Instructions for Form 1040NR |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
For details on these and other changes for 2006 and 2007, see Pub. 553.
New exception from the filing requirement for nonresident alien individuals.
Generally, the requirement to file a return has been eliminated for nonresident aliens who earn wages effectively
connected with a U.S. trade or
business that are less than the amount of one personal exemption ($3,300 for 2006). For more information, see Who Must File on
page 3.
Services performed partly inside and partly outside the United States.
New rules apply in determining the source of compensation for labor or personal services performed as an employee.
Under the new rules,
compensation (other than fringe benefits) is sourced on a time basis. Fringe benefits are sourced on a geographical basis.
However, you may be able to
use an alternative basis if the alternative basis more properly determines the source of the compensation. See Services performed partly inside
and partly outside the United States on page 10 for more information.
Item R.
If you are an employee and your total compensation for personal services performed both inside and outside the United
States was $250,000 or more,
and you are using an alternative basis to determine the source of this compensation, you must check the box in item R. See
the instructions for item R
on page 30.
Credit for federal telephone excise tax paid.
If you paid the federal excise tax on your long distance or bundled telephone service, you may be able to request
a credit. See the instructions
for line 69 on page 23.
Alternative minimum tax (AMT) exemption amount increased.
The AMT exemption amount is increased to $42,500 ($62,550 if a qualifying widow(er); $31,275 if married filing separately).
See the instructions
for line 42 on page 19.
Direct deposit of refunds.
If you choose direct deposit of your refund, you may be able to split the refund into two or three accounts. See the
instructions for line 72a on
page 24.
New credit for residential energy improvements.
You may be able to take a residential energy credit for amounts paid in 2006 to have qualified energy saving items
installed in connection with
your home. See the instructions for line 47 on page 20.
IRA deduction expanded.
If you were covered by a retirement plan, you may be able to take an IRA deduction if your 2006 modified adjusted
gross income (AGI) is less than
$85,000 if a qualifying widow(er). If you are age 50 or over, the amount of your catch-up contribution increased to $1,000.
See the instructions for
line 31 on page 16.
Elective salary deferrals.
The maximum amount you can defer under all plans generally is limited to $15,000 ($10,000 if you only have SIMPLE
plans; $18,000 for section 403(b)
plans if you qualify for the 15-year rule). The catch-up contribution limit is increased to $5,000 ($2,500 for SIMPLE plans).
See the instructions for
line 8 on page 10.
Standard mileage rates.
The 2006 rate for business use of your vehicle is 44½ cents a mile. The 2006 rate for use of your vehicle to move
is 18 cents a
mile. The 2006 rate for charitable use of your vehicle to provide relief related to Hurricane Katrina is 32 cents a mile.
Alternative motor vehicles.
You may be able to take a credit if you place an alternative motor vehicle (including a qualified hybrid vehicle)
or alternative fuel vehicle
refueling property in service in 2006. See Forms 8910 and 8911. You no longer can take a deduction for clean-fuel vehicles
or refueling property.
Personal exemption and itemized deduction phaseouts reduced.
Taxpayers with adjusted gross income above a certain amount may lose part of their deduction for personal exemptions
and itemized deductions. The
amount by which these deductions are reduced in 2006 is only ⅔ of the amount of the reduction that otherwise would have applied.
Tax on children's income.
Form 8615 must be used to figure the tax of children under age 18 with investment income of more than $1,700. See
the instructions for line 41 on
page 18. The election to report a child's investment income on a parent's return and the special rule for when a child must
file Form 6251 also now
apply to children under age 18. See page 18.
Gifts to charity.
The following list highlights some of the new rules that apply to certain gifts to charity.
-
Distributions from your IRA to certain charitable organizations are tax free if you were at least 70½ when the distribution
was made. You cannot, however, take a charitable deduction on Schedule A for the same contribution.
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Stricter rules apply for contributions after August 17, 2006, of clothing and household items. See the instructions for line
5 that begin on
page 26.
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The special rules for contributions of food inventory are extended.
-
Limits are higher on deductions for contributions of capital gain real property for conservation purposes.
For more information, see Pub. 526.
Mailing your return.
You will mail your return to a different address this year. See Where to File on page 4 and What and Where to File for a Dual-
Status Year on page 5.
Expiring tax benefits extended.
The following tax benefits have been extended through 2007.
IRA deduction expanded for certain people.
If you were covered by a retirement plan, you may be able to take an IRA deduction if your 2007 modified AGI is less
than $62,000 ($103,000 if a
qualifying widow(er)).
Domestic production activities deduction.
The deduction rate for 2007 will be increased to 6%.
Exemption for housing a person displaced by Hurricane Katrina expires.
The additional exemption amount for housing a person displaced by Hurricane Katrina will expire.
New recordkeeping requirements for contributions of money.
For charitable contributions of money, regardless of the amount, you must maintain as a record of the contribution
a bank record (such as a
cancelled check) or a written record from the charity. The written record must include the name of the charity, date, and
amount of the contribution.
