# Form 1040/1040NR - losing my mind! :)



## expat201

Hello all!

I've spent some time browsing this forum (and others) about filing US tax forms for the final expatriation year. I've had a few rather unhelpful conversations with the IRS on the phone, and have found the answers here to be much more helpful so far. However, I am still unclear on a couple points.

I renounced my US citizenship in November 2014. At the time, I was a UK resident (and citizen) and had been for a few years, although I became a Spanish resident in December 2014. I have filed tax forms for the 5 years prior to the renunciation, so I am covered on that front, and I am worth nowhere near enough money to be a covered expatriate. I spent a few days in the US in 2014 visiting family. All my income is foreign-earned freelance, none is US source.

As I understand it, I need to fill out: Form 8854, Form 1040, Form 2555, Schedule C.

From what I've read, some people seem to think I need to fill out 1040NR and some don't. After I relinquished my US citizenship, I didn't have any US-source income (in fact, I have no foreign income to report after that date either). Based on the official guidelines for expatriation and related forms, to me it seems that I don't need to file 1040NR (an someone from the IRS said that it would only be necessary for me to do so if I wished to be "dramatic" about the process), and that aside from Form 8854, I should do everything else the way I always have. 

However, if I just fill out the 1040, would the tax year at the top of form 1040 be the default one (Jan 1 - Dec 31), or would I alter it to say "Jan 1 - [expatriation date]"? Since that would be less than a year, is that a problem (and when on Form 2555, Part VII, line 38, it mentions the "number of days in my qualifying period", would I put the number of days before my expatriation, or 365 as I was a bona fide resident the whole of 2014)? Do I leave the default tax year on form 1040 but write a note on the page saying "Dual Status Return - expatriated on [date]", and should I explain why I'm not filing a 1040NR (no income post-expatriation)? 

Finally, I know I have to send a copy of Form 8854 to the IRS office in Philadelphia, and then also submit the original 8854 and the other "normal" tax forms as well. But where else do I send them? In the instructions it seems to say that you send them to two places, but when I called the IRS I was told I just send everything to Philadelphia (the woman on the phone did not seem sure about what she was telling me though). 

Apologies if I am asking questions that have already been answered - I've done a lot of reading but seen so many different interpretations of similar situations that I'm really not sure about anything any more!

Thank you for bearing with me.


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## maz57

Phil Hodgen's website (Hodgenlaw PC) has a pretty good detailed discussion about how to file your expatriation year paperwork. Don't waste your time calling the IRS; they can't even answer questions about regular taxpayers living in the US, let alone expat issues. 

As I recall a Form 1040 which lists your worldwide income up to the day before your expatriation date is filed as an attachment (i.e. a schedule) to a Form 1040NR. The 1040NR lists your US source income after your expatriation date plus the numbers you transfer from the 1040. (If there is no US source income the post renunciation figures will be all zeros.) I think the reasoning behind using the 1040NR is that the "base" form should reflect your status as of the end of the tax year which in this case is non resident alien.

The 8854 goes with the rest of the 1040/1040NR package to the usual address in Austin. It is only the duplicate 8854 which goes to Philadelphia.

Some with no US source income have reported no problems just filing a 1040 (+ 8854) up to the day before expatriation. The 8854 is what really tells the IRS you have left the building, aren't coming back, aren't a covered expatriate, and don't expect to hear from you again. I have never heard of anyone who has gotten any response from the IRS after filing this last batch of paperwork.

Don't forget your 2014 (and final) FBAR. Because it wasn't until November that you lost your US citizenship you might as well make it easy on yourself and just do it for the whole of 2014. Pat yourself on the back; you are very close to being done with this forever.


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## expat201

Thank you so much for your reply! Your information was invaluable. Based on what you said and the blog you mentioned, I guess I will file a 1040NR as well (filled with zeros and rather blank Schedules OI and NEC), just in case. 

Just to clarify a couple things that I don't have quite straight: when you mention "plus the numbers you transfer from the 1040" to the 1040NR, since all my figures are covered by FEIE (no US source) and the 1040NR is just about US trade or business, I assume I won't transfer anything? Or would I still fill in lines 13 (business income) and 21 (form 2555 FEIE income, which cancels out line 13 in my case), the way I do on 1040, even though these numbers are not US-related? And would the dates on 1040NR be Jan. 1-Dec.31 (since it's the base for the whole year), while for 1040 just Jan. 1 to the expatriation? 

