[bbarath]

ATE,
Thanks for the prompt reply. Turnaround time of less than 10 -12 hrs can't be termed as a "delay" :).

I am claiming standard deduction (under India Income Tax treaty). I am planning on adding a separate sheet explaining this special case situation to IRS:

FORM 1040, Line 39
-I am a Dual Status Alien
O NOT because this is my first year in USA
O BUT because I changed from F-1 (Student from India) to H-1B.

Though Publication 519 says that One cannot claim standard dedution on a "Dual Status Return", It does not deal with this special case situation where students (F1) from India change their status to H1B.
Note: This is NOT my first year in USA.

After talking to IRS helpline and NATP, I understood that, since India Income Tax treaty allows Indian students to claim Standard deduction on 1040NR, I can claim this standard deduction for the part of my Income which I obtained as a Non Resident F1 student from India.

Do you think I am escalating the problem or making my stand clear to IRS in attaching this ?
I am sure that there is no single correct answer for this question. I just want to know your thoughts on this.

Thanks
Barath.

[kkm]

Hi, I don't understand how to prorate my income when I file dual status tax return for 2004. I only had one month of F-1 status in January, and 11 months of H-1 status from Feb to Dec. However, I worked for the same job in the whole 2004 (12 months). Therefore, I only have one W-2 to reflect to total income for 2004. When I looked at the dual status filing example on Publication 519, it seems like we need to fill out the total income including the non-resident period on Form 1040. Then I have the following questions:

1. Acutually based on my case, Form 1040NR is just the Dual status statement. Does it mean that this form is only for reflecting my income during non-resident period? On the form 1040, I still should include the whole year income, itemized deductions, state tax withheld, federal tax withheld for the period of resident AND non-resident?


2. When I have itemized deductions, should I prorate the state tax withheld and charitable donations for the period of resident and non-resident, and then fill out on both Form 1040NR and 1040?

3. I cannot claim standard deduction, but for the personal exemption ($3100), I have to claim it on BOTH 1040NR and 1040, or EITHER form?

4. After the calculations, IF I found that I got refunds on both of the forms, what will IRS do? Will they refund twice based on the two different forms? IF I found that I have to pay tax on one form, while I can get refund on another form, what should I do?

I do feel confused when I looked at the example on Publication 519. I hope you can help me!

[AtlantaTaxExpert]

Bbarath:

Attach the proposed statement. The IRS welcomes any clarification of the individual's situation.

Kkm:

To answer your questions in order:

1) Yes, all of your income and deductions is reported on the Form 1040.

2) You do prorate your income and deductions (1/12th on the Form 1040NR), but you report ALL income and deductions on Form 1040.

3) Your personal exemption is reported on Form 1040.

4) Remember the Form 104NR is just a statement provided for information purposes. It is NOT a tax return. Since all the income and all the deductions are reported on the Form 1040, the taxes reported due on the Form 1040 will be the taxes assessed (assuming they are computed correctly). Hence, the refund on the Form 1040 is the refund you will receive.

[kkm]

Hi,

Thanks for your reply. As you said, since I have to report all the income from last year on Form 1040, it seems to me that there's no difference to file as resident only. The only difference is I cannot claim standard deduction for dual status. If the itemdized deduction is lower than standard deduction, filing dual status has to pay more tax than filing resident status. Is that Right?

[AtlantaTaxExpert]

Kkm:

If you cannot claim the standard deduction and your itemized deductions are less than the standard deduction, then, yes, you will pay more taxes.

Is that fair? Probably not, but no one said taxes are fair.

All I can say is that the way I told to file is the correct way to file.

You probably could file like a resident alien, and the IRS may never catch it.

Of course, if they did catch it, they would assess you the additional taxes plus a negligence penalty of 25% of whatever the additional tax was, plus interest. If they suspect that you knowingly filed incorrectly, the penalty could go up to 100% of whatever the additional tax was, plus interest. Further, the IRS is always about 18 to 24 months behind on reviewing returns, so if they caught the discrepancy, it would not be until sometime in 2007, which means there would be about two years of interest on any additional tax and penalties they assessed.

Finally, In my opinion, if they decide to press the issue and file charges for tax fraud, and you were found guilty, at the minimum you could expect to be deported!

It's your choice and your decision, but given the possible consequences, I do not think it's worth the risk!

[rajkum2002]

Hello!

I'm also dual-status alien for 2004. Would you please tell me Where on 1040 I should specify 4850 std. ded?

Thanks,
Raj

[2goldie]

ATE,

I am a student from India. I was on OPT till Sept 04 and my H1 started from Oct 04.. I didn't work while on OPT(from Jan-sept) and started working only from Oct.
1) As I fail the substantial test & can I file the 1040NR form.
2) Also should I also file the 8843 for the period on OPT even though there is no earnings.
3) What would the standard deduction amount for me.