Form 1040NR-EZ.
You may be able to use Form 1040NR-EZ if your only income from U.S. sources is wages, salaries, tips, taxable refunds
of state and local income
taxes, and scholarship or fellowship grants. For more details, see Form 1040NR-EZ and its instructions.
Former U.S. citizens and former U.S. long-term residents.
If you renounced your U.S. citizenship or terminated your long-term resident status after June 3, 2004, you will continue
to be treated for federal
tax purposes as a citizen or long-term resident of the United States until you (a) give notice of your expatriating act or
termination of residency
(with the requisite intent to relinquish citizenship or terminate such status) to the Department of State or the Department
of Homeland Security, and
(b) provide an initial expatriation statement (Form 8854) to the IRS. Additionally, if you are subject to the expatriation
tax rules of section
877(a), you are required to file an annual expatriation information statement (Form 8854) with the IRS for 10 tax years after
the date of your
expatriation. For more details, see Special Rules for Former U.S. Citizens and Former U.S. Long-term Residents that begins on page 7 and
Pub. 519, U.S. Tax Guide for Aliens.
Other reporting requirements.
If you meet the closer connection to a foreign country exception to the substantial presence test, you must file Form
8840. If you exclude days of
presence in the United States for purposes of the substantial presence test, you must file Form 8843. This rule does not apply
to
foreign-government-related individuals who exclude days of presence in the United States. Certain dual-resident taxpayers
who claim tax treaty
benefits must file Form 8833. A dual-resident taxpayer is one who is a resident of both the United States and another country
under each country's tax
laws.
If you need more information, our free publications may help you. Pub. 519 will be the most important, but the following publications
may also
help.
Pub. 525
|
Taxable and Nontaxable Income
|
Pub. 529
|
Miscellaneous Deductions
|
Pub. 552
|
Recordkeeping for Individuals
|
Pub. 597
|
Information on the United States-Canada Income Tax Treaty
|
Pub. 901
|
U.S. Tax Treaties
|
Pub. 910
|
Guide to Free Tax Services (includes a list of all publications)
|
These free publications and the forms and schedules you will need are available from the Internal Revenue Service. You can
download them from the
IRS website at
www.irs.gov. Also see Taxpayer Assistance on page 31 for other ways
to get them (as well as information on receiving IRS assistance in completing the forms).
Resident Alien or Nonresident Alien
If you are not a citizen of the United States, specific rules apply to determine if you are a resident alien or a nonresident
alien for tax
purposes. Generally, you are considered a resident alien if you meet either the green card test or the substantial presence
test for 2006. (These
tests are explained below.) Even if you do not meet either of these tests, you may be able to choose to be treated as a U.S.
resident for part of
2006. See First-Year Choice in Pub. 519 for details.
You are generally considered a nonresident alien for the year if you are not a U.S. resident under either of these tests.
However, even if you are
a U.S. resident under one of these tests, you may still be considered a nonresident alien if you qualify as a resident of
a treaty country within the
meaning of the tax treaty between the United States and that country. You can download the complete text of most U.S. tax
treaties at
www.irs.gov. Technical explanations for many of those treaties are also
available at that site.
For more details on resident and nonresident status, the tests for residence, and the exceptions to them, see Pub. 519.
You are a resident for tax purposes if you were a lawful permanent resident (immigrant) of the United States at any time during
2006.
Substantial Presence Test
You are considered a U.S. resident if you meet the substantial presence test for 2006. You meet this test if you were physically
present in the
United States for at least:
-
31 days during 2006, and
-
183 days during the period 2006, 2005, and 2004, counting all the days of physical presence in 2006, but only ⅓ the number
of
days of presence in 2005 and only ⅙ the number of days in 2004.
Generally, you are treated as present in the United States on any day that you are physically present in the country at any
time during the day.
However, there are exceptions to this rule. In general, do not count the following as days of presence in the United States
for the substantial
presence test.
-
Days you commute to work in the United States from a residence in Canada or Mexico if you regularly commute from Canada or
Mexico.
-
Days you are in the United States for less than 24 hours when you are in transit between two places outside of the United
States.
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Days you are in the United States as a crew member of a foreign vessel.
-
Days you intend, but are unable, to leave the United States because of a medical condition that arose while you were in the
United
States.
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Days you are an exempt individual (defined below).
Exempt individual.
For these purposes, an exempt individual is generally an individual who is a:
-
Foreign government-related individual,
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Teacher or trainee,
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Student, or
-
Professional athlete who is temporarily in the United States to compete in a charitable sports event.
Note.
Alien individuals with “Q” visas are treated as either students, teachers, or trainees and, as such, are exempt individuals for purposes
of the substantial presence test if they otherwise qualify. “Q” visas are issued to aliens participating in certain international cultural
exchange programs.
See Pub. 519 for more details regarding days of presence in the United States for the substantial presence test.
