If you are a U.S. citizen with income from sources outside the United States (foreign income), you must report all of that income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or a Form 1099. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties).

Certain taxpayers can exclude income earned in foreign countries. For 2004, this exclusion amount is $80,000. However, the foreign earned income exclusion does not apply to the wages and salaries of military and civilian employees of the U.S. Government. Employees of the U.S. Government include those who work at Armed Forces post exchanges, officers' and enlisted personnel clubs, and embassy commissaries, and similar personnel paid from nonappropriated funds. Other foreign income earned by military personnel or their spouses may be eligible for the foreign earned income exclusion. For more information on the exclusion, see Publication 54.

Residents of American Samoa may be able to exclude income from Guam, American Samoa, and the Northern Mariana Islands. This possession exclusion does not apply to wages and salaries of military and civilian employees of the U.S. Government. If you need information on the possession exclusion, see Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.

The pay you earn as a member of the Armed Forces may be subject to community property laws depending on your marital status, your domicile, and the nature of the payment. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

If you are a member of a reserve component of the Armed Forces and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your travel expenses as an adjustment to income on line 24 of Form 1040 rather than as a miscellaneous itemized deduction. The deduction is limited to the amount the federal government pays its employees for travel expenses. For more information about this limit, see Publication 463, chapter 6, Per Diem and Car Allowances.

For purposes of a deduction for contributions to a traditional individual retirement arrangement (IRA), Armed Forces' members (including reservists on active duty for more than 90 days during the year) are considered to be active participants in an employer-maintained retirement plan.

Generally, you can deduct the lesser of the contributions to your traditional IRA for the year or the general limit (or spousal IRA limit, if applicable). However, if you or your spouse was covered by an employer-maintained retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. The Form W-2 you or your spouse receives from an employer has a box used to indicate whether you were covered for the year. The “Retirement plan” box should have a mark in it if you were covered.

Individuals serving in the U.S. Armed Forces or in support of the U.S. Armed Forces in designated combat zones have additional time to make a qualified retirement contribution to an IRA. For more information on this extension of deadline provision, see Extension of Deadline, later. For more information on IRAs, see Publication 590.

To deduct moving expenses, you generally must meet certain time and distance tests. However, if you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you do not have to meet these tests. You can deduct your unreimbursed moving expenses on Form 3903.

Deductible moving expenses.   If you meet the requirements discussed earlier, you can deduct the reasonable unreimbursed expenses that are incurred by you and members of your household.

  You can deduct expenses (if not reimbursed or furnished in kind) for the following items.

• Moving household goods and personal effects, including expenses for hauling a trailer, packing, crating, in-transit storage, and insurance. You cannot deduct expenses for moving furniture or other goods you bought on the way from the old home to the new home.

• Travel and lodging expenses from the old home to the new home, including automobile expenses (either actual expenses or 14 cents per mile) and air fare. You cannot deduct any expenses for meals. You cannot deduct the cost of unnecessary side trips or lavish and extravagant lodging.

  

You can include only the cost of storing and insuring household goods and personal effects within any period of 30 consecutive days after the day these goods and effects are moved from your former home and before they are delivered to your new home.

A combat zone is any area the President of the United States designates by Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat. An area usually becomes a combat zone and ceases to be a combat zone on the dates the President designates by Executive Order.

Service in a combat zone includes any periods you are absent from duty because of sickness, wounds, or leave. If, as a result of serving in a combat zone, a person becomes a prisoner of war or is missing in action, that person is considered to be serving in the combat zone so long as he or she keeps that status for military pay purposes.

If you are an enlisted member, warrant officer, or commissioned warrant officer and you serve in a combat zone during any part of a month, all of your military pay for that month is excluded from your income. You also can exclude military pay earned while you are hospitalized as a result of wounds, disease, or injury incurred in the combat zone. The exclusion of your military pay while you are hospitalized does not apply to any month that begins more than 2 years after the end of combat activities in that combat zone. Your hospitalization does not have to be in the combat zone.

