[taxsearcher]

There seems to be a lot of confusion out there about the situation regarding residency, non-residency, dual status and first year choice. I would like to address this situation. Below I have outlined the facts AND the sources of support.


1. Residency status

There are two tests: the green card test and the substantial presence test.

If you DO satisfy either test then you are a resident. But you may have been a non-resident for part of the year and a resident for the other part. In other words you were a dual status alien. Your status CHANGED during the year.

If you DON'T satisfy either of these in 2005 then you are a non-resident. You are a non-resident for the WHOLE year unless you make a first year election.

This is all supported by IRC Section 7701(b)

2. First year election

If you are not a resident in 2005 because you don't pass either test but you are a resident in 2006 because you pass the substantial presence test in that year you can choose to be a resident for PART of 2005. IRC Section 7701(b)(4)

Why? Because if you think about it, you really began your residency in 2005 but it took some time to meet the substantial presence test as that test involves counting your days.

Which part of 2005 counts as residency? Basically you need to have 31 consecutive days in the US in 2005 (not counting days for which you were an exempt individual -- such as a student) and you need to have been in the US most of the time following the end of that 31 day period (in other words 31 days here in October and then disappearing for November and December won't work).

Your residency is going to start at the beginning of that 31 day period. IRC Section 7701(b)(4)(C)

Note, in determining the starting point DON'T count days that you were an exempt individual. IRC Section 7701(b)(4)(D).

So you are going to be a DUAL STATUS person. You will be a NON-RESIDENT for 2005 up to the start of the 31 days and a RESIDENT for the 31 days onward to the end of 2005.

3. First year choice and MARRIED to a resident at end of year

YOU ARE NOT A RESIDENT FOR THE FULL YEAR OF 2005 JUST BECAUSE YOU MADE THE FIRST YEAR ELECTION UNLESS YOU ARE MARRIED AND MAKE AN ADDITIONAL ELECTION.

If you are married to a resident alien or a US citizen at the end of the year THEN you may elect to be a resident for the ENTIRE year. If you are single this is not an option that is available to you.

IRC Section 6013(h).

IMPORTANT CAVEAT
I have simplified things as much as possible to make this clear. There are of course other issues to consider in each specific case and exceptions and qualifications to the above information. This should be a useful starting point for you but you should review the specifics of your case before taking any action.

[AtlantaTaxExpert]

TaxSearcher:

You raise some interesting points, and I have emailed Dr. Gary Carter for clarification. Dr. Carter is a professor of taxation at the University of Minnesota and the author of the www.thetaxguy.com website which has been cited on this forum several times.

However, regarding your point #2. you need to define "most of the time". The dictionary defines most of the time as anything over 50%. Unfortunately, 51% is not what the statute requires; the requirement is 75%. Clarity and conciseness is important when dealing with taxes.

Also, regarding your point #3 about BEING MARRIED, I posed that question to Dr Carter and am awaiting his response. However, while we wait, I refer you to IRS Pub 519 (which can be downloaded from www.irs.gov), page 9, the first column under the heading FIRST-YEAR CHOICE. Read about two-third of the way down and especially the NOTE quotation. Please report back to the forum what it says.

[taxsearcher]

ATE,

I'm not going to get into a slanging match with you on this board, OK :) But your interpretation of the first yeat election is, I believe, very wrong and I have tried to be polite about it. However, it's important that people have the correct information.

There are TWO elections, as my post clearly explained. The first year election is available to anyone, married or single. This only permits residency from the beginning of the 31 day period. It does not, as you are claiming, provide residency status for the FULL year.

The second election (as I stated in Point 3), is ONLY available to MARRIED persons. This is the election that permits residency to be elected for a FULL year. This is a SECOND election. It is not the same as the first year election.

I've backed up ALL my points above with references to the tax law. That's all that matters. With respect, I don't see your citations to the law anywhere and simply having heard about something else is not a valid argument.

As for the 75%, I agree. I pointed out that I was simplifying for the purposes of the explanation. The code section I cited defines the requirement as being 75%. The 75% was not vital to the point that I was making.

