MsTabbyKats

This client is so documented he sends me everything and the kitchen sink. The letter he got says if he disagrees he should have a conference with a local appeals officer. When I speak with the auditor I'm to ask "how to get one"...and work with "the appeals officer". I just noticed the letter came from "large business & international". One would think someone in that dept. would know interest/dividends aren't taxable to non-resident aliens. I know that I can get very condescending (I have a lot of Sheldon Cooper in me too)...and I know I will be if I have to explain this to the auditor....and that scholarships used to pay tuition aren't taxable either. Whether or not they will allow the deduction is a matter of opinion.

And I bet you're right! Before I became "independent"....I worked for a small company. No one there knew the rules of non-resident aliens. One day, wealthy person from Europe (I didn't know this at the time...only found out later reading newspapers) came into the office to have taxes done. I did exactly what had been done the prior year...which was 100% wrong. If I had done this "at home" I would have researched it as best I could..but I really had no knowledge of non-resident aliens. I had no research tools in the office...and in addition, she was "flying out that night" (just came in to have her taxes done...and have no idea why she came to this office....really just a store front on a side street) so I had to do it on the spot. But, because I knew that I was doing something I had no business doing (other than the boss said "do it") and that I was probably doing something completely wrong....that summer I took it upon myself to learn how to do non-resident aliens. Now, this was over 10 years ago....when the IRS was a friendlier place to call. The agent I used to speak to in the non-resident alien dept. told me that 95% on the 1040-NRs they got were incorrect. That doesn't even include the people who filed 1040s erroneously. When I get a new client who "hadn't done the right thing".....I tell them what they are supposed to do. I also say...."I'm not your mother. I'm not going to tell you what to do. The worst case scenario is (whatever)." In addition...if it's someone who filled in a 1040 "last year" and now wants a 1040 NR for the current year....I tell them I can't do it unless I amend the "former year" because it will be waving flags...and I don't want "the headache". If they want me to the a 1040, I also decline...but this time because I can get fined, since I'm supposed to know better.

Last year they were mobbed (at least in NYC) I thought because tax preparers needed credits. Since that is no longer the case, it shouldn't be so bad. I attended the conferences for 3 years (paid) and then didn't go for 2-3 years. Those first years, when I went, the presentations were put on-line in the fall (before tax season). At the conference they gave out nice books with all the slides from the presentations. Last year it was "print your own" and bring it with you. I wasn't aware they they no longer posted the presentations on line until the next year. They also cut out the dinner (not that it was anything to write home about)...but they never could have fed that many people in one room.

Also...certain grad students don't have FICA withheld....so it's not a 100% test....but "an indication". In any event, I discussed this with an IRS agent a few years ago. According to this agent, when they return home they have to "fill out something...which I forget the name"....and if their papers aren't in order (1040-NRs not filed) they aren't allowed to leave. However, I never got a referral for an emergency 1040-NR so the person could leave the country. But...from my experience I can tell you one thing that I have seen happen: Indians on J-1s are tax exempt if their stay is under 2 years. However, if they decide to stay longer (one day past 2 years!) they have to pay back the exempted tax. I've very often amended the returns, so, all is good and legal. However, many "just take the chance and leave it". Sometimes the IRS catches it; more often not. And they all tell me..."My friend didn't..etc...etc" I know one husband/wife team. Wife got caught and had to pay back. Husband, no, they never questioned him. I have a current client from Greece. She came here on a J-1 to work at Standford (the university should have known better) and her contract said that she was exempt from Federal tax for 5 years. Unfortunately Stanford was wrong. (And this was a legal document that had gone thru Standford's legal dept.) The treaty with Greece (which is crystal clear) says if you extend your stay past 3 years you need to pay back all the tax. The husband was never questioned. Not only that, the husband said that he had loads of Greek friends on J-1s at Stanford, all of them not paying tax for 5 years. The wife questioned the IRS...and why the "audited her". The auditor said that they picked up on her because she put down her visa change (to H1- on her (self-prepared) 1040-NR. I told the husband Stanford should at least pick up the penalties & interest...but he didn't want to get into that because they wanted good references for jobs. So...to answer the original question....from personal experience, lots of non-resident aliens file 1040s and get away with it. Lots of non-resident aliens stay longer than their "treaty exempt" period and get away with it. Lots of non-resident aliens are mis-advised by their institutions and get away with it (although they don't know that they're doing anything wrong). And people wonder why I "question the knowledge of those in authority".

I used to go and enjoyed them for several years. Last year was just too crowded...and the handouts were too few. If anything, my son lives in DC...and I may go and audit (but highly doubtful). You can really get the same info on line.

How did I change my story? Worst case scenario...taxpayer owes about $3000. (He had a very low W-2 in 2011.) He paid...out of pocket $100,000 for tuition. He isn't poor and he makes a great salary now. This is more of an annoyance for him than "a problem". Taxpayer cannot believe the auditor told him she doesn't know where the scholarship came from! I'm sure taxpayer and his friends are all laughing about the IRS...as is the rest of the world. This is not something that will go to court. Taxpayer is willing to pay his fair share....just not pay more than that. However...I am flattered if you do agree with me.