Please do help me in understanding this.. Thanks a lot...

[bbarath]

2goldie:

While you are waiting for ATE, here is my $0.02 on this:

1)Since you fail the substantial presence test (For once its good to fail a test :) ), you are not a dual-status alien. You are a NR for tax purposes. So you can file either 1040NR or 1040NREZ.

3) India Income Tax treaty allows you to claim standard deduction of $4850 on a 1040NR / 1040NREZ.

2)You must file 8843 to let IRS know that you are excluding "so many" days in 2004 for calculation of substantial presence.
Hope this helps

I would suggest that you wait for comments from ATE, before filing.

Thanks
Barath

[AtlantaTaxExpert]

@goldie:

Bbarath's comments are totally accurate.

I have nothing to add.

[2goldie]

Thanks Barath for the info.

[mohussain81]

Atlanta Tax Expert,

I know you have a lot of cases here but here mine out as well. I received an H-1B from my employer in January 2005 but chose to stay on my OPT till May 31, 2005 when it was valid till. In essence, between January and May 2005, I was not paying SS and Medicare Taxes. Now my question is, what tax form should I be filing. I am not an Indian resident, (British National) so the Indian rules do not apply to me presumably. I visited H&R Block yesterday and according to them I should file a simple 1040 since I meet the substantial presence test. Please give me your input on this.

Thanks.

[AtlantaTaxExpert]

Mohussain81:

I understand why you are asking for a separate interpretation, since most of the posting involved citizens of India.

I must assume you made a small error and that all dates are in fact 2004 vice 2005. If it is 2005, then your tax return issues will not be addressed until next year.

If it is 2004, then I agree with H&R Block in that you meet the Substantial Presence Test. However, I do not agree that you should file the normal tax forms by themselves, since you meet the classic definition of "dual-status".

Please refer to IRS Pub 519, Chapter 6 for procedures on how to file a Dual-Status tax return.

BOTTOM LINE: You need to file a Form 1040 with a Form 1040NR as an attachment to account for your income while under the OPT as specified by Chapter 6, IRS Pub 519. Further, assuming you were formerly under a F-1 visa, you also need to file Form 8843 one last time.

[mohussain81]

Atlanta Expert:

Thanks your prompt reply on this and yes I did have the years mixed up on this. One more thing, on which form do I claim my personal exemption, the 1040 or the 1040-NR. From what I gathered from the previous threads, you can only get an exemption on one form. So for example if I don't get the exemption on my 1040-NR, won't I end up owing taxes, I mean the personal exemption is my saving grace there. I know its not fair but your advice on this would be appreciated.

[AtlantaTaxExpert]

Remember that the Form 1040NR in the dual-status return is a statement, NOT a second tax return.

For this reason, your personal exemption, as well as all your wages, are reported on the Form 1040.

[mohussain81]

Atlanta Expert:

So let me get this straight here. I will file a 1040 Form, in which I will report all my wages for the year, only claim the personal exemption and deduction for state and local taxes and NOT claim the standard deduction of $4850. On the 1040-NR , I will report the wages that fall in my OPT period i.e. Jan-May 2004 and use a deduction for the state and local taxes with held in the period. In short, my refund or payment will be determined by the amount that on the form 1040. The form 1040-NR just shows what I earned during the OPT period. Am I getting this right? If not, is there a way to discuss this with you on the phone? I am still confused by this.

Thanks

[AtlantaTaxExpert]

Mohussain81:

What you said is true, except that you would claim all the itemized deductions (as specified by the Form 1040 Schedule A) on the Form 1040. Unless specifically addressed in a tax treaty, dual-status filers cannot claim the standard deduction.

Send me an e-mail to [email protected] with your phone number and I will call you.

[Rdx]

Hi
I started my H-1 on October 1st and I was on F-1 (student from India) prior to that, so I understood from your post that I can file as a Non Resident. Once on H-1 my social security taxes were not fully withheld from October 1st so I have to pay this tax. Also in 2003 my SSN was withheld for a month which I wanted to adjust with the amount that I have to pay. What form would I have to file (would 1040NR be sufficient).
Thanks
Rd

[2goldie]

I was on OPT from Jan 04-Oct04 & on H1 from Oct 04. I filed the 1040NREZ with std deductions of $4850.
While filling the form 8843, I came across a Q which is "Enter the number of days in 2004 you claim you can exclude for purposes of the substancial presence test".
1. should this be the total days I was on OPT in US or
2. the days on H1B

Bcos the according to the instructions on 8843, it looks like I pass the SPT.:(... its just confusing to me... Plz let me know..
Thanks

[AtlantaTaxExpert]

The number of days you are under F-1 visa status while on OPT is the number of days you put.

[Rdx]

Do I have to pay Social Security tax for the year if I elect to pay as a resident?
Rd