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Hrblock login 2. Hrblock login   Accounting Methods Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Accounting MethodsCash Method Accrual Method Farm Inventory Cash Versus Accrual Method Special Methods of Accounting Combination Method Changes in Methods of Accounting Introduction You must use an accounting method that clearly shows your income and expenses. Hrblock login You must also figure your taxable income and file an income tax return for an annual accounting period called a tax year. Hrblock login This chapter discusses accounting methods. Hrblock login For information on accounting periods, see Publication 538, Accounting Periods and Methods, and the Instructions for Form 1128, Application To Adopt, Change, or Retain a Tax Year. Hrblock login Topics - This chapter discusses: Cash method Accrual method Farm inventory Special methods of accounting Changes in methods of accounting Useful Items - You may want to see: Publication 538 Accounting Periods and Methods 535 Business Expenses Form (and Instructions) 1128 Application To Adopt, Change, or Retain a Tax Year 3115 Application for Change in Accounting Method See chapter 16 for information about getting publications and forms. Hrblock login Accounting Methods An accounting method is a set of rules used to determine when and how your income and expenses are reported on your tax return. Hrblock login Your accounting method includes not only your overall method of accounting, but also the accounting treatment you use for any material item. Hrblock login A material item is one that affects the proper time for inclusion of income or allowance of a deduction. Hrblock login An item considered material for financial statement purposes is generally also considered material for income tax purposes. Hrblock login See Publication 538 for more information. Hrblock login You generally choose an accounting method for your farm business when you file your first income tax return that includes a Schedule F (Form 1040), Profit or Loss From Farming. Hrblock login If you later want to change your accounting method, you generally must get IRS approval. Hrblock login How to obtain IRS approval is discussed later under Changes in Methods of Accounting . Hrblock login Types of accounting methods. Hrblock login   Generally, you can use any of the following accounting methods. Hrblock login Each method is discussed in detail below. Hrblock login Cash method. Hrblock login Accrual method. Hrblock login Special methods of accounting for certain items of income and expenses. Hrblock login Combination (hybrid) method using elements of two or more of the above. Hrblock login Business and other items. Hrblock login   You can account for business and personal items using different accounting methods. Hrblock login For example, you can figure your business income under an accrual method, even if you use the cash method to figure personal items. Hrblock login Two or more businesses. Hrblock login   If you operate two or more separate and distinct businesses, you can use a different accounting method for each business. Hrblock login Generally, no business is separate and distinct unless a complete and separate set of books and records is maintained for each business. Hrblock login Cash Method Most farmers use the cash method because they find it easier to keep records using the cash method. Hrblock login However, certain farm corporations and partnerships and all tax shelters must use an accrual method of accounting. Hrblock login See Accrual Method Required , later. Hrblock login Income Under the cash method, include in your gross income all items of income you actually or constructively received during the tax year. Hrblock login Items of income include money received as well as property or services received. Hrblock login If you receive property or services, you must include the fair market value (FMV) of the property or services in income. Hrblock login See chapter 3 for information on how to report farm income on your income tax return. Hrblock login Constructive receipt. Hrblock login   Income is constructively received when an amount is credited to your account or made available to you without restriction. Hrblock login You do not need to have possession of the income for it to be treated as income for the tax year. Hrblock login If you authorize someone to be your agent and receive income for you, you are considered to have received the income when your agent receives it. Hrblock login Income is not constructively received if your receipt of the income is subject to substantial restrictions or limitations. Hrblock login Direct payments and counter-cyclical payments. Hrblock login   If you received direct payments or counter-cyclical payments under Subtitle A or C of the Farm Security and Rural Investment Act of 2002, you will not be considered to have constructively received a payment merely because you had the option to receive it in the year before it is required to be paid. Hrblock login Delaying receipt of income. Hrblock login   You cannot hold checks or postpone taking possession of similar property from one tax year to another to avoid paying tax on the income. Hrblock login You must report the income in the year the money or property is received or made available to you without restriction. Hrblock login Example. Hrblock login Frances Jones, a farmer, was entitled to receive a $10,000 payment on a grain contract in December 2013. Hrblock login She was told in December that her payment was available. Hrblock login She requested not to be paid until January 2014. Hrblock login However, she must still include this payment in her 2013 income because it was made available to her in 2013. Hrblock login Debts paid by another person or canceled. Hrblock login   If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income. Hrblock login If you receive income in this way, you constructively receive the income when the debt is canceled or paid. Hrblock login See Cancellation of Debt in chapter 3. Hrblock login Deferred payment contract. Hrblock login   If you sell an item under a deferred payment contract that calls for payment in a future year, there is no constructive receipt in the year of sale. Hrblock login However, if the sales contract states that you have the right to the proceeds of the sale from the buyer at any time after delivery of the item, then you must include the sales price in income in the year of the sale, regardless of when you actually receive payment. Hrblock login Example. Hrblock login You are a farmer who uses the cash method and a calendar tax year. Hrblock login You sell grain in December 2013 under a bona fide arm's-length contract that calls for payment in 2014. Hrblock login You include the proceeds from the sale in your 2014 gross income since that is the year payment is received. Hrblock login However, if the contract states that you have the right to the proceeds from the buyer at any time after the grain is delivered, you must include the sales price in your 2013 income, regardless of when you actually receive payment. Hrblock login Repayment of income. Hrblock login   If you include an amount in income and in a later year you have to repay all or part of it, then you can usually deduct the repayment in the year repaid. Hrblock login If the repayment is more than $3,000, a special rule applies. Hrblock login For details, see Repayments in chapter 11 of Publication 535, Business Expenses. Hrblock login Expenses Under the cash method, generally you deduct expenses in the tax year you pay them. Hrblock login This includes business expenses for which you contest liability. Hrblock login However, you may not be able to deduct an expense paid in advance or you may be required to capitalize certain costs, as explained under Uniform Capitalization Rules in chapter 6. Hrblock login See chapter 4 for information on how to deduct farm business expenses on your income tax return. Hrblock login Prepayment. Hrblock login   Generally, you cannot deduct expenses paid in advance. Hrblock login This rule applies to any expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year. Hrblock login Example. Hrblock login On November 1, 2013, you signed and paid $3,600 for a 3-year (36-month) insurance contract for equipment. Hrblock login In 2013, you are allowed to deduct only $200 (2/36 x $3,600) of the cost of the policy that is attributable to 2013. Hrblock login In 2014, you'll be able to deduct $1,200 (12/36 x $3,600); in 2015, you'll be able to deduct $1,200 (12/36 x $3,600); and in 2016 you'll be able to deduct the remaining balance of $1,000. Hrblock login An exception applies if the expense qualifies for the 12-month rule. Hrblock login See Publication 538 for more information and examples. Hrblock login See chapter 4 for special rules for prepaid farm supplies and prepaid livestock feed. Hrblock login Accrual Method Under an accrual method of accounting, you generally report income in the year earned and deduct or capitalize expenses in the year incurred. Hrblock login The purpose of an accrual method of accounting is to correctly match income and expenses. Hrblock login Certain businesses engaged in farming must use an accrual method of accounting for its farm business and for sales and purchases of inventory items. Hrblock login See Accrual Method Required and Farm Inventory , later. Hrblock login Income Generally, you include an amount in income for the tax year in which all events that fix your right to receive the income have occurred, and you can determine the amount with reasonable accuracy. Hrblock login Under this rule, include an amount in income on the earliest of the following dates. Hrblock login When you receive payment. Hrblock login When the income amount is due to you. Hrblock login When you earn the income. Hrblock login When title passes. Hrblock login If you use an accrual method of accounting, complete Part III of Schedule F (Form 1040) to report your income. Hrblock login Inventory. Hrblock login   If you keep an inventory, generally you must use an accrual method of accounting to determine your gross income. Hrblock login An inventory is necessary to clearly show income when the production, purchase, or sale of merchandise is an income-producing factor. Hrblock login See Publication 538 for more information. Hrblock login Also see Farm Inventory , later, for more information on items that must be included in inventory by farmers and inventory valuation methods for farmers. Hrblock login Expenses Under an accrual method of accounting, you generally deduct or capitalize a business expense when both of the following apply. Hrblock login The all-events test has been met. Hrblock login This test is met when: All events have occurred that fix the fact that you have a liability, and The amount of the liability can be determined with reasonable accuracy. Hrblock login Economic performance has occurred. Hrblock login Economic performance. Hrblock login   Generally, you cannot deduct or capitalize a business expense until economic performance occurs. Hrblock login If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided or as the property is used. Hrblock login If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services. Hrblock login Example. Hrblock login Jane, who is a farmer, uses a calendar tax year and an accrual method of accounting. Hrblock login She entered into a contract with ABC Farm Consulting in 2012. Hrblock login The contract stated that Jane pay ABC Farm Consulting $2,000 in December 2012. Hrblock login It further stipulates that ABC Farm Consulting will develop a plan for integrating her farm with a larger farm operation based in a neighboring state by March 1, 2013. Hrblock login Jane paid ABC Farm Consulting $2,000 in December 2012. Hrblock login Integration of operations according to the plan began in May 2013 and they completed the integration in December 2013. Hrblock login Economic performance for Jane's liability in the contract occurs as the services are provided. Hrblock login Jane incurs the $2,000 cost in 2013. Hrblock login An exception to the economic performance rule allows certain recurring items to be treated as incurred during a tax year even though economic performance has not occurred. Hrblock login For more information, see Economic Performance in Publication 538. Hrblock login Special rule for related persons. Hrblock login   Business expenses and interest owed to a related person who uses the cash method of accounting are not deductible until you make the payment and the corresponding amount is includible in the related person's gross income. Hrblock login Determine the relationship for this rule as of the end of the tax year for which the expense or interest would otherwise be deductible. Hrblock login For more information, see Internal Revenue Code section 267. Hrblock login Accrual Method Required Generally, the following businesses, if engaged in farming, must use an accrual method of accounting. Hrblock login A corporation (other than a family corporation) that had gross receipts of more than $1,000,000 for any tax year beginning after 1975. Hrblock login A family corporation that had gross receipts of more than $25,000,000 for any tax year beginning after 1985. Hrblock login A partnership with a corporation as a partner, if that corporation meets the requirements of (1) or (2) above. Hrblock login A tax shelter. Hrblock login Note. Hrblock login Items (1), (2), and (3) above do not apply to an