If you are a commissioned officer (other than a commissioned warrant officer), you may exclude your pay according to the rules just discussed. However, the amount of your exclusion is limited to the highest rate of enlisted pay (plus imminent danger/hostile fire pay you received) for each month during any part of which you served in a combat zone or were hospitalized as a result of your service there.

You are considered a U.S. resident alien for tax purposes if you meet either the “green card test” or the “substantial presence test” for the calendar year (January 1 – December 31). These tests are explained in Publication 519. Generally, resident aliens are taxed on their worldwide income and file the same tax forms as U.S. citizens.

Making the choice.   Both you and your spouse must sign a statement and attach it to your joint return for the first tax year for which the choice applies. Include in the statement:

• A declaration that one spouse was a nonresident alien and the other was a U.S. citizen or resident alien on the last day of the year,

• A declaration that both spouses choose to be treated as U.S. residents for the entire tax year, and

• The name, address, and taxpayer identification number (social security number or individual taxpayer identification number) of each spouse. If the nonresident alien spouse is not eligible to get a social security number, he or she should file Form W-7, Application for IRS Individual Taxpayer Identification Number (ITIN). ITINs may be available through the nearest overseas base legal office or U.S. consulate.

  

Once you make this choice, the nonresident alien spouse's worldwide income is subject to U.S. tax. If the nonresident alien spouse has substantial foreign income, there may be no advantage to making this choice.

An alien who does not meet the requirements to be a resident alien, as discussed earlier, is a nonresident alien. If required to file a federal tax return, nonresident aliens must file either Form 1040NR, U.S. Nonresident Alien Income Tax Return, or Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents. See the form instructions for information on who must file and filing status.

Nonresident aliens generally must pay tax on income from sources in the United States. A nonresident alien's income that is from conducting a trade or business in the United States is taxed at graduated U.S. tax rates. Other income from U.S. sources is taxed at a flat 30% (or lower treaty) rate. For example, dividends from a U.S. corporation paid to a nonresident alien generally are subject to a 30% (or lower treaty) rate.

An alien may be both a nonresident and resident alien during the same tax year, usually the year of arrival or departure. Dual-status aliens are taxed on income from all sources for the part of the year they are resident aliens. Generally, they are taxed only on income from sources in the United States for the part of the year they are nonresident aliens.

A dependent is a person, other than you or your spouse, who meets the dependency tests. You can claim a dependency exemption if all five of the following tests are met.

Expenses that are not directly related to any one member of a household, such as the cost of food for the household, must be divided among the members of the household.

You generally can exclude up to $250,000 of gain ($500,000, in most cases, if married filing a joint return) realized on the sale or exchange of a main home in 2004. The exclusion is allowed each time you sell or exchange a main home, but generally not more than once every 2 years. To be eligible, during the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years (the ownership test), and lived in the home as your main home for at least 2 years (the use test).

The rules in this section apply to you only if you sold your main home at a gain before May 7, 1997, and all three of the following statements are true.

What To Report Now

If the rules for sales before May 7, 1997, apply to you, the reporting requirements you may have are explained here.

Form 2119.   For sales before 1998, Form 2119 was used to report the sale of an old home and any purchase of a new one within the replacement period. You should have filed Form 2119 with your tax return for the year you sold your old home. If you filed your return for that year before buying a new home, you also may have to file a second Form 2119 when you do buy your new home. If you need Form 2119 for that purpose, you still can order it from the IRS. See How To Get Tax Help, later.

  

Recordkeeping. Keep a copy of Form 2119 with your tax records for the year of the sale. Form 2119 is also a supporting document that shows how your new home's basis is decreased by the amount of any postponed gain on the sale of your old home. Therefore, you also should keep a copy of Form 2119 with your records for the basis of your new home.

Loss reported on sale.   If you reported a loss on the sale of your home, do not file a second Form 2119 if you later buy a new home. The loss on the sale was not deductible and has no effect on the basis of your new home.

