[IntlTax]

ATE, you again seem to be connecting the detemination of U.S. tax residency with visa status. The expiration of his visa has nothing to do with his U.S. tax residency.

If he meets the SPT for 2008 and is present in the U.S. on Jan. 1, 2008, on what day during 2008 is he a nonresident alien? None. He is a resident alien on all days during 2008. Thus, he would not be a dual status alien.

[AtlantaTaxExpert]

IntlTax:

I disagree. He specifically stated in his latest post that his old L-1 visa expired while he was outside of the U.S.

Granted, I assumed that there was a gap of at least ONE day between the expiration date of the old L-1 visa and the effective date of the new L-1 visa, but one day is all it takes.

If there is a gap between the old and new L-1 visas, during that gap period, he was a non-resident alien, and thus is NOT eligible to file as a resident alien. That leaves the dual-status return as his only filing option.

[Daskevin]

ATE the time between old L1 visa and new L1 vias is 5months while I was in India.. I came here only in OCt 2008... Hence I agree with ALE that it's a dual status return only...

[IntlTax]

ATE, do you agree that he meets the substantial presence test?

[AtlantaTaxExpert]

Yes, I agree that he does meet SPT, but that, by itself, does NOT allow him to file as a resident alien.

Meeting SPT makes filing dual-status mandatory.

If he did not meet SPT, he could wait the requisite number of days in 2009 and file his 2008 return as dual-status once he met SPT in 2008, or he could file as a non-resident alien.

[The Texas Tax Expert]

ATE,

What you are saying is incorrect. If he meets the SPT in 2008 (we all seem to agree that he does), he is a resident. The question becomes: when does his residency begin? According to section 7701(b)(2), it begins on the first day that he is present in the year. According to the original post, that is January 1. He is still in the US as at Dec 31.

Absent relying on the treaty, he is a resident for the full year. His residency did not begin or end part way through the year and thus dual status does not apply.

[AtlantaTaxExpert]

TTE/IntlTax:

I must respectfully disagree.

I had a similar case last year, and that is when I sought out Roger Adams to ask him to explain his citation in his The Tax Pro Journal article about "even one day as a non-resident alien precludes filing as a resident alien".

He stated that this fact is NOT stated explicitly in the tax regulations, but was inferred by the requirement that the foreign national be a resident "for the entire year". To be sure of his interpretation, he consulted directly with the IRS attorneys who wrote those specific citations of the IRC and confirmed that, in order to file as a resident alien (filing Form 1040), the foreign national CANNOT be a non-resident alien for even one day.

Kevin was a non-resident alien for five months; In my opinion there is no way he can file Form 1040 as a resident alien.

Gentlemen, I have the article Mr. Adams wrote in PDF form, and I have Mr. Adams' email address. I can provide both for your use if you email me at [email protected].

[The Texas Tax Expert]

No, ATE, you are misunderstanding the meaning of non-resident.

If Mr OP arrived on March 1 2008 and remained in the US for the remainder of the year, he would have become a resident but his residency would have begun on March 1. He would have been NR from Jan 1- Feb 29 and Resident from March 1. He would be dual status.

Under the current fact pattern, he is Resident all year. He becomes a resident from the first day of presence and that was apparently Jan. 1.

As a further point, I don't think there is merit in quoting unknown IRS sources. You need to be able to back up your position with the law. The unnamed sources may 1. be wrong, 2. be answering a different question to what you think you are asking (ie. We don't know that you posed the correct question, so we can't rely on the answer).

[AtlantaTaxExpert]

TTE, I disagree.

Mr. OP was resident at the beginning of the year under his first L-1 visa. He then left country, during which time his L-1 visa expired.

He then returned to the U.S. under a second L-1 visa.

I grant that he was resident at the beginning of the year and at the end of the year, but the facts of the case clearly support that he was non-resident during the interim period between L-1 visas.

If we make him resident for the entire year, then, under U.S. tax law, the income while in his home country while under NO L-1 visa at all is subject to U.S. income taxes!

There may have been some basis for the position of full-year residency had he retained the same L-1 visa throughout the year, but clearly he did not.

