[WatchFirefly]

Hi Everyone,

I am almost done filing up my forms, but just have one quick question. Can taxgurus please help me out?

I am an Indian citizen, filing single, for the tax year 2010. From 1-Jan to 18-Apr (107 days), I was on F-1 status and on H-1B for the remainder of the year. So far, I have spent total of 41 months on F-1. With this info, I am a dual-status alien for the tax year of 2010. Form 1040 will be my main return, 1040NR and Form 8843 as attachment

I have a few questions:
1. Can I claim std. deduction under US-India Tax Treaty Article 21(2) on "Form 1040"?
2. On the income for the resident period, I can claim Making Work Pay Credit by attaching schedule M and report this on line 63 of Form 1040 (my main return), correct?
3. Do I need to file Form 8843? Or mentioning US-India Treaty article in the margin note is enough?
4. I am right now in India. Would it be okay if the return is postmarked by April 18, 2011?

Thanks

[MukatA]

1. Yes if you have income during F-1, you will get standard deduction for itemized deductions.
2. You may try.
3. Yes file Form 8843.
4. Make sure to pay any tax due on or before April 18, 2011.

[WatchFirefly]

MukatA:

Thanks a lot for quick reply.

I did not have any income during nonresident(F-1) period. I had only income during resident period(H-1B).

1. Does this mean the only option that I have is to do itemized deduction on schedule A of 1040? [The only itemized deductions that I have are state and local taxes amounting to be approx. $1800 as opposed to $5700 of std. deduction.]

2. In case I can't file return by April 18, 2011, I was thinking of electronically filing for extension using Form 4868. It, however, does not mention dual-status aliens. But my main return is 1040, which is mentioned in the first line in the "Purpose of Form" section. So, I think can e-file this 4868.

3. Also, Form 4868 needs to reach IRS by April 18, 2011 or needs to be postmarked by then.

4. With std. or itemized deduction, I am getting a refund. How does your 4th answer change in light of this?

Thank you so much. Appreciate.

[WatchFirefly]

MukatA:

Thanks a lot for quick reply.

I did not have any income during nonresident(F-1) period. I had only income during resident period(H-1B).

1. Does this mean the only option that I have is to do itemized deduction on schedule A of 1040? [The only itemized deductions that I have are state and local taxes amounting to be approx. $1800 as opposed to $5700 of std. deduction.]

2. In case I can't file return by April 18, 2011, I was thinking of electronically filing for extension using Form 4868. It, however, does not mention dual-status aliens. But my main return is 1040, which is mentioned in the first line in the "Purpose of Form" section. So, I think can e-file this 4868.

3. Also, Form 4868 needs to reach IRS by April 18, 2011 or needs to be postmarked by then.

4. With std. or itemized deduction, I am getting a refund. How does your 4th answer change in light of this?

Thank you so much. Appreciate.

[MukatA]

1. If you did not have any income during F-1, you do not get tax treaty deduction.
2. Yes, you can file Form 4868 for extension. It should be postmarked by April 18, 2011.
4. If you have a refund, you do not pay any interest or penalty.

[WatchFirefly]

MukatA:
Please see my answer referring to the technical explanation of US-India Tax Treaty (1989). This comment box is too small for posting the whole message.
Thanks.

[WatchFirefly]

Technical Explanation of US-India Tax Treaty
I was just referring to the technical explanation of US-India Tax treaty as given in the pdfs here US-India Tax Treaty Technical Explanation
Paragraph 4(b) provides a different set of exceptions to the saving clause. The benefits
Referred to are all intended to be granted by a Contracting State to temporary residents, but not to
Permanent residents or, in the case of the United States, citizens. Viewed from the point of view
Of the United States as the host country, if beneficiaries of these provisions come to the United
States from India and remain in the United States long enough to become residents under the
Code, but do not acquire immigrant status (i.e. they do not become green card holders) and are
Not citizens of the United States, the United States will continue to grant these benefits even if
they conflict with the Code rules. The benefits preserved by this paragraph are the following host
Country exemptions: Government service salaries and pensions under Article 19 (Remuneration
And Pensions in Respect of Government Service); certain income of students and apprentices
Under Article 21 (Payments Received by Students and Apprentices); certain income of visiting
Professors, etc. under Article 22 (Payments Received by Professors, Teachers and Research
Scholars); and the income of diplomatic and consular officers under Article 29 (Members of
Diplomatic Missions and Consular Posts)."

Article-21, last paragraph:
"By virtue of the exception to the saving clause in paragraph 4)(b) of Article 1 (General
Scope) of the Convention, the saving clause does not apply with respect to a person entitled to
U.S. benefits under the provisions of this Article if that person is neither a U.S. citizen nor has
Immigrant status in the United States. Thus, for example, an Indian resident who visits the
United States as a student and becomes a U.S. resident according to the Code, other than by
virtue of acquiring a green card, would continue to be exempt from U.S. tax in accordance with
this Article so long as he is not a U.S. citizen and does not acquire immigrant status in the United
States. The saving clause does apply to U.S. citizens and immigrants."

Since at the start of tax year 2010, I was a student, but later was on H-1B for the remainder of the year, according to this explanation, won't I still be able to avail std. deduction under Article 21(2)?

Thanks a million.

[crazee85]

I called up IRS, and according to them, u need to be resident alien for the entire year to claim Making Work Pay Credit, and hence dual status aliens cannot claim this credit... What to do? I am really confused!! This is the only uncertain thing left in my tax return right now...

[WatchFirefly]

crazee85:
Who did you talk with at IRS? The people, who tend the phones may not be as knowledgeable about the codes as other tax experts in the IRS. At least that's what the feeling I got when I had called IRS once.

[crazee85]

Sorry for the late reply... did not get an email alert for your comment for some reason...

They hd transferred to me the department handling tax credits... they just hd a list of questions to ask and they were basing their decision on that... the last question in that list was "were you a resident alien for the entire year in 2010?"... and if you answer no to that question, they said "you are not eligible to claim making work pay or govt retiree credit"... they were not ready to listen that ARRA code actually says that a non-eligible individual is a non-resident alien; and not that an eligible individual is a resident alien... also even being a dual-status alien, we are actually filing our taxes on f1040; f1040nr is just being used as a statement...

[crazee85]

I wonder what tax gurus are doing for dual-status aliens who are actually using their service to file the tax returns...

Also what happens if I claim the making work pay credit on my return, but the IRS finds it to be wrongly claimed... it is specifically important for me because if I claim the credit, I get a refund; however if I don't claim it, I owe taxes to IRS...

[crazee85]

So I guess I am filing my return without the making work pay credit!!

[WatchFirefly]

MukatA or other taxgurus, can you please answer my question? I filed for an extension, because I am still not sure if I can claim US-India Tax Treaty under Article 21-2.

Thanks.