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Non resident alien - dependent exemptions???


FTS13

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Can someone please help me. This was the first 1040 NR return I did and I followed Pub. 519 instructions. Client and family (wife and 2 children) came to the U.S. from Spain. Client and wife and 1 daughter have SSN and the other daughter obtained a ITIN number. He just received his refund for significantly less due to them taking away the dependents exemptions and the letter of explanation that he received says that "he only gets to claim one personal exemption for himself". Client says he has a friend with a similar situation as his (got here from Spain at the same time, has a wife and 2 kids) and he was able to receive child tax credits for his children. Can someone shed some light please?

Below is the exemption sentence from Pub. 519.

Exemptions

Resident aliens can claim personal exemptions and exemptions for dependents in the same way as U.S. citizens. However, nonresident aliens generally can claim only a personal exemption for themselves on their U.S. tax return.

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This might be helpful to you:

Exemptions

Generally, if you are a nonresident alien engaged in a trade or business in the United States, you can claim only one personal exemption. You may be able to claim an exemption for a spouse and a dependent if you are described in any of the following categories.

  • If you are a resident of Mexico or Canada or a national of the United States, you can also claim a personal exemption for your spouse if your spouse had no gross income for U.S. tax purposes and was not the dependent of another taxpayer. In addition, you can claim exemptions for your dependents who meet certain tests. Residents of Mexico, Canada, or nationals of the United States must use the same rules as U.S. citizens to determine who is a dependent and for which dependents exemptions can be claimed. See Publication 501 for these rules.
  • Pursuant to tax treaties certain residents of South Korea and certain students and business apprentices from India may be able to claim exemptions for their spouse and dependents. Refer to IRS Publication 519 and to Revenue Procedure 93-20 for details.
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Guest Taxed

If a non resident alien self prepares a 1040 and takes the exemptions etc. instead of filing 1040NR is there a system that catches that and rejects the 1040 filing? I am assuming if they all have social security numbers instead of ITIN it may pass the filters. The W2 or 1099 does not specify if it is a resident alien or a non resident alien (or any type of creature for that matter!)

I wonder how many of those 1040 that should have been a 1040NR get filed and bypass the system??

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If a non resident alien self prepares a 1040 and takes the exemptions etc. instead of filing 1040NR is there a system that catches that and rejects the 1040 filing? I am assuming if they all have social security numbers instead of ITIN it may pass the filters. The W2 or 1099 does not specify if it is a resident alien or a non resident alien (or any type of creature for that matter!)

I wonder how many of those 1040 that should have been a 1040NR get filed and bypass the system??

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.

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Guest Taxed

>>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.)<<

In my state the local govt. and state employees do not have FICA witheld either so that can't be a test or filter?

So I guess what you are saying is that a lot of non-resident aliens file 1040 instead of 1040NR and get away with it. (Literally when they leave US)

I am thinking of that 80s Bill Murray/Gina Davis movie (forget the name now) but by the time the cop figures out that they are the bank robbers they are sipping champange 30,000 ft high on their way to South America!

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>>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.)<<

In my state the local govt. and state employees do not have FICA witheld either so that can't be a test or filter?

So I guess what you are saying is that a lot of non-resident aliens file 1040 instead of 1040NR and get away with it. (Literally when they leave US)

I am thinking of that 80s Bill Murray/Gina Davis movie (forget the name now) but by the time the cop figures out that they are the bank robbers they are sipping champange 30,000 ft high on their way to South America!

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-B) 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". :unsure:

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Guest Taxed

I doubt your run of the mill Liberty Tax or HRB preparer knows all these rules, especially variations by tax treaty countries and do the filing correctly. I bet a lot of them just file Form 1040.

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I doubt your run of the mill Liberty Tax or HRB preparer knows all these rules, especially variations by tax treaty countries and do the filing correctly. I bet a lot of them just file Form 1040.

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.

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Guest Taxed

I was watching a cable show and the people were discussing the type of tax returns the "illegal aliens" would have to file to pay back taxes and penalties should the immigration bill become law.

I guess taxpreparers in border states will have another source of new clients?

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Guest Taxed

I just don't like the word alien to describe humans who came to USA for a better life. Yes they broke a federal law and should be held accountable for that.

