From your note, it would appear that you meet the "Substantial Presence Test" !
As far taxable income of your spouse is concerned, you basically include the W-2 income and report her income normally along with any other 1099-int etc.
The open question's in my mind are as follows:
1. Your filing status?
2. The Wages earned in Italy along w/ foreign withholding taxes?
3. How did you earn the money in Italy, were you in Italy earning this money?
4. How much time did you spend in US with your spouse?
5. If you are deemed to be a Non-Resident Alien, you would only be taxed on
Effectively Connected income to US, if so, we may be able to exclude your
income from reporting purposes.
I need more information in order to give you definite answers.
Last edited by TaxGuru : 03-29-2007 at 02:42 PM.