S corporation or a business operating a nursery or sod farm, or the raising or harvesting of trees (other than fruit and nut trees). Hrblock login Family corporation. Hrblock login   A family corporation is generally a corporation that meets one of the following ownership requirements. Hrblock login Members of the same family own at least 50% of the total combined voting power of all classes of stock entitled to vote and at least 50% of the total shares of all other classes of stock of the corporation. Hrblock login Members of two families have owned, directly or indirectly, since October 4, 1976, at least 65% of the total combined voting power of all classes of voting stock and at least 65% of the total shares of all other classes of the corporation's stock. Hrblock login Members of three families have owned, directly or indirectly, since October 4, 1976, at least 50% of the total combined voting power of all classes of voting stock and at least 50% of the total shares of all other classes of the corporation's stock. Hrblock login For more information on family corporations, see Internal Revenue Code section 447. Hrblock login Tax shelter. Hrblock login   A tax shelter is a partnership, noncorporate enterprise, or S corporation that meets either of the following tests. Hrblock login Its principal purpose is the avoidance or evasion of federal income tax. Hrblock login It is a farming syndicate. Hrblock login A farming syndicate is an entity that meets either of the following tests. Hrblock login Interests in the activity have been offered for sale in an offering required to be registered with a federal or state agency with the authority to regulate the offering of securities for sale. Hrblock login More than 35% of the losses during the tax year are allocable to limited partners or limited entrepreneurs. Hrblock login   A “limited partner” is one whose personal liability for partnership debts is limited to the money or other property the partner contributed or is required to contribute to the partnership. Hrblock login   A “limited entrepreneur” is one who has an interest in an enterprise other than as a limited partner and does not actively participate in the management of the enterprise. Hrblock login Farm Inventory If you are required to keep an inventory, you should keep a complete record of your inventory as part of your farm records. Hrblock login This record should show the actual count or measurement of the inventory. Hrblock login It should also show all factors that enter into its valuation, including quality and weight, if applicable. Hrblock login Hatchery business. Hrblock login   If you are in the hatchery business, and use an accrual method of accounting, you must include in inventory eggs in the process of incubation. Hrblock login Products held for sale. Hrblock login   All harvested and purchased farm products held for sale or for feed or seed, such as grain, hay, silage, concentrates, cotton, tobacco, etc. Hrblock login , must be included in inventory. Hrblock login Supplies. Hrblock login   Supplies acquired for sale or that become a physical part of items held for sale must be included in inventory. Hrblock login Deduct the cost of supplies in the year used or consumed in operations. Hrblock login Do not include incidental supplies in inventory as these are deductible in the year of purchase. Hrblock login Livestock. Hrblock login   Livestock held primarily for sale must be included in inventory. Hrblock login Livestock held for draft, breeding, or dairy purposes can either be depreciated or included in inventory. Hrblock login See also Unit-livestock-price method , later. Hrblock login If you are in the business of breeding and raising chinchillas, mink, foxes, or other fur-bearing animals, these animals are livestock for inventory purposes. Hrblock login Growing crops. Hrblock login   Generally, growing crops are not required to be included in inventory. Hrblock login However, if the crop has a preproductive period of more than 2 years, you may have to capitalize (or include in inventory) costs associated with the crop. Hrblock login See Uniform capitalization rules below. Hrblock login Also see Uniform Capitalization Rules in  chapter 6. Hrblock login Items to include in inventory. Hrblock login   Your inventory should include all items held for sale, or for use as feed, seed, etc. Hrblock login , whether raised or purchased, that are unsold at the end of the year. Hrblock login Uniform capitalization rules. Hrblock login   The following applies if you are required to use an accrual method of accounting. Hrblock login The uniform capitalization rules apply to all costs of raising a plant, even if the preproductive period of raising a plant is 2 years or less. Hrblock login The costs of animals are subject to the uniform capitalization rules. Hrblock login Inventory valuation methods. Hrblock login   The following methods, described below, are those generally available for valuing inventory. Hrblock login The method you use must conform to generally accepted accounting principles for similar businesses and must clearly reflect income. Hrblock login Cost. Hrblock login Lower of cost or market. Hrblock login Farm-price method. Hrblock login Unit-livestock-price method. Hrblock login Cost and lower of cost or market methods. Hrblock login   See Publication 538 for information on these valuation methods. Hrblock login If you value your livestock inventory at cost or the lower of cost or market, you do not need IRS approval to change to the unit-livestock-price method. Hrblock login However, if you value your livestock inventory using the farm-price method, then you must obtain permission from the IRS to change to the unit-livestock-price method. Hrblock login Farm-price method. Hrblock login   Under this method, each item, whether raised or purchased, is valued at its market price less the direct cost of disposition. Hrblock login Market price is the current price at the nearest market in the quantities you usually sell. Hrblock login Cost of disposition includes broker's commissions, freight, hauling to market, and other marketing costs. Hrblock login If you use this method, you must use it for your entire inventory, except that livestock can be inventoried under the unit-livestock-price method. Hrblock login Unit-livestock-price method. Hrblock login   This method recognizes the difficulty of establishing the exact costs of producing and raising each animal. Hrblock login You group or classify livestock according to type and age and use a standard unit price for each animal within a class or group. Hrblock login The unit price you assign should reasonably approximate the normal costs incurred in producing the animals in such classes. Hrblock login Unit prices and classifications are subject to approval by the IRS on examination of your return. Hrblock login You must annually reevaluate your unit livestock prices and adjust the prices upward or downward to reflect increases or decreases in the costs of raising livestock. Hrblock login IRS approval is not required for these adjustments. Hrblock login Any other changes in unit prices or classifications do require IRS approval. Hrblock login   If you use this method, include all raised livestock in inventory, regardless of whether they are held for sale or for draft, breeding, sport, or dairy purposes. Hrblock login This method accounts only for the increase in cost of raising an animal to maturity. Hrblock login It does not provide for any decrease in the animal's market value after it reaches maturity. Hrblock login Also, if you raise cattle, you are not required to inventory hay you grow to feed your herd. Hrblock login   Do not include sold or lost animals in the year-end inventory. Hrblock login If your records do not show which animals were sold or lost, treat the first animals acquired as sold or lost. Hrblock login The animals on hand at the end of the year are considered those most recently acquired. Hrblock login   You must include in inventory all livestock purchased primarily for sale. Hrblock login You can choose either to include in inventory or depreciate livestock purchased for draft, breeding, sport or dairy purposes. Hrblock login However, you must be consistent from year to year, regardless of the method you have chosen. Hrblock login You cannot change your method without obtaining approval from the IRS. Hrblock login   You must include in inventory animals purchased after maturity or capitalize them at their purchase price. Hrblock login If the animals are not mature at purchase, increase the cost at the end of each tax year according to the established unit price. Hrblock login However, in the year of purchase, do not increase the cost of any animal purchased during the last 6 months of the year. Hrblock login This “no increase” rule does not apply to tax shelters which must make an adjustment for any animal purchased during the year. Hrblock login It also does not apply to taxpayers that must make an adjustment to reasonably reflect the particular period in the year in which animals are purchased, if necessary to avoid significant distortions in income. Hrblock login Uniform capitalization rules. Hrblock login   A farmer can determine costs required to be allocated under the uniform capitalization rules by using the farm-price or unit-livestock-price inventory method. Hrblock login This applies to any plant or animal, even if the farmer does not hold or treat the plant or animal as inventory property. Hrblock login Cash Versus Accrual Method The following examples compare the cash and accrual methods of accounting. Hrblock login Example 1. Hrblock login You are a farmer who uses an accrual method of accounting. Hrblock login You keep your books on the calendar year basis. Hrblock login You sell grain in December 2013 but you are not paid until January 2014. Hrblock login Because the accrual method was used and 2013 was the tax year in which the grain was sold, you must both include the sales proceeds and deduct the costs incurred in producing the grain on your 2013 tax return. Hrblock login Example 2. Hrblock login Assume the same facts as in Example 1 except that you use the cash method and there was no constructive receipt of the sales proceeds in 2013. Hrblock login Under this method, you include the sales proceeds in income for 2014, the year you receive payment. Hrblock login Deduct the costs of producing the grain in the year you pay for them. Hrblock login Special Methods of Accounting There are special methods of accounting for certain items of income and expense. Hrblock login Crop method. Hrblock login   If you do not harvest and dispose of your crop in the same tax year that you plant it, you can, with IRS approval, use the crop method of accounting. Hrblock login You cannot use the crop method for any tax return, including your first tax return, unless you receive approval from the IRS. Hrblock login Under this method, you deduct the entire cost of producing the crop, including the expense of seed or young plants, in the year you realize income from the crop. Hrblock login    See chapter 4 for details on deducting the costs of operating a farm. Hrblock login Also see Regulations section 1. Hrblock login 162-12. Hrblock login Other special methods. Hrblock login   Other special methods of accounting apply to the following items. Hrblock login Amortization, see chapter 7. Hrblock login Casualties, see chapter 11. Hrblock login Condemnations, see chapter 11. Hrblock login Depletion, see chapter 7. Hrblock login Depreciation, see chapter 7. Hrblock login Farm business expenses, see chapter 4. Hrblock login Farm income, see chapter 3. Hrblock login Installment sales, see chapter 10. Hrblock login Soil and water conservation expenses, see chapter 5. Hrblock login Thefts, see chapter 11. Hrblock login Combination Method Generally, you can use any combination of cash, accrual, and special methods of accounting if the combination clearly shows your income and expenses and you use it consistently. Hrblock login However, the following restrictions apply. Hrblock login If you use the cash method for figuring your income, you must use the cash method for reporting your expenses. Hrblock login If you use an accrual method for reporting your expenses, you must use an accrual method for figuring your income. Hrblock login Changes in Methods of Accounting A change in your method of accounting includes a change in: Your overall method, such as from the cash method to an accrual method, and Your treatment of any material item, such as a change in your method of valuing inventory (for example, a change from the farm-price method to the unit-livestock-price method, discussed earlier). Hrblock login Generally, once you have set up your accounting method, you must receive approval from the IRS before you can change to another method of accounting. Hrblock login You may also have to pay a fee. Hrblock login To obtain approval, you must generally file Form 3115. Hrblock login There are instances when you can obtain automatic consent to change certain methods of accounting. Hrblock login See the List of Automatic Accounting Method Changes located in the Instructions for Form 3115. Hrblock login For more information on changes in methods of accounting, see Form 3115 and the Instructions for Form 3115. Hrblock login Also see Publication 538. Hrblock login Prev  Up  Next   Home   More Online Publications
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Understanding Your CP3219B Notice