To make him a full-year resident defies both common sense and the spirit of the law, AND makes him subject to dual-taxation, because, even with the Foreign Tax Credit, Mr. OP would probably pay more taxes filing as a resident alien and counting his Indian income on his U.S. tax return.

[The Texas Tax Expert]

No. The expiry of the L1 visa is totally irrelevant. Unless you are relying on the treaty, the OP meets the SPT and is a resident for the full year.

[AtlantaTaxExpert]

TTE:

Again, I disagree.

I will be writing the letter to the IRS this weekend and, after discussing it with the IRS International Tax Hotline, sending it to the IRS.

I will let you know by email the IRS answer, which I will likely get sometime next summer.

[IntlTax]

ATE,

I agree with TTE that in this case the visa status has no bearing on whether the individual is a resident for U.S. tax purposes under the substantial presence test.

With regard to the start of the residency, Treas. Reg. 301.7701(b)-4(a) provides in part:

An alien individual who was not a United States resident during the preceding calendar year and who is a United States resident for the current year will begin to be a resident for tax purposes on the alien's residency starting date. The residency starting date for an alien who meets the substantial presence test is the first day during the calendar year on which the individual is present in the United States.

With regard to the termination of the residency, Treas. Reg. 301.7701(b)-4(b)(1) provides in part:

An alien individual who is a United States resident during the current year but who is not a United States resident at any time during the following calendar year will cease to be a resident for tax purposes on the individual's residency termination date. Generally, the residency termination date will be the last day of the calendar year.

Thus, unless an exception applies, Kevin would be treated as a resident of the U.S. until the last day of the calendar year.

Treas. Reg. 301.7701(b)-4(b)(1) provides in part:

[T]he residency termination date for an alien individual who meets the substantial presence test is the last day during the calendar year that the individual is physically present in the United States if the individual establishes that, for the remainder of the calendar year, the individual's tax home was in a foreign country and he or she maintained a closer connection (within the meaning of §301.7701(b)-2(d)) to that foreign country than to the United States

This exception to the general residency termination rule would not apply to Kevin because he was present in the U.S. on the last day of the calendar year. I can find no other exceptions that would apply. Thus, Kevin's residency starting date would be January 1 and he would have no residency termination date (he was a resident through the end of the year).

There is no need to write to the IRS on this issue. The statute and regulations are clear. Kevin is not a dual status taxpayer for 2008. He is a U.S. tax resident for the full year.

[AtlantaTaxExpert]

The citation that supports my position is Reg.301.7701(b)-4(c)(2).

Further, on page 25 of the IRS Pub 519, it says (under Deductions in the third column): "You can claim the same deductions allowed to U.S. citizens if you are a resident alien FOR THE ENTIRE TAX YEAR." Both I and Mr. Adams (my primary source for this position) read "the entire tax year" to be 1 January through 31 December.

Further, your citation of Treas. Reg. 301.7701(b)-4(b)(1) above would indicate (to me) that Kevin has the choice of claiming dual-status if he can show a closer connection. Since Kevin seems inclined to agree with my interpretation, I would have him submit Form 8240 with his dual-status to establish that closer connection just to be safe.

[The Texas Tax Expert]

ATE,

§301.7701(b)-4(c)(2) disproves your point. It states very clearly that proration only occurs if your start date or termination date don't fall at the start/end of year.

IntlTax's post shows clearly that the regs support a January 1 starting date and a December 31 termination date in the OPs case.

Here is an example from the regulation that helps clarify the situation. It is different to the OP's situation but it highlights the issue being debated here (namely that the residency continues even in periods of physical absence).

Example. B, an alien individual who is a citizen of foreign country M, comes to the United States for the first time on May 1, 1985, and remains in the United States until November 5, 1985, when he returns to country M. B comes back to the United States on March 5, 1986 as a lawful permanent resident and remains in the United States until September 10, 1986, when he ceases to be a lawful permanent resident and returns to country M. B is not a resident in calendar year 1987. B's United States residency in calendar year 1985 continues through December 31, 1985, because he is a United States resident in the following calendar year. In calendar year 1986, B's United States residency is deemed to begin on January 1, 1986 because B qualified as a resident in the preceding calendar year. Thus, B's residency period in the United States begins on May 1, 1985, and ends on September 10, 1986.