Reporting a taxable gain.   Any taxable gain on the sale is reported on Schedule D (Form 1040).

New home purchased after return filed.   If you postponed gain from the sale of your old home and you buy and live in a new home after you file your return for the year of the sale but within the replacement period, you should notify the IRS by filing a second Form 2119 and, if necessary, Form 1040X and Schedule D.

  Send the form (or forms) to the Internal Revenue Service Center where you will file your next tax return.

New home costs at least as much as adjusted sales price.   If your new home costs at least as much as the adjusted sales price of your old home, file the second Form 2119 by itself. This form must include your address, signature, and the date. If you filed a joint return for the year of sale, the form also must include your spouse's signature.

New home costs less.   If your new home costs less than the adjusted sales price of the old home, you must file an amended return (Form 1040X) for the year of sale. Attach a second completed Form 2119 to report the purchase and Schedule D (Form 1040) showing the gain you must report. You will have to pay interest on any additional tax due. The interest generally is figured from the due date of the original return.

No new home within replacement period.   If you postponed gain on the sale of your old home because you planned to replace it but you do not replace it within the replacement period, you must file a second Form 2119. Attach it to your amended return (Form 1040X) for the year of the sale. Include a Schedule D (Form 1040) to report your gain.

  You will have to pay interest on the additional tax due. Interest generally is figured from the due date of the original return.

Divorce after sale.   If you are divorced after filing a joint return on which you postponed the gain on the sale of your home, but you do not buy or build a new home (and your former spouse does), you must file an amended joint return to report the tax on your share of the gain. If your former spouse refuses to sign the amended joint return, attach a letter explaining why your former spouse's signature is missing.

Statute of limitations.   The 3-year limit for assessing tax on the gain from the sale of your home begins when you give the IRS information that shows:

• You replaced your old home, and how much the new home cost,

• You do not plan to buy and occupy a new home within the replacement period, or

• You did not buy and occupy a new home within the replacement period.

This information may be on the Form 2119 attached to your tax return for the year of the sale, or on a second Form 2119 filed later. File the second Form 2119 with the IRS where you file your next tax return. If needed, send an amended return for the year of the sale to include in income the gain that you cannot postpone.

Example.   Frank and Evelyn Smith sold their home on May 1, 1997, for $87,000. They spent $500 on fixing-up expenses and paid a commission on the sale of $5,200. Neither Frank nor Evelyn was 55 or older on the date of the sale. They planned to buy a replacement home but had not bought one before they filed their 1997 tax return.

  Frank and Evelyn completed Part 1 of Form 2119 and attached it to their 1997 return. They planned to buy a replacement home, so they did not include the gain on the sale in the income reported on their return.

  Frank and Evelyn's replacement period for purchasing a new home was suspended for 5 years while Frank was outside the United States on extended active duty with the Armed Forces.

  On April 20, 2004, (within the extended replacement period), Frank and Evelyn bought and moved into a new home. The cost of the new home was $77,200. This was less than the adjusted sales price of the old home. They figure the gain, the part of the gain on which tax is postponed and the part on which it is not, and the adjusted basis of their new home in the following way:

Gain On Sale
a)	Selling price of old home	$87,000
b)	Minus: Selling expenses	5,200
c)	Amount realized on sale		$81,800
d)	Minus: Adjusted basis of old home		63,000
e)	Gain on sale		18,800
Gain Taxed in 1997
f)	Amount realized on sale	81,800
g)	Minus: Fixing-up expenses	500
h)	Adjusted sales price		81,300
i)	Minus: Cost of new home		77,200
j)	Excess of adjusted sales price over cost of new home		4,100
k)	Gain taxed in 1997 [lesser of (e) or (j)]		4,100
Gain Not Taxed in 1997
l)	Gain on sale [line (e)]	18,800
m)	Minus: Gain taxed in 1997 [line (k)]	4,100
n)	Gain not taxed in 1997		14,700
Adjusted Basis of New Home
o)	Cost of new home [line (i)]	77,200
p)	Minus: Gain not taxed in 1997 [line (n)]	14,700
q)	Adjusted basis of new home		$62,500

  The Smiths file Form 1040X to amend their 1997 return to include in income the part of their gain on which tax is not postponed. They attach a second Form 2119 and a Schedule D (Form 1040) that includes the taxable part of the gain.