This Statutory Notice of Deficiency notifies you of the IRS’s intent to assess a tax deficiency and informs you of your right to petition the United States Tax Court to dispute the proposed adjustments.


What you need to do immediately

  • Review this notice and compare our changes to the information on your tax return. On previous notices we asked you to verify the income, credits, and deductions reported on your tax return because they’re different from the information we received from other sources. You didn't provide any further information to us.
  • If you agree with the changes, complete the Form 4089, Notice of Deficiency - Waiver, sign and return it in order to limit additional interest charges.
  • If you don't send a payment with Form 4089, we will send a bill for the amount due with any interest and applicable penalties.
  • Mail any additional information you have to us immediately. Attach this letter to your correspondence to help us identify your case. Keep a copy for your records. Our consideration won't extend the deadline to file a petition with the U.S Tax Court.
  • If you don’t agree with the changes you have the right to challenge the increase in tax by filing a petition with the U.S. Tax Court. You have 90 days (150 if the notice was addressed outside the United States) to file the petition. The Court can’t consider your case if the petition is filed late. You can download a petition form and rules from www.ustaxcourt.gov or contact:

  • Clerk of the U.S. Tax Court
    400 Second Street, NW
    Washington, DC 20217
    1-202-521-0700

You may want to

  • Send us the name, address and taxpayer identification number of the other party that received the income if it isn't yours.
  • Notify the payers to correct their records to show the name and taxpayer identification number of the person or business who actually received the income, so that future reports to us are accurate.

Answers to Common Questions

Is this a Bill?
No. It tells you of the IRS’s intention to assess a tax deficiency. It isn't an assessment of tax nor does it require you to make immediate payment. We haven’t charged any additional tax at this time.

Should I call with my response or mail it in?
If you want us to consider additional information, please contact us immediately. Our consideration won't extend the deadline to file a petition with the U.S Tax Court.


If you have a simple response, such as directing us to a specific line on your original return where you reported the income, you can call a Customer Service Representative and provide the information. A toll-free number is listed in the top right hand corner of the notice.


A written response may be required if the issue is more involved, especially if you disagree with some of the proposed changes. You may want to mail copies of payer information documents such as Form(s) 1099 or Schedule(s) K-1. Include any other letters or documents that support your position. You should submit a written statement to fully explain any unusual tax situations.


If you choose to petition the United States Tax Court, the application must be submitted in writing.

Why did it take you so long to contact us about this?
Tax years generally end on Dec. 31, but we don't receive information from banks, businesses, and other payers until much later. Once we receive all the tax returns and payer information, we compare the information you reported with the information third party payers provided to us. It can take 8 months or more to complete this review.

I need more time to find my records and go through them all. Will you allow me additional time to respond?
No. The time you have to petition the United States Tax Court can't be extended. It’s important that you respond to the Statutory Notice of Deficiency or petition the United States Tax Court (if you choose to) by the due date shown on the notice. If you don’t, we’ll assume the proposed changes are correct and assess the additional deficiency.

Do I have to pay the interest? Can you remove it?
The law requires us to charge interest on any tax that isn't paid by the return due date (Internal Revenue Code Section 6601). 

The law doesn't permit us to reduce or remove interest for reasonable cause. However, in limited circumstances, we may waive penalties. If you believe you qualify for penalty removal, you should include related information in your response.

What should I do to avoid problems like this in the future?
Keep accurate payment information from banks and other payers to verify you've received all payment information for filing your return. Review the documents to be sure they show your most current address. Take the following actions when filing your tax return to avoid similar issues in the future:

  • Report specific income type on the correct line on the Form 1120, U.S. Corporation Income Tax Return. For example, rental income should be claimed on Form 1120, line 6 (Gross Rents). For additional information, please see the reporting instructions for Form 1120.
  • If you report income on a line not traditionally reserved for that type of income, provide a statement indicating where the income was reported. For example, your business is related to investment activity and you're reporting all interest income (including amounts reported to the IRS on Form 1099-INT, Interest Income) with your gross receipts on Form 1120, line 1.
  • Always attach a statement identifying the source of the amount reported on Form 1120, line 10 (Other Income).
  • Provide an attached statement explaining your percentage of gross proceeds (ex; reported to us on Form 1099-MISC) that you would be liable to claim on your tax return.
  • Generally, if you receive a Form 1099 for amounts that actually belong to another person, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received) for each of the other owners showing the amounts applicable to each.
Page Last Reviewed or Updated: 28-Feb-2014

How to get help

  • Call the 1-800 number listed on the top right corner of your notice.
  • Authorize someone (e.g., accountant) to contact the IRS on your behalf using Form 2848.
  • See if you qualify for help from a Low Income Taxpayer Clinic.
     

