Publication 54
Tax Guide for U.S. Citizens and Resident Aliens Abroad

For use in preparing 2002 Returns

Where To File

If any of the following situations apply to you, file your return with the:

Internal Revenue Service Center
Philadelphia, PA 19255-0215.

1. You claim the foreign earned income exclusion.
2. You claim the foreign housing exclusion or deduction.
3. You claim the exclusion of income for bona fide residents of American Samoa.
4. You live in a foreign country or U.S. possession and have no legal residence or principal place of business in the United States.

The exclusions and the deduction are explained in chapter 4.

If you do not know where your legal residence is and you do not have a principal place of business in the United States, you can file with the Philadelphia Service Center. The address for the Philadelphia Service Center is shown above.

However, you should not file with the Philadelphia Service Center if you are a bona fide resident of the Virgin Islands or a resident of Guam or the Commonwealth of the Northern Mariana Islands on the last day of your tax year.

Resident of Virgin Islands  

If you are a bona fide resident of the Virgin Islands on the last day of your tax year (even if your legal residence or principal place of business is in the United States), you generally are not required to file a U.S. return. However, you must file a return with the Virgin Islands and pay your tax on income you have from all sources to the:

Virgin Islands Bureau of Internal Revenue
9601 Estate Thomas
Charlotte Amalie
St. Thomas, Virgin Islands 00802.

Non-Virgin Islands resident with Virgin Islands Income.   If you are a U.S. citizen or resident and you have income from sources in the Virgin Islands or income effectively connected with the conduct of a trade or business in the Virgin Islands, and you are not a bona fide resident of the Virgin Islands on the last day of your tax year, you must file identical tax returns with the United States and the Virgin Islands. File the original return with the United States and file a copy of the U.S. return (including all attachments, forms, and schedules) with the Virgin Islands Bureau of Internal Revenue.

The amount of tax you must pay to the Virgin Islands is figured by the following computation:

Tax paid to V.I. Form 8689, Allocation of Individual Income Tax to the Virgin Islands, is used for this computation. You must complete this form and attach it to your return. You should pay any tax due to the Virgin Islands when you file your return with the Virgin Islands Bureau of Internal Revenue.

You should file your U.S. return with the Internal Revenue Service Center, Philadelphia, PA 19255-0215.

See Publication 570, Tax Guide for Individuals With Income From U.S. Possessions, for information about filing Virgin Islands returns.

Resident of Guam  

If you are a resident of Guam on the last day of your tax year, you should file a return with Guam and pay your tax on income you have from all sources to the:

Department of Revenue and Taxation
Government of Guam
P.O. Box 23607
GMF, GU 96921.

However, if you are a resident of the United States on the last day of your tax year, you should file a return with the United States and pay your tax on income you have from all sources to the Internal Revenue Service Center, Philadelphia, PA 19255-0215.

See Publication 570 for information about filing Guam returns.

Resident of the Commonwealth of the Northern Mariana Islands  

If you are a resident of the Commonwealth of the Northern Mariana Islands on the last day of your tax year, you should file a return with the Northern Mariana Islands and pay your tax on income you have from all sources to the:

Division of Revenue and Taxation
Commonwealth of the Northern Mariana Islands
P.O. Box 5234, CHRB
Saipan, MP 96950.

However, if you are a resident of the United States on the last day of your tax year, you should file a return with the United States and pay your tax on income you have from all sources to the Internal Revenue Service Center, Philadelphia, PA 19255-0215.

See Publication 570 for information about filing Northern Mariana Islands returns.

Nonresident Spouse Treated as a Resident

If, at the end of your tax year, you are married and one spouse is a U.S. citizen or a resident alien and the other is a nonresident alien, you can choose to treat the nonresident as a U.S. resident. This includes situations in which one of you is a nonresident alien at the beginning of the tax year and a resident alien at the end of the year and the other is a nonresident alien at the end of the year.

If you make this choice, the following two rules apply.

1. You and your spouse are treated, for income tax purposes, as residents for all tax years that the choice is in effect.
2. You must file a joint income tax return for the year you make the choice.

This means that neither of you can claim tax treaty benefits as a resident of a foreign country for a tax year for which the choice is in effect. You can file joint or separate returns in years after the year in which you make the choice.

Example 1.   Pat Smith, a U.S. citizen, is married to Norman, a nonresident alien. Pat and Norman make the choice to treat Norman as a resident alien by attaching a statement to their joint return. Pat and Norman must report their worldwide income for the year they make the choice and for all later years unless the choice is ended or suspended. Although Pat and Norman must file a joint return for the year they make the choice, they can file either joint or separate returns for later years.

