Auckmarty

Okay, this is turning into a disaster. I'm not sure if my accountant (I got an EA - Enrolled Agent) stuffed up or there is miscommunication with the IRS or an error made by them.

I moved from New Zealand to the US on Sept 19, 2014.

I claim a NZ Tax Resident, and US non-resident Alien.

My EA filled out a 1040NR. All good so far.

On Schedule OI, section L 1 she put down New Zealand and listed my NZ Earned Salary income I earned while living there and was already taxed. She did check Yes on L 2. She left tax treaty article and number of years claimed blank.

So the IRS sent a letter saying missing information, and that I need to state the tax treaty... okay, dig that up, fax them the information.

Yesterday I get home from work with a scary letter from the IRS saying "We can't allow your tax treaty exemption. Your claim is not a valid treaty claim. We changed your return accordingly." slapped on all that NZ income and saying I need to pay them over $7k in tax instead of the $4k refund I was expecting. Argh! That's an $11k loss O_O. And they are demanding immediate payment (well, 2 weeks) and have already slapped interest on!

I am trying to get help but my EA seems useless and I don't know where else to go other than maybe paying another accountant to check over and redo my entire tax return.

I figure most of you people on here who worked in Aus or NZ or wherever for most of the year and then moved to the US late in the year and started working there must have ran into this problem and know how to deal with it?

I've spent endless hours reading online and everywhere it says:

If this is the case, should my accountant have NOT included my NZ salary income in Schedule OI Section L? Or is listing it there and claiming a tax treaty the correct way to do it?

Remember, this is income I earned in New Zealand BEFORE I came to the US. I am a US non-resident for tax purposes and I was only here for barely 3 months, way less than their 183 required, etc.

I am REALLY struggling to find the information online on how this is supposed to be filled out, just endless repeating that only US based or US connected income is taxed in your first year arriving as a non-resident. That's great and all, but DO you list your foreign income before you moved to the US in schedule OI or not?

I tried calling the IRS but they said they have excessive volume and to please try calling tomorrow. Argh.

This is a nightmare.

I'm actually about to change jobs and go overseas to get a new E-3 visa (don't even know if I'm going to Canada, New Zealand, or Australia for it) and won't even be around for a few weeks to deal with this (wait and processing times are loooong, especially in Canada and Australia) to exchange letters with the IRS lol. And when I get back I'm moving to another city anyway.

I need to find the right way to make this problem go away ASAP.

Auckmarty

I'm starting to think the confusion is that the IRS believes the in income listed in my schedule OI is foreign NZ Income I received AFTER I arrived in the US?

Specifically, one of these kinds:

Nonresident Aliens

• Interest Income
• Dividends
• Guarantee of Indebtedness
• Personal Services
• Transportation Income
• Scholarships, Grants, Prizes, and Awards
• Pensions and Annuities
• Rents or Royalties
• Real Property
• Personal Property
• Community Income

Which is not the case. So, and maybe I am wrong here, but I get the feeling that my salary income prior to moving to the US should not have been listed at all in section OI?

Owen778

I've never had to complete this form, as my situation was different to yours, and I elected to be treated as resident for my first partial year here. However, looking at the instructions for this section (p48 to 49) hints that it is looking for US-source income earned after entering the US, that is considered tax-exempt under a tax treaty. The example they provide is an Italian teacher working in the US on a J-1 visa, who is allowed to claim tax exemption.

Hopefully others here who know more can confirm this.

If that is correct, you will need to submit a modified return that removes the income you previously had listed in this section.

Auckmarty

Yup, that's what I thought, and yup, I looked at that example as well. Thanks for your response btw

Michael

Your accountant screwed it up. The filing should have been according to 1040NR "dual status". You'll need to file an amended return which doesn't take into account income earned outside the US prior to establishing US residence.

Taxation of Dual-Status Aliens

Auckmarty

Why dual status? I was only here for 3 months, aren't I just a non-resident alien for the entire year?

Owen778

Unless he meets the substantial presence test, you are wrong.
Substantial Presence Test

There is nothing in his post that suggests he meets the test, since he was only in the US for 3 1/2 months in 2014.

Auckmarty

This is what I thought. I do not meet the substantial presence test, so therefore I am a non-resident alien. I think the mistake was listing my NZ income in schedule OI as that is not foreign income I received while I was in the US.

Michael

When you are a resident for a partial year, you are "dual status".

Owen778

He's not resident for a partial year, though, since he neither meets the substantial presence test, nor the green card test.

Michael

He became a resident the day he started working in the US. Whether he files form 1040NR or 1040 depends on other criteria. "Dual Status" is just a mechanism to determine how he is taxed in either situation.

Owen778

No he didn't. Really.

Read this:
Publication 519 (2014), U.S. Tax Guide for Aliens

Michael

If you read the whole thing, it refers to "Dual Status".

There is a difference between being a resident of the US, filing as a resident alien or non resident alien, being a resident for in-state tuition, etc.

Auckmarty

So much for getting a straight answer... you would think I am the first person on the planet to have ever arrived in the US and start working there and this is a unique situation that has never happened before with the amount of debate going on lol.

mikelincs

No, what you are getting is information from people who, usually, are not tax experts or accountants, something that is vey common on forums where people state their interpretation of what is stated in the bits of official statements that are found. For expert information you should be asking the questions of your accountant, or a different accountant.