Like I said, I'm not here to wage war with you. I've enjoyed our many discussions on tax law. But you need to review your facts further before you continue to assert your position. If you can show me any source of law that disproves my position, I will gladly back down.

taxsearcher

[AtlantaTaxExpert]

I am not trying to sling mud. You make tax law citations to make your point, but I believe that most people do not care about the tax law citation. They just want to know HOW TO FILE, and that point is NOT CLEAR in your posting.

Let's try to clarify:

1) If you do NOT meet the 183-day Substantial Presence Test (which you will not if you convert from F-1 to H-1B status AFTER 1 July 2005), you are still a non-resident alien. You can file Form 1040NR or 1040NR-EZ as a non-resident alien if you want to, or you can wait (under the provisions of the First-Year Choice) and file sometime in July 2006 as a resident alien, filing Form 1040, 1040A or 1040EZ.

2) If you do meet the 183-day Substantial Presence Test (which you will if you convert from F-1 to H-1B status BEFORE 1 July 2005), Taxsearcher has pointed out that you are a dual-status alien, but he fails to state HOW you can file your tax return. In my opinion, meeting the 183-day Substantial Presence Test is THE DECIDING FACTOR on how you file. Since you have met the 183-day Substantial Presence Test, you can file as a resident alien. You also have the OPTION to file as a dual-status alien (and in some cases, that makes sense, but NOT normally), but it is NOT mandated.

That's the Bottom Line:

- OVER 183 days as H-1B, you file as a resident alien.
- UNDER 183 days as H-1B, you file as a non-resident alien, or you wait until sometime in mid-2006 to file as a resident alien (assuming you can meet the special requirements).

The rest is specialized jargon which the average person reading this forum could not care less about.

Comments?

[taxsearcher]

ATE,

I'm citing the tax law because we're at a point of disagreement over the law. I'm not interested in what people think should or might apply but rather what the law says DOES apply.

As for how to file, I disagree with your suggestion that my first post does not achieve that.

Point 1 states that if you satisfy the substantial presence test then you file as a RESIDENT. If you satisfy the test for only part of the year then you are a DUAL STATUS alien. So if you come to the US in May 2005 and work all the way to December and sastify the SPT you are DUAL STATUS.

If you don't satisfy the test you file as a NONRESIDENT. You are a non-resident all year so file a 1040NR.

Point 2 states that if you don't satisfy the SPT in 2005 but you do satisfy it in 2006 you may elect the first year election and file DUAL STATUS for 2005. Part year non-resident and part year resident. (Obviously for 2006 you would file as a RESIDENT and file 1040.)

Point 3 shows that if you elect the first year election AND you are married and make the second election you may file as a RESIDENT for the entire year. File a 1040.

I honestly cannot see how I can make this any clearer. I respect you as a professional but your opinion that the law just doesn't matter and that citing it is irrelevant is just totally wrong. Unless your professional opinion is based squarely on the law it is of no value to anyone.

taxsearcher

[taxsearcher]

ATE,

Given you don't want to look at the law, I'm copying parts of the IRS document that you cite. Let me show you that it says the same thing I have said:

1. First year election

My point: this will allow a person who is a non-resident in 2005 and a resident in 2006 to file as a dual status alien in 2005 (with residency from the first day of the 31 day period) NOTE: THIS IS NOT FOR THE FULL 2005 YEAR WHICH IS WHAT YOU CLAIM

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.

Note.
You do not have to be married to make this choice.

2. Now, as I pointed out there is a SECOND election which is only available to MARRIED people and that you can use to file as a resident for the FULL year. Your position is that it is available to anyone, married or single (note the IRS NOTE in the text below):

Choosing Resident Alien Status
If you are a dual-status alien, you can choose to be treated as a U.S. resident for the entire year if all of the following apply.

You were a nonresident alien at the beginning of the year.

You are a resident alien or U.S. citizen at the end of the year.

You are married to a U.S. citizen or resident alien at the end of the year.

Your spouse joins you in making the choice.

This includes situations in which both you and your spouse were nonresident aliens at the beginning of the tax year and both of you are resident aliens at the end of the tax year.

