exemption

[Questionguy101]

Taxpayer has a sister with three children moved to the US to stay with him and became US residents in October 2008. He fully supported all of them when they were in the US. And he also sent money to support them when they were in oversea before October 2008. If he has provided support to them for more than half of their total living expenses in 2008, can he claim all of them as his dependents?

[erchess]

Qualifying Relatives

I think he can claim their exemptions as Qualifying Relatives but he can't get Child Care Credit or EIC on the kids or base a claim for Head of Household Filing Status on any of them. This of course assumes that none of them had gross income for the year of $3500 or more.

[Questionguy101]

I think he can claim their exemptions as Qualifying Relatives but he can't get Child Care Credit or EIC on the kids or base a claim for Head of Household Filing Status on any of them. This of course assumes that none of them had gross income for the year of $3500 or more.

As for the $3,500 limit, I will have to ask him if his sister worked oversea before she came over. Let's assume that she did work, does her income earned oversea before she came to the US count towards the limit?

[erchess]

Yes

From TTB 1040 Edition

Gross income. For purposes of the dependency rules, gross income
is all taxable income before adjustments and deductions
including:
• Schedule C income less cost of goods sold. Other Schedule C
deductions do not reduce gross income.
• Gross receipts from rental property. Do not deduct taxes, repairs,
etc.
• Partner’s share of the gross, not the net, partnership income.
Gross income does not include:
• Nontaxable Social Security.
• Income received by a permanently and totally disabled individual
for services performed at a sheltered workshop. Income
must come solely from activities at the workshop that are incident
to medical care. Sheltered workshops are schools operated
by tax-exempt organizations that provide training designed to
alleviate disabilities.

Now back to me - the above does not specifically include foreign income but the general rule is that all overseas income is taxable to a recipient who has to file a US return. Therefore I would count all her overseas income including any that might seem to be analogous to US nontaxable income such as from Welfare Benefits or Municipal Bonds.

[Questionguy101]

Now back to me - the above does not specifically include foreign income but the general rule is that all overseas income is taxable to a recipient who has to file a US return.

I agree foreign income of a US resident/citizen is taxable. But what about the foreign income of a foreign national? I think the sister was a foreign national when she earned the oversea income before October 2008.

[erchess]

My opinion

is that the date she became a US resident is irrelevant. If she became a US Resident on 12/31/08 at 11:59 pm local time she can possibly be counted as a dependent for 08 but you have to factor in her total income for the year and not only what she received after becoming a US resident.