Closer Connection to Foreign Country
Even though you otherwise would meet the substantial presence test, you can be treated as a nonresident alien if you:
-
Were present in the United States for fewer than 183 days during 2006,
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Establish that during 2006 you had a tax home in a foreign country, and
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Establish that during 2006 you had a closer connection to one foreign country in which you had a tax home than to the United
States unless
you had a closer connection to two foreign countries.
See Pub. 519 for more information.
File Form 1040NR if any of the following four conditions applies to you.
-
You were a nonresident alien engaged in a trade or business in the United States during 2006. You must file even if:
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You have no income from a trade or business conducted in the United States,
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You have no U.S. source income, or
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Your income is exempt from U.S. tax under a tax treaty or any section of the Internal Revenue Code.
However, if you have no gross income for 2006, do not complete the schedules for Form 1040NR. Instead, attach a list of the
kinds of exclusions you
claim and the amount of each.
-
You were a nonresident alien not engaged in a trade or business in the United States during 2006 and:
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You received income from U.S. sources that is reportable on lines 76a through 85, and
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Not all of the U.S. tax that you owe was withheld from that income.
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You represent a deceased person who would have had to file Form 1040NR.
-
You represent an estate or trust that has to file Form 1040NR.
Exceptions.
You do not need to file Form 1040NR if:
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Your only U.S. trade or business was the performance of personal services, and
-
Your wages were less than $3,300; and
-
You have no other need to file a return to claim a refund of overwithheld taxes, to satisfy additional withholding at source,
or to claim
income exempt or partly exempt by treaty, or
-
You were a nonresident alien student, teacher, or trainee who was temporarily present in the United States under an “F,”
“J,”“M,” or “Q” visa, and you have no income that is subject to tax under section 871 (that is, the income items listed on lines 8
through 21 on page 1 of Form 1040NR and on lines 76a through 85 on page 4 of Form 1040NR).
Exception for children under age 18.
If your child was under age 18 at the end of 2006, had income only from interest and dividends that are effectively
connected with a U.S. trade or
business, and that income totaled less than $8,500, you may be able to elect to report your child's income on your return.
But you must use Form 8814
to do so. If you make this election, your child does not have to file a return. For details, see Form 8814.
A child born on January 1, 1989, is considered to be age 18 at the end of 2006. Do not use Form 8814 for such a child.
Filing a deceased person's return.
The personal representative must file the return for a deceased person who was required to file a return for 2006.
A personal representative can be
an executor, administrator, or anyone who is in charge of the deceased person's property.
Filing for an estate or trust.
If you are filing Form 1040NR for a nonresident alien estate or trust, change the form to reflect the provisions of
Subchapter J, Chapter 1, of the
Internal Revenue Code. You may find it helpful to refer to Form 1041 and its instructions.
Former U.S. citizens and former U.S. long-term residents.
If you renounced your U.S. citizenship or terminated your long-term resident status after June 3, 2004, you are required
to (a) file Form 8854, and
(b) notify the Department of State or the Department of Homeland Security (see the Instructions to Form 8854).
If you fail to take these two actions, you are still treated as a citizen or resident of the United States, and you
must report your worldwide
taxable income on Form 1040, 1040A, or 1040EZ, and figure your tax as shown in the instructions for those forms. You can only
file Form 1040NR and
figure your tax as a nonresident alien for the portion of the year after you have satisfied both of the requirements above.
For more details, see
Special Rules for Former U.S. Citizens and Former U.S. Long-term Residents that begins on page 7 and Expatriation Tax in Pub.
519.
Simplified Procedure for Claiming Certain Refunds
You can use this procedure only if you meet all of the following conditions for the tax year.
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You were a nonresident alien.
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You were not engaged in a trade or business in the United States at any time.
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You had no income that was effectively connected with the conduct of a U.S. trade or business.
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Your U.S. income tax liability was fully satisfied through withholding of tax at source.
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You are filing Form 1040NR solely to claim a refund of U.S. tax withheld at source.
Example.
John is a nonresident alien individual. The only U.S. source income he received during the year was dividend income from U.S.
stocks. The dividend
income was reported to him on Form(s) 1042-S. On one of the dividend payments, the withholding agent incorrectly withheld
at a rate of 30% (instead of
15%). John is eligible to use the simplified procedure.
If you meet all of the conditions listed earlier for the tax year, complete Form 1040NR as follows.
Page 1.
Enter your name, identifying number (defined on page 8), country of citizenship, and all address information requested
at the top of page 1. Leave
the rest of page 1 blank.
Page 4, lines 76a through 85.
Enter the amounts of gross income you received from dividends, interest, royalties, pensions, annuities, and other
income. If any income you
received was subject to backup withholding or withholding at source, you must include all gross income of that type that you
received. The amount of
each type of income should be shown in the column under the appropriate U.S. tax rate, if any, that applies to that type of
income in your particular
circumstances.
