The recent decisions of the US Supreme Court, (in the Defense of Marriage Act and Proposition 8 cases) to strike down anti-gay marriage legislation may very well produce an increase in immigrant marriages. The actual number of couples who were lawfully married in a non-U.S jurisdiction or will be married in a state that allows same sex marriage and who wish to file joint returns is unknown. But, among the issues to confront all couples who have immigrant spouses is income tax and estate and gift tax planning.
U.S. taxpayers are subject to taxation on worldwide income and on worldwide assets. That means that a couple that files a joint return makes an, essentially, irrevocable election to subject the income and assets of both spouses to U.S. income tax, and estate and gift tax laws, as well as Bank Secrecy Act laws (such as having to report foreign financial accounts annually on an FBAR). It is therefore important for the couple to consider the effects, including compliance requirements, of a nonresident spouse becoming a U.S. taxpayer. If the spouses decide that they want to file jointly, here are the requirements. The failure to comply with regulations may render a joint return election invalid.
A nonresident spouse can elect to be treated as a resident if all the following conditions are met:
1. One spouse is a U.S. citizen or resident alien at the end of the tax year
2. That spouse is married to the nonresident alien at the end of the tax year
3. Both spouses choose to treat the nonresident spouse as a resident alien.
To make the election both spouses must sign a statement and attach the statement to the joint return for the first tax year for which the choice applies If the election to treat the nonresident spouse as a resident is not made the taxpayer cannot file a joint return
Once the election is made to treat the nonresident spouse as a resident, the election applies to all later years unless one of the following occurs:
1. Either spouse revokes the election
2. Either spouse dies
3. Legal separation under a decree of divorce or separate maintenance
4. The IRS ends the choice due to inadequate records
The benefits of permanent resident status and ultimately U.S. citizenship, may well justify the the additional tax cost if a joint return election is made. The key is making a knowing and informed decision in advance.