I don't meet the requirement for the FBAR filing, so that's one less thing I have to worry about! 

Thanks again - I can't wait to be done with all of this!


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## BBCWatcher

Take a look at IRS Publication 519. You are what's known as a "dual status alien" for tax year 2014, and you'd follow those particular instructions. They're pretty clear, but post follow-up questions if you still have them.

Yes, you'd file both 1040 and 1040NR for 2014, as they direct in the "dual status alien" references in that publication. That publication also tells you when you have the option to file as a full year resident (1040 only), but in this case I don't think that option is available to you.


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## expat201

Based on publication 519, I am NOT in fact a dual-status alien (sorry for any prior confusion - some things had led me to believe the dual-status was related to citizenship). Apparently, dual-status has nothing to do with citizenship, and I was at no point a US resident last year (just a nonresident citizen and nonresident alien). 

Based on this and another IRS expat form, the 1040NR wouldn't apply to me (especially since I never had any kind of US source income) and I should just fill out the 1040 as usual. However, I am still unclear as to the dates I would put at the top of the 1040 in that case - I've seen that a partial year implies you are dead, generally, but have also found contradictory information about this too...


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## BBCWatcher

You are a dual-status alien -- or dual-status resident, if you prefer. Publication 519 refers to you, too. See, for example, this paragraph: "If you expatriated or terminated your residency in 2014, you may be required to file an expatriation statement (Form 8854) with your tax return. For more information, see Expatriation Tax in chapter 4."

This is all in the section on dual-status returns. That's how you file in your final (partial) year of U.S. citizenship. U.S. citizenship is inseparable from U.S. tax residency until the U.S. citizenship is terminated, when you have your dual-status year.

You cannot file a partial year tax return -- it doesn't exist IRS filing procedures. (Well, except for dead people, but you're not dead.) You file both 1040 and 1040NR. The 1040NR "fills out" the full year to make it a complete calendar year in your final dual-status year.

One of the forum participants here, Greenbank Expat Tax Services, has posted this guide that also explains the same thing. Yes, if you have zero U.S. source income then your 1040NR (for the part of the year post-renunciation) will be full of zeros, correct.


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## expat201

Thanks for bearing with me, BBCWatcher. I think I've been looking at so many forms and sites that I started going in circles. Things are finally sinking in - I'd forgotten about US Citizenship/Tax residency being constantly intertwined (though of course that makes sense as I've continued to file 1040s the whole time I was out of the US).

I will: 
file a 1040 from 1 January the date up until my expatriation date (not including it), and the related forms (2555, Schedule C, etc.)
file a 1040NR for my expatriation date until 31 December
I will mark both with "Dual-Status Statement" at the top and submit them along with Form 8854. 

Will the dates at the top of 1040 then be "Jan.1 - day before expatriation", and the dates at the top of 1040NR "be day of expatriation - Dec. 31", so that together both forms create the typical (not-dead-person) year from Jan. 1 - Dec. 31? I've read it several places that this is done, although I haven't seen anything specific in Publication 519 or the Expat guide pack outlining how to fill out the dates. 

Again, thanks a TON and I think after this I should be done with my incessant questions!


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## maz57

expat201 said:


> I will:
> file a 1040 from 1 January the date up until my expatriation date (not including it), and the related forms (2555, Schedule C, etc.)
> file a 1040NR for my expatriation date until 31 December
> I will mark both with "Dual-Status Statement" at the top and submit them along with Form 8854.
> 
> Will the dates at the top of 1040 then be "Jan.1 - day before expatriation", and the dates at the top of 1040NR "be day of expatriation - Dec. 31", so that together both forms create the typical (not-dead-person) year from Jan. 1 - Dec. 31? I've read it several places that this is done, although I haven't seen anything specific in Publication 519 or the Expat guide pack outlining how to fill out the dates.


