Hi, please help me. I have tried HR Block, and some local CPAs, including some in Astoria, but no one can help me!!

Here is my situation:
I am a US citizen who married a Greek national. We have one child together. This will be the first year we migh file together-married joint. I worked half a year last year in CT and will file a CT nonresident and NY resident. My husband has been in NY for 6 years (4 years as a student), then on an F1 visa until July 03 and now on an H1B visa, since July 2003. In mid-2002, he started a position as a research/teacher, for which there is tax treaty between the US and Greece. His school said he was ineligible for the treaty (which would make all teaching income tax exempt) since he has bene in the US previously as a student, even though he never worked as teacher or benefited from a treaty. Taxes have been removed from his monthly paycheck.

Here are some questions:
1. Can he covered under the tax treaty? I think yes, given what I have read of publication 901 IRS article XII and forms 8833 and 8823 (regrading entry date).

2. If he can use the tax treaty, can we file a joint 1040? How do we mark that his income is tax-exempt? Or do we have to file married-separate on a 1040 and he on a 1040-NR to get the federeal tax withheld refunded? In doing so, we would lose out by not filing together...

3. If the treaty applies to him, what does he file to get back taxes held form mid-2002 and 2003?

4. If we file for an extension and pick a filing status, are we commiteed to file that way? Do we need to file an extension for a 1040NR for him and a 1040 for me? Right now I have a joint 1040 ready. It is my inderstanidn that we cannot amend a joint-married status once filed, so I have waited trying to figure out what to do...

5. I haven't worked in 2005 and plan to be a stay at home mom. If the treaty applies, how do we file next year?

6. Neither of us paid NY tax, but I aid CT tax, since I was emplyed in CT. Will it bebetter to file married joint or separate? I calculated that we will owe almost $3000 to NY plus $800 to CT. This sounds really hight since we don't make that much money and we have a baby.

JMK75:

The advice I am giving below is based on my basic understanding of taxes as they apply to non-resident aliens. You should check out this website (http://www.thetaxguy.com) which specializes in tax returns for aliens.

That said:

1 & 2) I cannot comment as to whether he is covered by the tax treaty, as I have not done the research. However, if you request coverage under the tax treaty, you cannot file jointly. If you file jointly, then he is opting to be treated as a resident alien for the entire year, thus nullifying any use of the U.S.-Greece Tax Treaty. If he files the Form 1040NR, you can file as Head of Household, using your child as the qualifying person.

3) If the treaty does apply, you need to file Form 1040X to amend his return for 2002 and 2003. You have plenty of time to do this (almost a year for 2002 and almost two years for 2003).

4) File extensions for both of you (you as Head of Household; him as non-resident alien). This does not commit you to file that way. You are correct, however, in assuming that filing jointly is a irrevocable decision (unless it is determined that you were not legally allowed to file jointly).

5) If the treaty applies and your husband continues to file Form 1040NR, you will have no filing requirement since you have no income. I believe he will be able to claim you and your son as dependents, but if his income is tax-exempt, it probably will have no effect on the tax return.

6) NY state will give you a credit for the CT income taxes you paid while working in Connecticut. You need to prepare and file Form IT-112-R (New York State Resident Credit). However, if your husband's income is declared tax-exempt, that exemption should apply for state income taxes as well.

RECOMMENDATIONS:

#1. File extensions for federal, NY and CT returns. If you owe money (and assume that the tax treaty exemption does not apply to be on the safe side), pay what you think you may owe with the extension. That has to be done today. You can put the tax due on credit card (the credit card will probably charge a convenience fee of about 2%) for the federal taxes and probably the state taxes as well.

--- The phone number for the credit card service for the federal return is 1-800-272-9829 or 1-800-729-1040.

--- You can access the NY state tax authority at http://www.tax.state.ny.us to file an extension and pay by credit card (you will probably have to call for instructions on how to pay by credit card; expect to pay a fee to the credit card company).