The Hrblock Login

Hrblock login 1. Hrblock login   Nonresident Alien or Resident Alien? Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Nonresident Aliens Resident AliensGreen Card Test Substantial Presence Test Effect of Tax Treaties Dual-Status AliensFirst Year of Residency Choosing Resident Alien Status Last Year of Residency Nonresident Spouse Treated as a ResidentHow To Make the Choice Aliens From American Samoa or Puerto Rico Introduction You should first determine whether, for income tax purposes, you are a nonresident alien or a resident alien. Hrblock login If you are both a nonresident and resident in the same year, you have a dual status. Hrblock login Dual status is explained later. Hrblock login Also explained later are a choice to treat your nonresident spouse as a resident and some other special situations. Hrblock login Topics - This chapter discusses: How to determine if you are a nonresident, resident, or dual-status alien, and How to treat a nonresident spouse as a resident alien. Hrblock login Useful Items - You may want to see: Form (and Instructions) 1040 U. Hrblock login S. Hrblock login Individual Income Tax Return 1040A U. Hrblock login S. Hrblock login Individual Income Tax Return 1040NR U. Hrblock login S. Hrblock login Nonresident Alien Income Tax Return 8833 Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) 8840 Closer Connection Exception Statement for Aliens 8843 Statement for Exempt Individuals and Individuals With a Medical Condition See chapter 12 for information about getting these forms. Hrblock login Nonresident Aliens If you are an alien (not a U. Hrblock login S. Hrblock login citizen), you are considered a nonresident alien unless you meet one of the two tests described next under Resident Aliens. Hrblock login Resident Aliens You are a resident alien of the United States for tax purposes if you meet either the green card test or the substantial presence test for calendar year 2013 (January 1–December 31). Hrblock login Even if you do not meet either of these tests, you may be able to choose to be treated as a U. Hrblock login S. Hrblock login resident for part of the year. Hrblock login See First-Year Choice under Dual-Status Aliens, later. Hrblock login Green Card Test You are a resident for tax purposes if you are a lawful permanent resident of the United States at any time during calendar year 2013. Hrblock login (However, see Dual-Status Aliens , later. Hrblock login ) This is known as the “green card” test. Hrblock login You are a lawful permanent resident of the United States at any time if you have been given the privilege, according to the immigration laws, of residing permanently in the United States as an immigrant. Hrblock login You generally have this status if the U. Hrblock login S. Hrblock login Citizenship and Immigration Services (USCIS) (or its predecessor organization) has issued you an alien registration card, also known as a “green card. Hrblock login ” You continue to have resident status under this test unless the status is taken away from you or is administratively or judicially determined to have been abandoned. Hrblock login Resident status taken away. Hrblock login   Resident status is considered to have been taken away from you if the U. Hrblock login S. Hrblock login government issues you a final administrative or judicial order of exclusion or deportation. Hrblock login A final judicial order is an order that you may no longer appeal to a higher court of competent jurisdiction. Hrblock login Resident status abandoned. Hrblock login   An administrative or judicial determination of abandonment of resident status may be initiated by you, the USCIS, or a U. Hrblock login S. Hrblock login consular officer. Hrblock login    If you initiate the determination, your resident status is considered to be abandoned when you file either of the following with the USCIS or U. Hrblock login S. Hrblock login consular officer. Hrblock login Your application for abandonment. Hrblock login Your Alien Registration Receipt Card attached to a letter stating your intent to abandon your resident status. Hrblock login You must file the letter by certified mail, return receipt requested. Hrblock login You must keep a copy of the letter and proof that it was mailed and received. Hrblock login    Until you have proof your letter was received, you remain a resident alien for tax purposes even if the USCIS would not recognize the validity of your green card because it is more than ten years old or because you have been absent from the United States for a period of time. Hrblock login   If the USCIS or U. Hrblock login S. Hrblock login consular officer initiates this determination, your resident status will be considered to be abandoned when the final administrative order of abandonment is issued. Hrblock login If you are granted an appeal to a federal court of competent jurisdiction, a final judicial order is required. Hrblock login   Under U. Hrblock login S. Hrblock login immigration law, a lawful permanent resident who is required to file a tax return as a resident and fails to do so may be regarded as having abandoned status and may lose permanent resident status. Hrblock login    A long-term resident who ceases to be a lawful permanent resident may be subject to special reporting requirements and tax provisions. Hrblock login See Expatriation Tax in chapter 4. Hrblock login Termination of residency after June 3, 2004, and before June 17, 2008. Hrblock login   If you terminated your residency after June 3, 2004, and before June 17, 2008, you will still be considered a U. Hrblock login S. Hrblock login resident for tax purposes until you notify the Secretary of Homeland Security and file Form 8854, Initial and Annual Expatriation Statement. Hrblock login Termination of residency after June 16, 2008. Hrblock login   For information on your residency termination date, see Former long-term resident under Expatriation After June 16, 2008, in chapter 4. Hrblock login Substantial Presence Test You will be considered a U. Hrblock login S. Hrblock login resident for tax purposes if you meet the substantial presence test for calendar year 2013. Hrblock login To meet this test, you must be physically present in the United States on at least: 31 days during 2013, and 183 days during the 3-year period that includes 2013, 2012, and 2011, counting: All the days you were present in 2013, and 1/3 of the days you were present in 2012, and 1/6 of the days you were present in 2011. Hrblock login Example. Hrblock login You were physically present in the United States on 120 days in each of the years 2011, 2012, and 2013. Hrblock login To determine if you meet the substantial presence test for 2013, count the full 120 days of presence in 2013, 40 days in 2012 (1/3 of 120), and 20 days in 2011 (1/6 of 120). Hrblock login Because the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test for 2013. Hrblock login The term United States includes the following areas. Hrblock login All 50 states and the District of Columbia. Hrblock login The territorial waters of the United States. Hrblock login The seabed and subsoil of those submarine areas that are adjacent to U. Hrblock login S. Hrblock login territorial waters and over which the United States has exclusive rights under international law to explore and exploit natural resources. Hrblock login The term does not include U. Hrblock login S. Hrblock login possessions and territories or U. Hrblock login S. Hrblock login airspace. Hrblock login Days of Presence in the United States You are treated as present in the United States on any day you are physically present in the country at any time during the day. Hrblock login However, there are exceptions to this rule. Hrblock login Do not count the following as days of presence in the United States for the substantial presence test. Hrblock login Days you commute to work in the United States from a residence in Canada or Mexico if you regularly commute from Canada or Mexico. Hrblock login Days you are in the United States for less than 24 hours when you are in transit between two places outside the United States. Hrblock login Days you are in the United States as a crew member of a foreign vessel. Hrblock login Days you are unable to leave the United States because of a medical condition that arose while you are in the United States. Hrblock login Days you are an exempt individual. Hrblock login The specific rules that apply to each of these categories are discussed next. Hrblock login Regular commuters from Canada or Mexico. Hrblock login   Do not count the days on which you commute to work in the United States from your residence in Canada or Mexico if you regularly commute from Canada or Mexico. Hrblock login You are considered to commute regularly if you commute to work in the United States on more than 75% of the workdays during your working period. Hrblock login   For this purpose, “commute” means to travel to work and return to your residence within a 24-hour period. Hrblock login “Workdays” are the days on which you work in the United States or Canada or Mexico. Hrblock login “Working period” means the period beginning with the first day in the current year on which you are physically present in the United States to work and ending on the last day in the current year on which you are physically present in the United States to work. Hrblock login If your work requires you to be present in the United States only on a seasonal or cyclical basis, your working period begins on the first day of the season or cycle on which you are present in the United States to work and ends on the last day of the season or cycle on which you are present in the United States to work. Hrblock login You can have more than one working period in a calendar year, and your working period can begin in one calendar year and end in the following calendar year. Hrblock login Example. Hrblock login Maria Perez lives in Mexico and works for Compañía ABC in its office in Mexico. Hrblock login She was assigned to her firm's office in the United States from February 1 through June 1. Hrblock login On June 2, she resumed her employment in Mexico. Hrblock login On 69 days, Maria commuted each morning from her home in Mexico to work in Compañía ABC's U. Hrblock login S. Hrblock login office. Hrblock login She returned to her home in Mexico on each of those evenings. Hrblock login On 7 days, she worked in her firm's Mexico office. Hrblock login For purposes of the substantial presence test, Maria does not count the days she commuted to work in the United States because those days equal more than 75% of the workdays during the working period (69 workdays in the United States divided by 76 workdays in the working period equals 90. Hrblock login 8%). Hrblock login Days in transit. Hrblock login   Do not count the days you are in the United States for less than 24 hours and you are in transit between two places outside the United States. Hrblock login You are considered to be in transit if you engage in activities that are substantially related to completing travel to your foreign destination. Hrblock login For example, if you travel between airports in the United States to change planes en route to your foreign destination, you are considered to be in transit. Hrblock login However, you are not considered to be in transit if you attend a business meeting while in the United States. Hrblock login This is true even if the meeting is held at the airport. Hrblock login Crew members. Hrblock login   Do not count the days you are temporarily present in the United States as a regular crew member of a foreign vessel (boat or ship) engaged in transportation between the United States and a foreign country or a U. Hrblock login S. Hrblock login possession. Hrblock login However, this exception does not apply if you otherwise engage in any trade or business in the United States on those days. Hrblock login Medical condition. Hrblock login   Do not count