Hi,

We came to the US from The Netherlands in March 2007. We were dutch resident, but not nationals.
My husband has an L1 visa, I have L2. We both have SSN. I don't had any income for the entire year. He had income until March from Holland and he paid taxes for that. Do we have to file his foreign income and 1116 form for foreign tax credit?
I tried to find out from the Dutch- US treaty, but it's too long to read and complicated.
I think we should make the first year choice to get standard deduction and exemptions.

Please help!!

Yes, if you file resident joint return, you will report your world wide income for 2007. You will get standard deduction of $10,700 and exemptions for both of you

You will also file Form 1116 or 2555. Read: Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income

L1 is work visa. There is no treaty benefit on work visa. You pay FICA taxes like U.S. citizens and residents.

You are treated as U.S. residents for 2007 regardless of whether you make the first year choice. The decision you have to make is whether you will file jointly or your husband will file separately. If you file jointly, then your husband needs to include the Dutch income on the tax return and claim credits and/or exclusion (Form 1116 and/or 2555). If your husband files separately, then he does not need to include the Dutch income and you will not need to file at all. While filing separately is a much simpler process, the U.S. tax may be higher than filing jointly (with added complexity).

Thanks for the answers.

What do you mean IntlTax on : "You are treated as U.S. residents for 2007 regardless of whether you make the first year choice."

My other question is regarding to the currency. Do we have to calculate on the latest rate? The Euro is much stronger now, than it was in March.

The only comment I'd make about the separate filing would be that because you would be dual status you would not be getting some of the benefits of filing jointly as residents for the full year. Of course, as IntlTax rightly points out, the MFJ does require more complexity in terms of including foreign income and claim a FTC.