--- You can access the CT state tax authority at https://www.webfile.state.ct.us/Ct8/taxpayer_info_ext.asp to file an extension and pay by credit card (you will probably have to call for instructions on how to pay by credit card; expect to pay a fee to the credit card company).

- You need professional help. If you cannot find it locally, I am available. Email me at [email protected] with a phone number and we can discuss your situation in detail. Even if we decide that I cannot represent you, I can help you locate someone who can.

Thank you, Atlanta Tax expert, for your quick and detailed response. Yes, I realize we need help, and I just didn't know how to find it. Thank you for leaving me your contact email.

This is what we have done ( and I hope it can be easily fixed if we did the wrond thing):

1. I filed a married-separate 1040 for myself, and I didn't include my husband's income into the adjusted gross income (assuming it is tax-exempt).
I see from your post ath I could have filed as head-of-household. I guess I can amend this...

2. My husband filed a 1040NR, and we reported his income as tax-exempt, with a note about the US/Greece treaty, article XII.

3. We filed a joint NY state/city but did include his income. It is my understanding that the tax treaty just applies for exemption of federal tax.
I filed a married-separate CT state tax as a nonresident. We owed money for both of these so we paid them today.

Here are some more questions:
A. If the tax treaty does not apply, and he filed separate, we will need to amend using a 1040X and a new 1040, right? Do we both need to file amended forms or is one enough, since we will file joint. I had worked up a joint return first, and even if we include his income as taxable, we will get a refund. Separately, if the tax treaty applies, we will get a bigger refund.

B. When will we figure out whether the treaty applies? I figure that the IRS will notify us right away if the treaty does not apply and he is responsible for taxes. His school did not think he was eligible and was removing federal taxes. However, the payroll manager at his school also told me I could use the info on a 1042-S and imput it as if it was a W2 (which did not sound correct to me).

C. Can I file an amendment to my 1040 as head of household now? How many amendments can one do for a single year's return? What if we have to file an amendment because his treaty is not valid? Can we file another amendment?

D. Can a person choose to be treated as a nonresident to benefit from a tax treaty, even if he has been here for a few years? I think he could have filed a 1040 and still applied a tax treaty between US/Greece.

The reason why the treaty issue is confusing, is because my husbnad was a student in the US. He came here on an F visa in 1998 and graduated in 2002. He stayed on a training grant for 1 year in the US while on his F1 visa. Then in July 1, 2003, he was a researcher/teacher and issued an H1B1 visa. His date of entry, based on his I-94, is July 1, 2003. I believe he is eligible for tax treaty for 3 years, from July 1, 2003. He had originally asked to have the treaty apply in 2002, after graduation, but his position was not technically as a teacher, since he was still on an F1 visa. On the F1 visa, his date of entry into the US was August 1998. He received W2's during 1998-2002. He received a private fellowship in 2003 to pay his research/teaching salary and his income has been reported on 1042-S. The payroll department said that his 2005 income will be reported on a 1099-Misc.

Please let me know if you think you can help us. I have spent so many hours pouring over the web, but I am still very confused and worried about fixing a possible mess if the treaty doesn't apply. Are you a CPA or tax attorney? We really thank you for your help.

JMK75:

1) Yes, you can amend your return to claim Head of Household. It will have a positive effect on your return.

2) Noted.

3) Reading the tax treaty citation for Greece in Appendix B, IRS Pub 519 (Page 61), I can see where you believe you can claim the exemption; the explanation below also provides clarity. However, the initial entry date noted on the paragraph on the citation may void your interpretation. The lynchpin is which entry date will the IRS key on: the one as a student or the I-94 date. We shall see. In any event, I find it unusual that the treaty applies only to federal income taxes. As a matter of general law, treaties between the U.S. and other governments apply to the states as well. If not, the concept of diplomatic immunity would not be honored (as an example). For this reason, I believe that, if the IRS upholds your contention that your husband's salary is exempt, you should amend the NY return (and possibly the CT return as well).

