Dual Status Alien Tax Return Filing Requirements (5 Key Facts)
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Filing of the income tax return for foreign taxpayers with dual status
When it comes to filing US tax returns for taxpayers considered dual status aliens, it can become unnecessarily complicated at filing time. Indeed, with a dual status tax return, the taxpayer is only considered a US person for part of the year. For the other part of the year, the Taxpayer is considered a nonresident alien and is not subject to United States tax on his worldwide income for that other part of the year. Depending on a dual taxpayer’s various sources of income—and whether or not they have foreign tax credits—this can have a significant impact on the overall tax impact of filing a US tax return. United. Let’s look at five important facts for dual status taxpayers.
Filing of the first year tax return
One of the most common types of situations involving a dual status taxpayer is the first year they become a US person. Consider the example of a resident alien who moves to the United States on an H-1B visa in April of that year and then resides the rest of the year in the United States. For the first part of the year, the person would be considered a nonresident alien (NRA) and subject to US tax only on their US source income. Conversely, for the second part of the year, the dual status filer would be considered a US person and would become subject to US tax on their worldwide income. Noting that there are certain filing requirements that the taxpayer must meet in order to file a dual status tax return.
Filing of last year’s tax return
Another very common tax situation that involves a dual status taxpayer is when a person renounces their US person status. Suppose a taxpayer moves to the United States on an H-1B visa, becomes a lawful permanent resident (LPR), and then relinquishes their status in March of last year (after 3 years of being an LPR). For that final tax year, they would generally also be considered a dual status taxpayer. Indeed, the taxpayer is only considered a US person during the first part of the year (subject to the TPS). For the rest of the year – assuming they resided outside the United States – they would be considered nonresident aliens and subject only to United States tax on their worldwide income (dual status filings of the final year may also have additional reporting requirements).
International reporting forms
For dual-status taxpayers with offshore accounts, investments, and other assets, they are still required to file any international information reporting forms for the part of the year they are considered a person. American. In other words, just because a taxpayer is only a U.S. person for part of the year does not mean they are exempt from reporting their foreign assets. An example is Form 8938 (FATCA).
As stated in the Form 8938 instructions:
- If you are a specified individual for less than the entire tax year, the reporting period is the part of the year during which you are a specified individual.
6013(g) Election and FBAR
When a person makes a 6013(g) election for tax reporting purposes, they may have to file certain international reporting forms associated with filing a 1040 tax return. But, one important fact to keep in mind mind is that simply making a 6013(g) election does not necessarily mean that the taxpayer will become subject to FBAR.
As provided by FinCEN and summarized in the IRM:
- “FinCEN clarified in the preamble to the bylaw that an election under IRC 6013(g), Election to treat a nonresident alien as a resident of the United States, or IRC 6013(h), joint filing, etc., for the year in which a nonresident alien becomes a resident of the United States, is not considered when determining residency status for FBAR purposes.”
Living abroad as an expat
If a U.S. person resides abroad as an expatriate for part of the year – but does not officially expatriate from the United States – they are still considered a U.S. person for the full year – subject to to make a treaty election to be treated as a foreign person for tax purposes. But, even if the taxpayer makes this type of treaty choice, it does not exclude him from the obligation to file certain international information reporting forms, such as the FBAR.
As provided in IRS Publication 5569:
- Example: Kyle is a legal permanent resident United States Kyle is a citizen of the United Kingdom. Under a tax treaty, Kyle is a UK tax resident and elects to be taxed as a UK resident. Kyle is a US person for FBAR purposes. Tax treaties with the United States do not affect FBAR reporting obligations.
Did you miss the reporting deadlines for foreign accounts from previous years?
If a taxpayer has not properly reported their foreign accounts, assets, or investments in previous years, they may want to wait to file those documents for the current year. Indeed, taxpayers should try to avoid making a discreet disclosure (which can result in significant fines and penalties). To do this, taxpayers must submit to one of the offshore disclosure programs. Taxpayers may also consider speaking with a board-certified tax specialist who specializes exclusively in international tax matters before submitting to the IRS, to understand the various requirements.
Golding & Golding: International tax lawyers worldwide
Our team of FBAR lawyers specializes exclusively in international taxation, and more particularly IRS Offshore Disclosure. Contact our company today for assistance.