Illustration of Dual-Status Return Sam R. Brown is single and a subject of the United Kingdom (U.K.).He temporarily entered the United States with an H-1 visa todevelop a new product line for the Major Product Co. He arrived in theUnited States March 18, 1999, and left May 25, 1999, returning to hishome in England. The Major Product Co. later offered Sam a permanent job, and hereturned to the United States with a permanent visa on September 10,1999. During Sam's temporary assignment in the United States, the MajorProduct Co. paid him $6,500. He accounted to his employer for hisexpenses for travel, meals, and lodging while on temporary assignment,and was reimbursed for his expenses. This amount was not included onhis wage statement, Form W-2, given to him when he left theUnited States. After Sam became permanently employed, his wages for the rest ofthe year were $21,800, including reimbursement of his moving expenses.He received a separate Form W-2 for this period. His otherincome received in 1999 was: Interest income paid by the U.S. Bank (not effectively connected): March 31 $45 June 30 $48 September 30 $68 December 31 $89 Dividend income paid by Major Product Co. (not effectivelyconnected): April 3 $120 July 3 $120 October 2 $120 Interest income (in U.S. dollars) paid by the U.K. Bank: March 31 $90 June 30 $110 September 30 $118 December 31 $120 Sam paid the following expenses while he was in the United States: Moving expenses incurred and paid in September $8,300 VA State income tax $612 Contributions to U.S. charities $310 Before Sam left the United States in May, he filed Form1040-C (see chapter 11).He owed no tax when he left the UnitedStates. Sam fills in Form 1040 and the statement, Form 1040NR, as follows. Sam prints his name, social security number, and address on page 1of Form 1040. He checks "Yes" for the Presidential ElectionCampaign Fund and "Single" under filing status. He also checksthe exemption block for himself and prints "Dual-Status Return"across the top of the form. Sam prints his name, address, and social security number on page 1of Form 1040NR. He prints "Dual-Status Statement" across the topof the form. Sam reports on Form 1040 all income received during the period hewas a resident of the United States and the income received during theperiod he was a nonresident alien that was effectively connected withhis U.S. trade or business. This income is taxed at the graduatedrates. For information purposes, he also reports on Form 1040NR hissalary while he was a nonresident. Sam reports on Form 1040 the interest income credited to hisaccount by the U.S. Bank and the U.K. Bank in September and December,while he was a U.S. resident. If any of the interest income receivedwhile he was a nonresident alien was effectively connected with hisU.S. trade or business, he would also report these amounts on Form1040. If he had paid foreign income tax on the interest incomereceived from the U.K. Bank, he would claim a foreign tax credit. The dividend income includes only the October dividend, which wasreceived while Sam was a U.S. resident. The dividend income receivedduring his period of nonresidence was not effectively connected withhis U.S. trade or business and, therefore, not taxed at the graduatedrates. Sam reports on the attached statement, Form 1040NR, the noteffectively connected U.S. income received while he was a nonresidentalien. He reports the April and July dividends from the Major ProductCo. on line 69a, page 4. He figures the tax on his dividend income andcarries it forward to line 48 on Form 1040NR. (The rate of tax on thisincome is limited to 15% by Article 10 of the U.S.-U.K. incometax treaty. Treaty rates vary from country to country, so be sure tocheck the provisions in the treaty you are claiming.) Sam also reports $36, the amount of tax withheld at source by theMajor Product Co. on line 69a, Form 1040NR, and carries it forward toline 61a. Later he will report the amount on Form 1040. hotel near airport RiminiSam is not required to report the interest credited to his accountby the U.S. Bank during the period he was a nonresident alien.Interest on deposits with U.S. banks that is not effectively connectedwith a U.S. trade or business generally is treated as income fromsources in the United States but is not taxable to a nonresidentalien. He checks the "Yes" box on page 5, item L, of Form 1040NR,and explains why this income is not included on his return. The interest income received from the U.K. Bank while Sam was anonresident alien is foreign source income and not taxable on his U.S.return. Sam completes all applicable items on page 5 of Form 1040NR. Thisprovides the dates of arrival and departure, types of visas, andinformation concerning tax treaty benefits that he has claimed. Sam completes Form 3903 (not illustrated) to figure his movingexpense deduction and reports the total on line 26, Form 1040. Sam cannot claim the standard deduction because he has adual-status tax year. He reports his itemized deductions on Schedule A(Form 1040). The only itemized deduction he had while he was anonresident alien was the state income tax withheld from his pay. Forinformation purposes, he lists this amount on line 1, Schedule A, Form1040NR, in addition to including it on Schedule A, Form 1040. Sam totals his itemized deductions on line 28, Schedule A (Form1040). He reports the amount from line 28 of Schedule A (Form 1040) online 36, Form 1040. Sam enters $2,750 for one personal exemption on line 38, Form 1040.He subtracts the amount on line 38 from the amount on line 37 tofigure his taxable income, line 39. Sam is now ready to figure the tax on his income taxed at thegraduated rates. He uses the column in the Tax Table for singleindividuals. To this tax ($2,524), he must add the tax on the incomenot effectively connected ($36), the income taxed at the 30% or lowertreaty rate. Since there is no line on Form 1040 for this computation,he reports the two amounts in the margin in the discount hotels in HalmstadTax and Creditsarea of Form 1040. Sam reports the total amount of tax withheld ($2,700) from hiswages on line 57, Form 1040. He includes in this amount the taxwithheld at source ($36 from line 61a, Form 1040NR) on dividends paidto him while he was a nonresident alien. He also writes a briefexplanation. For information purposes, Sam also reports on line 54, Form 1040NR,the amount of tax withheld ($536) from wages earned while he was anonresident alien. Sam compares the total tax on line 56, Form 1040, to the totalpayments on line 64, to see if he has overpaid his tax or if he owesan additional amount. Since the amount of tax withheld and the amountof tax paid at source are more than his total tax, he has overpaid histax. He subtracts the amount on line 56 from the amount on line 64 tofigure his refund. Sam checks to be sure that he has completed all parts of Form 1040that apply to him. He also checks to see if he has completed thenecessary parts of the Form 1040NR that he is attaching as astatement. He then signs and dates the return and enters hisoccupation. Envelope: Sam mails the return to the:   Internal Revenue Service Center Philadelphia, PA 19255. Form 1040 pg 1&2 Sch A (form 1040) & Form 1040NR pg1 Form 1040NR pg 2&3 Form 1040NR pg 4&5