Atlanta Tax Expert,

I have been following this forum for some time now and I really appreciate all your help and advice.

I entered the US in 2002 on an F1. I recently transitioned to an H1 on October 1, 2005. This is the summary of my stay in the US so far:

2002 - Entered US on Dec 27 2002 on F1 – Days in US - 4
2003 – F1 – Days in US - 365
2004 – F1 – Days in US - 347
2005 – F1 (OPT) till September 30, 2005 – Days on F1 OPT – 273
H1B from Oct 01, 2005 – Days on H1B – 92

I filed 1040NR EZ for 2002, 2003 and 2004. I have claimed Tax treaty benefits from India in 2003 and 2004.

I am a single, Indian citizen. I started working with my employer when I got my OPT in Jan 2005.

My questions are:

1. Am I a resident alien for tax purposes?
2. How do I show the F1 – H1 split for 2005?
3. What form should I use to file my returns?
4. Can I claim the India Tax Treaty benefit for a 3rd consecutive year?

I tried using CINTAX for preparing my returns and it determined I was a NR Alien and wasn’t eligible for tax treaty benefits as my status had changed from a student to a worker.

Please advise.

Thanks.

Quote:

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Originally Posted by v0c2000

Atlanta Tax Expert,
My questions are:

1. Am I a resident alien for tax purposes?
2. How do I show the F1 – H1 split for 2005?
3. What form should I use to file my returns?
4. Can I claim the India Tax Treaty benefit for a 3rd consecutive year?

I tried using CINTAX for preparing my returns and it determined I was a NR Alien and wasn’t eligible for tax treaty benefits as my status had changed from a student to a worker.

Please advise.

Thanks.

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I was on the same boat last year... jan-oct opt oct-dec h1

1) You will be Non Resident for tax purpose as you are less than 183 days for substantial presence test.

2) I did not do any splits.

3) I used forms 1040NR-EZ + 8843 forms.

4) Yes you can claim the India-US treaty deductions( I do not know much is it this time).

Thanks Verdict. I wonder why the CINTAX software determined I wasn't able to claim tax treaty benefits.

Atlanta Tax Guy / David: Could you please confirm/verify. Thanks a lot.

Confirm. It looks good to me. Of course, it's almost 2 A.M. and I am rather tired, so anything may look good to me. :-)

Of course, it's almost 2 A.M. and I am rather tired, so anything may look good to me. :-)

That's a pretty indifferent response. Wasn't expecting this after reading all your responses on this forum and others.

Thanks.

VOC:

Look, I am a rather serious guy. Sometimes, however, I like to be a little silly, hence, the smiley face.

In short, Verdict's response seems to be accurate.

I understand A.T.E. I appreciate your assistance on this forums and others.

Verdict:

Were you able to claim 3100+4850 in deductions last year? I need to know so I can do the same this year (3200+5000).

This would make a big diffrence in my refund. Do let me know.

Please advise.

Thanks

[email protected]

v0C:

See his answer below:

4) Yes you can claim the India-US treaty deductions( i do not know much is it this time).

This being the case, he did claim both personal exemption and standard deduction. If you are from India, so can you!

Thanks A.T.E.

Here's another response I recieved:

Your F-1 days do not count towards the substantial presence test for the first 5 calendar years of your presence here in the United States.

Thus, the only days that will count towards the substantial presence test will be the 92 days from Oct. 1, 2005 to December 31, 2005. In this case, you have a choice between being taxed as a nonresident for the last 92 days of the year, or filing a first-year alien’s election to be treated as a resident, starting October 1, 2005 (assuming you will have 153 days of presence in 2006).

Ordinarily, the $5,000 standard deduction is not available to a nonresident alien; however, a student from India can claim Treaty benefits and claim the $5,000 standard deduction. I believe that the $5,000 standard deduction would not be allowed in your case unless you make the first year alien’s election.

The $3,200 personal exemption will be available even if you don’t make the first year alien’s election to be treated as a resident.

As a student, you may claim treaty benefits for payments which arise outside of the United States for the purposes of your maintenance, education or training. You may claim treaty benefits for any period of time that you are a nonresident, but not for any period in excess of the time as may be reasonable or customarily required to complete the education or training undertaken.

I don’t see how you can claim treaty benefits for payments received from a U.S. employer.
:confused:
How do I file a first year alien's election to be treated as a resident. Which forms should I use (1040NR and 8843)? Is there something different I need to do to show that I am making that selection?

Here's more from that respondent:

Assuming that you file the first year alien’s election, you will need to file a Form 1040 with a supporting schedule showing your income the first 9 months of the year. You will also need to attach Form 8833 for treaty benefits. Yes, Form 8843 will be required. You will not be able to file your returns until you satisfy the substantial presence test in 2006 (probably after 153 days).

The contents of the first year alien’s election can be found in Reg §301.7701(b)-4 or Publication 519.

V0C:

From where did you get this information?

I got it from www.accountantsworld.com

Can you offer some more insight into this matter?

I went to H&R and they weren't too sure either. I never thought a tax return would be this complicated!

The main idea of bieng a R or NR will be directly refelected as wrong based on the Replies from whoever gave you that information.

