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Canadian emigrant to the U.S.

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My client emigrated from Canada to the U.S. on May 1, 2005. Yes, 2005. She married several days later. She remains a U.S. resident. Her income consists of pensions from the Canada Pension Plan, the Canadian Old Age Pension and a survivor U.S. Social Security pension. She filed, properly, a 2005 Canadian tax return covering her income from Jan. 1 2005 to April 30 2005. It was assessed with no problems. She recently contacted the IRS re her 2006 return and mentioned her immigration date in 2005. They indicated that she/her new husband (she married in May/05) would have to file an amended 2005 return. Question: Does she have to declare ALL her 2005 WORLD income on the U.S. 2005 return or just that income covering the period SINCE her immigration to the U.S., i.e. May 1 to Dec.

31 2005? If she has to declare the ENTIRE year's income, is she allowed credit for the taxes she paid on her CANADIAN return for the time in 2005 PRIOR to her emigration to the U.S.? I've advised her to seek professional advice, however in rural Alabama they might not be totally up on such situations involving immigration. Please offer me some insight as my small practice doesn't see too many of this type of case. Dave B.

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Reply to
sharx35
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In general, provided that she did not have a green card prior to her immigration on May 1, 2005, under the substantial presence rules for determining residency, she should be considered to have become a U.S. resident as of May 1, 2005. See, e.g., Treas. Reg. 1.7701(b)-4(a) (although if she stayed for less than 10 days the first time she entered the U.S., went back to Canada, and then came back and finally settled in, then her residency starting date could be the date on which she finally re-entered for good, provided, however, that not more than 10 days of actual presence in the U.S. can be excluded from the count. See Treas. Reg. 1.7701(b)-4(c)). Since her U.S. residency most likely began on May 1, 2005, her income for the calendar year 2005 would be prorated between the period before May 1, 2005 and the period after. See Treas. Reg. 1.871-13. With respect to the period before May 1, 2005, she would be taxed as a nonresident alien individual; i.e., she would, in general, only be taxed on her U.S. source income, which in this case is likely to be only the U.S. survivor's benefit. However, for that period there may be a treaty benefit that would permit her to exclude that amount from her U.S. source income; you'll have to take a look at the U.S./Canada income tax and social security treaties. For May 1 2005 and after, she would be taxed as a U.S. resident; i.e., on all of her world-wide income, which would include all of the items you identified above. With respect to return filing status, unless your client and her husband elect to have her treated as a U.S. resident for the entire year under Treas. Reg. 1.6013-7, they cannot file a joint return for any part of 2005. See Treas. Reg.

1.6013-1(b). If that election is made, then all of her income for the entire year of 2005 is taxed in the U.S.; however, she would then qualify, as a general matter, for a foreign tax credit for the taxes she paid to Canada on the same income.
Reply to
Shyster1040

Thanks for taking the time to reply. And I thought that our Canadian tax laws were complicated!

Reply to
sharx35

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