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QUESTION:
Hello,
My husband & I are both Canadians living in Michigan since July
2001. We are non-resident aliens. My husbands' employer is
applying on our behalf for adjustment to permanent resident
status for both of us & employment authorization for myself. They
are also applying for green cards for both of us.
My husband has an H1B visa & I have an H4 visa. Neither of us
have generated any income in Canada since moving to Michigan in
2001.
The week we moved here, I went to the IRS to apply for a type of
SS# for residents who are not authorized to work. At that time,
I was told that the laws had changed & that until I can legally
work in the USA, I am not eligible for a SS#.
The lawyers involved with my employment authorization application
tell me I will receive it by March 30th, 2004 at the latest.
Needless to say, it cannot come soon enough!
Here are my two questions with another (shorter) preface: My
husbands' accountant for his 2001 & 2002 income told us that
until I have a SS#, I cannot be claimed as a dependant. He said
that as soon as I have a SS#, he can amend both years, refile &
my husband will be eligible for a refund.
Last month, my husband was told by an American CPA that I have
always been eligible for an "IRS Individual Taxpayer
Identification Number" (ITIN) & that with this ITIN, he could
have claimed me as a dependant from 2001 onward. Needless to
say, I immediately went to the IRS, completed a W7 form & applied
for an ITIN.
Is this information true? Could my husband have claimed me as a
dependant from 2001 onward, once I had received an ITIN?
Do you recommend that once I have the ITIN, we amend the 2001 &
2002 files at the same time that we have an accountant complete
my husband's 2003 income tax return?
Any assistance would be appreciated. Thank you for the
opportunity to ask an expert.
Sincerely,
Mary Carson-Ford
==========================================================
david ingram replies
First of all you are now residents for income tax purposes which
is different than for immigration purposes. Confusing at best
Very Expensive at the worst when you do not understand that.
1. Stand the previous accountant up against a brick wall and
figuratively "shoot" him or her.
You have always been eligible for an ITIN and should have got one
the first week you were living in the USA.
2. You are going to be surprized at the amount of the refund
you are entitled to for 2002.
For 2001, your husband can file a 1040X as a Dual Status person
and not claim a standard deduction but can claim you as an
exemption.
I am willing to bet that your 2001 return (as filed) also failed
to mention or take into account that your husband was a dual
status person and even though the preparer failed to claim you, I
bet that he or she did claim a standard deduction which means
that if you correct it, you will "owe" tax, because the standard
deduction is larger than the claim for you.
An alternative for 2001 (and the one most likely to be best) is
for your husband and yourself to elect to be taxed on world
income which gives you two things:
a) the right to file a joint return
b) the right to claim the standard deduction
The 1040X would change the return filed to a joint return and
would include your Canadian income as well and you would claim a
foreign tax credit for the tax paid to Canada. This should result
in the largest refund.
3. You will file a 1040X for 2002 amending the MFS return to
a joint return and you will be an extra exemption. i.e. your
husband will NOT be claiming you as an exemption, you will be
filing jointly. Filing jointly lowers the overall tax
dramatically.
4. Same for 2003.
5. I am also willing to bet that you still have RRSP accounts
in Canada and your preparer and the CPA you have talked to will
not understand the foreign account reporting rules, especially as
they apply to Canadian RRSP accounts. Failure to report these
accounts can incur penalties (are you ready for this?) of up to
$500,000 plus five years in jail. Have I ever seen a penalty that
big? NO! but I have had a 105 year old lady with a $10,000
penalty and a 68 year old lady with a $60,000 penalty.
Go to www.centa.com - click on [newsletters] - click on [2003] -
read the August one and it will tell you what you should have
done as well for 2002. The regulations are changing for 2003 and
a new form is coming out.
If you decide to go ahead, you need to fill out TDF-90 Forms and
deal with Forms 3520 and 3520A or REV.PROC 2002-25
================
With all due respect, at this point, you would likely be better
off sending your 2001 and 2002 and 2003 returns here because
that is what we do. Trying to find someone to look after your
kind of return is extremely difficult. We can handle the changes
by email, snail mail, courier, or fax.
If you want us to do the returns, I also need the details of any
Canadian Financial Accounts, RRSP, Stock Market or financial
institution accounts you still have in Canada.
If you send us your information, I need a copy of the 2001 as
filed, a copy of 2002 as filed, a copy of the Dec 31, 2001 and
Dec 31, 2002 and Dec 31 2003 year end balances for any RRSP
accounts you still have in Canada.
==================================================
David Ingram's US/Canada Services
US / Canada / Mexico tax, Immigration and working Visa
Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Res (604) 980-3578 Cell (604) 657-8451
(604) 980-0321
New email to [email protected]
www.centa.com www.david-ingram.com
Disclaimer: This question has been answered without detailed
information or consultation and is to be regarded only as general
comment. Nothing in this message is or should be construed as
advice in any particular circumstances. No contract exists
between the reader and the author and any and all non-contractual
duties are expressly denied. All readers should obtain formal
advice from a competent and appropriately qualified legal
practitioner or tax specialist in connection with personal or
business affairs such as at www.centa.com. If you forward this
message, this disclaimer must be included."
Be ALERT, the world needs more "lerts"
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