If you are entitled to a reduced rate of, or exemption from, withholding on the income pursuant to a tax treaty, the
applicable rate of U.S. tax is
the same as the treaty rate. Use column (e) if the applicable tax rate is 0%.
Example.
Mary is a nonresident alien individual. The only U.S. source income she received during the year was as follows.
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4 dividend payments.
-
12 interest payments.
All payments were reported to Mary on Form(s) 1042-S. On one of the dividend payments, the withholding agent incorrectly
withheld at a rate of 30%
(instead of 15%). There were no other withholding discrepancies. Mary must report all four dividend payments. She is not required
to report any of the
interest payments.
Note.
Payments of gross proceeds from the sale of securities or regulated futures contracts are generally exempt from U.S. tax.
If you received such
payments and they were subjected to backup withholding, specify the type of payment on line 85 and show the amount in column
(e).
Line 86. Enter the total amount of U.S. tax withheld at source (and not refunded by the payer or withholding agent) for the income
you
included on lines 76a through 85.
Lines 87 through 89. Complete these lines as instructed on the form.
Page 5.
You must answer all questions that apply. For item M, you must identify the income tax treaty and treaty article(s)
under which you are applying
for a refund of tax. Also, enter the type of income (for example, dividends, royalties) and amount in the appropriate space.
You must provide the
information required for each type of income for which a treaty claim is made.
Note.
If you are claiming a reduced rate of, or exemption from, tax based on a tax treaty, you must generally be a resident of the
particular treaty
country within the meaning of the treaty and you cannot have a permanent establishment or fixed base in the United States.
Page 2, lines 53 and 58.
Enter your total income tax liability.
Line 66. Enter the total amount of U.S. tax withheld (from line 86).
Line 70. Add lines 59 through 69. This is the total tax you have paid.
Lines 71 and 72a. Enter the difference between line 58 and line 70. This is your total refund.
You can have the refund deposited in one or more accounts. See Lines 72a through 72d—Direct deposit of refund that begins on page
23 for more details.
Signature. You must sign and date your tax return. See Reminders on page 30.
Documentation.
You must attach acceptable proof of the withholding for which you are claiming a refund. If you are claiming a refund
of backup withholding tax
based on your status as a nonresident alien, you must attach a copy of the Form 1099 that shows the income and the amount
of backup withholding. If
you are claiming a refund of U.S. tax withheld at source, you must attach a copy of the Form 1042-S that shows the income
and the amount of U.S. tax
withheld.
Portfolio interest.
If you are claiming a refund of U.S. tax withheld from portfolio interest, include a description of the relevant debt
obligation, including the
name of the issuer, CUSIP number (if any), interest rate, and the date the debt was issued.
Withholding on distributions.
If you are claiming an exemption from withholding on a distribution from a U.S. corporation with respect to its stock
because the corporation had
insufficient earnings and profits to support dividend treatment, you must attach a statement that identifies the distributing
corporation and provides
the basis for the claim.
If you are claiming an exemption from withholding on a distribution from a mutual fund or real estate investment trust
(REIT) with respect to its
stock because the distribution was designated as long-term capital gain or a nondividend distribution, you must attach a statement
that identifies the
mutual fund or REIT and provides the basis for the claim.
If you are claiming an exemption from withholding on a distribution from a U.S. corporation with respect to its stock
because, in your particular
circumstances, the transaction qualifies as a redemption of stock under section 302, you must attach a statement that describes
the transaction and
presents the facts necessary to establish that the payment was (a) a complete redemption, (b) a disproportionate redemption,
or (c) not essentially
equivalent to a dividend.
Individuals.
If you were an employee and received wages subject to U.S. income tax withholding, file Form 1040NR by the 15th day
of the 4th month after your tax
year ends. A return for the 2006 calendar year is due by April 16, 2007.
If you did not receive wages as an employee subject to U.S. income tax withholding, file Form 1040NR by the 15th day
of the 6th month after your
tax year ends. A return for the 2006 calendar year is due by June 15, 2007.
Estates and trusts.
If you file for a nonresident alien estate or trust that has an office in the United States, file the return by the
15th day of the 4th month after
the tax year ends. If you file for a nonresident alien estate or trust that does not have an office in the United States,
file the return by the 15th
day of the 6th month after the tax year ends.
Note.
If the regular due date for filing falls on a Saturday, Sunday, or legal holiday, file by the next business day.
Extension of time to file.
If you cannot file your return by the due date, you should file Form 4868. You must file Form 4868 by the regular
due date of the return.
Note.
Form 4868 does not extend the time to pay your income tax. The tax is due by the regular due date of the return.
File Form 1040NR with the Internal Revenue Service Center, Austin, TX 73301-0215, U.S.A.
Private Delivery Services
You can use certain private delivery services designated by the IRS to meet the “timely mailing as timely filing/paying” rule for tax returns
and payments. These private delivery services include only the following.