You must reduce the total of most miscellaneous itemized deductions by 2% of your adjusted gross income. For information on deductions that are not subject to the 2% limit, see Publication 529.

Employee Business Expenses

Deductible employee business expenses are miscellaneous itemized deductions subject to the 2% limit. For information on employee business expenses, see Publication 463.

Generally, you must file Form 2106, Employee Business Expenses, or Form 2106-EZ, Unreimbursed Employee Business Expenses, to claim these expenses. You do not have to file Form 2106 or Form 2106-EZ if you are claiming only unreimbursed expenses for uniforms, professional society dues, and work-related educational expenses (all discussed later). You can deduct these expenses directly on Schedule A (Form 1040).

Reimbursement.   Generally, to receive advances, reimbursements, or other allowances from the government, you must adequately account for your expenses and return any excess reimbursement. Amounts that are not excess reimbursements that you receive under an accountable plan are not included on your Form W-2. Your reimbursed expenses are not deductible.

  If your expenses are more than your reimbursement, the excess expenses are deductible (subject to the 2% limit) if you can prove them. You must file Form 2106 to report these expenses.

  You can use the shorter Form 2106-EZ if you meet all three of the following conditions.

• You are an employee deducting expenses related to your job.

• You were not reimbursed by your employer for your expenses (amounts included in Form W-2, box 1 are not considered reimbursements).

• If you claim car expenses, you use the standard mileage rate.

For 2004, the standard mileage rate is 37.5 cents a mile for all business miles driven. This rate is adjusted periodically.

Travel expenses.   You can deduct unreimbursed travel expenses only if they are incurred while you are traveling away from home. If you are a member of the U.S. Armed Forces on a permanent duty assignment overseas, you are not traveling away from home. You cannot deduct your expenses for meals and lodging while at your permanent duty station. You cannot deduct these expenses even if you have to maintain a home in the United States for your family members who are not allowed to accompany you overseas. (A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home aboard ship for travel expense purposes.)

  To be deductible, your travel expenses must be work related. You cannot deduct any expenses for personal travel, such as visits to family while on furlough, leave, or liberty.

Away from home.   Home is your permanent duty station (which can be a ship or base), regardless of where you or your family live. You are away from home if you are away from your permanent duty station substantially longer than an ordinary day's work and you need to get sleep or rest to meet the demands of your work while away from home.

Examples of deductible travel expenses include:

• Expenses for business-related meals (generally limited to 50% of your unreimbursed cost), lodging, taxicabs, business telephone calls, tips, laundry, and dry cleaning while you are away from home on temporary duty or temporary additional duty, and

• Expenses of carrying out official business while on “No Cost ”orders.

You cannot deduct any expenses for travel away from home if the temporary assignment in a single location is realistically expected to last (and does in fact last) for more than 1 year. This rule may not apply if you are participating in a federal crime investigation or prosecution. For more information, see Publication 463 and the Form 2106 instructions.

Transportation expenses.   Transportation expenses are the ordinary and necessary costs you have to get from one workplace to another while not traveling away from home and for certain other business-related transportation. These expenses include the costs of transportation by air, bus, rail, taxi, and driving and maintaining your car. Transportation expenses incurred while traveling away from home are travel expenses. However, if you use your car while traveling away from home overnight, see the rules in chapter 4 of Publication 463 to figure your car expense deduction.

  If you must go from one workplace to another while on duty (for example, as a courier or to attend meetings) without being away from home, your unreimbursed transportation expenses are deductible. However, the expenses of getting to and from your regular place of work (commuting) are not deductible.