Sounds like you are getting the hang of it! Note that you cannot be an NR filer for the part of the year you were a US citizen because US citizens are by definition a US tax resident. After the expatriation date you have become an NR filer because you are neither a citizen nor a physical resident. So yes, you have got the dating correct.


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## expat201

Awesome! Thanks!

There's just one last thing I'm not sure how to answer on Form 2555, as the form only applies to the 1040 when I was still a US resident. In Part VII, on line 38, it mentions the "number of days in my qualifying period" as a bona fide resident. Normally this would be 365 for me (as I have been a bona fide resident outside the US for a while now, and it always covers the full Jan. 1 - Dec. 31 tax year), but this time would I just put the number of days in the partial 1040 year before the expatriation date, so that the 2555 "matches" the 1040?


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## BBCWatcher

OK, here's what the IMM says:

_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._

Does that make sense?


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## BBCWatcher

OK, let me see if I can pick that guidance apart slowly, step by step.

1. The first sentence just says you can use Form 2555 (or 2555-EZ), but I think we already knew that. Your Form 1040 is your statement, and your Form 1040NR is controlling, in IRS parlance.

2. The second sentence also makes sense. Your 1040NR only reports U.S. source income. You cannot exclude foreign earned income from that non-citizenship period, but you don't have to anyway because it's not subject to U.S. tax. So you don't put that _income_ on Form 2555.

3. Then we come to sentence #3: "All income should be brought forward to the controlling document" (your 1040NR) "and the tax figured on Form 2555 tax worksheet...." OK, what I think they're saying is that you take the foreign earned income pre-renunciation only and bring that onto Form 2555. Form 2555 is then part of your 1040NR, oddly enough. Or so those instructions seem to suggest. In other words, your 1040NR isn't going to be lots of zeros. It'll be a hybrid: zeroes for the non-citizenship interval, but carry-forward for the U.S. citizenship interval. The 1040 will be a "statement" attached to your "controlling" 1040NR that explains how you calculated the U.S. citizenship interval figures for your 1040NR.

With me so far?

....So what do you put for days on line 38? Well, would it matter in your case? Unless you received earned income at a pace of greater than about $8200 per month during your citizenship period, it won't matter what you put on line 38. If you fall below that amount, you can put the actual number of days pre-renunciation for 2014, and you'll still exclude all your pre-renunciation foreign earned income. (Your post-renunciation foreign income, of any type, is not U.S. taxable.) So certainly one approach is to put the conservative number on line 38. I don't see anything suggesting you can't do that.

If you're above about $8200/month in earned income, then "more investigation required."

Make sense, more or less?


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## expat201

Yeah, I think so! Okay, so: 

1. Form 2555 line 38 I will put the number of days from Jan. 1 to the day before expatriation (I think the conservative number is best, and as you pointed out, the exclusion still ends up being over my earnings, so it doesn't actually affect me anyway). 

2. As in a usual year for me, Form 1040 shows the Form 2555 (other income, line 21) cancelling out my earnings (business income, line 12)... and then zeroes. 

3. Since I need to bring forward the info to the controlling document, 1040NR will actually look kind of like form 1040 (aside from the extra zeroes and schedules). I should still put down the business income and the FEIE that cancels it out in the "income effectively connected with U.S. trade/business" area (whch seems a bit counterintuitive, but maybe it counts as "certain foreign source income treated as effectively connected with a U.S. trade or business" because I was a citizen at the time?)... and then zeroes. 

4. As "Form 1040NR covers the part of the year the taxpayer is a nonresident", I would still put the dates at the top of the controlling 1040NR form for the second part of the year, even though I am including the 1040/2555 numbers from the part of the year before my expatriation, which also seems a bit strange... but these things have never struck me as particularly consistent.

I certainly am glad I am doing this before my life/finances get more complicated than they are now.


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## expat201

One more note: my income for the year (which is all business/foreign-earned/sourced) would, I presume, fall onto line 9 of Form 8854, Part V, Schedule B where I declare my income for the first part of 2014, as all the other categories involve other forms of income, mostly U.S. source.


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## expat201

I've been doing more reading (Publication 519 and others), and now I am really confused. 

