resident alien

[Possi]

Well, I have looked this one up and will continue looking, but one thing is puzzling me, so I'll put it out here....

My client is a resident alien from Australia. We have filed the past couple of years smoothly, gaining tax ID numbers for his wife and children as needed for the tax returns.

In 2007 however, his children and wife went back to Australia while he continues to work here. (Not a separation.. they are happily married and he completely supports his family.)

His wife had no income in 2007.

Now, from the IRS concerning Resident Aliens:

Filing Status

Resident aliens can use the same filing statuses available to U.S. citizens. You can claim the same deductions allowed to U.S. citizens if you are a resident alien for the entire tax year. You should get Form 1040 and its instructions for more information on how to claim your allowable deductions.
Claiming Exemptions

You can claim personal exemptions and exemptions for dependents according to the dependency rules for U.S. citizens. You can claim an exemption for your spouse on a Married Filing Separate return if your spouse had no gross income for U.S. tax purposes and was not the dependent of another taxpayer. You can claim this exemption even if your spouse has not been a resident alien for a full tax year or is an alien who has not come to the United States. You can claim an exemption for each person who qualifies as a dependent according to the rules for U.S. citizens. The dependent must be a citizen or national of the United States or be a resident of the United States, Canada, or Mexico for some part of the calendar year in which your tax year begins. Get Publication 501, Exemptions, Standard Deduction, and Filing Information for more information. Refer also to Aliens--How Many Exemptions Can Be Claimed?

CAUTION: Your spouse and each dependent must have either a Social Security Number or an Individual Tax Identification Number in order to be claimed as an exemption or a dependent..

Back to me...Am I understanding paragraph 2 to say that since Wife had no income, he must file a MFS return and claim her and the sons as dependents? (They lived here part of the year, but are citizens of Australia.)

I will continue reading from the IRS site while I wait for a response....
thanks!

[Koss]

Resident Alien

What was the filing status last year?

In general, a nonresident alien who is married to a resident alien may elect to be treated as a resident alien for the entire tax year. This is a formal election, and there are some special rules that govern it. Gotta look that up, 'cause I don't remember the details.

If this election is available to your client, or if the election was already made in a previous year, then I see no reason why they can't file a joint return. If he is a resident alien and she is treated as a resident alien for tax purposes, then MFJ is permissible.

Whether the children can be claimed as dependents is a separate question. In all likelihood they can. But be careful. Just because both parents are considered resident aliens doesn't mean that the children are. They may be resident aliens for tax purposes based on the substantial presence test, but that depends on what kind of visa the kids have.

This can get really complicated really fast.

If the children don't somehow meet the criteria for resident alien, they may not meet the criteria for dependency. Before you even get to the "four tests," i.e., age, relationship, residency and support, there is a requirement that the person must be a citizen or resident of the US, Canada, or Mexico...

and then there is the "lived with you in the USA for more than six months," which applies to the Child Tax Credit. EIC is definitely not applicable because the spouse and kids do not have SSNs.

You may be in a gray area that is open to multiple interpretations, based on the individual facts and circumstances. Because he is a resident alien and they are married, and you stated that they are not separated, you may be able to take the position that when the wife and kids went back to Australia, that this was merely a temporary absence.

You probably know this, but temporary absence is a term of art that has a formal definition. See, e.g., page 27 of Pub. 17.

Also, you should carefully read page 23 of Pub. 17, concerning Head of Household status for a taxpayer with a nonresident alien spouse. If you are not familiar with this particular set of rules, it will blow you away.

[Possi]

did not live here 6 mos

The wife and kids did not live here for 6 months. They left in May of 07.

I'll read the pub again, but he'll probably be filing single this year.

btw, the wife and kids did get SS#s. One of the kids went to college here, too. But that was all in the past.

In '07, the wife and kids left in May.

Thanks! I'm still reading.....

[Koss]

Immigration Status?

Did the wife and children get SSNs because they had a visa that allowed them to work, or because they became resident aliens, or for some other reason??

And what was their filing status in previous years?

He is a resident alien. For him that does mean that he is subject to all the same rules as a US citizen. If he is legally married, he cannot use the filing status single. His options are MFJ, MFS, or Head of Household, subject to specific rules governing each option.

For a US citizen or resident alien, living apart from your spouse does not transform your marital status from married to unmarried. And if you are married, you cannot use the filing status single. The fact that he is married to a nonresident alien does not change this.

But if the wife and children have SSNs, there is a very high probability that they are either resident aliens, or that they meet the substantial presence test, which would allow them to be treated as resident aliens for tax purposes.

Is there a particular reason that your client doesn't want to file MFJ, or that you think this status is inappropriate?

[gkaiseril]

See Pub 519

This is what makes International taxpayers so interesting, sorting out the filing status.

The taxpayer is treated as a U.S. Citizen and files a Form 1040 not the 1040NR.

Have you checked the wife's ability to meet the "Days Presence in the U.S" test? If she was here for 3 full years prior to 2007, count all days presence in 2007, 1/2 of the days presence in 2006, and 1/6 of the days presence in 2005. If the total is greater than 183 the spouse is considered a resident alien in 2007.

Another option is explained on page 10 of pub 519, the election to for "Nonresident Spouse Treated as Resident". The spouse could make an election to be treated as a resident. Be careful about the world-wide income.

If none of the above can be applied, the wife can be claimed as a dependent on the MFS filing even if the spouse was not a resident alien, see page 26 of Pub 519. Note the spouse must have no U.S. based income.

