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cn2usa · Mar 30, 2009, 07:22 AM

In the first 9 months of 2007, I was holding F-1 student visa, I had income by doing research for the university. Then I graduated, and in Oct.1 I changed to H1B work visa as I started working in a company. So when I was filing tax, I filed 1040A and wrote "dual-status" tax return. In that tax return, I included all my income, as well as last three months of bank interests (as I knew that as Non-residence Alien, bank interests are tax-exempt). Recently I got a letter from IRS asking me to pay interest to all bank interest. I replied to IRS and included copies of my proof of status and bank statements, and offered my explanation, but they replied saying "as a student I still need to pay tax on the income" (didn't specify which income in this letter though). So I called again and a lady asked me to fax all docs to her and she'll go over it for me. I still think I'm correct, so I'd like to ask for the opinion from professionals in tax here.

1 - Is my understanding correct, that if I changed from NRA to RA during the year, I only need to include bank interest for the part I'm an RA?

2 - I did not file a 1040NR, as I read the form I should file based on the last day's status and just mark "dual-status" tax return. Should I file two forms actually, a 1040A and a 1040NR based on each part?

3 - I realized that by filing 1040A I couldn't claim the tax treaty between China and USA for my student income, which I could claim before when filing 1040NR. Can I re-file tax now as I mentioned in item 2 above, and claim it in the 1040NR part? Is it too late now, since it's already March 2009? (IRS sent the first letter about tax amendment in Feb.2009)

Thanks a lot!

MukatA · Mar 30, 2009, 12:18 PM

For 2007, you are not dual status. You are nonresident. You must file Form 1040NR or 1040NR-EZ and 8843. You will get treaty deduction.

You can file dual status as First Year Choice if you complete SPT in 2008. But there is no advantage in filing this.
Read: Your U.S. Tax Return: U.S. Tax Filing Requirements for Non-Residents

cn2usa · Mar 30, 2009, 01:28 PM

Thanks a lot for the information!

From the link you provided, it said I'm considered to be non-residence if I don't meet presence test for residency. However I've been in US since Sept. 2003 with F-1 visa, does that make me meet presence test for the year 2007, and also since on the last day of 2007 I was a resident, thus I need to file as residence?

From this page,
Taxation of Dual-Status Aliens
It said I should file 1040A, but with 1040NR as statement to claim the tax treaty. I think this is what I should've done. Is it too late to re-do the tax for 2007 now?

MukatA · Mar 30, 2009, 04:39 PM

Yes, if you are in the U.S. since 2003, then you are resident. Not dual status.

cn2usa · Mar 31, 2009, 01:57 PM

But even though I was in US since Sept. 2003 as F-1 student, this does not make me resident. As a student, I'm exempted from the 3-year presence test, and only after 5 years do I become a residence.

From other posts in this forum, I think I could file tax as dual-status in 2007.

IntlTax · Mar 31, 2009, 07:40 PM

For 2007, you should be a nonresident for the entire year, unless you elect to be treated as dual status. You would likely be better off filing as nonresident for the entire year.

cn2usa · Apr 1, 2009, 05:12 PM

Hi IntlTax,

May I ask why I'm allowed to file as NRA with my 3 months H1B status? I thought anyone holding H1B is RA for tax purpose.

Thanks!

cn2usa · Apr 1, 2009, 05:17 PM

Maybe it's like this?

When I was F1, I was NRA because I didn't stay for 5 years yet; when I got H1B, by the presence test I became RA. Therefore I'm dual status, and from tax form instruction, it said you must file as dual status. (You may elect to file as residence for the entire year if you are dual status, but I don't think you can elect to file nonresidence)

IntlTax · Apr 1, 2009, 06:51 PM

Once you got you H1B, your days in the U.S. are treated as you being present in the U.S. Since you were not treated as present in the U.S. sufficient days, you do not meed the substantial presence test for 2007. You can be treated as a nonresident for all of 2007, or you can elect to be treated as a resident from the date you got your H1B. Even if you make this election, you would still be nonresident prior to H1B and this would make you dual status.