-
DHL Express (DHL): DHL Same Day Service, DHL Next Day 10:30 am, DHL Next Day 12:00 pm, DHL Next Day 3:00 pm, and DHL 2nd Day
Service.
-
Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and
FedEx
International First.
-
United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide
Express Plus,
and UPS Worldwide Express.
The private delivery service can tell you how to get written proof of the mailing date.
Private delivery services cannot deliver items to P.O. boxes. You must use the U.S. Postal Service to mail any item to an
IRS P.O. box address.
Election To Be Taxed as a Resident Alien
You can elect to be taxed as a U.S. resident for the whole year if all of the following apply.
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You were married.
-
Your spouse was a U.S. citizen or resident alien on the last day of the tax year.
-
You file a joint return for the year of the election using Form 1040, 1040A, or 1040EZ.
To make this election, you must attach the statement described in Pub. 519 to your return. Do not use Form 1040NR.
Your worldwide income for the whole year must be included and will be taxed under U.S. tax laws. You must agree to keep the
records, books, and
other information needed to figure the tax. If you made the election in an earlier year, you can file a joint return or separate
return for 2006. If
you file a separate return, use Form 1040 or Form 1040A. Your worldwide income for the whole year must be included whether
you file a joint or
separate return.
Nonresident aliens who make this election may forfeit the right to claim benefits otherwise available under a U.S. tax treaty.
For more details,
see the specific treaty.
Note.
If you elect to be taxed as a resident alien (discussed earlier), the special instructions and restrictions discussed here
do not apply.
A dual-status year is one in which you change status between nonresident and resident alien. Different U.S. income tax rules
apply to each status.
Most dual-status years are the years of arrival or departure. Before you arrive in the United States, you are a nonresident
alien. After you
arrive, you may or may not be a resident, depending on the circumstances.
If you become a U.S. resident, you stay a resident until you leave the United States. You may become a nonresident alien when
you leave if, after
leaving (or after your last day of lawful permanent residency if you met the green card test) and for the remainder of the
calendar year of your
departure, you have a closer connection to a foreign country than to the United States, and, during the next calendar year,
you are not a U.S.
resident under either the green card test or the substantial presence test. See Pub. 519.
What and Where to File for a Dual-Status Year
If you were a U.S. resident on the last day of the tax year, file Form 1040. Enter “Dual-Status Return” across the top and attach a statement
showing your income for the part of the year you were a nonresident. You can use Form 1040NR as the statement; enter “Dual-Status Statement”
across the top. Do not sign Form 1040NR. File your return and statement with the Internal Revenue Service Center, Austin,
TX 73301-0215, U.S.A.
If you were a nonresident on the last day of the tax year, file Form 1040NR. Enter “Dual-Status Return” across the top and attach a statement
showing your income for the part of the year you were a U.S. resident. You may use Form 1040 as the statement; enter “Dual-Status Statement”
across the top. Do not sign Form 1040. File your return and statement with the Internal Revenue Service Center, Austin, TX
73301-0215, U.S.A.
Statements.
Any statement you file with your return must show your name, address, and identifying number (defined on page 8).
Former U.S. long-term residents are required to file Form 8854 with their dual-status return for the last year of
U.S. residency. To determine if
you are a former U.S. long-term resident, see the instructions on page 7.
Income Subject to Tax for Dual-Status Year
As a dual-status taxpayer not filing a joint return, you are taxed on income from all sources for the part of the year you
were a resident alien.
Generally, you are taxed on income only from U.S. sources for the part of the year you were a nonresident alien. However,
all income effectively
connected with the conduct of a trade or business in the United States is taxable.
Income you received as a dual-status taxpayer from sources outside the United States while a resident alien is taxable even
if you became a
nonresident alien after receiving it and before the close of the tax year. Conversely, income you received from sources outside
the United States
while a nonresident alien is not taxable in most cases even if you became a resident alien after receiving it and before the
close of the tax year.
Income from U.S. sources is taxable whether you received it while a nonresident alien or a resident alien.
Restrictions for Dual-Status Taxpayers
Standard deduction.
You cannot take the standard deduction even for the part of the year you were a resident alien.
Head of household.
You cannot use the Head of household Tax Table column or Section D of the Tax Computation Worksheet.
Joint return.
You cannot file a joint return unless you elect to be taxed as a resident alien (see the instructions on page 4) in
lieu of these dual-status
taxpayer rules.
Tax rates.
If you were married and a nonresident of the United States for all or part of the tax year and you do not make the
election to be taxed as a
resident alien as discussed on page 4, you must use the Married filing separately column in the Tax Table or Section C of
the Tax Computation
Worksheet to figure your tax on income effectively connected with a U.S. trade or business. If married, you cannot use the
Single Tax Table column or
Section A of the Tax Computation Worksheet.
Deduction for exemptions.
