“We filed and then a couple months later the IRS sent me 2 letters. One stating "IF you are filing as a dual-status taxpayer please submit a signed copy of form 1040". “---->You are a dual status alien when you have been both a resident alien for US tax purposes and a nonresident alien in the same tax year, 2011, I guess. Dual status does not refer to your citizenship, only to your resident status for tax purposes in the US. In determining your U.S. income tax liability for a dual-status tax year, different rules apply for the part of the year, I guess Jan1 2011-Sep 2011, you were a resident of the US and the part of the year, 2011, you were a nonresident. For the part of the year you were a resident alien, you are taxed on income from all sources, both US source and Canadian source to the IRS. Income from sources outside the US is taxable if you received it while you were a resident alien in 2011. The income is taxable even if you earned it while you were a nonresident alien or if you became a nonresident alien after receiving it and before the end of the year, 2011. For the part of the year, after Sep of 2011, you were a nonresident alien; you are taxed on income from U.S. sources ONLY as long as you had US source income after Sep 2011. In this case, you r Canadian source income after Sep 2011 is NOT subject to US taxes but only subject to Canadian tax(es). You r Canadian source income is not effectively connected with a trade or business in the US is not taxable if you receive it while you are a nonresident alien. You must file Form 1040NR or Form 1040NR-EZ as you were a dual-status taxpayer who gives up residence in the US during the year, 2011, and who is not a U.S. resident on the last day of the tax year. You need to write "Dual-Status Return" across the top of the return. Attach a statement to your return to show the income for the part of the year you are a resident. You can use Form 1040, as the statement, but be sure to mark "Dual-Status Statement" across the top. Since you were a nonresident alien on the last day of your tax year 2011 and you report your income on a calendar year basis, you must file no later than April 15 2012 ;
“The 2nd letter stated "Please submit form W-2, form 1042-S, form 8805, form 8288-A, or other U.S. withholding document to support the amount of withholding reported on line 62, form 1040".-----> If you received wages/compensation from your ER in US and all or part of these wages were exempt from federal income tax withholding based on a tax treaty exemption, you will receive a Form 1042S. If all of your wages were exempt, you will receive a Form 1042S only. If only a portion of your wages were exempt, you will receive both a Form W-2 and a Form 1042S. Your ER sends you the W-2. You file. If you e-file, you need to type in the information from the W-2 . If you file by mail, you send a copy to the IRS. Yur ER sends another copy of the W-2 to the SSA which later sends a federal copy to the IRS. That usually gets posted in May or June.The IRS does not wait for the W-2s (in 99% of the cases) and accepts your numbers if you file before they have their copy. They will spot check the numbers in case you put fica/mc down as withholding.
The IRS *will* compare their copy to your return about 12 months later and will send you a bill if you turn out to owe taxes. (People with 5 jobs will overlook one job.)
“I took these letters to my tax preparers and they reviewed and came back to me saying they think the IRS is saying I cannot claim dependents or, in this case file jointly as a dual-status tax payer and therefore should submit a 1040x to update my status as Universal income? I basically removes about $2500 from my refund and It just doesn't make too much sense to me as I've already paid taxes on the income I made while living/working in Canada. I realize that I left the country, but it was 9 months into the year.”---> As you are filing a tax return for a dual-status tax year 2011,you cannot use the standard deduction allowed on Form 1040 . However, you can itemize certain allowable deductions. Special rules apply for exemptions for the part of the tax year a dual status taxpayer is a nonresident alien as you are a resident of Canada. Subject to the general rules for qualification, you are allowed exemptions for your spouse and dependents in figuring taxable income for the part of the year you were a resident alien. The amount you can claim for these exemptions is limited to your taxable income for the part of the year you were a resident alien. Your total deduction for the exemptions for your spouse and allowable dependents cannot be more than your taxable income (figured without deducting personal exemptions) for the period you are a resident alien. You cannot use the head of household Tax Table column or Tax Rate Schedule. You cannot file a joint return(however, you can file your return jointly on 1040 on yur income from Jan 10211-Sep 2011 as a US resident for tax purposes) UNLESS you are married to a U.S. citizen or a resident alien. You may not take the earned income credit, the credit for the elderly or disabled, or an education credit unless you elect to be taxed as a resident alien as the spouse of a U.S. citizen or resident alien in lieu of these dual-status taxpayer rules. All income for your period of residence and all income that is effectively connected with a trade or business in the US for your period of nonresidence, after allowable deductions, is combined and taxed at the rates that apply to U.S. citizens and residents. Income that is not connected with a trade or business in the US for your period of nonresidence is subject to the flat 30% rate or lower treaty rate, if you had the income in US.
Can someone please confirm/deny the correct process for someone in my situation.
“I did call the IRS tax law department but they were not able to help, and could only refer me to publication 519. Please advise.”---> I do not blame you ;Not all of the IRS agents are helpful. I guess you may try to contact international taxation representatives at the IRS.