Lots of them...especially with e-filing....where you don't need to send in the W-2. (Most W-2s don't have FICA withheld...so it's often obvious.) I get lots of these referrals...and it's generally because they didn't know what to do the first year. Also...it doesn't matter if the spouse/dependents have ITINS or SS#s. I "auto-reject" these...too many potential headaches.

I'm going to call on Monday (hopefully the POA will be on file or my dedicated fax line will be fixed). If I feel that she is "not connecting the dots" I was planning to find out about speaking to a supervisor or have the case transferred. I'm also going to ask the taxpayer advocate for advice.

I discussed with OP. 1040-NR is mandatory. No tax treaty benefits.

I really don't know how to interpret this. I will just say: 1. If the auditor was "competent" she would not have added income from interest/dividends 2. If the auditor was "competent" she would not just add some random "scholarship" to his income...because no where does his records indicate any scholarship for the tax year in question. 3. As far as "new occupation"....the client has a letter from the current employer, stating that his MBA improved his skills in the field that he had be working in Colombia...and that he was hired for this job because he had these skills. They did not hire him to "give him a break"...but rather that he had specific expertise. As for "tax court"....I don't think a few thousand dollars is worth my clients time or efforts. He'd probably just rather pay....but prefers to not pay.

And I have said....there was no mention of a scholarship on the 1098-T, Just what he was billed for....$51,000+. And he has the transcripts from the school showing the payments. No scholarship money was used to offset any tuition bills he got in 2011. Just paid by check.... No...I haven't read any cases. The clients is doing the same work in the same occupation he always did. Really....not much to read up on...since the deduction is allowed if he is staying in the same field. I like to use my time wisely. I don't need to read up on things that I know. I don't even need to related "his old job" in Colombia to his job here. It's the same job. Just...he's more knowledgeable in it now.

Please read post #21. That was where "extra scrutiny" was brought up. Not by me....... The scholarship was by NYU...and directly used to offset tuition. That's it...nothing hidden. NO work for the school...NO payments for teaching....NO issue of any W-2 or any 1099-Misc by the school. NOT for 2010 Not for 2011 Not for 2012! He received 2 pieces of paper for 2011. A W-2 from his employer...and a 1098-T from NYU. Really...nothing you're not seeing.

What visa is he on? When did he arrive in the US? If he can file a 1040...he can file jointly with wife & kids. If he needs a 1040-NR....it's just him. If he needs a dual status...he can take the wife & kids for the "US Resident" part. Please feel free to PM me....

You're a very funny person. With social skills you kind of remind me of Sheldon Cooper. Don't take that as an offense....since I love Sheldon. His complete lack of "empathy and understanding of human emotions" is what makes him so endearing. Oh....And when did I say anything about this man's ethnicity? Someone else said the problem may be because he's Colombian. I don't know his pigmentation or religion. I only know that his English is impeccable....with only a hint of an accent. You assumed he was either selling oranges on the roadside or part of the drug cartel back in his "developing country". If I say another word...it would mean that I'm stooping to your level. For all those that gave helpful input...thank you. Case closed.

I can't post the findings from the auditor...but it: disallowed his tuition as a deduction added scholarship as income (although there is no scholarship income on the "Wage & Income Statement") added dividends & interest as income (although non-resident aliens don't need to declare this income) And, she did all this within 4 days of receiving a 19 page fax from him!

So...why isn't anyone telling me "what a great auditor" she is?

Note...the "scholarship" for Spring 2011 was for tuition paid in in 2010....so it should not be included in 2011 anyway. How can she make this 2011 income...when it was a scholarship directly from the school to directly offset tuition???

Clients e-mail to me (scholarship he refers to was paid prior to 2011) I spoke with Cherry yesterday. I told her you were going to call her after the form you sent me was filed, so later this week. She is a cordial woman and she is willing to explain, but sometimes I get the sense that she doesn’t have a lot of experience. It has been hard for me to explain why a master’s degree education is useful for my career. She doesn’t seem very familiarized with the MBA degrees. We had a conversation and this is what she told me… - She said she did review the documents I sent her initially and that the second request was generated by her. (However, I don’t think she reviewed them carefully because of the following points on our conversation…) - When I asked her where did the $15,000 scholarship came from, she said she had seen in my 2010 return that I had stated $10,000 and so she was claiming the remaining $15,000 as the total scholarship was $25,000. o To this I responded that I didn’t recall ever filing 2010 taxes!...because I arrived to the US on August 2010. The first tax return I had prepared was with you for 2011. o She looked into her system again to find where she had seen that… and she didn’t find it!… so she said I was right. o Therefore we went over the NYU receipts and I showed and explained how in 2011, only $12,500 was granted (for Spring semester 2011). o Finally she said she was going to change the $15,000 to $12,500, but that anyhow scholarships were taxable even if I didn’t receive the money directly, it was considered as income. - Besides the scholarship, she said that it seemed that she still needed to disallow the tuitition. I asked her if she had seen the letters I sent her from my company, as her first request asked for a letter from my employer explaining whether the education was necessary for my job, and how the education helped me improve or maintain the skills needed for my job. (I’m attaching both, this request and the letter I sent her complying with the request). o It seemed that she had not read it, as she looked for it on her computer and went over it while we were on the phone. o Then she said the letter showed that the MBA was a minimum education requeriment for my job, and that in this case tuition is not tax deductible. o To me, this seems contradictory to the first request…. first I need to show that my degree was useful to advance my career, and then this goes against me... Finally, she wants me to send her proof that the rest of my tuition was paid by me, and not somebody else or a company. So I told her I was going to get proof of all the checks, wire-transfers, etc, to show her that I payed it myself. She said she would be glad to speak with you when you called her, and in the meantime I would recollect the checks and proof that I paid for my tuition (except the scholarship)