2nd point: who is Mr. Adams? I don't think you should be basing this on someone's opinion unless they can point to the law to back up their position. You are both confusing the term "resident" with physical presence in the country. Let's imagine you have a client who is in the US from January 1 through October 1, then takes six weeks off to go and visit their family in China, then returns and remains in the US for the next year. Are you going to treat them as dual status because they were not physically in the US for 6 weeks of the year, or will you classify them as resident for tax purposes?

[AtlantaTaxExpert]

TTE:

I am not arguing that physical absence would change his residency status; I am arguing that Kevin cannot file as a resident alien for 2008, because he reverted to non-resident status for part of the year.

Kevin terminated one L-1 visa after leaving the U.S. then started a new one before returning. Had he retained the same L-1 visa the entire time, he would have never reverted to a non-resident alien status and thus would have been able to file as a resident alien, filing Form 1040, just like a U.S. citizen.

Further, while the example with B clearly shows continual residency from May 1, 1985 to September 10, 1986, dual-status returns would also be required for him for both years, because B had non-resident alien time in each year, making him ineligible to file as a resident alien.

Roger Adams is an enrolled agent who works with the U.S. consulate office in Portugal on international taxation issues. His article (which I can send you by email if you want) addressed the issue which is the basis for my position, and that article was researched in coordination with the IRS attorney who wrote §301.7701.

I have emailed him about this case, and I believe he agrees with me that Kevin needs to file as a dual-status alien for 2008. I am right now writing a follow-up email to make sure of that point.

TTE, do you want Mr. Adams' email address so you can correspond directly with him?

[The Texas Tax Expert]

ATE,

You have missed the point of the example above. The taxpayer becomes a resident under the SPT (presumably they were here on a visa). The taxpayer leaves the US for several months and then returns as a green card holder (note, different immigration status). Under your model, residency would have terminated on Nov 5. The example makes clear that residency continued through Dec 31. Furthermore, under your model residency would have begun on March 5 1986. According to the example it began for the 1986 year on Jan 1.

Under your model, residency seems to stop and start throughout the year. That is not consistent with the tax law. It is also not consistent with the intent of Congress. The Joint Committee on Taxation has noted that "aliens should not be able to switch back and forth between resident status and non-resident status for short periods, and that there should be no gap in resident status when an alien is a resident for part of two consecutive years" (JCT General Explanation of the Revenue Provisions of the Deficit Reduction Act of 1984).

I am not going to debate it with you any further. The article you are referring to by Roger Adams deals with situations where residency begins on a date other than January 1. All of us agree completely that such a result would give rise to a dual status sitution. In no way does Roger Adams' article imply that residency stops and starts repeatedly during a single year.

TTE

[Daskevin]

Hi ATE,

So should I still go ahead with treating myself as DUAL STATUS alien while I file 2008 Tax returns... Please confirm...

Thanks for your suppoprt

Kevin

[AtlantaTaxExpert]

Kevin:

First and foremost, your return is a BIT complicated, so you should NOT file it yourself, but rather you should hire a knowledgeable tax expert with experience in these types of returns to file it for you.

Second, the issues and procedures cited by TTE and IntlTax ARE VALID, especially if you met the Substantial Presence Test in any year prior to 2008. For this reason, I must admit that, for you, given the circumstances provided, the best course of action would be to file as a resident alien.

Granted, you will have to claim your home country income on the U.S. tax return, but that can be at least partially offset by the Foreign Tax Credit (Form 1116), plus you will get to claim the $5,450 standard deduction on your return.

I would have to prepare the return both ways to be sure, but it is very possible that filing as a resident alien would actually result in paying LESS tax than filing as a dual-status alien.

TTE:

After reviewing the body of work, and in light of your citation of the Joint Committee of Taxation, I concede the point that Kevin should file as a resident alien.

[Daskevin]

Ok ATE... I gotch you... please pass me your email address,so that I can get in touch with you once I make up my mind...

My Conclusion: File as Resident Alien with Foreign Tax credit 1116Form.. But nevertheless can always file both(Resident and Dual status) to see which will cause me to pay lesser tax


Again appreciate all your efforts ATE,TTE,INtl
.. Keep up the good work...

Thanks
Kevin

[AtlantaTaxExpert]

My email address is [email protected].