Temporary work location.   If you have one or more regular places of business away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location.

  Generally, if your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary.

  If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment is not temporary, regardless of whether it actually lasts for more than 1 year. If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes.

  

If you do not have a regular place of business, but you ordinarily work in the metropolitan area where you live, you can deduct daily transportation expenses between your home and a temporary work site outside your metropolitan area. However, you cannot deduct daily transportation costs between your home and temporary work sites within your metropolitan area. These are nondeductible commuting costs.

Armed Forces reservists.   A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. You can deduct the expense of getting from one workplace to the other. You usually cannot deduct the expense if the reserve meeting is held on a day on which you do not work at your regular job. In this case, your transportation generally is a nondeductible commuting expense. However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work.

  If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses. If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. See Armed Forces Reservists under Adjustments to Income, earlier.

Uniforms.   You usually cannot deduct the expenses for uniform cost and upkeep. Generally, you must wear uniforms when on duty and you are allowed to wear them when off duty.

  If military regulations prohibit you from wearing certain uniforms off duty, you can deduct the cost and upkeep of the uniforms, but you must reduce your expenses by any allowance or reimbursement you receive.

   Expenses for the cost and upkeep of the following articles are deductible.

• Military battle dress uniforms and utility uniforms if you cannot wear them off duty.

• Articles not replacing regular clothing, including insignia of rank, corps devices, epaulets, aiguillettes, and swords.

• Reservists' uniforms if you can wear the uniform only while performing duties as a reservist.

Professional dues.   You can deduct dues paid to professional societies directly related to your military position. However, you cannot deduct amounts paid to an officers' club or a noncommissioned officers' club.

Example.

Lieutenant Margaret Allen, an electrical engineer at Maxwell Air Force Base, can deduct professional dues paid to the American Society of Electrical Engineers.

Educational expenses.   You can deduct work-related educational expenses if they meet certain rules.

Qualifications.   You can deduct the costs of qualifying education. This is education that meets at least one of the following two tests.

1. The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.

2. The education maintains or improves skills needed in your present work.

  However, even if the education meets one or both of the above tests, it is not qualifying education if it:

• Is needed to meet the minimum educational requirements of your present trade or business, or

• Is part of a program of study that will qualify you for a new trade or business.

  You can deduct the expenses for qualifying education even if the education could lead to a degree.

Example 1.

Lieutenant Colonel Mason has a degree in financial management and is in charge of base finances at her post of duty. She took an advanced finance course. She already meets the minimum qualifications for her job. By taking the course, she is improving skills in her current position. The course does not qualify her for a new trade or business. She can deduct educational expenses that are more than the educational allowance she received.

Example 2.

Major Williams worked in the military base legal office as a legal intern. He was placed in excess leave status by his employer to attend law school. He paid all his educational expenses and was not reimbursed. After obtaining his law degree, he passed the state bar exam and worked as a judge advocate. His educational expenses are not deductible because the law degree qualified him for a new trade or business, even though the education maintained and improved his skills in his work.

Travel expenses.   You cannot deduct the cost of travel that is itself a form of education, even if it is directly related to your duties in your work or business. However, if your educational expenses qualify as a deduction, travel for that education, including transportation, meals (subject to the 50% limit), and lodging, can be deducted. Educational services provided in kind, such as base-provided transportation to or from class, are not deductible.

  If you need more information on educational expenses, see Publication 970.

The earned income credit (EIC) is a special credit for certain persons who work. The credit reduces the amount of tax you owe (if any). It may also give you a refund.

Persons With a Qualifying Child

If you have a qualifying child, you must meet all the following rules to claim the earned income credit.

1. You must have earned income during 2004.

2. Your earned income and adjusted gross income (AGI) must each be less than:

   1. $34,458 ($35,458 for married filing jointly) if you have two or more qualifying children, or

   2. $30,338 ($31,338 for married filing jointly) if you have one qualifying child.

