Expat Tax News

Tax Filing for Spouse’s U.S. Citizenship Application

Kevin*, a business-owner, who is a U.S. citizen, was a longtime resident of China. He operated multiple companies in the garment industry in China and Hong Kong. He was originally from California, held a California driver’s license and maintained close ties with the state. He was also a frequent traveler to California for business purposes.

Kevin’s Main concern:
He had never previously filed a tax U.S. tax return and realized that he needed to get caught-up in order to apply for U.S. citizenship for his spouse.

The ExpatTax Solution:

We have come across multiple cases where our clients become aware of the need to become compliant with their tax filings, when they are asked to produce their most-recent tax filings for immigration-related matters.

For instance, in this client’s situation, in the past three years even though the taxpayer had a foreign tax home since he was living and working abroad,he had not resided outside the U.S. for 330 days or more, due to his business trips to California. Therefore, filing under the streamlined foreign offshore was not an option. Fortunately, for the taxpayer, based on his income-level in prior years, he did not have too many years’ for which he had to file back returns. The salary the taxpayer received from his company was reported on the U.S. Return and excluded under IRC §1.911-7(a)(2)(i)(D), for a Return where Form 2555 – Foreign Earned Income Exclusion, but was not timely-filed.

The taxpayer’s multiple businesses, for which he was the sole owner, were reported on Form 5471. Since the businesses had accumulated losses, the IRC §965 tax (mandatory repatriation tax) was inapplicable.

A California state resident tax return had to be filed since the taxpayer was considered to be domiciled in California and he did not meet the safe harbor to be considered non-resident of California. The California safe harbor for a domiciliary to be considered nonresident is met when a valid long-term overseas work contract is present and trips to California do not exceed 45 days during any taxable year covered by the employment contract.