As a dual-status taxpayer, you usually will be entitled to your own personal exemption. Subject to the general rules
for qualification, you are
allowed exemptions for your spouse and dependents in figuring taxable income for the part of the year you were a resident
alien. The amount you can
claim for these exemptions is limited to your taxable income (determined without regard to exemptions) for the part of the
year you were a resident
alien. You cannot use exemptions (other than your own) to reduce taxable income to below zero for that period.
Special rules apply for exemptions for the part of the tax year a dual-status taxpayer is a nonresident alien if the
taxpayer is a resident of
Canada, Mexico, or the Republic of Korea (South Korea); a U.S. national; or a student or business apprentice from India. See
Pub. 519.
Tax credits.
You cannot take the earned income credit, the credit for the elderly or disabled, or an education credit unless you
elect to be taxed as a resident
alien (see the instructions on page 4) in lieu of these dual-status taxpayer rules. For information on other credits, see
chapter 6 of Pub. 519.
How To Figure Tax for Dual-Status Year
When you figure your U.S. tax for a dual-status year, you are subject to different rules for the part of the year you were
a resident and the part
of the year you were a nonresident.
All income for the period of residence and all income that is effectively connected with a trade or business in the United
States for the period of
nonresidence, after allowable deductions, is combined and taxed at the same rates that apply to U.S. citizens and residents.
For the period of
residence, allowable deductions include all deductions on Schedule A of Form 1040, including medical expenses, real property
taxes, and certain
interest. See the Instructions for Schedules A&B (Form 1040).
Income that is not effectively connected with a trade or business in the United States for the period of nonresidence is
subject to the flat 30%
rate or lower treaty rate. No deductions are allowed against this income.
If you were a resident alien on the last day of the tax year and you are filing Form 1040, include the tax on the noneffectively
connected income
in the total on Form 1040, line 63. To the left of line 63 enter “Tax from Form 1040NR” and the amount.
If you are filing Form 1040NR, enter the tax from the Tax Table, Tax Computation Worksheet, Qualified Dividends and Capital
Gain Tax Worksheet,
Schedule D Tax Worksheet, Schedule J (Form 1040), or Form 8615 on line 41 and the tax on the noneffectively connected income
on line 53.
Credit for taxes paid.
You are allowed a credit against your U.S. income tax liability for certain taxes you paid or are considered to have
paid or that were withheld
from your income. These include:
1.
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Tax withheld from wages earned in the United States and taxes withheld at the source from various items of income from U.S.
sources other than wages. This includes U.S. tax withheld on dispositions of U.S. real property interests.
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When filing Form 1040, show the total tax withheld on line 64. Enter amounts from the attached statement (Form 1040NR, lines
59,
66, 67a, 67b, 68a, and 68b) in the column to the right of line 64 and identify and include in the amount on line 64.
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When filing Form 1040NR, show the total tax withheld on lines 59, 66, 67a, 67b, 68a, and 68b. Enter the amount from the attached
statement (Form 1040, line 64) in the column to the right of line 59 and identify and include in the amount on line 59.
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2.
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Estimated tax paid with Form 1040-ES or Form 1040-ES (NR).
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3.
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Tax paid with Form 1040-C at the time of departure from the United States. When filing Form 1040, include the tax paid with
Form
1040-C with the total payments on line 72. Identify the payment in the area to the left of the entry.
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How To Report Income on Form 1040NR
If either you or your spouse (or both you and your spouse) were nonresident aliens at any time during the tax year and you
had community income
during the year, treat the community income according to the applicable community property laws except as follows.
-
Earned income of a spouse, other than trade or business income or partnership distributive share income. The spouse whose
services produced
the income must report it on his or her separate return.
-
Trade or business income, other than partnership distributive share income. Treat this income as received by the spouse carrying
on the
trade or business and report it on that spouse's return.
-
Partnership distributive share income (or loss). Treat this income (or loss) as received by the spouse who is the partner
and report it on
that spouse's return.
-
Income derived from the separate property of one spouse that is not earned income, trade or business income, or partnership
distributive
share income. The spouse with the separate property must report this income on his or her separate return.
See Pub. 555, Community Property, for more details.
You must divide your income for the tax year into the following three categories.
-
Income effectively connected with a U.S. trade or business. This income is taxed at the same rates that apply to U.S. citizens
and
residents. Report this income on page 1 of Form 1040NR. Pub. 519 describes this income in greater detail.
-
U.S. income not effectively connected with a U.S. trade or business. This income is taxed at 30% unless a treaty between your
country and
the United States has set a lower rate that applies to you. Report this income on page 4 of Form 1040NR. Pub. 519 describes
this income more
fully.
Note.
Use line 56 to report the 4% tax on U.S. source gross transportation income.
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Income exempt from U.S. tax. Complete items L and/or M on page 5 of Form 1040NR and, if applicable, line 22 on page 1.
Dispositions of U.S. Real Property Interests
Gain or loss on the disposition of a U.S. real property interest (see Pub. 519 for definition) is taxed as if the gain or
loss were effectively
connected with the conduct of a U.S. trade or business. See section 897 and its regulations.