My income for the 1040 part of my 2014 tax year is not in any way effectively connected with U.S. business/trade - it's all foreign-source and cancelled out by FEIE. By this logic, it shouldn't appear on the 1040NR at all, at the latter form is only supposed to deal with U.S. stuff, and only in the second part of the year. Yet information is supposed to be "carried forward" and 1040NR is considered the "controlling" document. 

I found one source (Hodgson blog) that seems to say that the information "flowing" from the 1040 to the 1040NR is just the "total tax liability". So since the FEIE cancels everything out, wouldn't that simply be 0 after all in the end? 

I just don't understand whether my (completely cancelled out due to FEIE) 1040 income should appear on the 1040NR... >.< Sorry for my confusion!


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## Bevdeforges

In an "unusual" situation like yours, I wouldn't agonize too much over the details. 

Make a good faith effort to file what they have asked for (and I suspect you're right about the 0 tax liability "flowing over" to the 1040NR) and send in the forms. If they feel you've made a significant "mistake" they'll be in touch and you will have a chance to revise or correct it before the sharp shooters position themselves on the nearby rooftops and the raid begins. (Just kidding, I hope you realize.)
Cheers,
Bev


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## expat201

Haha, thanks, Bev! I will just fill everything out as best I can and keep an eye out for the sharpshooters. 

Again, thanks to everyone who has put up with me for the past few days!


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## BBCWatcher

Are you using TaxAct, TaxSlayer, or some other tax prep software? If not, give them a try. At least some of them should be able to handle a dual status tax year.


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## expat201

No, unfortunately for this particular tax return you can't use software That was the first thing I checked, as these things can be so complicated!

I just came across this on Yahoo, which I will copy here in case it ends up being useful for anyone else in a similar situation to mine:

"You need to prepare a 1040 for Jan-Sept 2010, showing your income, but do not claim the standard deduction. (Itemize whatever you can, but only what you spent from Jan-Sept). Calculate the tax owed. Write "Dual Status Statement" at the top. 

Copy the numbers to a 1040NR. Add in any US-connected income received after you left. If you had none, use the same numbers. Write "Dual Status Return" at the top. Put the 1040NR on top, staple and mail to Austin."

This is summary seems to make sense and match up with what we've been discussing here. In summary, in the end I will:

1. File the 1040 as a dual-status statement for just the first part of the year, with my income for the first part of the year and the 2555 in the normal places (lines 12 and 21), attaching the usual forms. Everything ends up being zero.
2. File the 1040NR as the whole year return (but attach the 1040 statement, 2555, Schedule CEZ, etc.), and transfer the 1040 and 2555 numbers to lines 12 and 21 (or whatever the equivalent lines are on the 1040NR). I don't have anything else to add because I had no U.S. income, so everythings ends up being zero again. 
3. Attach the above forms to Form 8854 and send to Austin, and send a copy of 8854 to Philadelphia. 
4. Celebrate.


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## expatGER

*1040nr schedule NEC*

Hello BBCWatcher,

I'm in the same situation as expat201 and struggling with 1040nr schedule NEC. You say "Your 1040NR only reports U.S. source income." The IRS page 
Taxation-of-Dual-Status-Aliens states:
"For the part of the year you are a nonresident alien, you are taxed on income from U.S. sources only."
OK - same statement. But then, further down on the same page:
"Income that is not connected with a trade or business in the United States for your period of nonresidence is subject to the flat 30% rate or lower treaty rate." (Seems the exact contrary of the first quoted sentence.)
Isn't that income (e.g. interest, dividends) from a foreign source (e.g. german bank) as a nonresident alien that goes in line1b of schedule NEC and is taxed?


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## Bevdeforges

> "Income that is not connected with a trade or business in the United States for your period of nonresidence is subject to the flat 30% rate or lower treaty rate." (Seems the exact contrary of the first quoted sentence.)


