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 Tax experts please help

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Posted on 03-14-09 6:35 PM     Reply [Subscribe]
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My niece has been staying with me since June last year (so I think she meets the substantial presence test to be classified as resident alien for tax purpose) to prepare for her USMLE exam. I’ve been providing more than half of her support in 2008. I was just playing with tax preparation software and seems like if I claim her as my dependent I get roughly $3000 more in my tax return. So my question is, can I claim her as my dependent?  If so, can I file W-7 with my tax return to get ITIN as she doesn’t have SSN? Has anybody been in similar situation? Thank you guys for your suggestion.
 
Posted on 03-14-09 7:15 PM     Reply [Subscribe]
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Hey Rekha2064,


 


In order for you to claim your neice as your dependent, she needs to be a resident of US, Canada or Mexico. If not then you cannot claim her as a dependent of your return. Hope this helps.


 
Posted on 03-14-09 7:21 PM     Reply [Subscribe]
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Rekha Ji,

First, does she have a valid social security number? Then there is another requirement "citizen or national" of the US or a country contiguous to the United States (Canada or Mexico).  My advise, please consult a CPA near you, $3,000 is a lot of money to get in refund you can afford to spend $500 to get it back.  BTW H&R Block is not CPA. 

Let me quote you section 1.871-2(b), Income tax regs.,

"An alien whose stay in the United States is limited to a definite period by the immigration laws is not a resident of the United States within the meaning of this section, in the absence of exceptional circumstances."

If you plan to hire a CPA, please ask him/her to look into, among other provisions, "LTR-RUL, UIL NO. 871.01-05 Tax on nonresident alien individuals, Resident v. nonresident alien, Forign students, Letter Ruling 5404094830A, (Apr. 09, 1954)" which rules that a foreign student studying in the United States for a degree which requires temporary residence in the United States for a minimum of two years will be classified, for Federal incoem tax purposes, as a resident alien (Rev. Rul. 54-87, I.R.B. 1954-10, 9).

Hope I am not confusing you, as it is confusing for sure!

Sincerely,

Taxman

 

 
Posted on 03-14-09 7:22 PM     Reply [Subscribe]
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I didn't see anything for 2008. Is the below info true for 2008 as well. Anbody?


http://www.irs.gov/publications/p519/ch01.html





Substantial Presence Test



You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for calendar year 2007. To meet this test, you must be physically present in the United States on at least:





  1. 31 days during 2007, and



  2. 183 days during the 3-year period that includes 2007, 2006, and 2005, counting:





    1. All the days you were present in 2007, and



    2. â…“ of the days you were present in 2006, and



    3. â…™ of the days you were present in 2005.


 
Posted on 03-14-09 7:45 PM     Reply [Subscribe]
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Taxman jee-- Rekha jee already has stated in her first thread the person does not have SSN ( read last line) and you are asking 'does she have a valid SSN ?'  !


Rekha jee, ... yes apply for ITIN ASAP. You can claim her as your dependent if all the following points are true:-


1.She will not be claimed by any other as his/her dependent


2.. If she works, her income is less than 3400.00


Hope this will help you.


 
Posted on 03-14-09 8:06 PM     Reply [Subscribe]
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Thank you guys for your suggestion. She can't be claimed as dependent by anybody else. She worked for a while but it was on cash - she doesn't have any income reportable to IRS. I am still unclear whether she can be classified as US resident alien for tax purpose or not. She is in B1 visa. She was in the US for roughly 9 months in 2007 then she went back to Nepal at the end of 2007 and came back in june 2008.
 
Posted on 03-14-09 8:07 PM     Reply [Subscribe]
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Malpaani Ji,

Thank you for pointing that I didn't read the entire posting,  I apologize, it's tax time for me, working long hours, and was peeking through "sajha" on my employer's time.  Hope you are giving Rekha ji a valid opinion.

Thank you,

Taxman

 
Posted on 03-14-09 8:14 PM     Reply [Subscribe]
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From my experience of working at a cpa, and having read the info that you have provided i can quite confidently assure you that she does not qualify as a dependent. I may be wrong too. To be more precise please consult a CPA.


Thanks.


 
Posted on 03-14-09 8:20 PM     Reply [Subscribe]
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Nepthug420, can you elaborate why you are so confidant? I am not trying to question if you are right or wrong, I am just curious.


Taxman, Do you have any thoughts on whether she can be classified as US resident alien for tax purpose or not?