the days you intended to leave, but could not leave the United States because of a medical condition or problem that arose while you were in the United States. Hrblock login Whether you intended to leave the United States on a particular day is determined based on all the facts and circumstances. Hrblock login For example, you may be able to establish that you intended to leave if your purpose for visiting the United States could be accomplished during a period that is not long enough to qualify you for the substantial presence test. Hrblock login However, if you need an extended period of time to accomplish the purpose of your visit and that period would qualify you for the substantial presence test, you would not be able to establish an intent to leave the United States before the end of that extended period. Hrblock login   In the case of an individual who is judged mentally incompetent, proof of intent to leave the United States can be determined by analyzing the individual's pattern of behavior before he or she was judged mentally incompetent. Hrblock login   If you qualify to exclude days of presence because of a medical condition, you must file a fully completed Form 8843 with the IRS. Hrblock login See Form 8843 , later. Hrblock login   You cannot exclude any days of presence in the United States under the following circumstances. Hrblock login You were initially prevented from leaving, were then able to leave, but remained in the United States beyond a reasonable period for making arrangements to leave. Hrblock login You returned to the United States for treatment of a medical condition that arose during a prior stay. Hrblock login The condition existed before your arrival in the United States and you were aware of the condition. Hrblock login It does not matter whether you needed treatment for the condition when you entered the United States. Hrblock login Exempt individual. Hrblock login   Do not count days for which you are an exempt individual. Hrblock login The term “exempt individual” does not refer to someone exempt from U. Hrblock login S. Hrblock login tax, but to anyone in the following categories. Hrblock login An individual temporarily present in the United States as a foreign government-related individual under an “A” or “G” visa. Hrblock login A teacher or trainee temporarily present in the United States under a “J” or “Q” visa, who substantially complies with the requirements of the visa. Hrblock login A student temporarily present in the United States under an “F,” “J,” “M,” or “Q” visa, who substantially complies with the requirements of the visa. Hrblock login A professional athlete temporarily in the United States to compete in a charitable sports event. Hrblock login   The specific rules for each of these four categories (including any rules on the length of time you will be an exempt individual) are discussed next. Hrblock login Foreign government-related individuals. Hrblock login   A foreign government-related individual is an individual (or a member of the individual's immediate family) who is temporarily present in the United States: As a full-time employee of an international organization, By reason of diplomatic status, or By reason of a visa (other than a visa that grants lawful permanent residence) that the Secretary of the Treasury determines represents full-time diplomatic or consular status. Hrblock login Note. Hrblock login You are considered temporarily present in the United States regardless of the actual amount of time you are present in the United States. Hrblock login    An international organization is any public international organization that the President of the United States has designated by Executive Order as being entitled to the privileges, exemptions, and immunities provided for in the International Organizations Act. Hrblock login An individual is a full-time employee if his or her work schedule meets the organization's standard full-time work schedule. Hrblock login   An individual is considered to have full-time diplomatic or consular status if he or she: Has been accredited by a foreign government that is recognized by the United States, Intends to engage primarily in official activities for that foreign government while in the United States, and Has been recognized by the President, Secretary of State, or a consular officer as being entitled to that status. Hrblock login Note. Hrblock login If you are present in the United States under an “A” or “G” visa you are considered a foreign government-related individual (with full-time diplomatic or consular status). Hrblock login None of your days count for purposes of the substantial presence test. Hrblock login   Members of the immediate family include the individual's spouse and unmarried children (whether by blood or adoption) but only if the spouse's or unmarried children's visa statuses are derived from and dependent on the exempt individual's visa classification. Hrblock login Unmarried children are included only if they: Are under 21 years of age, Reside regularly in the exempt individual's household, and Are not members of another household. Hrblock login Teachers and trainees. Hrblock login   A teacher or trainee is an individual, other than a student, who is temporarily in the United States under a “J” or “Q” visa and substantially complies with the requirements of that visa. Hrblock login You are considered to have substantially complied with the visa requirements if you have not engaged in activities that are prohibited by U. Hrblock login S. Hrblock login immigration laws and could result in the loss of your visa status. Hrblock login   Also included are immediate family members of exempt teachers and trainees. Hrblock login See the definition of immediate family, earlier, under Foreign government-related individuals . Hrblock login   You will not be an exempt individual as a teacher or trainee in 2013 if you were exempt as a teacher, trainee, or student for any part of 2 of the 6 preceding calendar years. Hrblock login However, you will be an exempt individual if all of the following conditions are met. Hrblock login You were exempt as a teacher, trainee, or student for any part of 3 (or fewer) of the 6 preceding calendar years, A foreign employer paid all of your compensation during 2013, and A foreign employer paid all of your compensation during each of the preceding 6 years you were present in the United States as a teacher or trainee. Hrblock login A foreign employer includes an office or place of business of an American entity in a foreign country or a U. Hrblock login S. Hrblock login possession. Hrblock login   If you qualify to exclude days of presence as a teacher or trainee, you must file a fully completed Form 8843 with the IRS. Hrblock login See Form 8843 , later. Hrblock login Example. Hrblock login Carla was temporarily in the United States during the year as a teacher on a “J” visa. Hrblock login Her compensation for the year was paid by a foreign employer. Hrblock login Carla was treated as an exempt teacher for the previous 2 years but her compensation was not paid by a foreign employer. Hrblock login She will not be considered an exempt individual for the current year because she was exempt as a teacher for at least 2 of the past 6 years. Hrblock login If her compensation for the past 2 years had been paid by a foreign employer, she would be an exempt individual for the current year. Hrblock login Students. Hrblock login   A student is any individual who is temporarily in the United States on an “F,” “J,” “M,” or “Q” visa and who substantially complies with the requirements of that visa. Hrblock login You are considered to have substantially complied with the visa requirements if you have not engaged in activities that are prohibited by U. Hrblock login S. Hrblock login immigration laws and could result in the loss of your visa status. Hrblock login   Also included are immediate family members of exempt students. Hrblock login See the definition of immediate family, earlier, under Foreign government-related individuals . Hrblock login   You will not be an exempt individual as a student in 2013 if you have been exempt as a teacher, trainee, or student for any part of more than 5 calendar years unless you meet both of the following requirements. Hrblock login You establish that you do not intend to reside permanently in the United States. Hrblock login You have substantially complied with the requirements of your visa. Hrblock login The facts and circumstances to be considered in determining if you have demonstrated an intent to reside permanently in the United States include, but are not limited to, the following. Hrblock login Whether you have maintained a closer connection to a foreign country (discussed later). Hrblock login Whether you have taken affirmative steps to change your status from nonimmigrant to lawful permanent resident as discussed later under Closer Connection to a Foreign Country . Hrblock login   If you qualify to exclude days of presence as a student, you must file a fully completed Form 8843 with the IRS. Hrblock login See Form 8843 , later. Hrblock login Professional athletes. Hrblock login   A professional athlete who is temporarily in the United States to compete in a charitable sports event is an exempt individual. Hrblock login A charitable sports event is one that meets the following conditions. Hrblock login The main purpose is to benefit a qualified charitable organization. Hrblock login The entire net proceeds go to charity. Hrblock login Volunteers perform substantially all the work. Hrblock login   In figuring the days of presence in the United States, you can exclude only the days on which you actually competed in a sports event. Hrblock login You cannot exclude the days on which you were in the United States to practice for the event, to perform promotional or other activities related to the event, or to travel between events. Hrblock login   If you qualify to exclude days of presence as a professional athlete, you must file a fully completed Form 8843 with the IRS. Hrblock login See Form 8843 , next. Hrblock login Form 8843. Hrblock login   If you exclude days of presence in the United States because you fall into any of the following categories, you must file a fully completed Form 8843. Hrblock login You were unable to leave the United States as planned because of a medical condition or problem. Hrblock login You were temporarily in the United States as a teacher or trainee on a “J” or “Q” visa. Hrblock login You were temporarily in the United States as a student on an “F,” “J,” “M,” or “Q” visa. Hrblock login You were a professional athlete competing in a charitable sports event. Hrblock login Attach Form 8843 to your 2013 income tax return. Hrblock login If you do not have to file a return, send Form 8843 to the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215, by the due date for filing Form 1040NR or Form 1040NR-EZ. Hrblock login The due date for filing is discussed in chapter 7. Hrblock login If you do not timely file Form 8843, you cannot exclude the days you were present in the United States as a professional athlete or because of a medical condition that arose while you were in the United States. Hrblock login This does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing requirements and significant steps to comply with those requirements. Hrblock login Closer Connection to a Foreign Country Even if you meet the substantial presence test, you can be treated as a nonresident alien if you: Are present in the United States for less than 183 days during the year, Maintain a tax home in a foreign country during the year, and Have a closer connection during the year to one foreign country in which you have a tax home than to the United States (unless you have a closer connection to two foreign countries, discussed next). Hrblock login Closer connection to two foreign countries. Hrblock login   You can demonstrate that you have a closer connection