Foreign Dependents

[Jill Graff]

Situation: Clients are long-time USA residents. Parents came from Pakistan 09/12/07 and are living with clients. Parents received their social security cards and green cards. USA income was $4 interest income.

Question: Parents pass 6 of the 7 tests for dependency. In trying to pass the support test, do we have to include parent's Pakistani income, if we can even determine that? If we use that, doesn't that infer that the parent's need to file a Form 1040 showing worldwide income?

Thanks in advance.

[Lion]

Worldwide Income

They're green card holders; they file Form 1040 reporting worldwide income. You'll know the results of the income test when you file their return.

[Koss]

Foreign Income

I'll start with an observation:

I think it is highly unusual for an immigrant to be issued a green card within three months of their arrival in the USA. Your post says they came from Pakistan in September 2007.

Are you absolutely certain that they actually became resident aliens before the end of 2007?

They may be eligible for resident alien status, but it is rare for it to happen that fast. It is not impossible. Perhaps they started the process a long time ago, while they were still living in Pakistan, by submitting documents to the US Embassy.

The fact that they have social security numbers does not make them resident aliens. If they have a visa and a work permit, then they are eligible to obtain an SSN.

If they became resident aliens in 2008, then that means they were still nonresident aliens at the end of 2007.

So I recommend that you carefully explore this issue before you proceed any further.

With all that said--

Even if they were not resident aliens at the end of 2007, they may be nonresident aliens who are treated as resident aliens for tax purposes.

Or they may be dual-status aliens.

I view the question of their dependency status as entirely unrelated to the question of their residency status.

To determine whether they meet the support test for your client, any income they earned in Pakistan must be accounted for. But remember that the question is not really about their income, but rather about their support. If they earned $90,000 in Pakistan but put it all in the bank, and were supported by the children, then they meet the support test. Yes, that's rather unlikely. But support is not always the same as income.

The support question is actually the easy part. As I said, it is unrelated to the other issues. In determining whether they meet the support test, you will learn how much income they had in Pakistan. Then you can begin to address the following questions:

(i) Are they resident aliens, nonresident aliens, nonresident aliens treated as resident aliens for tax purposes, or dual-status aliens?

(ii) Are they required to file a tax return?

(iii) If so, are they eligible for the foreign earned income exclusion, or the foreign housing exclusion, or the foreign tax credit?

FYI: If they are nonresident aliens treated as resident aliens for tax purposes, or if they are dual-status aliens who elect to be treated as resident aliens for the entire year, then they are considered residents of the USA for purposes of the dependency test...

Good luck.