3. Your filing status cannot be married filing separately.

4. You cannot be a qualifying child of another person. If filing a joint return, your spouse also cannot be a qualifying child of another person.

5. Your qualifying child cannot be used by more than one person to claim the credit. See Qualifying child of more than one person, later.

6. You cannot file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion, to exclude income earned in foreign countries, or to deduct or exclude a foreign housing amount. See Publication 54 for more information about these forms.

7. You must be a U.S. citizen or resident alien all year unless:

   1. You are married to a U.S. citizen or a resident alien, and

   2. You choose to be treated as a resident alien for the entire year. If you need more information about making this choice, see Resident Aliens, earlier.

8. Your investment income must be $2,650 or less during the year. For most people, investment income is taxable interest and dividends, tax-exempt interest, and capital gain net income.

9. You must have a valid social security number for yourself, your spouse (if filing a joint return), and any qualifying child.

Qualifying child of more than one person.   Sometimes, a child meets the rules to be a qualifying child of more than one person. However, only one person can treat that child as a qualifying child and claim the EIC using that child. The paragraphs that follow will help you decide who can claim the EIC when more than one person has the same qualifying child.

You can choose which person will claim the EIC.    If you and someone else have the same qualifying child, you and the other person(s) can decide who will claim the credit using that qualifying child. However, if you and the other person(s) cannot agree and more than one person claims the credit using the same child, the tie-breaker rule (explained in the next paragraph) applies. If the other person is your spouse and you file a joint return, this rule does not apply.

Tie-breaker rule.   Under the tie-breaker rule, the child will be treated as a qualifying child only by:

1. The parent, if only one of the persons is the child's parent.

2. The parent with whom the child lived for the longest period of time during the year, if two of the persons are parents of the child and they do not file a joint return together.

3. The parent with the highest AGI if the child lived with each parent for the same amount of time during the tax year, and they do not file a joint return together.

4. The person with the highest AGI, if none of the persons is the child's parent.

Adjusted gross income (AGI).    AGI is the amount on Form 1040, line 37, or Form 1040A, line 21.

If another person claims the EIC using this child.   If your qualifying child is treated under this rule as the qualifying child of another person for 2004, you cannot take the EIC using this qualifying child.

  See Rule 9 in Publication 596 for more help in determining whether you can claim the EIC when you and someone else have the same qualifying child.

Qualifying child of another person.   If you are a qualifying child of another person, you cannot claim the credit—no matter how many qualifying children you have.

How to report.   If you meet all these rules, fill out Schedule EIC and attach it to either Form 1040 or Form 1040A. Also, complete the worksheet in the instructions for Form 1040 or Form 1040A to figure the amount of your credit. If you have a qualifying child, you cannot claim the credit on Form 1040EZ.

  Enter “NO” directly to the right of line 65a (Form 1040) or line 41a (Form 1040A) if you cannot claim the credit because:

• Your earned income was $30,338 ($31,338 for married filing jointly) or more if you have one qualifying child, or $34,458 ($35,458 for married filing jointly) or more if you have more than one qualifying child,

• You (or your spouse, if filing a joint return) were a qualifying child for another person in 2004,

• Another person is entitled to claim the EIC using your qualifying child (as explained under Qualifying child of more than one person, earlier), or

• You, your spouse, or your qualifying child does not have a valid social security number.

Social security number.   You must provide a correct and valid social security number (SSN) issued by the Social Security Administration for yourself, your spouse, and any qualifying child. If a social security card for you, your spouse, or your qualifying child says “Not valid for employment” and the SSN was issued only so that you (or your spouse or child) could get a federally funded benefit, you cannot get the credit.

  If you need to get an SSN, file Form SS-5 with your local Social Security Administration office. It takes approximately 2 weeks to receive an SSN. If the filing deadline is approaching and you do not have an SSN, you can:

• Request an automatic extension to August 15 using Form 4868, or

• File the return on time without claiming the credit. After you receive the SSN, file an amended return (Form 1040X) claiming the credit (and attach a filled-in Schedule EIC if needed).