Report gains and losses on the disposition of U.S. real property interests on Schedule D (Form 1040) and Form 1040NR, line
14. Also, net gains may
be subject to the alternative minimum tax. See the instructions for line 42.
See Pub. 519 for more details.
Income You May Elect To Treat as Effectively Connected With a U.S. Trade or Business
You can elect to treat some items of income as effectively connected with a U.S. trade or business. The election applies to
all income from real
property located in the United States and held for the production of income and to all income from any interest in such property.
This includes:
-
Gains from the sale or exchange of such property or an interest therein.
-
Gains on the disposal of timber, coal, or iron ore with a retained economic interest.
-
Rents and royalties from mines, oil or gas wells, or other natural resources.
The election does not apply to dispositions of U.S. real property interests discussed earlier.
To make the election, attach a statement to your return for the year of the election. Include in your statement:
-
That you are making the election.
-
A complete list of all of your real property, or any interest in real property, located in the United States (including location).
Give the
legal identification of U.S. timber, coal, or iron ore in which you have an interest.
-
The extent of your ownership in the real property.
-
A description of any substantial improvements to the property.
-
Your income from the property.
-
The dates you owned the property.
-
Whether the election is under section 871(d) or a tax treaty.
-
Details of any previous elections and revocations of the real property election.
Foreign Income Taxed by the United States
You may be required to report some income from foreign sources on your U.S. return if it is effectively connected with a U.S.
trade or business.
For this foreign income to be treated as effectively connected with a U.S. trade or business, you must have an office or other
fixed place of business
in the United States to which the income can be attributed. For more information, including a list of the types of foreign
source income that must be
treated as effectively connected with a U.S. trade or business, see Pub. 519.
Special Rules for Former U.S. Citizens and Former U.S. Long-Term Residents
The expatriation tax provisions provide an alternative tax regime for certain nonresident aliens who lost U.S. citizenship
or terminated U.S.
long-term resident status. In 2004 the expatriation rules that determine whether you are subject to this alternative tax regime
changed. If you
expatriated on or before June 3, 2004, one set of rules applies. If you expatriated after June 3, 2004, another set of rules
applies. See the rules on
this page that apply to you.
Former U.S. long-term resident defined.
You are a former U.S. long-term resident if you were a lawful permanent resident of the United States (green-card
holder) in at least 8 of the last
15 consecutive tax years ending with the year your residency ends. In determining if you meet the 8-year requirement, do not
count any year that you
were treated as a resident of another country under a tax treaty and you did not waive treaty benefits.
Expatriation Before June 4, 2004
The alternative tax regime will apply to you for the 10 succeeding tax years following the year of your expatriation if one
of the principal
purposes of your action was to avoid U.S. taxes. You are considered to have tax avoidance as a principal purpose if:
-
Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship
or
terminate your residency was more than $100,000, or
-
Your net worth on the date of your action was $500,000 or more.
The amounts above are adjusted for inflation if your expatriation action is after 1996 (see the chart on this page).
Inflation-Adjusted Amounts for Expatriation Actions Before June 4,
2004
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IF you expatriated during . . . |
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THEN the rules outlined on this page apply
if . . . |
|
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Your 5-year average annual net income tax was more
than ...
|
OR |
Your net worth equaled or
exceeded ...
|
1997
|
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$106,000
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$528,000
|
1998
|
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109,000
|
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543,000
|
1999
|
|
110,000
|
|
552,000
|
2000
|
|
112,000
|
|
562,000
|
2001
|
|
116,000
|
|
580,000
|
2002
|
|
120,000
|
|
599,000
|
2003
|
|
122,000
|
|
608,000
|
2004 (before
June 4)*
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124,000
|
|
622,000
|
*If you expatriated after June 3, 2004, see Expatriation After June 3, 2004 on
this page. |
Although there are exceptions to these rules, you will qualify for an exception only if you are eligible to submit a ruling
request to the IRS that
your renunciation of U.S. citizenship or termination of U.S. residency did not have as one of its principal purposes the avoidance
of U.S. tax and you
submit such a ruling request in a complete and good faith manner. For more details about these exceptions, see Notice 97-19,
1997-1 C.B. 394; and
Notice 98-34, 1998-2 C.B. 29. You can find Notice 97-19 on page 40 of Internal Revenue Bulletin 1997-10 at
www.irs.gov/pub/irs-irbs/irb97-10.pdf. You can find Notice 98-34 on page 30 of Internal Revenue Bulletin 1998-27 at
www.irs.gov/pub/irs-irbs/irb98-27.pdf.
Annual information statement.
If the alternative tax regime under the expatriation tax provisions apply to you, check the “ Yes” box in item P on Form 1040NR, page 5. You
also must attach an annual information statement to Form 1040NR that lists by category (for example, dividends, interest,
etc.) all items of U.S. and
foreign source gross income (whether or not taxable in the United States). The statement must identify the source of such
income (determined under
section 877 as modified by Section V of Notice 97-19) and those items of income subject to tax under section 877. You must
attach the statement to
Form 1040NR, whether or not you owe any U.S. tax.
