the link to the thread:

http://forum.visataxes.com/glossary-non-resident-taxation-substantial-presence-test-dual-status-alien-etc-explained/3547-resident-nonresident-foreign-earned-income-exclusion.html

Would love to hear your thoughts.

Thanks

[Nich-Nick 3,353]

I read the other forum. I certainly am not a tax expert as they claim to be. But in my mind, she is only claiming exclusion for the portion of the year she lived in Australia and that was her primary place of bonafide residence and business. Jan-April 2009. She is not excluding any foreign income for May-Dec when she was not living in Australia.

The way the exclusion works, if you've filled it in, is it asks how many days she qualifies (as foreign) and hers is around 120 days. You do some math 120/365 to come up with a percentage of the total exclusion for which she qualifies.

The maximum is $91,400 for 2009, so she can exclude around 33% of that total because of only qualifying for 120 days of living/working abroad.

Her income probably doesn't exceed that, but let's say she's filthy rich and earned $200,000 in salary in Australia. She can't exclude the maximum $91,400 allowed. She is still limited to a third of $91,000 because her qualifying period is Jan-April only.

So to the other forum that keeps talking about the beginning and end period, I say you're not using an end period of December for your exclusion.

I did my 2008 taxes the way I've explained with a Jan-Aug UK residency/foreign income exclusion for my husband. A year has passed and the IRS hasn't called me yet to say it's wrong.

[bcagney 0]

I agree, what they're saying on the other forum is not making sense. It seems like they are saying that the qualifying exclusion period goes back to 2008, but really we would only be excluding income from 2009. The only reason we would even be looking at 2008 would be to meet either the Bonafide Residence Test or the Physical Presence Test, correct? It seems like they are mixing up the "test periods" with the exclusion period...is that how you interpreted it as well?

I've filled in the 2555-EZ and want to make sure I'm doing it right. What test should I say she meets, because I think she would meet both. Would the bonafide residence period be from her birthdate up to the day she left Australia? The physical presence test seems like it would be more for U.S. citizens, but she would meet those requirements too. The only reason I'm considering the physical presence test is because one of the posters on the other forum said she wouldn't meet the bonafide residence test.

One more...line 11a asks for tax home and dates established. Is this the exclusion period or something else? Jan 2009 to April 2009? And what do we put in for "Date left U.S."? She's still here so would something like N/A or Continues be OK?

Once again, thanks for your help with this.

[one_day_at_a_time 0]

I agree, what they're saying on the other forum is not making sense. It seems like they are saying that the qualifying exclusion period goes back to 2008, but really we would only be excluding income from 2009. The only reason we would even be looking at 2008 would be to meet either the Bonafide Residence Test or the Physical Presence Test, correct? It seems like they are mixing up the "test periods" with the exclusion period...is that how you interpreted it as well?

I've filled in the 2555-EZ and want to make sure I'm doing it right. What test should I say she meets, because I think she would meet both. Would the bonafide residence period be from her birthdate up to the day she left Australia? The physical presence test seems like it would be more for U.S. citizens, but she would meet those requirements too. The only reason I'm considering the physical presence test is because one of the posters on the other forum said she wouldn't meet the bonafide residence test.

One more...line 11a asks for tax home and dates established. Is this the exclusion period or something else? Jan 2009 to April 2009? And what do we put in for "Date left U.S."? She's still here so would something like N/A or Continues be OK?

Once again, thanks for your help with this.

Speaking personally, this is what I answered (to the questions you bring up) when I came to the US in 2007:

1. Bonafide residence Test

b. Enter the date your bona fide residence began (my date of birth) , and ended (my last day in my

home country).

11a List your tax home(s) during 2009 and date(s) established. (Ontario, Canada, 01/01/2007) - - in your case the year would be 2009

And to your question, "And what do we put in for "Date left U.S."?", if you are referring to Part III of 2555-EZ, that section should be filled out if she spent any time in the U.S. during the period between Jan 1st and the date she moved to the U.S. That's how I understood it to mean and so I filled this in reflecting the dates I visited my fiance between the start of the year and the date I actually moved to the U.S.

Of course, I verified my answers with the IRS before sending it in; and, to date, I have not heard from them of any issues.

[Nich-Nick 3,353]

Here's what's on our 2008 Form 2555EZ.

Part I

1. Bona Fide Residence

a. yes

b. date of birth to date flew to US on K1 visa.

2. Physical Presence--left all of that blank

3. Tax Home---checked Yes

Part II

9.a. checked

10.b. checked

11.a. Listed the address of his employment and the date he started work there. It's the same address as in 8 above.

11.b. United Kingdom

Part III

Listed dates of visits to the US and put 0 in columns c and d. There were two visits.

Third line is 9-30-2008 (POE day). Date left is - (a dash). And 0 in columns c and d again.

Part IV - Do the math part.