 
Posted on 03-14-09 8:54 PM     Reply [Subscribe]
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Rekha Ji,

The research I quoted above was for a real client of mine, they were resident alien trying to claim his brother as a dependent.  Brother had a valid SS#, was a full time student under 24 years, pursuing undergraduate degree (more than 2 years college education required), and was there dependent.  They claimed him as a dependent, I even claimed "Hope" credit for them.    It has been 4 years, no questions asked, doesn't mean my position won't be challenged.  I haven't researched your situation but my gut feeling is you can't
claim your nice as a dependent because of no SS# and her status, but I can be wrong. That's why I ask you to consult a CPA.

Sincerely,

Taxman



 
Posted on 03-14-09 9:06 PM     Reply [Subscribe]
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give me till Monday, i will ask my boss (CPA) and tell you more on this!!!  For the time being please go thru wot i found on IRS 501 publication.





Citizen or Resident Test



You cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico, for some part of the year. However, there is an exception for certain adopted children, as explained next.


Adopted child.   If you are a U.S. citizen or U.S. national who has legally adopted a child who is not a U.S. citizen, U.S. resident alien, or U.S. national, this test is met if the child lived with you as a member of your household all year. This also applies if the child was lawfully placed with you for legal adoption.


Child's place of residence.   Children usually are citizens or residents of the country of their parents.

  If you were a U.S. citizen when your child was born, the child may be a U.S. citizen even if the other parent was a nonresident alien and the child was born in a foreign country. If so, this test is met.


Foreign students' place of residence.   Foreign students brought to this country under a qualified international education exchange program and placed in American homes for a temporary period generally are not U.S. residents and do not meet this test. You cannot claim an exemption for them. However, if you provided a home for a foreign student, you may be able to take a charitable contribution deduction. See Expenses Paid for Student Living With You in Publication 526, Charitable Contributions.


U.S. national.   A U.S. national is an individual who, although not a U.S. citizen, owes his or her allegiance to the United States. U.S. nationals include American Samoans and Northern Mariana Islanders who chose to become U.S. nationals instead of U.S. citizens.

 


 
Posted on 03-14-09 9:25 PM     Reply [Subscribe]
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Nepthug420,


 


Yes I saw that. In the same publication (IRS 501) it says “The rules to determine if you are a resident or nonresident alien are discussed in chapter 1 of Publication 519, U.S. Tax Guide for Aliens.” Then I looked at IRS 519 which talks about the substantial presence test that I posted above. So I think the real question is whether she can be classified as US resident alien for tax purpose – unless there are some catches, looking at substantial presence test, for me it looks like she is considered US resident for tax purpose. I would really really appreciate if you can get answer from your boss.


 
Posted on 03-14-09 10:10 PM     Reply [Subscribe]
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From what i read on IRS publication 519 and reading the description you have given about your neice above i feel that she does qualify as a resident. Please read the following example posted on irs website :


Lola Bovary is a citizen of Malta. She came to the United States for the first time on March 1, 2007, and resided here until August 25, 2007. On December 12, 2007, Lola came to the United States for vacation and stayed here until December 16, 2007, when she returned to Malta. She is able to establish a closer connection to Malta for the period December 12-16. Lola is not a U.S. resident for tax purposes during 2007 and can establish a closer connection to Malta for the rest of calendar year 2007. Lola is a U.S. resident under the substantial presence test for 2007 because she was present in the United States for 183 days (178 days for the period March 1 to August 25 plus 5 days in December). Lola's residency termination date is August 25, 2007.


Residency during the next year.   If you are a U.S. resident during any part of 2008 and you are a resident during any part of 2007, you will be taxed as a resident through the end of 2007. This applies whether you have a closer connection to a foreign country than the United States during 2007, and whether you are a resident under the substantial presence test or green card test.

 

 

 
Posted on 03-15-09 9:07 AM     Reply [Subscribe]
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nepthug420, I also think she does qualify to be classified as US resident for tax purpose. But I am confused as she is in B1/B2 visa. Anyway, I would appreciate if you can confirm with your boss on Monday. Thanks for your help.


 


Any other opinions sajhatis?


 
Posted on 03-15-09 9:38 AM     Reply [Subscribe]
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Yes, first thing monday morning i will try and ask my boss and find a solution. Since this is a CPA firm in small town , i am not sure if she has had cases like these. Anyways i will try and see if she has a solution to this. But according to the information, i too believe that she is eligible resident for tax purposes.


 


Thanks


 
Posted on 03-15-09 10:13 AM     Reply [Subscribe]
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Hi Rekha2064,
First of all I'm not a CPA, just a tax student right now and this is a good research question for me. Thank you for providing the opportunity.