Example 2.   Bob and Sharon Williams are married and both are nonresident aliens. In June of last year, Bob became a resident alien and remained a resident for the rest of the year. Bob and Sharon both choose to be treated as resident aliens by attaching a statement to their joint return for last year. Bob and Sharon must report their worldwide income for last year and all later years unless the choice is ended or suspended. Bob and Sharon must file a joint return for last year, but they can file either joint or separate returns for later years.

Social Security Number (SSN)

If your spouse is a nonresident alien and you file a joint or separate return, your spouse must have either an SSN or an individual taxpayer identification number (ITIN).

To get an SSN for your spouse, apply at a social security office or U.S. consulate. You must complete Form SS-5. You must also provide original or certified copies of documents to verify your spouse's age, identity, and citizenship.

If your spouse is not eligible to get an SSN, he or she can file Form W-7 with the IRS to apply for an ITIN.

How To Make the Choice

Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following:

1. A declaration that one spouse was a nonresident alien and the other spouse a U.S. citizen or resident alien on the last day of your tax year and that you choose to be treated as U.S. residents for the entire tax year, and
2. The name, address, and social security number (or individual taxpayer identification number) of each spouse. (If one spouse died, include the name and address of the person making the choice for the deceased spouse.)

You generally make this choice when you file your joint return. However, you can also make the choice by filing a joint amended return on Form 1040X. Attach Form 1040, 1040A, or 1040EZ and print Amended across the top of the amended return. If you make the choice with an amended return, you and your spouse must also amend any returns that you may have filed after the year for which you made the choice.

You generally must file the amended joint return within 3 years from the date you filed your original U.S. income tax return or 2 years from the date you paid your income tax for that year, whichever is later.

Suspending the Choice

The choice to be treated as a resident alien does not apply to any later tax year if neither of you is a U.S. citizen or resident alien at any time during the later tax year.

Example.   Dick Brown was a resident alien on December 31, 1999, and married to Judy, a nonresident alien. They chose to treat Judy as a resident alien and filed a joint 1999 income tax return. On January 10, 2001, Dick became a nonresident alien. Judy had remained a nonresident alien. Because both were resident aliens during part of 2001, Dick and Judy can file joint or separate returns for that year. Neither Dick nor Judy was a resident alien at any time during 2002 and their choice is suspended for that year. For 2002, both are treated as nonresident aliens. If Dick becomes a resident alien again in 2003, their choice is no longer suspended and both are treated as resident aliens.

Ending the Choice

Once made, the choice to be treated as a resident applies to all later years unless suspended (as explained above) or ended in one of the ways shown in Table 1-1 below.

If the choice is ended for any of the reasons listed in Table 1-1, neither spouse can make a choice in any later tax year.

If you do not choose to treat your nonresident spouse as a U.S. resident, you may be able to use head of household filing status. To use this status, you must pay more than half the cost of maintaining a household for certain dependents or relatives other than your nonresident alien spouse. For more information, see Publication 501.

Estimated Tax

The requirements for determining who must pay estimated tax are the same for a U.S. citizen or resident abroad as for a taxpayer in the United States. For current instructions on making estimated tax payments, see Form 1040-ES.

If you had a tax liability for 2002, you may have to pay estimated tax for 2003. Generally, you must make estimated tax payments for 2003 if you expect to owe at least $1,000 in tax for 2003 after subtracting your withholding and credits and you expect your withholding and credits to be less than the smaller of:

1. 90% of the tax to be shown on your 2003 tax return, or
2. 100% of the tax shown on your 2002 tax return. (The return must cover all 12 months.)

If less than two-thirds of your gross income for 2002 or 2003 is from farming or fishing and your adjusted gross income for 2002 is more than $150,000 ($75,000 if you are married and file separately), substitute 110% for 100% in (2) above. See Publication 505 for more information.

The first installment of estimated tax is due on April 15, 2003.

When figuring your estimated gross income, subtract amounts you expect to exclude under the foreign earned income exclusion and the foreign housing exclusion. In addition, you can reduce your income by your estimated foreign housing deduction. However, if the actual amount of the exclusion or deduction is less than you estimate, you may have to pay a penalty for underpayment of estimated tax.

Information Returns
and Reports

There are several instances in which you may have to file either an information return or a report. You may have to file a return or a report if any of the following apply.

