I am on L1 visa> I am in US with my wife L2 visa from November 1 2007. Do I file tax return using 1040NR asnon-resident alien. Me & My wife both have SSN. Can I exempt & show my wife as dependent. I call IRS & they say no.

On non-resident tax return, you can not claim dependents. You can claim Moving Expenses.

However, you CAN file jointly with your wife and declare all world-wide 2007 income on your U.S. return, and also claim the Foreign Tax Credit (Form 1116) for the income taxes paid to other countries.

You will probably come out best this way tax-wise.