The children must have been a resident alien some part of 2007, Pub 501 page 10, to be claimed as a dependent.

[Koss]

Have you checked the wife's ability to meet the "Days Presence in the U.S" test? If she was here for 3 full years prior to 2007, count all days presence in 2007, 1/2 of the days presence in 2006, and 1/6 of the days presence in 2005. If the total is greater than 183 the spouse is considered a resident alien in 2007.

This is correct, but when counting days of presence, you cannot include days for which the person held certain visa types, e.g., foreign student or researcher. So be careful with this.

The children must have been a resident alien some part of 2007, Pub 501 page 10, to be claimed as a dependent.

This is correct, but a child can satisfy this requirement if he is "a nonresident alien that is treated as a resident alien for tax purposes." Therefore, if the child meets the substantial presence test, then this requirement is satisfied.

[Possi]

questions...

Regarding the children, the oldest had a SS# when he went to college here. The 2 younger ones got them because they lived here with their parents. They have lived here since 2004.

I was very careful in taking this return back then, and exhaustingly researched to be sure of the form 1040 (not 1040NR) and the FS (MFJ) and deductions (3 children, all living here with them.)

My concern came when Wife and children moved back to Australia. 2 boys went back at the end of the year in 06 and I claimed them, as they were here almost all year.

Wife and youngest son moved back there in March of 07, not meeting the 6 month rule. Temporary absence might apply, as they could conceivably move back here or he will move back to Australia.

His would not be "single" because he is married. How, then, could he claim her exemption if she is not a dependent (which the spouse never is....) When I read that part, MFS and claim her exemption, that threw me.

If he supports the family with the money he earned in US as a non resident alien, and all family members have SS#'s, it seems to me that I could do MFJ and claim the kids and wife.

What a challenge! But we'll nail it!

[Koss]

Status

In your original post, you stated that your client is "a resident alien from Australia," and that he had obtained ITINs for his wife and children. Based on this assertion, I presumed that your client is a resident alien, and that his wife and children are nonresident aliens, as these terms are defined by the immigration authorities.

But I am now uncertain whether this presumption was correct. The fact that they all have social security numbers raises some serious questions. Before you proceed, you need to know, with absolute certainty, what the immigration status of each person is. If any of them are not resident aliens, you also need to know what type of visa they hold, and what type of visa they held in the past.

Each of the following terms has a completely different definition:

(i) immigration status: resident alien, nonresident alien, or dual-status alien.

Status is determined by USCIS (Customs and Immigration), and has nothing to do with tax law.

(ii) residency status for tax purposes: resident alien, nonresident alien, dual-status alien, or nonresident alien that chooses to be treated as a resident alien all year for tax purposes.

Status is determined by federal tax law. But in order to make this determination, you need to know their immigration status at all relevant times in the past, as well as what type of visa they have or had.

(iii) marital status: married or unmarried. This one is binary. It's a one or a zero. There are no other options.

Marital status is determined by state law. All fifty states recognize the marital status of a couple that is legally married by another country, provided that the other country is recognized by the US Department of State. Your client is married.

(iv) Filing status: Single, MFJ, MFS, HoH, QW.

Determined by federal tax law. But you can't make this determination until you know the residency status of the husband and the wife. And you can't determine residency status until you know their immigration status.

I suspect that you are going to discover that the wife and children are resident aliens.

Even if they are not resident aliens, they are probably eligible to elect treatment as resident aliens based on the substantial presence test. But you can't determine that unless you know what type of visa they have or had.

It's not circular. You have to start with immigration status. If they are resident aliens, you're done. If they are nonresident aliens, then you need to know about the visas...

Once you have that information, you will be able to determine filing status.

FYI: Resident alien = permanent resident = green card holder.

But be careful. A nonresident alien who is the spouse of a resident alien may, in some cases, be considered automatically eligible to apply for permanent residency, but this isn't the same as actually having it.

[Possi]

Back to you!

Koss,

Sorry I had to abandon the board while I had "live" clients today... I'm back at it now....

The question was, are they resident aliens or non-resident aliens....

They are all resident aliens (substantial presence test).

Where the wife and children are concerned, as they are resident aliens, they are treated, (for tax purposes) as being citizens. The absence would be considered a temporary absence due to Taxpayer's work. (Now that one gets a little hazy on me since He is the one working in the US and now They are the ones in Australia... but that's just me...) As I read the pub, for tax purposes, they all qualify as one big happy family on the tax return. Just as if they all lived here.

I do not see why this filing status and dependency should not continue into '08 and as long as Taxpayer is earning his living in the US.

Am I interpreting this correctly?

Man, am I tired!

[Koss]

Resident Alien

If you are certain that they are all resident aliens for tax purposes, then, yes, they can file an MFJ return on Form 1040 like anyone else.

[gkaiseril]

Koss,
I do not see why this filing status and dependency should not continue into '08 and as long as Taxpayer is earning his living in the US.

Am I interpreting this correctly?

Man, am I tired!

In order to determine the 2008 filing status, you will have to recompute the substantial presence test for 2008, all of days prensent in 2008, 1/2 of 2007 days present and 1/6 days present for 2006. So unless they come back to the us for over 108 days + aabsences they will not qualify under the significant presence test. So I would expect the taxpayer will be MFS and claiming the wife as a dependent or MFJ if the wife elects to be treated as a U.S. citizen or resident alien and subject to the U.S. tax law as a resident.

The significant presence is determined on a year by year basis by the facts for that year.

[Possi]

thanks!

Thanks for all the help!
Wrapping this puppy up now! whew!