1. Unique filing status and exemption situations
Spring 2018, LAMC

2. Introduction Objectives of this lesson are to: References:
Determine whether an individual is a resident or nonresident alien.
Determine who can claim the personal exemption for a spouse who is a nonresident alien.
Apply the support test and citizen or resident test to determine whether an individual can be claimed as a dependent.
Apply special rules for Head of Household status when the spouse is a nonresident alien.
References:
Publication 4491, Chapter 8, Unique Filing Status and Exemption Situations
Publication 4012, Tab L, Resident/NR Alien
This lesson addresses issues when dealing with taxpayers who are not U.S. citizens.

3. How do I apply tax law to nonresident aliens?
Your goal is to determine if a nonresident alien can be treated as a resident alien for tax purposes.
Most tax rules that apply to a U.S. citizen will also apply to the resident alien, including filing status and exemption issues.
Worldwide income must be reported by U.S. citizens and U.S. residents.
Filing a tax return as a resident alien does NOT affect the person’s immigration status in any way.

4. Who is a resident alien or a nonresident alien?
An individual must meet ONE of the following tests to be considered a resident alien for tax purposes:
Green Card Test
Substantial Presence Test
Individuals who are lawful permanent residents in the U.S. at any time during the tax year
This is a formula of days and years a person is PHYSICALLY PRESENT in the U.S.
Use Publication 4012, Tab L, Resident or Nonresident Alien Decision Tree

5. Substantial presence test
Was the person physically present in the U.S. on at least 31 days during the current tax year?
If yes, go to the next question.
Was the person physically present in the U.S. on at least 183 days during the 3-year period consisting of the current tax year and the preceding 2-years, counting all days of presence in the current tax year, 1/3 of the days of presence in the first preceding year, and 1/6 of the days of presence in the second preceding year?
Was the person physically present in the U.S. on at least 183 days during the current tax year?
If yes, then the person is a resident alien.
If no, go to the next question.
Does the person have a tax home in a foreign country, and has a closer connection to that country than the U.S.?
If yes, then person is a nonresident alien.

6. Example #1
Angela is married. Her husband Mark is not a U.S. citizen. Mark does not have a tax home in another country. He was physically present in the U.S. for 150 days during the current tax year and both of the two prior years. Is Mark a resident alien under the substantial presence test?
Current tax year = 150 days
Prior year = 1/3 of 150 = 50 days
Two years prior = 1/6 of 150 days = 25 days
Total = 225
Yes, Mark meets the substantial presence test.

7. Substantial presence (cont.)
What counts as days of presence?
Any day that person is physically present in the U.S.
Exception: Someone who regularly commutes to work in the U.S. from Canada or Mexico.
Exempt individuals do not count when determining substantial presence:
Foreign government-related individual
Teacher or trainee who is temporarily present under a J or Q visa
Student who is temporarily present under an F, J, M or Q visa
Professional athlete who is temporarily in the U.S. to compete in a charitable sports event.

8. Substantial presence (cont.)
If a nonresident alien does not meet the green card or substantial presence test, then refer the taxpayer to a VITA site that handles Foreign Students/Scholars.
What happens if a U.S. citizen or resident alien is married to a spouse who is not a resident alien using a green card or substantial present test? You may still be able to provide assistance. There are three filing status options:
Married Filing Separately
Married Filing Jointly
Head of Household (even while living with the nonresident alien spouse)

9. Married filing separately
The U.S. citizen can file MFS and may still be able to claim the nonresident alien spouse’s personal exemption.
A taxpayer may claim an exemption for a nonresident alien spouse on a MFS return if:
The spouse had no gross income for U.S. tax purposes (only U.S. source income)
Has SSN or ITIN
Is not a dependent for another U.S. taxpayer.
Ex.: Raul is a U.S. citizen with a wife and two children. Raul’s wife is a citizen of Japan, and chooses not to file a return with him. Raul can claim his wife’s personal exemption as long as she has no U.S. source income, she is not anyone else’s dependent and has an SSN or ITIN.

10. Married filing joint
A married couple may elect to treat a nonresident alien spouse as a resident alien for tax purposes and file a joint return.
Both spouses would be taxed on worldwide income.
A joint return should paper-filed with an attached declaration, signed by both spouses stating:
One spouse was a nonresident alien and the other spouse was a U.S. citizen or resident alien on the last day of the tax year;
They chose to be treated as U.S. residents for the entire year, and
The name, address, and SSN or ITIN for each spouse.

11. Head of household
A citizen with a nonresident alien spouse can file as Head of Household if ALL of requirements are met below:
Taxpayer is a U.S. citizen, or resident alien for the entire year.
Nonresident alien spouse chooses NOT to file a joint return.
Taxpayer meets the other requirements for this filing status.
The spouse is NOT A QUALIFYING PERSON for head of household purposes.

12. Example #2
Benny is a U.S. citizen and serving in the U.S. Army in Thailand. His wife and two children live with him, and he is able to claim his children as dependents. Benny’s wife, a citizen of Thailand, chooses not to be treated as a resident alien for tax purposes. She does not want to file a joint return with him. Benny is married and still living with his spouse. Can he claim Head of Household filing status?
Yes, he can. His children are qualifying persons. If he did not have children, he would have had to file as MFS.

13. Dependency exemptions
A child born overseas to U.S. citizen parents is considered a U.S. citizen for tax purposes. The child can be claimed as dependent if all other rules are met.
A foreign-born stepchild can be claimed as a dependent if:
Resident alien for tax purposes OR
Resident of Canada or Mexico
An adopted foreign-born child can be claimed as dependent if the child was a member of the taxpayer’s household all year.