I think what they are referring to here is interest or other "passive" income that is US source for your period of non-residence. Non-residents are taxed at a flat 30% rate for most types of income originating in the US (like, bank interest, investment income, US SS benefits...)
Cheers,
Bev


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## expatGER

Hello Bev,
thanks for the answer. I'll just stick to the first statement "For the part of the year you are a nonresident alien, you are taxed on income from U.S. sources only."
because no "normal" person (at least i can't) can understand this:
Title of Schedule NEC is:
Tax on Income Not Effectively Connected With a U.S. Trade or Business
but then your suppose to fill in
1. Dividends paid by:
a) U.S. corporations - How can a US corp. NOT be connect to U.S. Trade or Business?
b) Foreign corporations
2. Interest
b)Paid by foreign corporations
How could dividends or interest paid by foreign corp. that is not effectively connected to U.S. Trade or Business be U.S. income for a alien non-resident??

Anyway, I think I can fill out the form without solving these questions.

Thanks again for your help!


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## Bevdeforges

Someone will correct my understanding if I am wrong. (One of the joys of the online forum format...)

But as far as I know, when they refer to "Income Effectively Connected With a U.S. Trade or Business" I always have understood that they are referring to income connected with a US Trade of Business that you are operating and benefiting from. OK, yes, you probably owe US income tax on interest and dividends obtained from a US corporation because that is "US source income" no doubt about it. But interest and dividends paid to you personally (and not to your trade or business) by a foreign corporation are not "effectively connected with a U.S. Trade or Business." 
Cheers,
Bev


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## BBCWatcher

If you're ever confused about a tax term, look for the IRS's written definition. The IRS has one.


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## Bevdeforges

BBCWatcher said:


> If you're ever confused about a tax term, look for the IRS's written definition. The IRS has one.


Hm, pretty much what I thought it was. (Last time I had to deal with this term, the IRS website was considerably "less developed" than it is now.)
Cheers,
Bev


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## expatGER

Hello BBCWatcher,
thanks for the tip. I've already read it. And "Taxation of Nonresident Aliens" and pub.519. Pub. 519 explains a lot, but not what "Interest paid by foreign corp. that is NOT effectively connected to U.S. Trade or Business" could be, or if a non-resident alien would have to pay taxes on it. (What Schedule NEC suggests,as there is a line for it.)


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## iota2014

expatGER said:


> Hello BBCWatcher,
> thanks for the tip. I've already read it. And "Taxation of Nonresident Aliens" and pub.519. Pub. 519 explains a lot, but not what "Interest paid by foreign corp. that is NOT effectively connected to U.S. Trade or Business" could be, or if a non-resident alien would have to pay taxes on it. (What Schedule NEC suggests,as there is a line for it.)


If you've expatriated, and are filing your dual-status-year 1040 and 1040NR, Phil Hodgen gives a concise explanation of what you should file, see (HodgenLaw PC - International Tax)



> On Form 1040NR, you report your income from the expatriation date until December 31. From the date you terminate your citizenship or permanent resident status, you are a nonresident alien for income tax purposes, so you only report your U.S.-source income. Any income you earned outside the United States will not be reported or taxed.
> 
> The tax liability reported on your Form 1040 also flows to the 1040NR and the total tax liability for both returns is reported here.


If you can find the right place on the 1040NR to report all your US-source income, perhaps you don't need to file Schedule NEC?


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## BBCWatcher

expatGER said:


> ...."Interest paid by foreign corp. that is NOT effectively connected to U.S. Trade or Business" could be, or if a non-resident alien would have to pay taxes on it. (What Schedule NEC suggests,as there is a line for it.)


Just because there's a line on a particular form requesting certain information does not mean you will pay tax on something. For instance, IRS Form 1040 has many, many lines with no direct (or even indirect) tax implications. Some of them are even labeled "tax exempt," for example line 8b on 1040. Don't worry about that unless and until you get to the end and you still think something is "wrong." (Maybe it's still not wrong, but you can decide then.)

So, to unpack that particular compound term:

1. You know, or should know, from that Web page I provided what "effectively connected" means. Something/everything that does not fit that definition is not that.

2. You probably know what a foreign corporation is. But if you're not sure, the IRS defines the term here (scroll down).

3. The term "interest" is fairly easy to understand, I assume. But if you need an IRS definition of interest, I can probably find one for you.


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## expatGER

Hi to all of you,
thanks to all for your patience and effort to help me out on this particular question.
It doesn't seem that anything more specific is going to be posted regarding this question, so I think we can close the this thread.

Thanks also to the people that are running this site. You are all doing a great job and really a tremendous help!


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