Dear AtlantaTaxExpert,

I really appreciate your help on this forum.

Here is my situation

Aug’ 02 - Oct’ 04 F1
Oct’ 04 – Oct’ 05 F1 OPT
Oct’ 05 – Present H1B

I have filed my taxes with H&R block and they filed my return under dual-status and did not take the standard deduction (under US-India tax treaty). They charged me $300+. When my friend suggested your website I browsed through the threads and found out that I don’t fall under dual-status. Then I went to H&R block and explained my situation. They did not agree with me and asked me to contact IRS. I did so and even the IRS said that I don’t fall under dual-status.

Then I again contacted H&R. This time they were rude and also said that IRS was wrong. I don’t know what to do. If I don’t fall under dual-status how can I prove them? Can I still claim standard deduction of $5000 under US-India tax treaty even when I’m on H1B by the end of the year? Any help is highly appreciated. Thank you again for your service.

I'll let ATE answer this since you have directed this to him but I would like to add my own thoughts.

First, note that the is nothing particularly special about "dual status" -- it really just means that you're non-resident for part of the year and resident for the other part.

In your case, assuming you have not been in the US prior to 2002, it seems to me that you are a non-resident for the full 2005 period (ie you do not qualify for the substantial presence test and you have no green card). Thus you could file NR.

On the other hand, if you want to, it appears that you will be a resident in 2006 and thus you could elect the First Year Choice for the second part of the year. Thus, you would be a NR for the first part of the year and a Resident for the later part of the year.

If you want to combat HR Block you need to ask them why they think that you are a resident for the last part of the year because you do not meet the substantial presence test (remind them not to count days while you were on F1 status).

If they tell you that you are making the first year election for 2005, you might like to mention that you have not quite yet satisfied the substantial presence test for 2006, as at April 18.

These are my thoughts. I'll look forward to reading ATE's points.

Rsiru:

In my opinion, you are clearly NOT a dual-status alien. You could file as a non-resident alien for 2005, or wait until June and file as a resident alien for 2005 under the First Year Choice option. First Year Choice is not for just part of the year.

You will clearly qualify to file as a resident alien in 2006.

Now, as for convincing H&R Block that this is the correct way to file, I have citations from the Internal Revenue Code that Dr. Gary Carter provided to me. I can e-mail them to you. Contact me at [email protected].

ATE,

I believe that the first year choice is for just part of a year. You need to be non-resident in 2004, not qualify for substantial presence in 2005 and then qualify in 2006. If you also have the 31 days presence in 2005, then you can commence residency in 2005 from the start of the 31 day period. Here's something from the IRS site (note that it refers to being a resident for PART of 2005):

First-Year Choice
If you do not meet either the green card test or the substantial presence test for 2004 or 2005 and you did not choose to be treated as a resident for part of 2004, but you meet the substantial presence test for 2006, you can choose to be treated as a U.S. resident for part of 2005. To make this choice, you must:

Be present in the United States for at least 31 days in a row in 2005, and

Be present in the United States for at least 75% of the number of days beginning with the first day of the 31-day period and ending with the last day of 2005. For purposes of this 75% requirement, you can treat up to 5 days of absence from the United States as days of presence in the United States.


When counting the days of presence in (1) and (2) above, do not count the days you were in the United States under any of the exceptions discussed earlier under Days of Presence in the United States.

If you make the first-year choice, your residency starting date for 2005 is the first day of the earliest 31-day period (described in (1) above) that you use to qualify for the choice. You are treated as a U.S. resident for the rest of the year. If you are present for more than one 31-day period and you satisfy condition (2) above for each of those periods, your residency starting date is the first day of the first 31-day period. If you are present for more than one 31-day period but you satisfy condition (2) above only for a later 31-day period, your residency starting date is the first day of the later 31-day period.

Taxsearcher and AtlantaTaxExpert,

Thanks for your help I really appreciate that. I need a small clarification. If I file under 1040 NR can I still take the $5000 standard deduction under India-US treaty since I'm on H1 by the end of the year 2005.