I can see niche taxpreparers in border states getting the lion's share of the business because they will need help with all the tax forms and other documentation needed.

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True, but remember when you say illegal alien the first that comes to mind is Mexican, but there are also illegal aliens coming from Europe, South America, Middle East, Caribbean and Asia. We normally exclude them because they blend in and don't automatically think they are illegal don't you think?

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I'm sure some people think that way, but how someone interprets the term doesn't change the real meaning of the term. Perhaps it's better to use the proper terminology and educate people to what it means rather than to try and massage the language and rob it of its true meaning..

I even heard a guy on NPR straining so hard to be politically correct recently that he kept referring to illegal aliens as "undocumented citizens". He knew "undocumented workers" is getting a bad rap because there are many non-working illegal aliens in this country as well. So he had the presence of mind to avoid the stupid description and move on to one even more stupid. Can't get much more absurd than that, IMO.

People also refer to all Hispanics (or Latinos) (or Hispano-Latinos) as Mexicans, even though many of them come from Guatemala, Honduras, Colombia, etc. Probably need a little education there as well.

But there's one good side to all this. If I ever decide to rob a bank, I'm going to try and convince the judge that I was just making an "undocumented withdrawall" in a sincere attempt to get ahead. Think that will fly?

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Guest Taxed

In my state we do have a sizable people from former soviet and other east european countries that have over stayed their visitor's visa. In my town last year there was a nasty traffic accident. when cops investigated they found out 2 of the 4 people involved could not speak english and here illegaly??

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>>they blend in and don't automatically think they are illegal don't you think?<<

Maybe where you live. In my state "hispanics" are almost half the population, so the term is pretty meaningless. (I think all racial terms are meaningless, thinking of "anyone with a drop of Irish blood in them" in Gone With the Wind.) We certainly don't automatically think Mexicans are illegal. We understand that Spanish is one of several non-English languages native to natural-born citizens in this country.

As for the term "illegal," it is indeed very inaccurate. It implies that a law has been broken, which generally has not been proven. You know that pesky legal principle we have, "innocent until proven guilty"? And generally nothing is ever proven, at least as a criminal matter. I.C.E. usually just acts on civil authority, often removing suspects from the criminal justice system before trial. So awkward as it seems, in my opinion "undocumented" is the more accurate description.

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al·ien

[eyl-yuhthinsp.pngthinsp.pngn, ey-lee-uhthinsp.pngthinsp.pngn] Show IPA

noun
1. a resident born in or belonging to another country who has not acquired citizenship by naturalization (distinguished from citizen ).
2. a foreigner.
3. a person who has been estranged or excluded.
4. a creature from outer space; extraterrestrial.
adjective
5. residing under a government or in a country other than that of one's birth without having or obtaining the status of citizenship there.
6. belonging or relating to aliens: alien property.
7. unlike one's own; strange; not belonging to one: alien speech.
8. adverse; hostile; opposed (usually followed by to or from ): ideas alien to modern thinking.
il·le·gal

[ih-lee-guhthinsp.pngthinsp.pngl] Show IPA

adjective
1. forbidden by law or statute.
2. contrary to or forbidden by official rules, regulations, etc.: The referee ruled that it was an illegal forward pass.
It seems clear that the term illegal alien is the proper one to describe ANYONE who enters the country without following official rules and regulations, and stays here without having acquired citizenship by naturalization. 'Undocumented' implies at best that you left your paperwork at home, and at worst that you did not obtain all the permissions that you should have and could have, through some oversight. That is clearly not the case if you entered illegally.
My problem with all the verbal gymnastics going on over this subject is that, if we can't even call it what it is, we cannot figure out the best way to solve the problem. Anytime you need to solve any problem, the very first step is to define the problem.
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Ok I already explained to this client the situation and he was upset. He wants to amend his 1040NR to a 1040. I told him I would not be able to help him do that. I am just wondering, does he have a higher chance of getting audited by doing this? His friend's tax preparer told him that it was more advantageous to file a 1040 and not a 1040NR and that's why his friend filed a 1040 even though he should've filed a 1040NR. It's more advantageous money wise but it's obviously not the right thing to do given that he is not a resident.

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