A) A single Form 1040X will do. Attach your prepared joint return.

B) If the IRS rejects your argument, hopefully they will do so before they issue you a refund. If not, I recommend that you put a portion of the refund
to the side until you get a final reading from the IRS, for if they rule against you, you may need to add that set-aside along with your joint return to pay the additional taxes owed. BTW, the payroll manager is correct; you can use the information from Form 1042-S like it was a W-2.

C) You can amend a return as often as needed. My personal record as a preparer was six times. Prepare the amendment and see if it is worth the effort. If the refund is less than $200, you may want to wait for word from the IRS.

D) Sorry, you cannot have it both ways. If you claim the treaty exemption, you must file as a nonresident alien. If you file as a resident alien, you forfeit all rights to the treaty exemption.

Finally, I am neither a CPA nor a tax attorney, just a tax professional with some experience filing returns for both resident and non-resident aliens.

Please keep me informed as to how your case turns out. In my profession, knowledge is everything!

Hi Atlanta Tax Expert,
Thanks much for your speedy reply and for sharing your body of knowledge. You are proving a wonderful service to many in need!

I looked up the qualifications for filing head of household, as it would increase my return significantly. However, I do not think I qualify, since my husband and I did live in the same household for the full year and as his income was greater than mine, he did contribute more to the household. It is my understanding that filing head of household for a married person must mean that I did not live with my spouse for the last 6 months of 2004 and that I did contribute >50% to maintaining the household.

That would be great if state (and NYC city) tax is also expempt under the treaty (assuming he does qualify). Some schools, such as U Penn in Pennsylvania, specifailly state that PA state tax is not exempt under any treaty. As I search the net, I read different things. Some sites say certain states do not honor tax treaties (NY and CT are not listed, so it seems they might... ). This means we would ge getting back the >$2000 (can you believe it!) we paid and may even get a refund. Also I had to pay $800 to CT since I did include my husband's income on the married-separate CT tax.

Also, since my husband was on an H visa, I think he should have filed as a resident (1040, not 1040NR). I think the tax treaty might still be honored since he was here for teaching (even though not on a J visa), and we should have filed a 1040 + 8833 + page 5 of the 1040NR + statetment of why the treaty applies to him. Plus, now the 1040-X. He never filed an 8233 (about tax treaties) with his payroll, since they said he did not apply. I have some notes written down , from when we visited the payroll office, and I have wrien down 1040X, so I wonder if they told us to try getting the refund through amendment. I feel it may be very hard to have the tax treaty apply if his school has not filed that he is eiligible (assuming he truly is). I am confused about form 8833. Some sites say to turn it in if you are applying a treaty, and there is a $1000 fine for not turning it in. It seems the IRS wants you to file, even if you are tax-exempt. So confusing for a layperson!

Is there harm if I file the amendments for state and we later find out we were not eligible for tax treaty? Is there a chance we will go through a terrible audit and severe penalties? It is my understanding that the IRS has 3 years to audit?

Wow, this may mean many amendments...

I checked out the taxguy.com site. It seems good for us. Do you have experience with him? Do you know of anyone in the NYC area who handles
this type of case affordably?

The maximum presence limit for the US/Greece treaty is 2 years from date of entry. On the IRS forms 1040-NR page 5 (which he would also have to file along with a 1040 if he is claiming tax treaty), the instructions for filling in date of entry would lead us to fill in July 2003.

Does the entry date for maximum presence test include the time my husband was in the US on an F visa or does it start from the time he came to the US on his H1B visa for his teaching position?

What is the rough timeline for figuring out the IRS's position on tax treaty for his income (is it the same 6-8 weeks that one waits for a refund/bill on paper return)? Is it usually pretty immediate and would it include a bill for the IRS's calculation of what he owes (since he would owe more than the 14% which has already been taken out by the school)? If it is not accepted, we would need to file an ammedment quickly to file us as joint-married, since we would also get a return that way. Would we have to pay any bill for his individual federal taxes first? I am due a refund from my married-separate federal 1040, but our joint return (treating his income as taxable) would still be greater, so on an amendment I think my refund (and his hypothetical payment plus 14% federal tax) would be figured in and applied against our total refund.

