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Old 04-04-2013, 05:57 PM
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Dual status first year choice- foreign income exclusion?

I was married in Oct 2012 and my husband moved to the US Aug 2012.

My husband does not have a greencard yet (hes here on a visa), and I wanted husband to be treated as a resident alien for tax purposes for the entire year by electing to be treated that way. He also had foreign income I wanted to be excluded under the foreign income exclusion.

So I bring him all my stuff to a local CPA and tell him what I want and he says leave them here and he'll get back to me in a few days. Well today he calls me and says - NOPE cant do that no way.

I say why not??? He says- I can elect to have him treated as a resident all year- no problem, all I have to do is check boxes/write the letter whatever.

But I can not exclude the foreign income. So I challenge him. We went back and forth about it for a LONG time. He emailed me the publication 519 in its entirety to show me exactly what he was looking at.

He said my husband is a dual status alien- "You can be both a nonresident alien and a resident alien during the same tax year. This usually occurs in the year you arrive in or depart from the United States."

And this is his first year of residency "If you are a U.S. resident for the calendar year, but you were not a U.S. resident at any time during the preceding calendar year, you are a U.S. resident only for the part of the calendar year that begins on the residency starting date. You are a nonresident alien for the part of the year before that date."

(And there are special rules for the first year.) For the first year, you can either establish it by the presence test, the green card test, or the residency during the preceding year.

If you do not meet either the green card test or the substantial presence test for 2011 or 2012 and you did not choose to be treated as a resident for part of 2011, but you meet the substantial presence test for 2013, you can choose to be treated as a U.S. resident for part of 2012.

OR you can make the CHOICE by writing that letter.

So I said fine. We make the choice.

So again, he says the first year choice residency rules apply

the following rules APPLY:

" If you make this choice, the following rules apply.
You and your spouse are treated as U.S. residents for the entire year for income tax purposes.
You and your spouse are taxed on worldwide income.
You and your spouse must file a joint return for the year of the choice.
Neither you nor your spouse can make this choice for any later tax year, even if you are separated, divorced, or remarried.
The special instructions and restrictions for dual-status taxpayers in chapter 6 do not apply to you."


He insisted we would be taxed on worldwide income. I again said no and he pointed out another page where it read-

Nonresident Spouse Treated as a Resident

If, at the end of your tax year, you are married and one spouse is a U.S. citizen.. and the other spouse is a nonresident alien, you can choose to treat the nonresident spouse as a U.S. resident.
If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire tax year. Neither you nor your spouse can claim under any tax treaty not to be a U.S. resident. You are both taxed on worldwide income. You must file a joint income tax return for the year you make the choice, but you and your spouse can file joint or separate returns in later years.
If you file a joint return under this provision, the special instructions and restrictions for dual-status taxpayers in chapter 6 do not apply to you.

So my question is - Is this correct?? If we make this first year choice does that mean we can not exclude his foreign income?

It doesnt quite seem right since he was already taxed on his income overseas.

Is there something Im missing? Ive read through lots of threads and they all seem to refer to people taking this exclusion. Ive also seen something about a foreign tax credit? Is that perhaps what I should be asking about?

Any assistance is much appreciated.

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