#YouCantMakeThisUp! Married Americans abroad are more likely to meet requirements to file US tax returns than are singles – But, then again marriage to a nonresident alien is considered to be a form of tax evasion

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Before moving to the post, if you believe that Americans abroad are being treated unjustly by the United States Government: Join me on May 17, 2019 for a discussion of U.S. “citizenship-based taxation” as follows:


You are invited to submit your questions in advance.
And now, back to our regularly scheduled programming.
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I begin with the conclusion …


The Every Day facts:


1. A U.S. citizen living in Canada Is married to an alien (the nonresident type)
2. Had $500 of part time employment income
3. Because she is married (in accordance with the definition of “married” in Internal Revenue Code 7703) she is of course required to absorb all the punitive consequences of the “married filing separately” filing category. The “married filing separately category” is a punitive filing category which is a “hidden tax on Americans abroad“.
In the 2017 tax (and previous) year she had NOT met the filing threshold required to file a U.S. tax return. Using the IRS Interactive “Do I Have To File A Tax Return” tool, we find that:

(Note that this refers to a threshold of $4050 which is the amount of the personal exemption for 2017. The significance of this will be further explained below.)
She did however have financial assets which exceeded the $200,000 threshold required to file Form 8938. Most of these assets were owned jointly with her nonresident alien husband. Because she had not met the filing threshold for “married filing separately” in 2017 and previous years she had not been required to file Form 8938. Notice that Form 8938 does require her to report to the IRS assets that are jointly owned with her “nonresident alien” husband. (By the way he would not be happy about this. I some cases this forces Americans abroad to choose between their U.S. citizenship and their marriage.)
April 2019 – An SOS …
I received a frantic message. She was/is trying to to determine whether she is required to file a U.S. tax return for the 2018 year (based on her $500 of income and her status as “married filing separately”).
On the one hand she is directed by IRS publication 54 (the Bible For Americans Abroad) that her filing threshold is $12,000.


On the other hand, she is being told on the IRS page describing filing thresholds that she is required to file a U.S. tax return.



To file or not to file, that is the question …
After receiving her “SOS” I decided to ask the question to the IRS interactive tool, which informed me that …


How can this be? What happened between 2017 and 2018? Is this one more attack on Americans abroad?
We always start with the legislation. What does the Internal Revenue Code actually say?
Internal Revenue Code Section 6012 is the governing section.
For years prior to 2018, it reads (in part) …

(a) General rule Returns with respect to income taxes under subtitle A shall be made by the following:
(1)
(A) Every individual having for the taxable year gross income which equals or exceeds the exemption amount, except that a return shall not be required of an individual—
(i) who is not married (determined by applying section 7703), is not a surviving spouse (as defined in section 2(a)), is not a head of a household (as defined in section 2(b)), and for the taxable year has gross income of less than the sum of the exemption amount plus the basic standard deduction applicable to such an individual,
(ii) who is a head of a household (as so defined) and for the taxable year has gross income of less than the sum of the exemption amount plus the basic standard deduction applicable to such an individual,
(iii) who is a surviving spouse (as so defined) and for the taxable year has gross income of less than the sum of the exemption amount plus the basic standard deduction applicable to such an individual, or
(iv) who is entitled to make a joint return and whose gross income, when combined with the gross income of his spouse, is, for the taxable year, less than the sum of twice the exemption amount plus the basic standard deduction applicable to a joint return, but only if such individual and his spouse, at the close of the taxable year, had the same household as their home.
Clause (iv) shall not apply if for the taxable year such spouse makes a separate return or any other taxpayer is entitled to an exemption for such spouse under section 151(c).

The effect of this language is explained in a wonderful article by Jane Bruno writing for ACA as follows:

If you file as “married, separate” AND your spouse has no income from sources within the US AND is not claimed as a dependent of another US taxpayer, you CAN claim an exemption for your NRA spouse (See IRS Publication 17). http://www.irs.gov/pub/irs-pdf/fw7.pdf

Significantly the exemption for the 2017 year was $4050.
This explains there is a $4050 filing threshold for “married filing separately” for the year 2017. This is complicated and takes some time to understand. But, hey why should being an American citizen be easy?
For the years 2018 – 2025, Section 6012(f) was added which reads …

(f) Special rule for taxable years 2018 through 2025 In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026, subsection (a)(1) shall not apply, and every individual who has gross income for the taxable year shall be required to make returns with respect to income taxes under subtitle A, except that a return shall not be required of—
(1) an individual who is not married (determined by applying section 7703) and who has gross income for the taxable year which does not exceed the standard deduction applicable to such individual for such taxable year under section 63, or
(2) an individual entitled to make a joint return if—
(A) the gross income of such individual, when combined with the gross income of such individual’s spouse, for the taxable year does not exceed the standard deduction which would be applicable to the taxpayer for such taxable year under section 63 if such individual and such individual’s spouse made a joint return,
(B) such individual and such individual’s spouse have the same household as their home at the close of the taxable year,
(C) such individual’s spouse does not make a separate return, and
(D) neither such individual nor such individual’s spouse is an individual described in section 63(c)(5) who has income (other than earned income) in excess of the amount in effect under section 63(c)(5)(A).

You will observe that this section makes no reference to “exemptions” (which vanished in the 2017 TCJA). The temporary repeal of personal exemptions mean that those filing Married Filing Separately have a US filing requirement if their income exceeds $5.
The IRS is actually doing you a favor. A strict reading of 6012(f) appears to require anybody in the Married Filing Separately category to file a return. By imposing a $5 threshold, the IRS appears to be ensuring that those with zero income are not required to file.
Clearly the IRS is interpreting the words “an individual entitled to make a joint return” to mean “married filing jointly”. In any case, (one more indignity inflicted on Americans abroad by the 2017 TCJA) it appears that the IRS view is that those who elect the “married filing separately” category are required to file at any level of income.
Practical consequences of Section 6012(f) …
– any American abroad married to an alien is now required to file a U.S. tax return
– the requirement to file a tax return will include the requirement to file Form 8938 if applicable. This may result in significant disclosure of the alien spouses financial assets.
Practical suggestions for Americans abroad married to aliens …
– no joint ownership of financial accounts
– no joint signing authority over accounts
– Americans abroad who are single and considering marriage to an alien should understand that they will be required to file a U.S. tax return with any level of income
– Aliens who are considering marriage to U.S. citizens should think long and hard before marrying a U.S. citizen and getting involved with this.
The general problems of the FBAR Marriage (marriage between a U.S. citizen and an alien) …

John Richardson – Follow me on Twitter @ExpatriationLaw

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