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Discussion Starter · #1 ·
I renounced my US citizenship in 2016 and am struggling with how to file the dual status return for 2016, consisting of a 1040NR controlling document and a 1040 statement (with supporting additional forms for both).

I had only Canadian wage income for US tax purposes in 2016 which is reported in 1040 statement line 7 and then excluded entirely (via form 2555, prorated for the number of days in the period covered by the 1040) on line 21.

The tax software I'm using (taxact) 'handles' dual status returns but only carries over taxes owed between the two documents. However IMM 3.38.147.10 (01-01-2017) seems to explicitly contradict this saying

"
Dual-Status taxpayers with a valid Form 2555 and Form 2555-EZ, Foreign Earned Income Exclusion, Housing Deduction, and/or Housing Exclusion may exclude income on Form 1040 whether it is the controlling document or statement. Income earned during Form 1040NR period may not be excluded with Form 2555 and Form 2555-EZ. ALL INCOME SHOULD BE BROUGHT FORWARD TO THE CONTROLLING DOCUMENT and the tax figured on Form 2555 tax worksheet, regardless if the controlling document is Form 1040 or 1040NR.
" (capitalized emphasis mine)

This would seem to indicate that I should flow the amounts from line 1040 line 7 to 1040NR line 8 and from 1040 line 21 to 1040NR line 21.

Which is correct? Should I be leaving the 1040NR as all zeros or should I be importing income from the 1040?

Importing my Canadian wage income from the 1040 statement into line 8 of the 1040NR appears to have the consequence of changing the filing deadline - even though I have no US-connected income putting anything non-zero in line 8 makes the filing deadline April 15 instead of July 15 per IRS procedure. It seems this makes my extended filing deadline really soon (Oct. 15).

Also I'm confused about how to handle exemptions. The rules for eligible exemptions appear to have the potential to be different as a citizen vs as a nonresident alien. It happens that as a resident of Canada via special rule they are the same, but they have the potential to be different in general. Do I prorate the exemptions entered on the 1040 statement to include only 11.10 per exclusion per day I was still a citizen, multiplied by the number of exemptions, then make the exemption claimed on line 40 of the 1040NR be the merged amount of the exemptions for the second part of the year and the amount from the 1040 statement? Or do I put just the exemptions for the second part of the year in the 1040NR? Or do I put in a the exemptions for both as if they were the full year and let the IRS figure it out?

I have done a lot of homework on this and scoured the internet for every resource I can find (including threads on this forum) however I haven't found a single example that gives specific instructions as to how to flow through the data from the 1040 statement to the 1040NR controlling document. :(
 

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I can answer some of your questions as a person that also renounced and how I understood the rules after reading and looking online.

You do not take a standard deduction at all and do not pro-rate this. If you have been a non resident alien for any part of 2016 you can not claim the standard deduction. You are allowed to claim allowable deductions. but you need to read the instructions on that because different deductions are allowed depending on your status and remember you are a US citizen considered a US resident for the part before you renounced and then you are considered a non resident alien after you renounce. You are allowed a full personal exemption.

You do not carry over on the form 1040NR any wages that have been exempted using a form 2555. and yes you do pro-rate the form 2555

you do carry over anything else from line 38 (adjust gross income) and you could write next to it, "From 1040 Statement" I have other foreign passive income like rental, bank interest so I did have something to carry over. But the tax credits from form 1040 were also carried over so both form 1040 and 1040NR were zero tax owing.

What about bank interest, did you have anything like that? If you don't have anything on the line 38 then it could very well be that your 1040NR would be zero.

People have filed the final returns in many different ways and I don't think many people ever receive correspondence so the IRS must be making minor corrections on this. I didn't use the tax software. I downloaded the PDF and manually wrote all the numbers in.

Hope this helps a bit. From all my readings, this seemed to be the most logical way to do the flow through.
 