Note.
If you are single at the end of the year, you cannot make this choice.

I hope that you are now satisfied and I look forward to your reply.
taxsearcher

[AtlantaTaxExpert]

I must state categorically that TaxSearcher is correct in his posting.

I will be psoting a new sticky note to modify my guidance to those who converted from F-1 to H-1B visa status sometime this weekend.

Stay tuned!

[taxsearcher]

Moving this up

[getabdul]

Dear TaxSearcher,

I was in the US from 4 Sept 2007 to 27 Jan 2008 continuously. As per your point (2), can I choose to file as resident alien for 2007.

Please advice and oblize.

Thank you

[MukatA]

If you are single, then the point (2) does not apply to you. Also what is your visa?
Also if you left U.S. on 27 Jan 2008, you don't complete residency test.

[getabdul]

Thank you very much for the response.

My Visa type is H1B. I was in US for around 16 days in 2005 and 20 days in 2006 also. I am married. I am referring to point '2. First year election' in the first posting by TaxSearcher in this chain.

[sutaneja]

@taxsearcher

Could you explain a point. I am a bit confused about it.

What all forms a Dual status alien needs to fill.. like I am on L1, single and came here in Aug 2007. I have earnings and tax in Home country before Aug 2007 while I was non-resident here. And have earnings here while I am resident.

Read instructions of 1040NR and found that there are some restrictions(like standard deductions etc). Can you provide some info of this also?

[MukatA]

@taxsearcher

Could you explain a point. I am a bit confused about it.

What all forms a Dual status alien needs to fill.. like I am on L1, single and came here in Aug 2007. I have earnings and tax in Home country before Aug 2007 while I was non-resident here. and have earnings here while I am resident.

Read instructions of 1040NR and found that there are some restrictions(like standard deductions etc). Can you provide some info of this also?

If you came to U.S. on L1 in Aug 2007 and are single, then for 2007, you will file nonresident tax return.
You are Dual status only when you came to U.S. in 2007 and have spent more than 183 days in U.S. in 2007.

[getabdul]

Thank you for your response.
I am married. My Visa type is H1B. Though I left US on 27 Jan 2008, I may enter US again during 2008. I am referring to the point '2. First year election' by TaxSearcher in the first post in this chain.

Thank you very much.

[sutaneja]

Hii Mukat,

Thanks for your reply. Yes, u are right. I am a NR for 2007. But if you will see option 2 (explained by taxsearcher), I can chose to be resident from aug-dec 2007, if I am a resident in 2008.

-Sumit

[MukatA]

hii Mukat,

Thnx for your reply. Yes, u are right. I am a NR for 2007. But if you will see option 2 (explained by taxsearcher), I can chose to be resident from aug-dec 2007, if I am a resident in 2008.

-Sumit

Yes, then you will file Dual Status tax return. But there is no advantage. You will still not get standard deduction.

[sutaneja]

Yup, But I can get Itemized deduction(schedule A) and exemption for single..

Also my earnings are not that much..

I have done the calculation treating as NR and as R, there is not much difference between the refund..

But if I 'll file as resident, this will help me in India, so I don't need to include my US earnings(of 2007 and 2008) in India tax return, as I am resident (for tax purposes).. [I think so]

-Sumit

[santhoshvasudev]

Hii

My husband came to us in aug 2004 in F1 visa ,from oct 2006 to oct 2007 he was in OPT status .in oct 2007 he got his H1.

From what I understood is he has to file 1040 NR since he doesnot satify SPT 183 days test is that right ?

In case we are filing 1040 NR can he claim spouse exemption for me.we got married in dec 24th 2007 and I came to US in jan 7 2008 in dependent visa.I don't have any income here nor am I working

We are indians so that means we can also claim for $5350 std deduction as per india us treaty rt ?

Do I also have to file any return since in 1040 nr I didn't find any option of married filling jointly.I only found married filing sep so does that mean I have to file my return .if yes then what return do I have to file.I am on dependent visa and not working in US

Can we also apply for first year choice even though I was not in us dec 2007 but my H4 visa was stamped in dec 27th 2007

Do help me .
We have no clue as to how to file

Please do help.