to two foreign countries (but not more than two) if you meet all of the following conditions. Hrblock login You maintained a tax home beginning on the first day of the year in one foreign country. Hrblock login You changed your tax home during the year to a second foreign country. Hrblock login You continued to maintain your tax home in the second foreign country for the rest of the year. Hrblock login You had a closer connection to each foreign country than to the United States for the period during which you maintained a tax home in that foreign country. Hrblock login You are subject to tax as a resident under the tax laws of either foreign country for the entire year or subject to tax as a resident in both foreign countries for the period during which you maintained a tax home in each foreign country. Hrblock login Tax home. Hrblock login   Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Hrblock login Your tax home is the place where you permanently or indefinitely work as an employee or a self-employed individual. Hrblock login If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. Hrblock login If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. Hrblock login   For determining whether you have a closer connection to a foreign country, your tax home must also be in existence for the entire current year, and must be located in the same foreign country to which you are claiming to have a closer connection. Hrblock login Foreign country. Hrblock login   In determining whether you have a closer connection to a foreign country, the term “foreign country” means: Any territory under the sovereignty of the United Nations or a government other than that of the United States, The territorial waters of the foreign country (determined under U. Hrblock login S. Hrblock login law), The seabed and subsoil of those submarine areas which are adjacent to the territorial waters of the foreign country and over which the foreign country has exclusive rights under international law to explore and exploit natural resources, and Possessions and territories of the United States. Hrblock login Establishing a closer connection. Hrblock login   You will be considered to have a closer connection to a foreign country than the United States if you or the IRS establishes that you have maintained more significant contacts with the foreign country than with the United States. Hrblock login In determining whether you have maintained more significant contacts with the foreign country than with the United States, the facts and circumstances to be considered include, but are not limited to, the following. Hrblock login The country of residence you designate on forms and documents. Hrblock login The types of official forms and documents you file, such as Form W-9, Form W-8BEN, or Form W-8ECI. Hrblock login The location of: Your permanent home, Your family, Your personal belongings, such as cars, furniture, clothing, and jewelry, Your current social, political, cultural, professional, or religious affiliations, Your business activities (other than those that constitute your tax home), The jurisdiction in which you hold a driver's license, The jurisdiction in which you vote, and Charitable organizations to which you contribute. Hrblock login It does not matter whether your permanent home is a house, an apartment, or a furnished room. Hrblock login It also does not matter whether you rent or own it. Hrblock login It is important, however, that your home be available at all times, continuously, and not solely for short stays. Hrblock login When you cannot have a closer connection. Hrblock login   You cannot claim you have a closer connection to a foreign country if either of the following applies: You personally applied, or took other steps during the year, to change your status to that of a permanent resident, or You had an application pending for adjustment of status during the current year. Hrblock login Steps to change your status to that of a permanent resident include, but are not limited to, the filing of the following forms. Hrblock login Form I-508, Waiver of Rights, Privileges, Exemptions and Immunities Form I-485, Application to Register Permanent Residence or Adjust Status Form I-130, Petition for Alien Relative, on your behalf Form I-140, Immigrant Petition for Alien Worker, on your behalf Form ETA-750, Application for Alien Employment Certification, on your behalf Form DS-230, Application for Immigrant Visa and Alien Registration Form 8840. Hrblock login   You must attach a fully completed Form 8840 to your income tax return to claim you have a closer connection to a foreign country or countries. Hrblock login   If you do not have to file a return, send the form to the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215, by the due date for filing Form 1040NR or Form 1040NR-EZ. Hrblock login The due date for filing is discussed later in chapter 7. Hrblock login   If you do not timely file Form 8840, you cannot claim a closer connection to a foreign country or countries. Hrblock login This does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing requirements and significant steps to comply with those requirements. Hrblock login Effect of Tax Treaties The rules given here to determine if you are a U. Hrblock login S. Hrblock login resident do not override tax treaty definitions of residency. Hrblock login If you are a dual-resident taxpayer, you can still claim the benefits under an income tax treaty. Hrblock login A dual-resident taxpayer is one who is a resident of both the United States and another country under each country's tax laws. Hrblock login The income tax treaty between the two countries must contain a provision that provides for resolution of conflicting claims of residence (tie-breaker rule). Hrblock login If you are treated as a resident of a foreign country under a tax treaty, you are treated as a nonresident alien in figuring your U. Hrblock login S. Hrblock login income tax. Hrblock login For purposes other than figuring your tax, you will be treated as a U. Hrblock login S. Hrblock login resident. Hrblock login For example, the rules discussed here do not affect your residency time periods as discussed later under Dual-Status Aliens . Hrblock login Information to be reported. Hrblock login   If you are a dual-resident taxpayer and you claim treaty benefits, you must file a return by the due date (including extensions) using Form 1040NR or Form 1040NR-EZ, and compute your tax as a nonresident alien. Hrblock login You must also attach a fully completed Form 8833 if you determine your residency under a tax treaty and receive payments or income items totaling more than $100,000. Hrblock login You may also have to attach Form 8938 (discussed in chapter 7). Hrblock login See Reporting Treaty Benefits Claimed in chapter 9 for more information on reporting treaty benefits. Hrblock login Dual-Status Aliens You can be both a nonresident alien and a resident alien during the same tax year. Hrblock login This usually occurs in the year you arrive in or depart from the United States. Hrblock login Aliens who have dual status should see chapter 6 for information on filing a return for a dual-status tax year. Hrblock login First Year of Residency If you are a U. Hrblock login S. Hrblock login resident for the calendar year, but you were not a U. Hrblock login S. Hrblock login resident at any time during the preceding calendar year, you are a U. Hrblock login S. Hrblock login resident only for the part of the calendar year that begins on the residency starting date. Hrblock login You are a nonresident alien for the part of the year before that date. Hrblock login Residency starting date under substantial presence test. Hrblock login   If you meet the substantial presence test for a calendar year, your residency starting date is generally the first day you are present in the United States during that calendar year. Hrblock login However, you do not have to count up to 10 days of actual presence in the United States if on those days you establish that: You had a closer connection to a foreign country than to the United States, and Your tax home was in that foreign country. Hrblock login See Closer Connection to a Foreign Country , earlier. Hrblock login   In determining whether you can exclude up to 10 days, the following rules apply. Hrblock login You can exclude days from more than one period of presence as long as the total days in all periods are not more than 10. Hrblock login You cannot exclude any days in a period of consecutive days of presence if all the days in that period cannot be excluded. Hrblock login Although you can exclude up to 10 days of presence in determining your residency starting date, you must include those days when determining whether you meet the substantial presence test. Hrblock login Example. Hrblock login Ivan Ivanovich is a citizen of Russia. Hrblock login He came to the United States for the first time on January 6, 2013, to attend a business meeting and returned to Russia on January 10, 2013. Hrblock login His tax home remained in Russia. Hrblock login On March 1, 2013, he moved to the United States and resided here for the rest of the year. Hrblock login Ivan is able to establish a closer connection to Russia for the period January 6–10. Hrblock login Thus, his residency starting date is March 1. Hrblock login Statement required to exclude up to 10 days of presence. Hrblock login   You must file a statement with the IRS if you are excluding up to 10 days of presence in the United States for purposes of your residency starting date. Hrblock login You must sign and date this statement and include a declaration that it is made under penalties of perjury. Hrblock login The statement must contain the following information (as applicable). Hrblock login Your name, address, U. Hrblock login S. Hrblock login taxpayer identification number (if any), and U. Hrblock login S. Hrblock login visa number (if any). Hrblock login Your passport number and the name of the country that issued your passport. Hrblock login The tax year for which the statement applies. Hrblock login The first day that you were present in the United States during the year. Hrblock login The dates of the days you are excluding in figuring your first day of residency. Hrblock login Sufficient facts to establish that you have maintained your tax home in and a closer connection to a foreign country during the period you are excluding. Hrblock login   Attach the required statement to your income tax return. Hrblock login If you are not required to file a return, send the statement to the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215, on or before the due date for filing Form 1040NR or Form 1040NR-EZ. Hrblock login The due date for filing is discussed in chapter 7. Hrblock login   If you do not file the required statement as explained above, you cannot claim that you have a closer connection to a foreign country or countries. Hrblock login Therefore, your first day of residency will be the first day you are present in the United States. Hrblock login This does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the requirements for filing the statement and significant steps to comply with those requirements. Hrblock login Residency starting date under green card test. Hrblock login   If you meet the green card test at any time during a calendar year, but do not meet the substantial presence test for that year, your residency starting date is the first day in the calendar year on which you are present in the United States as a lawful permanent resident. Hrblock login   If you meet both the substantial presence test and the green card test, your residency starting date is the earlier of the first day during the year you are present in the United States under the substantial presence test or as a lawful permanent resident. Hrblock login Residency during the preceding year. Hrblock login   If you were a U. Hrblock login S. Hrblock login