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Discussion Starter · #3 ·
Thanks. I've noticed that anecdotally people have been successful in a lot of different approaches to this, and that the IRS themselves have offered conflicting advice as to how to do it. In reading threads elsewhere on the Internet I've also seen some strong opinions that all the income items from the 1040 is carried forward to the 1040NR and that all the taxes, deductions, exemptions, etc. are calculated within the 1040NR as the controlling document. So anything in terms of prorating exemptions on the 1040, if that's true, would be right out/irrelevant since these figures would not come across to the controlling document or be relevant to the computation of taxes. I'd just put in the qualifying exemptions for the whole year in the 1040NR. If only net income was carried across I'd have no income at all to report on the 1040NR (no bank interest, investment income, capital gains, business income, or anything at all other than foreign wages).
 

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I agree it's confusing but the tax guidance notes are not written to help with people renouncing. it's only in the last 5 years that renunciations have been so high.
The only real example I found online was the other way around, someone that became a US resident at the end of the year

If you were using the foreign tax credit instead of the FEIE, the total income from that would also have been on line 38 because it wasn't being exempted until the tax credits line and everything else from the second page of the form 1040 would have been copied over too, the personal exemption and the tax credits etc.

The reason you do not write wages using the FEIE on the form 1040NR is because non resident aliens are not entitled to take the FEIE. so that should not be on there. that's only eligible for the part of the year that you were a citizen, you earned wages and you exempted it on the form 1040 only.

If it helps i filed months ago, rang up once and they said they had my return but it had gone to the processing center and if i didn't hear anything back by end of June, consider it filed and dusted. So the IRS didn't have a problem with the way i filed as it's way past June now. but in all cases with the IRS, no news is always good news.
 

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Just to throw in a bit of perspective here - a 1040NR only needs to be filed (normally) by a NRA who has US source income. (Not talking here about those folks renouncing - though I suspect they are considered equivalent to someone who is a "dual status alien" in a given year.)

There aren't really any deductions or exemptions for those filing a 1040NR, and in fact, in cases where the payer has already withheld the 30% tax (for most categories of income - there are some exceptions), it's not even necessary to file the return.

I only mention this because on a 1040NR, you only declare US source income - your foreign income, which is subject to the FEIE, is completely irrelevant and should be left off the form altogether. It's only as a US citizen, filing a regular 1040 that you declare your "worldwide" income.
Cheers,
Bev
 

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(Not talking here about those folks renouncing - though I suspect they are considered equivalent to someone who is a "dual status alien" in a given year.)


Bev
Yes you are absolutely correct that we are treated as dual status returns. where it gets confusing for us when renouncing is that the publications deal with things from a residence perspective but US citizens are always considered residents of the US.

I saved relevant blog, post entries relating to this and there is a stature that defines how to file. it's not in any of the publications but someone that used a qualified accountant to get advise for their final return posted it somewhere.

It's these two that are relevant Reg. § 1.6012-1(b)(2)(ii)(b), Treas. Reg. § 1.871-13 and a quote from one of the statures.

If an individual abandons his U.S. citizenship or residence during the taxable year and is not a citizen or resident of the United States on the last day of such year, he must make a return on Form 1040NR for the taxable year, even if an election under section 6013(g) was in effect for the taxable year preceding the year of abandonment. However, a separate schedule is required to be attached to this return to show the income tax computation for the part of the taxable year during which the individual was a citizen or resident of the United States. A Form 1040, clearly marked “Statement” across the top, may be used as such a separate schedule.
A return is required under this subdivision (ii) only if the individual is otherwise required to make a return for the taxable year.

Then if you read the instructions for the dual status, your status on the last day of the year determines which form you file. most who have renounced are non resident aliens last day of the year so form 1040NR. You are filing for the full calendar year on the form 1040NR. the statement 1040 shows the part of the year you were a citizen and is like any other statement. US source income after renouncing tends to go on the line 54 of the form 1040NR and also referenced on page 4.

For allowable deductions, i think if you had a US business still after renouncing or state taxes those could be claimed, most don't. but it all has to be connected to the US. not foreign.
this is what i came to believe after hours and hours of compiling information.
 
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