HI,
I am not a professional tax expert, just a person who has his taxes prepared by a CPA in our local small town, for about $150.
I would like to add that H&R Block has been, and is currently, in Class Action Lawsuits for one thing or another. Even I received a letter, from many years ago, when my wife had HR do our taxes one year, to determine if we wished to be in the lawsuit, in Court in WV. No, I don't want to be in it, due to only receiving about $25 possibly, since there are so many involved.
I suggest that the next time you have your taxes done, to check with a CPA in your local area, ask for the cost for both Federal and State (if you have State taxes). My own CPA figures taxes both ways, standard and itemized, and uses whichever one is the best.

Rsiru:

Yes, you can claim the standard deduction of $5,000 if you file as a non-resident alien.

Quote:

---

Originally Posted by AtlantaTaxExpert

Rsiru:

Yes, you can claim the standard deduction of $5,000 if you file as a non-resident alien.

---

I'm on a conf. call with H&R and IRS. The IRS rep. says that since I'm on H1 by the end of the year (so I can't be considered student for the tax year) and I can't be eligible for the treaty (which is for students and business apprentice). So are we wrong? :(

Unless you are dealing with an IRS representative who specializes in non-resident alien tax issues, he is probably wrong.

Based on the info you initially provided, you should file as a non-resident alien.

ATE,

Even the rep. agrees that I should file 1040NR but he says that I can't take the standard deduction provided by the treaty since I'm not a student by the end of the year.

That has NOT been my experience. I have filed a number of returns (both Form 1040NR and 1040NR-EZ), and have claimed the standard deduction with no challenge from the IRS.

However, if you want to wait for five weeks, you could file as a resident alien (filing Form 1040) in early June and claim the standard deduction then.

So did HR Block end up backing down and changing their position? They are clearly wrong in suggesting that you are a dual status alien. You should be filing NR and I hope they have accepted that position.

Regarding your standard deduction, I believe that you should be allowed this deduction with respect to the income earned during the period in which you were a qualifying student. I think this because of the following comment from the technical explanation of the treaty. It suggests to me that the US can apply the usual US rules BUT ONLY TO THE INCOME IN THE PERIOD AFTER YOU CEASE BEING A STUDENT. Thus, for the period prior to this, the IRS must follow the treaty and that permits the standard deduction (I think the IRS rep was wrong because they are attempting to apply the regular law to the ENTIRE period, not just the period after which you ceased to be a student):



If a student who is resident in a Contracting State remains in the other State for a period
Of time exceeding the period during which he is present principally for the purpose of his
Education or training, the Contracting State which he is visiting may tax the individual under its
National law, but only for the period after the purpose of the student's visit has changed.

ATE and Taxsearcher,

Thanks for your help and info I really appreciate that. Yes H&R changed their stand from "dual-status" to
"end of year H1". They even convinced the rep from IRS that I'm wrong. The H&R manager was rude and intimidating at times. I'm thinking of suing H&R. What is your opinion on this?

This is what I would do:

1. Put together a document outlining why you believe the current assessment is correct. I don't mean your opinion as such but an opinion supported by evidence (i.e. the tax law that backs up your position).

2. As a part of this, document clearly why the HR Block advice/position was clearly in error. Again, back this up with sources of authority.

3. Request a meeting with someone higher up in HR. Either send the document to them or go over it in person (or both). You're going to have to be well versed in your stuff to do this.

4. Have something that you want them to do. For example, you want a full refund of their fees and some additional compensation for your cost of resolving their errors.

It is very obvious to me that they have made some blatant errors and you should not just back down and give up. Don't be put off by their rep having been rude but rather take it higher up. If you can show the higher up person that not only were the HR people wrong but they were rude, then you've got a pretty good case.

I'm happy to help if you need some assistance. If you want to PM me I will send you my email.

Did you have any luck getting HR to respond positively?