If an SSN for you, your spouse, or your qualifying child is missing from your tax return, or is incorrect, you may not get the credit.

Married persons.   Married persons usually must file a joint return to claim the earned income credit. Your filing status cannot be “married filing separately.”

  Even though you are married, you may be able to file as head of household (instead of married filing separately) and claim the credit on your return if your spouse did not live in your home at any time during the last 6 months of the year. For details about claiming head of household filing status, see Publication 501.

There are certain instructions you must follow before the IRS can figure the credit for you. See Publication 967, The IRS Will Figure Your Tax.

You must meet all the following rules to qualify for the advance earned income credit in 2005.

If you expect to qualify for the earned income credit for 2005, you can choose to get part of the credit in advance by giving a completed 2005 Form W-5 to your appropriate finance office. The credit will be included regularly in your pay.

If you received advance earned income credit payments in 2004, you must file either Form 1040 or Form 1040A for 2004 to report the payments.

The child tax credit reduces your tax. If you have children, you may be able to take a child tax credit on your tax return for each of your qualifying children.

Claiming the Credit

To claim the child tax credit, you must file Form 1040 or Form 1040A. You must provide the name and identification number (usually a social security number) on your tax return for each qualifying child.

Answer the “Questions” in your form instructions for Form 1040, line 51, or Form 1040A, line 33, to find out which child tax credit worksheet you can use to compute the credit.

If you answer “Yes” to question 1, 2, or 3 in your Form 1040 instructions or question 1 or 2 in your Form 1040A instructions, you must complete the “Child Tax Credit Worksheet ” in Publication 972, Child Tax Credit.

For more information on the child tax credit, see the instructions for Form 1040 or Form 1040A.

If a member of the U.S. Armed Forces dies while in active service in a combat zone or from wounds, disease, or other injury received in a combat zone, the decedent's income tax liability is forgiven for the tax year in which death occurred and for any earlier tax year ending on or after the first day the member served in a combat zone in active service. (Forgiven tax is tax that does not have to be paid.) Any forgiven tax liability that has already been paid will be refunded, and any unpaid tax liability at the date of death will be forgiven.

In addition, any unpaid taxes for prior years will be forgiven and any prior year taxes paid after the date of death will be refunded. No tax liability will be imposed on the beneficiary or trustee of the estate of a deceased individual to the extent the liability is attributable to an amount received that would have been includible in the individual's gross income for the taxable year in which the date of death falls (determined as if the individual had survived).

This provision also applies to a member of the Armed Forces serving outside the combat zone if the service:

For a description of combat zone, see Combat Zone earlier.

Tax liability is forgiven for an individual who:

The forgiveness applies to the tax year death occurred and for any earlier tax year beginning with the year before the year in which the wounds or injury occurred. A terrorist or military action is any terrorist activity primarily directed against the United States or its allies or any military action involving the U.S. Armed Forces resulting from violence or aggression against the United States or its allies.

Any multinational force in which the United States participates is considered an ally of the United States.

No tax liability will be imposed on the beneficiary or trustee of the estate of a deceased individual to the extent the liability is attributable to an amount received that would have been includible in the individual's gross income for the taxable year in which the date of death falls (determined as if the individual had survived).

If the tax-forgiveness provisions apply to a prior year's tax that has been paid and the period for filing a refund claim has not ended, the tax will be refunded. If any tax is still due, it will be canceled. Generally, the period for filing a claim for credit or refund of income tax is 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever is later. Returns filed before they are due are considered filed on the due date, usually April 15.

If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the deadline for filing a claim for credit or refund is extended using the rules discussed later under Extension of Deadline.

Send your federal tax return to the Internal Revenue Service Center for the place where you live. For example, Sgt. Kane, who is stationed in Maine but whose permanent home address is in California, should send her federal return to the service center for Maine. The instructions for Forms 1040, 1040A, and 1040EZ give the addresses for the service centers. If you are overseas and have an APO or FPO address, file your return with the Internal Revenue Service Center, Philadelphia, PA 19255-0215.

