Cross-year Treaty Position

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nelsona
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Post by nelsona »

Putting aside the treaty issue for a moment...


Didn'y you say that you were a US resident all of 2002, and then at some point in 2003 left US, and then at some point in 2004 returned to US and are still there?

If this is so, then I have the solution to all your problems (I had recalled reading this one when considring leaving US for a short period):

By IRS rules, anyone that is a resident at anytime in 2003 (you were) and then leaves in 2003, and then at anytime in 2004 becomes a tax resident again (you did), then they cannot choose a residency termination date for 2003 earlier than December 31, 2003, thus must file a 1040 for full year.


This is in the 519 guide for 'last year of residency'. Undoubtedly, for 2003 tax return, you chose a residency termination date earlier than that, thinking you weren't coming back, and sent them a statement to that effect. <b>But IRS doesn't allow this if you come back the next year.</b>

That takes care of any of your worries about not being able to file 1040: it FORCES you to file.

So this forces you to report all your world income in 2003 to IRS, but still allows you to use the 2555 (by treaty), because you are never considered non-resident.

Once that is true, you might as well report world income for 2004 as well (again, by IRS rules , treaty not needed).

So, for 2003 and 2004, you will simply report to IRS just like any other US citizen who left US for a year.




<i>nelsona non grata</i>
nelsona
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Post by nelsona »

Now as to the treaty explanation as to why a Cdn can always choose to file a 1040 if it is to his advantage:


Article XXV.2 of the US-Canada treaty states:

Citizens of a Contracting State, who are not residents of the other Contracting State, shall not be subjected in that other State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which <u>citizens of any third State in the same circumstances </u> (including State of residence) are or may be subjected.


So that, in effect, says that if you can find another US treaty that allows a right to the citizens of another country that this treaty doesn't, you can use that treaty right.

Well, the US-Germany treaty has such a clause:

Artilce 24.1:


Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement therewith that is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected. Notwithstanding the Provision of Article 1, <i>this provision shall also apply to persons who are not residents of one or both of the Contracting States</i>."

The italics part is the key to applying this, since it takes away the need to be a resident of a particular state at the time of applying the treaty.

So a German -- living in Canada -- can by 24.1 of the US-German treaty, file a 1040, since he cannot be subjected to a 'requirement' (ie. SPT) to which a US citizen -- living in Canada -- is not subjected (US citizens don't need to satify SPT to file a 1040).

Since a German citizen living in Canada Can file a 1040, then by XXV.2, so can a Cdn living in Canada.

It is the removal of the SPT requirement, and the fact that German living in Canada still falls under the US-German treaty, that allows this.


Ta-da


<i>nelsona non grata</i>
nelsona
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Post by nelsona »

"I do have American source income which is taxed more heavily than if I were an American citizen in 2003"

Hold it, the treaty doesn't provide releif for that. It does not allow for you to divvy-up different incomes and say this part is taxed more and this part is taxed less. It only works for the entire tax year on your entire income, since that is how Americans are taxed ion their income.

Maybe I'm misunderstanding you...


<i>nelsona non grata</i>
nelsona
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Post by nelsona »

Once again, you over-complicate things.

You don't have to have a discriminatory position to file a 1040.

All you need is to have a desire to file one.

That's the whole point of my initial assertion to you, a month ago, that any Cdn can file a 1040 whenever they want, <u>since they do not have to meet SPT -- ever</u>. <b>That</b> is the discrimatory aspect that is relieved by the treaty exercise I showed you.

You don't have to prove that you are being unfairly taxed, just having a different REQUIREMNT (the important word in the treaty clause) and that you are a Cdn.

<i>nelsona non grata</i>
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
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Post by nelsona »

Great.

and kudos on what was undoubtedly your shortest post.

<i>nelsona non grata</i>
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