• You are a shareholder of a controlled foreign corporation.
• You are a shareholder, officer, or director of a foreign personal holding company.
• You are a shareholder, officer, or director of a U.S. entity that acquires, disposes of, or is involved in the reorganization of a foreign corporation.
• You acquire or dispose of an interest in a foreign partnership, or your proportional interest otherwise changes.
• You are the responsible party for reporting foreign trust events.
• You receive large gifts or bequests from foreign persons.
• You are treated as owning any portion of a foreign trust under the grantor trust rules.
• You receive distributions from a foreign trust.
• You ship currency to or from the United States.
• You have an interest in a foreign bank or financial account.

Form 5471.   Form 5471 must generally be filed by certain U.S. shareholders of controlled foreign corporations and by certain shareholders, officers, and directors of foreign personal holding companies. Form 5471 must also be filed by officers, directors, and shareholders of U.S. entities that acquire, dispose of, or are involved in the reorganization of a foreign corporation.

If Form 5471 is required, you must file it at the time you file your income tax return. More information about the filing of Form 5471 can be found in the instructions for this information return.

Form 8865.   You may need to file Form 8865 to report any of the following events.

• You acquired a foreign partnership interest.
• You disposed of a foreign partnership interest.
• Your proportional interest (percentage owned) in a foreign partnership has changed.

If Form 8865 is required, you must attach it to your income tax return and file both by the due date (including extensions) for that return. You can find more information about filing Form 8865 in the instructions for this information return.

Form 3520.   You may have to file Form 3520 if:

• You are involved in the creation of a foreign trust,
• You are involved in the transfer of money or property to a foreign trust,
• You are treated as the owner of any part of the assets of a foreign trust under the grantor trust rules,
• You received a distribution from a foreign trust,
• A related foreign trust held an outstanding obligation issued by you (or a person related to you),
• You received more than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to the individual or estate) that you treated as gifts or bequests, or
• You received more than $11,642 from foreign corporations or foreign partnerships (including foreign persons related to the corporations or partnerships) that you treated as gifts.

If Form 3520 is required, you generally must file it at the time you file your income tax return. Send Form 3520 to the:

Internal Revenue Service Center
Philadelphia, PA 19255.

More information about the filing of Form 3520 can be found in the instructions for the form.

Form 4790.   Form 4790, Report of International Transportation of Currency or Monetary Instruments, must be filed by each person who physically transports, mails, ships, or causes to be physically transported, mailed, or shipped into or out of the United States, currency or other monetary instruments totaling more than $10,000 at one time. The filing requirement also applies to any person who attempts to transport, mail, or ship the currency or monetary instruments or attempts to cause them to be transported, mailed, or shipped. Form 4790 must also be filed by certain recipients of currency or monetary instruments.

The term monetary instruments includes coin and currency of the United States or of any other country, money orders, traveler's checks, investment securities in bearer form or otherwise in such form that title passes upon delivery, and negotiable instruments (except warehouse receipts or bills of lading) in bearer form or otherwise in such form that title passes upon delivery. The term includes bank checks, and money orders that are signed, but on which the name of the payee has been omitted. The term does not include bank checks, or money orders made payable to the order of a named person that have not been endorsed or that bear restrictive endorsements.

A transfer of funds through normal banking procedures (wire transfer) that does not involve the physical transportation of currency or bearer monetary instruments is not required to be reported on Form 4790.

Recipients.   Each person who receives currency or other monetary instruments from a place outside the United States for which a report has not been filed by the shipper must file Form 4790.

It must be filed within 15 days after receipt with the Customs officer in charge at any port of entry or departure, or by mail with the:

Commissioner of Customs
Attention: Currency Transportation
Reports
Washington, DC 20229.

Shippers or mailers.   If the currency or other monetary instrument does not accompany a person entering or departing the United States, Form 4790 can be filed by mail with the Commissioner of Customs at the above address. It must be filed by the date of entry, departure, mailing, or shipping.

Travelers.   Travelers carrying currency or other monetary instruments must file Customs Form 4790 with the Customs officer in charge at any Customs port of entry or departure when entering or departing the United States.

Penalties.   Civil and criminal penalties are provided for failure to file a report, supply information, and for filing a false or fraudulent report. Also, the entire amount of the currency or monetary instrument may be subject to seizure and forfeiture.

More information about the filing of Form 4790 can be found in the instructions on the back of the form.

Form TD F 90-22.1.   Form TD F 90-22.1 must be filed if you had any financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country. You do not have to file the report if the assets are with a U.S. military banking facility operated by a U.S. financial institution or if the combined assets in the account(s) are $10,000 or less during the entire year.

You must file this form by June 30 each year with the Department of the Treasury at the address shown on the form. Form TD F 90-22.1 is not a tax return, so do not attach it to your Form 1040.

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