Expatriation After June 3, 2004
The alternative tax regime will apply to you for the 10 succeeding tax years following the year of your expatriation if any
one of the following
apply.
-
Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship
or
terminate your residency was more than $124,000. This amount is adjusted for inflation if your expatriation is after 2004
(see the chart
below).
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Your net worth on the date of your action was $2,000,000 or more.
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You fail to certify under penalties of perjury that all of your U.S. federal tax obligations for the last 5 tax years ending
before the date
of your action have been met.
Inflation-Adjusted Amounts for Expatriation Actions After June 3,
2004
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IF you expatriated during ... |
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THEN the rules outlined on this page apply if your 5-year average annual net income tax was more than
... |
2004 (after
June 3)*
|
|
$124,000
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2005
|
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127,000
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2006
|
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131,000
|
*If you expatriated before June 4, 2004, see Expatriation Before June 4, 2004 on
this page. |
Exception for dual citizens and certain minors.
Dual citizens and certain minors are not subject to the expatriation tax even if they meet (1) or (2) above. However,
they must provide the
certification required in (3) above. For the definitions of “ dual citizens” and “ certain minors,” see Pub. 519.
Exception if in the United States for more than 30 days.
Generally, the alternative tax regime does not apply to any tax year during the 10-year period if you are physically
present in the United States
for more than 30 days during the calendar year ending in that year. You must file Form 1040, 1040A, or 1040EZ, and figure
your tax as prescribed in
the instructions for those forms. For details, see Tax consequences of presence in the United States under Expatriation After June 3,
2004, in Pub. 519.
Annual information statement.
If the alternative tax regime under the expatriation tax provisions applies to you, check the “ Yes” box in item P on Form 1040NR, page 5, and
attach a completed Form 8854 (Parts I and III of Schedules A and B) to your tax return. You must attach the form for each
of the 10 tax years
beginning with the year that includes your date of expatriation, whether or not you owe U.S. tax. For more details regarding
the filing of Form 8854,
see the Instructions for Form 8854.
Penalty.
If you fail to file a required Form 8854 for any tax year or fail to include all information required to be shown
on the form, you may have to pay
a penalty in the amount of $10,000 for each required Form 8854. You will not have to pay the penalty if you can show that
the failure to file the
completed form was due to reasonable cause.
How To Figure Your Alternative Tax Under the Expatriation Provisions
Note.
The following discussion applies to you whether you expatriated before June 4, 2004, or after June 3, 2004.
If the alternative tax regime applies to you, you are subject to tax on U.S. source gross income and gains on either (a) a
net basis at the
graduated rates applicable to individuals (with allowable deductions), or (b) a gross basis at a rate of 30% (or lower treaty
rate) under the rules of
section 871(a). See page 28 for more details on the tax imposed under section 871(a).
If you have items of U.S. source income that are subject to tax under section 871(a), you will be taxed at a rate of 30% (or
lower treaty rate) on
your gross income only if this tax exceeds the tax at the regular graduated rates on your net income. If the 30% (or lower
treaty rate) tax on your
gross income exceeds the graduated tax on your net income, report those items on the appropriate lines on page 4 of Form 1040NR.
If the graduated tax
on your net income exceeds the 30% (or lower treaty rate) tax on your gross income, report your income on the appropriate
lines on page 1 of Form
1040NR and attach a statement describing the items and amounts of income that are subject to tax by reason of section 877.
If you have other items of U.S. source income that are not subject to tax under section 871(a), you will be taxed on a net
basis at the regular
graduated rates applicable to individuals. Report this income on the appropriate lines on page 1 of Form 1040NR.
For purposes of figuring the tax due under section 877, the following items of income are treated as U.S. source.
-
Gains on the sale or exchange of personal property located in the United States.
-
Gains on the sale or exchange of stock issued by a domestic corporation or debt obligations of the United States, U.S. persons,
a state or
political subdivision thereof, and the District of Columbia.
-
Income or gain derived from stock in a foreign corporation if you owned, either directly or indirectly (through the rules
of sections 958(a)
and 958(b)), more than 50% of the vote or value of the stock of the corporation on the date of your renunciation of citizenship
or termination of
residency or at any time during the 2 years preceding such date. Such income or gain is considered U.S. source only to the
extent of your share of the
earnings and profits earned or accumulated prior to the date of renunciation of U.S. citizenship or termination of residency.
Any exchange of property is treated as a sale of the property at its fair market value on the date of the exchange and any
gain is treated as U.S.
source gross income in the tax year of the exchange unless you enter into a gain recognition agreement under Notice 97-19.
Most U.S. tax treaties do not prevent the United States from continuing to tax former citizens and former LTRs under domestic
law. Unless the
treaty prevents it, you will be subject to the rules of section 877.
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