resident during any part of the preceding calendar year and you are a U. Hrblock login S. Hrblock login resident for any part of the current year, you will be considered a U. Hrblock login S. Hrblock login resident at the beginning of the current year. Hrblock login This applies whether you are a resident under the substantial presence test or green card test. Hrblock login Example. Hrblock login Robert Bach is a citizen of Switzerland. Hrblock login He came to the United States as a U. Hrblock login S. Hrblock login resident for the first time on May 1, 2012, and remained until November 5, 2012, when he returned to Switzerland. Hrblock login Robert came back to the United States on March 5, 2013, as a lawful permanent resident and still resides here. Hrblock login In calendar year 2013, Robert's U. Hrblock login S. Hrblock login residency is deemed to begin on January 1, 2013, because he qualified as a resident in calendar year 2012. Hrblock login First-Year Choice If you do not meet either the green card test or the substantial presence test for 2012 or 2013 and you did not choose to be treated as a resident for part of 2012, but you meet the substantial presence test for 2014, you can choose to be treated as a U. Hrblock login S. Hrblock login resident for part of 2013. Hrblock login To make this choice, you must: Be present in the United States for at least 31 days in a row in 2013, and Be present in the United States for at least 75% of the number of days beginning with the first day of the 31-day period and ending with the last day of 2013. Hrblock login For purposes of this 75% requirement, you can treat up to 5 days of absence from the United States as days of presence in the United States. Hrblock login When counting the days of presence in (1) and (2) above, do not count the days you were in the United States under any of the exceptions discussed earlier under Days of Presence in the United States. Hrblock login If you make the first-year choice, your residency starting date for 2013 is the first day of the earliest 31-day period (described in (1) above) that you use to qualify for the choice. Hrblock login You are treated as a U. Hrblock login S. Hrblock login resident for the rest of the year. Hrblock login If you are present for more than one 31-day period and you satisfy condition (2) above for each of those periods, your residency starting date is the first day of the first 31-day period. Hrblock login If you are present for more than one 31-day period but you satisfy condition (2) above only for a later 31-day period, your residency starting date is the first day of the later 31-day period. Hrblock login Note. Hrblock login You do not have to be married to make this choice. Hrblock login Example 1. Hrblock login Juan DaSilva is a citizen of the Philippines. Hrblock login He came to the United States for the first time on November 1, 2013, and was here on 31 consecutive days (from November 1 through December 1, 2013). Hrblock login Juan returned to the Philippines on December 1 and came back to the United States on December 17, 2013. Hrblock login He stayed in the United States for the rest of the year. Hrblock login During 2014, Juan was a resident of the United States under the substantial presence test. Hrblock login Juan can make the first-year choice for 2013 because he was in the United States in 2013 for a period of 31 days in a row (November 1 through December 1) and for at least 75% of the days following (and including) the first day of his 31-day period (46 total days of presence in the United States divided by 61 days in the period from November 1 through December 31 equals 75. Hrblock login 4%). Hrblock login If Juan makes the first-year choice, his residency starting date will be November 1, 2013. Hrblock login Example 2. Hrblock login The facts are the same as in Example 1, except that Juan was also absent from the United States on December 24, 25, 29, 30, and 31. Hrblock login He can make the first-year choice for 2013 because up to 5 days of absence are considered days of presence for purposes of the 75% requirement. Hrblock login Statement required to make the first-year choice for 2013. Hrblock login   You must attach a statement to Form 1040 to make the first-year choice for 2013. Hrblock login The statement must contain your name and address and specify the following. Hrblock login That you are making the first-year choice for 2013. Hrblock login That you were not a resident in 2012. Hrblock login That you are a resident under the substantial presence test in 2014. Hrblock login The number of days of presence in the United States during 2014. Hrblock login The date or dates of your 31-day period of presence and the period of continuous presence in the United States during 2013. Hrblock login The date or dates of absence from the United States during 2013 that you are treating as days of presence. Hrblock login You cannot file Form 1040 or the statement until you meet the substantial presence test for 2014. Hrblock login If you have not met the test for 2014 as of April 15, 2014, you can request an extension of time for filing your 2013 Form 1040 until a reasonable period after you have met that test. Hrblock login To request an extension to file until October 15, 2014, use Form 4868, Application for Automatic Extension of Time To File U. Hrblock login S. Hrblock login Individual Income Tax Return. Hrblock login You can file the paper form or use one of the electronic filing options explained in the Form 4868 instructions. Hrblock login You should pay with this extension the amount of tax you expect to owe for 2013 figured as if you were a nonresident alien the entire year. Hrblock login You can use Form 1040NR or Form 1040NR-EZ to figure the tax. Hrblock login Enter the tax on Form 4868. Hrblock login If you do not pay the tax due, you will be charged interest on any tax not paid by the regular due date of your return, and you may be charged a penalty on the late payment. Hrblock login   Once you make the first-year choice, you may not revoke it without the approval of the Internal Revenue Service. Hrblock login   If you do not follow the procedures discussed here for making the first-year choice, you will be treated as a nonresident alien for all of 2013. Hrblock login However, this does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the filing procedures and significant steps to comply with the procedures. Hrblock login Choosing Resident Alien Status If you are a dual-status alien, you can choose to be treated as a U. Hrblock login S. Hrblock login resident for the entire year if all of the following apply. Hrblock login You were a nonresident alien at the beginning of the year. Hrblock login You are a resident alien or U. Hrblock login S. Hrblock login citizen at the end of the year. Hrblock login You are married to a U. Hrblock login S. Hrblock login citizen or resident alien at the end of the year. Hrblock login Your spouse joins you in making the choice. Hrblock login This includes situations in which both you and your spouse were nonresident aliens at the beginning of the tax year and both of you are resident aliens at the end of the tax year. Hrblock login Note. Hrblock login If you are single at the end of the year, you cannot make this choice. Hrblock login If you make this choice, the following rules apply. Hrblock login You and your spouse are treated as U. Hrblock login S. Hrblock login residents for the entire year for income tax purposes. Hrblock login You and your spouse are taxed on worldwide income. Hrblock login You and your spouse must file a joint return for the year of the choice. Hrblock login Neither you nor your spouse can make this choice for any later tax year, even if you are separated, divorced, or remarried. Hrblock login The special instructions and restrictions for dual-status taxpayers in chapter 6 do not apply to you. Hrblock login Note. Hrblock login A similar choice is available if, at the end of the tax year, one spouse is a nonresident alien and the other spouse is a U. Hrblock login S. Hrblock login citizen or resident. Hrblock login See Nonresident Spouse Treated as a Resident , later. Hrblock login If you previously made that choice and it is still in effect, you do not need to make the choice explained here. Hrblock login Making the choice. Hrblock login   You should attach a statement signed by both spouses to your joint return for the year of the choice. Hrblock login The statement must contain the following information. Hrblock login A declaration that you both qualify to make the choice and that you choose to be treated as U. Hrblock login S. Hrblock login residents for the entire tax year. Hrblock login The name, address, and taxpayer identification number (SSN or ITIN) of each spouse. Hrblock login (If one spouse died, include the name and address of the person who makes the choice for the deceased spouse. Hrblock login )   You generally make this choice when you file your joint return. Hrblock login However, you also can make the choice by filing Form 1040X, Amended U. Hrblock login S. Hrblock login Individual Income Tax Return. Hrblock login Attach Form 1040, Form 1040A, or Form 1040EZ and print “Amended” across the top of the corrected return. Hrblock login If you make the choice with an amended return, you and your spouse must also amend any returns that you may have filed after the year for which you made the choice. Hrblock login   You generally must file the amended joint return within 3 years from the date you filed your original U. Hrblock login S. Hrblock login income tax return or 2 years from the date you paid your income tax for that year, whichever is later. Hrblock login Last Year of Residency If you were a U. Hrblock login S. Hrblock login resident in 2013 but are not a U. Hrblock login S. Hrblock login resident during any part of 2014, you cease to be a U. Hrblock login S. Hrblock login resident on your residency termination date. Hrblock login Your residency termination date is December 31, 2013, unless you qualify for an earlier date as discussed next. Hrblock login Earlier residency termination date. Hrblock login   You may qualify for a residency termination date that is earlier than December 31. Hrblock login This date is: The last day in 2013 that you are physically present in the United States, if you met the substantial presence test, The first day in 2013 that you are no longer a lawful permanent resident of the United States, if you met the green card test, or The later of (1) or (2), if you met both tests. Hrblock login You can use this date only if, for the remainder of 2013, your tax home was in a foreign country and you had a closer connection to that foreign country. Hrblock login See Closer Connection to a Foreign Country , earlier. Hrblock login    A long-term resident who ceases to be a lawful permanent resident may be subject to special reporting requirements and tax provisions. Hrblock login See Expatriation Tax in chapter 4. Hrblock login Termination of residency. Hrblock login   For information on your residency termination date, see Former long-term resident under Expatriation After June 16, 2008, in chapter 4. Hrblock login De minimis presence. Hrblock login   If you are a U. Hrblock login S. Hrblock login resident because of the substantial presence test and you qualify to use the earlier residency termination date, you can exclude up to 10 days of actual presence in the United States in determining your residency termination date. Hrblock login In determining whether you can exclude up to 10 days, the following rules apply. Hrblock login You can exclude days from more than one period of presence as long as the total days in all periods are not more than 10. Hrblock login You cannot exclude any days in a period of consecutive days of presence if all the days in that period cannot be excluded. Hrblock login Although you can exclude up to 10 days of presence in determining your residency termination date, you