The very first line of who should file a 1040R or NR clearly states your substantial presence test. Which you fail because you were only 92 days on h1B.

So in this case you have to file 1040NR. Regarding the treaty benifts. You can claim them as long as you are not staying continiouly more than 5 years on the same F1.

Things look complicated if you think they are complicated and it will be the other way round if you think they are straight forward.

Even if IRS comes no where it states that you have violated any of their rules. So I am not understanding your point.

AS you said even the H&R block could not solve your issue, direclty implicates that there isn't much information for these kind of situations and filling based on what looks correct in the TAX Publications should solve your problem.


Let me even put this... If you want to file under regular 1040. There are what is called as 5000 in standard dedcutions which is eqaulent to your Treaty deductions of 5000. So even in the worst case you are not doing anything wrong.

So Peace Up and file 1040NR with 8843.

Verdict:

I agree that IRS Pub 519 could be clearer, but tax treatment of resident and non-resident aliens are driven in large part by the individual tax treaties that have been negotiated with the various countries around the world. Hence, it is a subject that defies simplification.

Now, your advice to v0c2000 is one way to deal with the issue. If he filed as such, it it likely the IRS will accept the return and not challenge it, even though the last page of both Form 1040NR and Form 1040NR-EZ, if filled in correctly, would tell the IRS that v0c2000 was filing an inaccurate return.

Filing Form 1040NR is not, however, the technically correct way to deal with his situation.

If he does not file as a resident alien under the First Year Choice (which means he must wait until early June before filing), he must file a dual-status return, which requires filling in both Form 1040 and Form 1040NR. That is, as I stated earlier, an excessive paperwork drill which has little value-added to the process.

BTW, in all three ways (resident, non-resident, dual-status), it is likely that v0c2000 will pay the same amount of tax.

A.T.E.'s last response seems to have cleared much of the water I muddied!

I have two objectives, like most people:
1. To file a tax return that won't be challenged.
2. To legally pay as little tax as I am required to.

Several sources have told me that either way I am entitled to the 3200 and the 5000 deductions.

I will have to see what filing the 1040 (as opposed to the 1040NR) entails. As of now I know it invloves:
1. Applying for an extension
2. Preparing a schedule for the months from Jan to Sep 2005

I wish I could use Verdict's approach, but I am afraid it may not be 100% fail safe. Using the 1040NR approach is technically wrong as ATE pointed out. But I also know several people who have used this approach with a good measure of success.

I suppose I'll research the issue some more before I make a final determination. In the interim, please keep me posted if you find anything more.

I really appreciate all your efforts ATE and Verdict. Thanks.

Here's another opinion I got from a leading tax attorney specializing in taxes for foreigners.

1. Am I a resident alien for tax purposes?
You were an “exempt individual” (exempt from counting days for purposes of the 183-day substantial presence test) for 2002 through 5. You must include a Form 8843 with your nonresident return for the F-1 period.
Since you did not have 183 countable days in H-1B status, you are a nonresident alien for 2005.

2. How do I show the F1 – H1 split for 2005?
See question D on the Form 1040NR or 1040NR-EZ which asks for type of entry visa (F-1) and current status (H-1B) and date of change..

3. What form should I use to file my returns?
Form 1040NR or 1040NR-EZ. See page 1 of the instructions to see if you qualify to use this return. They increased to amount of wages that you can earn and still use this return to $100,000.

4. Can I claim the India Tax Treaty benefit for a 3rd consecutive year?
You can claim the India Tax Treaty benefit since you were a student for part of the year. Under Article 21 you can take the standard deduction to offset your income while in F-1/OPT. Since this will obviously not exceed your OPT income, there should be no issue with claiming it.

5. Can I claim the $5000 and the $3200 deductions?
You can claim the personal exemption amount for yourself. I do not know of any other deduction that you are entitled to. The Student/Trainee Article in the treaty with India does not have a compensation benefit such as the $2000 to $5000 exemption in other treaties.

6. Can I file as a first year alien and claim resident alien status?
You can make the first-year choice election as explained in IRS Publication 519. If you make this election, you will be a part-year nonresident and a part-year resident. It’s worth doing if you have deductions such as mortgage interest and real estate taxes that you can claim as a resident, but not as a nonresident. (Deductions would be for amounts paid during the residency period only.) These are complicated returns and not explained very well in IRS publication 519.

Vindicated!

But if you file an extension and wait to file the 1040 under First Year Choice, you do NOT have to prepare a schedule for the months from Jan to Sep 2005

Thanks ATE

Dear experts,
My situation is similar. OPT Jan. 2005-August 19, 2005. Then, H-1, August 19,2005--December 2005. The only difference is I bought a house and paid mortgage for the whole year in 2005, so where do I put the mortgage interest deduction on form 1040NR-EZ? If I choose to use 1040 and 1040NR, do I need to split the income and tax withheld?

Silverstar:

There is nowhere on a daul-status return to claim mortgage interest, because dual-status aliens are not eligible to claim the mortgage interest deduction.

To claim this deduction, you must file as a resident alien under the First Year Choice.