Lets talk about the Dependent child test.
To claim for a dependent child, the dependent must meet all of the following five criteria.

1. Relationship test
Niece qualifies as a dependent child, no problem for you

2. Age
a. The child must be under age of 19 (i suspect not as she is preparing USMLE)
b. A full time student under age of 24.
I doubt your niece will pass this test. Only preparing for USMLE may not be considered as a fulltime student. Before just looking at residency test i would suggest you to consider in this point.
c. permanently or totally disabled.

3. Residency test.

for Residency test pls check page 11 of 519, it specifically says, you cannot claim as a dependent unless that person is a U.S. citizen, residential alien, U.S. national or a resident of Canada or Mexico, for some part of the year.
further on page 12 it talks about the foreign national students under citizen or resident test. "Foreign students bought to this country under a qualified international education exchange program .......do not meet this test."

4. Support test
Which you meet as you support more than 1/2 of her expenses

5. Special test for qualifying child of more than one person.
Since you are only claiming as a dependent, you will meet this test.

So my point is, I doubt she will pass age test as well as residency test.
 
Posted on 03-15-09 11:09 AM     Reply [Subscribe]
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Mr. OCDC and all,


Thanks for your research, but it seems incomplete. To your points…


 


- I know she doesn’t qualify as a dependent child; question is whether she qualifies as dependent relative.


 


- From my understanding, to claim as dependent relative, she must meet following criteria


1. The person is:


a. A relative, or


b. A full-time member of your household.


2. He or she is a citizen or resident of the U.S. or a resident of Canada or Mexico.


3. He or she did not file a joint income tax return with anyone else.


4. You provided over half of his or her support.


5. The person in question has less than $3,500 of income for the entire year.


 


- Now the real question is whether she in considered US resident for US tax purpose, IRS Pub 519 states -- You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for calendar year 2007. To meet this test, you must be physically present in the United States on at least:


1. 31 days during 2007, and


2. 183 days during the 3-year period that includes 2007, 2006, and 2005, counting:


a. All the days you were present in 2007,and


b. 1/3of the days you were present in 2006, and


c. 1/6 of the days you were present in 2005.


 


- So it seems that she may be considered an US resident for tax purpose, but I am not clear whether substantial present test applies to a person in B1/B2.


 


- IRS Pub 519 -- Exempt individual - Do not count days for which you are an exempt individual. The term “exempt individual” does not refer to someone exempt from U.S. tax, but to anyone in the following categories.


1. An individual temporarily present in the United States as a foreign government-related individual.


2. A teacher or trainee temporarily present in the United States under a “J” or “Q” visa, who substantially 3. complies with the requirements of the visa.


4. A student temporarily present in the United States under an “F,” “J,” “M,” or “Q” visa, who substantially complies with the requirements of the visa.


A professional athlete temporarily in the United States to compete in a charitable sports event.


 


- IRS Pub 519 doesn’t say anything about B1/B2, so I am not sure whether she is an exempt individual or not.


 


- IRS Pub 519 also says -- Closer Connection to a Foreign Country - Even if you meet the substantial presence test, you can be treated as a nonresident alien if you:


1. Are present in the United States for less than 183 days during the year,


2. Maintain a tax home in a foreign country during the year, and


3. Have a closer connection during the year to one foreign country in which you have a tax home than to the United States (unless you have a closer connection to two foreign countries, discussed next).


 


- So the conclusion, I’m confused and looking for some expert opinions.


 


Thanks all for your inputs.


 
Posted on 03-15-09 1:00 PM     Reply [Subscribe]
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rekjha  ji,


answer is  simple!


You  can  not  claim her as dependent as per law, period.


i  do  not  think so  we  need  more  discussion .


 
Posted on 03-15-09 5:58 PM     Reply [Subscribe]
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You can claim her as your dependent:


1. She meets the qualifying relative test as she is your niece.


2. She meets substantive presence test (residency test) as she has been here in the US for 183 days in the consecutive three years including the tax year (per your calculation)


3. You support her more than 50% (the burden of proof is yours in case of audit)


4. She has gross income less than $3,500 (for 2008)


5. She does not owe any tax to the IRS and she does not file the tax return on her own (even if she does it is only for tax refund purpose). 


I don't see any problem on your claiming her as your dependent. Again, in case of audit, the burden of proof (evidence) lies on you.


 
Posted on 03-17-09 4:51 PM     Reply [Subscribe]
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Nepthug420, any updates? Thanks.
 



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