must include those days when determining whether you meet the substantial presence test. Hrblock login Example. Hrblock login Lola Bovary is a citizen of Malta. Hrblock login She came to the United States for the first time on March 1, 2013, and resided here until August 25, 2013. Hrblock login On December 12, 2013, Lola came to the United States for vacation and stayed here until December 16, 2013, when she returned to Malta. Hrblock login She is able to establish a closer connection to Malta for the period December 12–16. Hrblock login Lola is not a U. Hrblock login S. Hrblock login resident for tax purposes during 2014 and can establish a closer connection to Malta for the rest of calendar year 2013. Hrblock login Lola is a U. Hrblock login S. Hrblock login resident under the substantial presence test for 2013 because she was present in the United States for 183 days (178 days for the period March 1 to August 25 plus 5 days in December). Hrblock login Lola's residency termination date is August 25, 2013. Hrblock login Residency during the next year. Hrblock login   If you are a U. Hrblock login S. Hrblock login resident during any part of 2014 and you are a resident during any part of 2013, you will be treated as a resident through the end of 2013. Hrblock login This applies whether you have a closer connection to a foreign country than the United States during 2013, and whether you are a resident under the substantial presence test or green card test. Hrblock login Statement required to establish your residency termination date. Hrblock login   You must file a statement with the IRS to establish your residency termination date. Hrblock login You must sign and date this statement and include a declaration that it is made under penalties of perjury. Hrblock login The statement must contain the following information (as applicable). Hrblock login Your name, address, U. Hrblock login S. Hrblock login taxpayer identification number (if any), and U. Hrblock login S. Hrblock login visa number (if any). Hrblock login Your passport number and the name of the country that issued your passport. Hrblock login The tax year for which the statement applies. Hrblock login The last day that you were present in the United States during the year. Hrblock login Sufficient facts to establish that you have maintained your tax home in, and that you have a closer connection to, a foreign country following your last day of presence in the United States during the year or following the abandonment or rescission of your status as a lawful permanent resident during the year. Hrblock login The date that your status as a lawful permanent resident was abandoned or rescinded. Hrblock login Sufficient facts (including copies of relevant documents) to establish that your status as a lawful permanent resident has been abandoned or rescinded. Hrblock login If you can exclude days under the de minimis presence rule, discussed earlier, include the dates of the days you are excluding and sufficient facts to establish that you have maintained your tax home in and that you have a closer connection to a foreign country during the period you are excluding. Hrblock login   Attach the required statement to your income tax return. Hrblock login If you are not required to file a return, send the statement to the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215, on or before the due date for filing Form 1040NR or Form 1040NR-EZ. Hrblock login The due date for filing is discussed in chapter 7. Hrblock login   If you do not file the required statement as explained above, you cannot claim that you have a closer connection to a foreign country or countries. Hrblock login This does not apply if you can show by clear and convincing evidence that you took reasonable actions to become aware of the requirements for filing the statement and significant steps to comply with those requirements. Hrblock login Nonresident Spouse Treated as a Resident If, at the end of your tax year, you are married and one spouse is a U. Hrblock login S. Hrblock login citizen or a resident alien and the other spouse is a nonresident alien, you can choose to treat the nonresident spouse as a U. Hrblock login S. Hrblock login resident. Hrblock login This includes situations in which one spouse is a nonresident alien at the beginning of the tax year, but a resident alien at the end of the year, and the other spouse is a nonresident alien at the end of the year. Hrblock login If you make this choice, you and your spouse are treated for income tax purposes as residents for your entire tax year. Hrblock login Neither you nor your spouse can claim under any tax treaty not to be a U. Hrblock login S. Hrblock login resident. Hrblock login You are both taxed on worldwide income. Hrblock login You must file a joint income tax return for the year you make the choice, but you and your spouse can file joint or separate returns in later years. Hrblock login If you file a joint return under this provision, the special instructions and restrictions for dual-status taxpayers in chapter 6 do not apply to you. Hrblock login Example. Hrblock login Bob and Sharon Williams are married and both are nonresident aliens at the beginning of the year. Hrblock login In June, Bob became a resident alien and remained a resident for the rest of the year. Hrblock login Bob and Sharon both choose to be treated as resident aliens by attaching a statement to their joint return. Hrblock login Bob and Sharon must file a joint return for the year they make the choice, but they can file either joint or separate returns for later years. Hrblock login How To Make the Choice Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. Hrblock login It should contain the following information. Hrblock login A declaration that one spouse was a nonresident alien and the other spouse a U. Hrblock login S. Hrblock login citizen or resident alien on the last day of your tax year, and that you choose to be treated as U. Hrblock login S. Hrblock login residents for the entire tax year. Hrblock login The name, address, and identification number of each spouse. Hrblock login (If one spouse died, include the name and address of the person making the choice for the deceased spouse. Hrblock login ) Amended return. Hrblock login   You generally make this choice when you file your joint return. Hrblock login However, you can also make the choice by filing a joint amended return on Form 1040X. Hrblock login Attach Form 1040, Form 1040A, or Form 1040EZ and print “Amended” across the top of the corrected return. Hrblock login If you make the choice with an amended return, you and your spouse must also amend any returns that you may have filed after the year for which you made the choice. Hrblock login   You generally must file the amended joint return within 3 years from the date you filed your original U. Hrblock login S. Hrblock login income tax return or 2 years from the date you paid your income tax for that year, whichever is later. Hrblock login Suspending the Choice The choice to be treated as a resident alien is suspended for any tax year (after the tax year you made the choice) if neither spouse is a U. Hrblock login S. Hrblock login citizen or resident alien at any time during the tax year. Hrblock login This means each spouse must file a separate return as a nonresident alien for that year if either meets the filing requirements for nonresident aliens discussed in chapter 7. Hrblock login Example. Hrblock login Dick Brown was a resident alien on December 31, 2010, and married to Judy, a nonresident alien. Hrblock login They chose to treat Judy as a resident alien and filed joint 2010 and 2011 income tax returns. Hrblock login On January 10, 2012, Dick became a nonresident alien. Hrblock login Judy had remained a nonresident alien throughout the period. Hrblock login Dick and Judy could have filed joint or separate returns for 2012 because Dick was a resident alien for part of that year. Hrblock login However, because neither Dick nor Judy is a resident alien at any time during 2013, their choice is suspended for that year. Hrblock login If either meets the filing requirements for nonresident aliens discussed in chapter 7, they must file separate returns as nonresident aliens for 2013. Hrblock login If Dick becomes a resident alien again in 2014, their choice is no longer suspended. Hrblock login Ending the Choice Once made, the choice to be treated as a resident applies to all later years unless suspended (as explained earlier under Suspending the Choice ) or ended in one of the following ways. Hrblock login If the choice is ended in one of the following ways, neither spouse can make this choice in any later tax year. Hrblock login Revocation. Hrblock login Either spouse can revoke the choice for any tax year, provided he or she makes the revocation by the due date for filing the tax return for that tax year. Hrblock login The spouse who revokes the choice must attach a signed statement declaring that the choice is being revoked. Hrblock login The statement must include the name, address, and identification number of each spouse. Hrblock login (If one spouse dies, include the name and address of the person who is revoking the choice for the deceased spouse. Hrblock login ) The statement also must include a list of any states, foreign countries, and possessions that have community property laws in which either spouse is domiciled or where real property is located from which either spouse receives income. Hrblock login File the statement as follows. Hrblock login If the spouse revoking the choice must file a return, attach the statement to the return for the first year the revocation applies. Hrblock login If the spouse revoking the choice does not have to file a return, but does file a return (for example, to obtain a refund), attach the statement to the return. Hrblock login If the spouse revoking the choice does not have to file a return and does not file a claim for refund, send the statement to the Internal Revenue Service Center where you filed the last joint return. Hrblock login Death. Hrblock login The death of either spouse ends the choice, beginning with the first tax year following the year the spouse died. Hrblock login However, if the surviving spouse is a U. Hrblock login S. Hrblock login citizen or resident and is entitled to the joint tax rates as a surviving spouse, the choice will not end until the close of the last year for which these joint rates may be used. Hrblock login If both spouses die in the same tax year, the choice ends on the first day after the close of the tax year in which the spouses died. Hrblock login Legal separation. Hrblock login A legal separation under a decree of divorce or separate maintenance ends the choice as of the beginning of the tax year in which the legal separation occurs. Hrblock login Inadequate records. Hrblock login The Internal Revenue Service can end the choice for any tax year that either spouse has failed to keep adequate books, records, and other information necessary to determine the correct income tax liability, or to provide adequate access to those records. Hrblock login Aliens From American Samoa or Puerto Rico If you are a nonresident alien in the United States and a bona fide resident of American Samoa or Puerto Rico during the entire tax year, you are taxed, with certain exceptions, according to the rules for resident aliens of the United States. Hrblock login For more information, see Bona Fide Residents of American Samoa or Puerto Rico in chapter 5. Hrblock login If you are a nonresident alien from American Samoa or Puerto Rico who does not qualify as a bona fide resident of American Samoa or Puerto Rico for the entire tax year, you are taxed as a nonresident alien. Hrblock login Resident aliens who formerly were bona fide residents of American Samoa or Puerto Rico are taxed according to the rules for resident aliens. Hrblock login Prev  Up  Next   Home   More Online Publications