This client is very good in that he responds to things quickly. And he is very well documented. I have told him to let the dust settle. IMHO...if the auditor received 19 pages on 5/30....she could not have sent a response on 6/4. These things generally take "much longer". Any opinions on this? Maybe being Colombian has something to do with it....that I don't know. Maybe....the majority of my clients aren't American, but I think he's my only Colombian. I did a Mexican (his friend) for the same year...exact same scenario. But, the Mexican hasn't had a problem (yet). Any opinion on the fact that he faxed in his papers on 5/30....and got a letter dated 6/4. I go for "auto-generated"...but the auditor said it was her response. Since when is the IRS so fast??? And lastly....the tax payer was "well employed" in his "developing country". He got into NYU for an MBA (not easy to do) and paid over $100,000 for his education. Let's not make this like he was "working the fields". I'm going to post my clients' e-mail to me in the next post.

One other thing...... His 2011 refund was delayed because the return was "examined" at the time it was submitted....and "passed" whatever they looked for at that time.

OK...more details The taxpayer is from Colombia on an F-1. Let's put aside whether or not the tuition is a deduction. The auditor included, in her audit (although a minimal amount), dividends and interest. Non-resident aliens do not pay tax on dividends and interest. He was in this field in Colombia and came here specifically to improve his skills and work in this field. (He worked in Colombia in early 2010...then came here...did not work here...but studied for the rest of 2010) The 2011 1098-T showed only tuition from 2011...no adjustments from other years. There is nothing "hidden" in any 2011 forms. In any case...she wants him to prove he paid the tuition for 2011. So, if it not a deduction...then why is she asking for "proof" of payment? Sounds rather contradictory. This auditor is not familiar with non-resident alien issues and MBAs. The client is very "above board"......probably gave her too much info....which overwhelmed her. One other thing...... He submitted 19 pages on 5/30....and got a letter dated 6/4. To me that sounded "auto generated". Did anyone ever get such a fast letter from an audit?????

You can stop scratching your head....he worked before 2010....in the same field. MBA at NYU is full time school...not night school or every other Saturday.

Listen...argue all you want....and read REALLY carefully! In 2010 the taxpayer received financial aide from NYU (the school)....to help in his $50,000+ tuition. NYU never reported this financial aide anywhere. It was used to adjust his tuition. The taxpayer has his 2010 statements from NYU showing this. The taxpayer did not file a 2010 tax return, because he had no income. He was in school full time. The year being audited is 2011. His employer did not pay tuition for him. He did not receive financial aide or any scholarships in 2011. In 2011 he paid $54,000 out of pocket. He has his canceled checks. He also has the tuition statement from NYU showing these payments. The $54,000 out of pocket expense was his deduction. He had: Wages & the educational expense as a deduction. That was the entire tax return. Basically....2 entries. I did my job. This is not a tax court case. This is just someone with an average IQ "looking at the return issue". It's pretty much the same caliber as Jack's client...and the auditor kept adding in state tax refunds. Poor training at the IRS...coupled with functioning agents who cannot read their own publications.

Real? How does the auditor just add in $15,000 to his income? She just decided.... Anyway...even if there was a scholarship in 2011...it was used to pay tuition. Last time I checked...scholarships used for tuition are not taxable.

I'm having "fax issues"....my dedicated line won't be fixed until Monday...so I can't fax & talk at the same time right now. The client sent in 19 pages, including a letter from his employer...stating that the education improved his skills. But...the main issue...is the auditor added $15,000 (prior post had a typo) scholarship as income. The "Wage & Income Transcript" doesn't have "scholarship income" on it. In addition...any aide he was given was from the school...used to credit his tuition directly. But....none of it for 2011 anyway. He got a BA...worked in the field. He is still in the field. He got an MBA in the field. He intends to stay in the field. The MBA was 1,000,000% to improve his skills in his current occupation.