Another Foreign Income

[S T]

How do we report for a US citizen that is residing in Argentina and operating an internet business, all receipts are received through paypal into US bank account? She operates worldwide. She has not filed US taxes in YEARS!!! Now wants to file on self employment to increase her Social Security Benefit.

Spouse who is operating the business is US Citizen, has a son as a dependent that is a US born citizen, husband is non US citizen, resident of Argentina who has Argentina earnings, however has a US social security number assigned back in 1980's for work only. Husband works in Argentina and pays Argentina taxes.

I believe where I am confused is the husband who is not a US Citizen, but has a Social Security Number.

Do we file the spouse (US Citzen) who has the business as MFS and claim the son as dependent, obviously don't want to exclude the foreign income as she wants the Social Security Credits and disregard the husband (non US Citizen) even though he has a social security number. He does not appear to be claiming dual citizenship?

Any assistance?

Sandy

[erchess]

My Ignorance May Be Showing

At one time it was not necessary to be a US Citizen or even to enter the US to obtain a Social Security Number. This was, however, before ITINs were created. I helped a Mexican Citizen who had what appeared to be a valid green card understand and convey to his wife in Mexico the procedure for going to the nearest US Embassy or Consulate and getting Social Security Cards which eventually ended up in my hands. They then filed MFJ with the children as their dependents. Because the children were in Mexico there was no EIC even then.

If you have to be a Citizen or Resident to get a SSN that is news to me. I did know that you weren't supposed to be able to get one if you are in the US illegally, hence the existence of the ITIN so that such people can file their taxes.

In any event if this guy has a valid SSN (and I understand there is a way you can find out but I have no idea what it is) then why not file them exactly the way you would if they were both Americans residing in Argentina?

[Burke]

In any event if this guy has a valid SSN (and I understand there is a way you can find out but I have no idea what it is) then why not file them exactly the way you would if they were both Americans residing in Argentina?

I'm guessing it is because she does not want to include his Argentina income. Have run into this before. US citizen lives abroad and does not file taxes in US for years. All of a sudden they get close to 65, and want SS benefits.

[S T]

Argentina Income

Burke, you have it right. She wants to earn her Social Security Credits, does not want to include her husband's Argentina income as they are being taxed 40% there.

I am scratching my head, can anyone help on this one?

Thanks,

Sandy

[David1980]

40%? If you were to include his income and do an 1116, would there be any tax left on the US return (other than SE tax)?

[MRTAX4EA]

A Couple Of Further Thoughts

You could use the foreign spouse as a dependent with ITIN (if he qualifies). Otherwise MFS with foreign exclusion on income (which would still be subject to SE).

What about taxes for prior years? It is likely that just SE taxes are due. They do add up, however.

I thought PayPal and eBay were moving toward issuing 1099's. Perhaps just US entities.

[S T]

Maybe

MRTAXEA,

Thanks for your thoughts, but I don't see how I can use the husband as a dependent, he does have a social security # that was issued back in 1982. So it would seem only MFS

I am still confused, but appreciate the replies.

Wonder if Burton Koss is around to lend some further insight?

Thanks,

Sandy

[Koss]

Husband's status?

Is the husband a resident alien?

Probably not, but you need to find out.

I agree that the husband cannot be a "dependent with ITIN." He can't get an ITIN if he already has an SSN.

It is also correct that it is possible to get an SSN even if you are not a US citizen or a resident alien. It isn't easy, but it is possible. It was easier in the past.

One example is aliens who enter the US lawfully with a business visa or a student visa that allows them to work in this country. They are NOT resident aliens, and they do not get a "green card." They are not on the immigration track. Unlike resident aliens, they are not eligible to become US citizens after a certain period of time. But they are permitted to work here, usually for the duration of their visa. Therefore, they are eligible to get an SSN.

Assuming for the moment that her husband is NOT a resident alien, and that his income in Argentina has no connection to the US... then her husband is not required to file a US tax return.

She is required to file, and I agree with MRTAX4EA that this could be an issue for prior years.

To avoid US taxation of the husband's income, MFS may be the best route.

But there may be other options as well. The idea of reporting the husband's foreign income and then claiming the foreign tax credit on Form 1116 may work.

Finally... even if he is not a resident alien, he is still nonresident alien married to a US citizen. So if they file a joint return, they can elect to have him treated as a resident alien for tax purposes for the whole year. But you have to be careful about the rules for that election...

He might be able to claim the foreign earned income exclusion even if she doesn't...

BMK

[S T]

Husband

Thanks Burton,

Finally, the client confirmed, she is US Citizen, son is US Citizen, and Husband is Non resident Alien and his Argentina income has no connection to US.

Filing would be 1040, Wife MFS claiming Son as dependent, reporting Sched C income, which then could be excluded with form 2555, but will still be subject to SE tax.

Does this sound right?

Thanks everyone for your assist on this one.

Sandy

[Lion]

Filed in the past?

If the husband filed MFJ with the wife at any time in the past and elected to be treated as a resident alien filing a 1040 while not a resident, then his election is irrevocable.

[S T]

Just In

Thanks Lion,
I asked the questions, but am not sure the client understood, so I will ask again,
The clients husband NRA, has not filed with her, and she has not filed, so hopefully what you point out is not an issue.

Do you think my outline in the prior post to yours would be correct given the proper facts? I still have a concern over claiming the son, but the client assures me, he is US citizen and she makes more on this Schedule C business, than the husband/father makes in Argentina.

Thanks for your assist,

Sandy

[Lion]

How much does child make?

It doesn't matter how much the husband and wife make or which spouse earns more, in claiming a child, only if the child did not pay more than half his own support. I have no trouble with her claiming her son as a dependent in her circumstances.

I agree with most of your outline about her filing MFS, etc. However, I wonder about excluding her income via PayPal into a US bank account. It's not as cut and dried as performing services for clients in Argentina while living in Argentina. Have you researched whether the US considers her income Argentinian sourced or US sourced? Is she paying taxes as a resident of Argentina?

[S T]

Income

All of the income is from Asia, Europe, Russai, Australia, Brazil and Saudi Arabia, which is paid through PayPal into a US Bank Acct. T/p earns the money in Argentina where she lives.

She tells me she is not paying taxes to Argentina.

Sandy

[Lion]

No taxes?

If she's labeling her income as Argentinian-sourced, they why is she not paying taxes to Argentina? Is she telling Argentina that her income is US-sourced? Of course, don't mind me since I know nothing about taxes in Argentina and not very much about US citizens working outside the country!

[S T]

Lion

That makes two of us!

Sandy