Most individual tax returns cover a calendar year, January through December. The regular due date for these tax returns is April 15 of the following year. If April 15 falls on a Saturday, Sunday, or legal holiday, your tax return is considered timely filed if it is filed by the next business day that is not a Saturday, Sunday, or legal holiday. For 2004 tax returns, the due date is April 15, 2005.

You can receive an extension of time to file your return. Different rules apply depending on whether you live inside or outside the United States.

Inside the United States.   You can receive an automatic 4-month extension to file your return if you file Form 4868 by the regular due date of your return. You can file it electronically or on paper. See Form 4868 for details.

  The extension of time to file is automatic, and you will not receive any notice of approval. However, your request for an extension will be denied if it is not made timely. The IRS will inform you of the denial.

  

You cannot use the automatic extension if you choose to have IRS figure the tax or you are under a court order to file your return by the regular due date.

Generally, you must sign your return. However, if you are overseas or incapacitated, you can grant a power of attorney to an agent to file and sign your return.

If you are acting on behalf of someone serving in a combat zone, see Filing Returns for Combat Zone or Contingency Operation Participants, later.

A power of attorney also can be granted by filing Form 2848. These forms are available at your nearest legal assistance office. While other power of attorney forms may be used, they must contain the information required by Form 2848.

In Part I of the form, you must indicate that you are granting the power to sign the return, the tax form number, and the tax year for which the form is being filed. Attach the power of attorney to the tax return.

In general, military personnel follow the same rules as other taxpayers concerning tax refunds. See your tax form instructions for information on what to do if you do not receive an expected refund and how to call to check on your refund status.

The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS is automatically extended if any of the following statements is true.

The deadline for IRS to take certain actions, such as collection and examination actions, is also extended. See Combat Zone, earlier, for the beginning dates for the Afghanistan area combat zone, the Kosovo area combat zone, the Persian Gulf area combat zone, and the qualified hazardous duty areas.

Actions extended.   The actions to which the deadline extension provision applies include:

• Filing any return of income, estate, or gift tax (except employment and withholding taxes),

• Paying any income, estate, or gift tax (except employment and withholding taxes),

• Filing a petition with the Tax Court for redetermination of a deficiency, or for review of a Tax Court decision,

• Filing a claim for credit or refund of any tax,

• Bringing suit for any claim for credit or refund,

• Purchasing a replacement home to postpone paying tax on the gain on the sale (before May 7, 1997) of your old home,

• Making a qualified retirement contribution to an IRA,

• Allowing a credit or refund of any tax by the IRS,

• Assessment of any tax by the IRS,

• Giving or making any notice or demand by the IRS for the payment of any tax, or for any liability for any tax,

• Collection by the IRS of any tax due, and

• Bringing suit by the United States for any tax due.

  If the IRS takes any actions covered by these provisions or sends you a notice of examination before learning that you are entitled to an extension of the deadline, contact your legal assistance office. No penalties or interest will be imposed for failure to file a return or pay taxes during the extension period.

  

Even though the deadline is extended, you may want to file a return earlier to receive any refund due. See Filing Returns, earlier.

You can choose to file your return before the end of your extension period. File your return in accordance with instructions provided by the Armed Forces.

If you are acting on behalf of someone serving in a combat zone or contingency operation and you do not have a power of attorney from that person specifying that you can handle federal tax matters, the IRS will accept a general power of attorney or other statement signed by that person that authorizes you to act on his or her behalf. A copy must be attached to the tax return.

If it is not possible for the spouse of someone serving in a combat zone or contingency operation to obtain that person's signature on a joint return, power of attorney form, or other signed authorization to act on his or her behalf, the IRS will accept a written statement explaining that the husband or wife is serving in a combat zone or contingency operation. The statement must be signed by the spouse filing the tax return and attached to the return.