Thank you so much. I am sorry if there are redundancies in my questions. My mind is all jumbled right now. Thanks you for sharing your knowledge during tax season, which is just so stressful to all the people who have so little knowledge about it.

JMK75:

Head of Household Issue: IRS Pub 17, Page 25 allows you to claim head of household. Look at your budget. Even if your husband made more than you, if you can show that you contributed more than 50% towards the cost of keeping up your home for the year, you should be able to claim head of household. Your choice.

State adherence to Tax Treaty: Call the states in question and ask. That's the simplest way to deal with this issue. If they say yes, file the amendment.

Timeline for IRS decision: That's hard to say. More than likely, the IRS will issue the various refunds while studying the issue. It could take awhile for them to formally respond to your submission about the tax treay exemption.

Filing Status for Husband: Relooking at your original comments, I now realize that I misread the date. I thought his H-1B visa went into effect on July 04 (rather than July 03), thus making him ineligible for dual-status. For this reason, I concur with your conclusion that he should have filed jointly with you, plus added Form 8233 plus Page 5 for the Form 1040NR plus the statement as cited below.

www.thetaxguy.com: I do not know him personally or professionally, but his credentials are impeccable (CPA and Masters and Doctorate in Taxation, plus a professorship at Uninversity of Minnesota), and his site seems to be somewhat unique. Further, he will take on clients like you long-distance. This is important, as I cannot recommend anyone your area and I no longer feel competent enough to properly represent you. Besides, since I am not local to your area, did not prepare your return and I am not an enrolled agent, the IRS would not allow me to represent you in any event. Dr. Carter does not have that handicap. For that reason, I strongly recommend that you write a detailed summary of your situation and what you have done and submit to him for consideration.

Thanks so much for your guidance, Atlanta tax expert.
I looked at the head of household reference. I can claim it if he is a nonresident, correct? His payroll said I can treat him either as a resident or nonresident. But this doesn't really mean much, as I gather, since we are ultimately responsible for the filing. Since he was on an H1 visa from mid-2003, I believe he has to be considered a resident. Is this correct? If so, I cannot claim head of household and I will have to amend his federal return to a 1040, not 1040NR. In such a case, as discussed previously, I will amend it as a joint federal return.

I am just curious-are you a tax accountant or do you work in taxes? It is very nice that someone is providing the much needed help to all the clueless people, like myself, out there. THANK YOU very much for sharing your knowledge.

If you plan to amend to file jointly, then the Head of Household issue is moot.

I am not an accountant, just a professional tax preparer. The Army trained me to prepare tax returns for the troops in the late 1970s when I was a lieutenant, and I attended refresher training in the 1980s while on active duty and as a Reservist. During Desert Shield/Desert Storm, I was tasked to bring a bunch of office supplies and other goodies for my staff section when I was mobilized and deployed late, so I included my tax publications to have something to do during the dead times. Turns out I was one of the few who had a modern tax library of reproducible forms and instructions, so I did a "land office business" preparing tax returns for soldiers ranging in ranks from private to colonel, at no charge of course. In fact, one of the colonels had a rather complicated return (a house, six rental properties, and a small business for his wife). When I delivered his return in about four days (done by hand; this was before tax software was commonly availabel even to professionals), he stated that he paid an accountant over $1,000 to do his returns and I did a better job for free. He suggested that I should start preparing returns for pay as well.

So I took a tax course with the National Tax Training School and, the following year, I started my business. The first year I had one client.

Over the years, my tax business has grown and prospered. I still only do it part-time, since I have been mobilized and serving in the GWOT for the past 3.5 years. However, I retire in early June and will return to my job as a Department of the Army civilian. As the tax business expands, I will eventually open a store front and set a website to take clients via the Internet.