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Earned income - community (shared) income where one spouse is non-resident and other is UK national. Neither lives in USA?

My client is USA national, he resides 365 days a year in SA. Married in community of income in terms of SA law (our default position). His spouse has NO link to USA. Neither has USA sourced income. Earned income of USA national circa $200K. USA national sold his SA business (shares) for $2m long term gain. SA spouse is tax resident and USA may not tax him on his half of SA sourced CGT. USA national will be taxed by IRS on his SA sourced income (despite treatY0
Publication 515 states : If you are a U.S. citizen or resident alien and do not choose to treat your nonresident alien spouse as a U.S. resident for tax purposes, treat your community income as explained next under Spouses living apart all year. How-ever, you do not have to meet the four conditions dis-cussed there.

If he elects to treat his SA spouse as USA tax resident and joint file, the SA national we are told may not claim the treaty benefits ie full LT capital gain now IRS taxed, increased NIIT!

My argument is that the SA spouse is not a non-resident alien - he does not reside in USA and can thus not be "alien". He is merely non-resident. If this is true and correct can we split the earned income in two?

If not and we joint file, can we double up on the $99200 foreign earned exemption?

Client normally self-files on paper, I do SA tax and ensure the two returns dovetails.

Be so kind and consider the questions above and if it is your expertise - feel free to make contact and send a filing quote please
Non-Resident Same Sex Couple Taxes Earned Income nonresident alien
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Tax Professional Answers

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Dan Gordon
First of all filing married filing separate the joint income is split between the two parties then the Alien party with no US source income does not file a return. Regarding FEIE if the income can be properly accounted for each party individually each party can file a FEIE form. The preferred would be the married filing separately.
Leave a Comment 85 weeks ago

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Question Owner
Dan thank you. it helps!! But I understand it to be a case that if you wish to treat non-resident alien spouse as a USA tax resident then joint filing is the only option? Then on publ 555 I found this (note NEITHER of them has resided in the USA, they live in South Africa, no USA home) “If you are a U.S. citizen or resident alien and do not choose to treat your nonresident alien spouse as a U.S. resident for tax purposes, treat your community income as explained next under Spouses living apart all year. However, you do not have to meet the four conditions discussed there.” It now appears to me that separate filing is not possible should you elect to treat the RSA spouse as tax resident.
Reply 85 weeks ago


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