10 hour Federal Tax Law

Deductions from Adjusted Gross Income

Certain Medical and Dental Expenses. Paid interest and taxes on the home. Gifts to Charity. Casualty and Theft Losses (only for those losses attributable to a Federal disaster as declared by the President).

Question 4. A taxpayer generally has 3 years from April 15, 2019, to file a claim for refund against his or her timely filed 2018 tax return. This means that the taxpayer's claim normally must be filed by April 18, 2022. However, if he or she serves in a combat zone from November 1, 2021, through March 23, 2022, and is not injured, his or her deadline for filing that claim is extended by how many days after he or she leaves the combat zone?

D. 349 days

Time for Filing a Claim for Refund

Generally, a taxpayer must file a claim for a credit or refund within 3 years after the date the taxpayer filed the original return or within 2 years after the date the taxpayer paid the tax, whichever is later. Returns filed before the due date (without regard to extensions) are considered filed on the due date (even if the due date was a Saturday, Sunday, or legal holiday). If a claim is not filed within this period, the taxpayer may not be entitled to a credit or a refund. The state tax liability may be affected by a change made on the Federal return. For information on how to correct the state tax return, contact the state tax agency.

Electronic Filing (IRS e-File)

The IRS assigns an Electronic Filing Identification Number (EFIN) to identify firms that have completed the IRS e-file Application to become an Authorized IRS e-file Provider. After the provider completes the application and passes a suitability check, the IRS sends an acceptance letter, including the EFIN, to the provider. Providers need the EFIN to electronically file tax returns.

The Tax Cuts and Jobs Act (TCJA)

➢ Changed the seven existing tax brackets. ➢ Increased the standard deduction. ➢ Repealed the deduction for personal exemptions .➢ Increased the Child Tax Credit. ➢ Repealed the overall limitation on certain itemized deductions. ➢ Limited the mortgage interest deduction. ➢ Limited the deduction for state and local income or sales taxes.

A nonresident alien must also file an income tax return if he or she wants to

➢ Claim a refund of overwithheld or overpaid tax. ➢ Claim the benefit of any deductions or credits. For example, if the individual has no U.S. business activities but has income from real property that he or she chooses to treat as Effectively Connected Income (ECI), the individual must timely file a true and accurate return to take any allowable deductions against that income.

Gross Income

➢ Compensation for services, including tips, fees, commissions, fringe benefits, and similar items. ➢ Gross income derived from business. ➢ Gains derived from dealings in property. ➢ Interest. ➢ Rents. ➢ Royalties. ➢ Dividends. ➢ Alimony and separate maintenance payments. ➢ Annuities. ➢ Income from life insurance and endowment contracts. ➢ Pensions. ➢ Income from discharge of indebtedness. ➢ Distributive share of partnership gross income. ➢ Income in respect of a decedent. ➢ Income from an interest in an estate or trust. ➢ Unemployment compensation. ➢ Prize received in a raffle (whether from a church or any other organization). ➢ Fair market value of an economic benefit (such as a free tour). ➢ Punitive damages.

Tax Credits

➢ Earned Income Tax Credit (EITC) .➢ Credit for the Elderly or the Disabled. ➢ Education credits. ➢ Retirement Savings Contributions Credit. ➢ Adoption Credit. ➢ Foreign Tax Credit. ➢ Child Tax Credit. ➢ Child and Dependent Care Credit.

Adjustments to Gross Income

➢ Educator Expenses. ➢ Health savings account deduction .➢ One-half of self-employment tax. ➢ Self-employed SEP, SIMPLE, and qualified plans. ➢ Self-employed health insurance deduction. ➢ IRA deduction. ➢ Student loan interest deduction.

Tax Payments

➢ Federal income tax withheld from Forms W-2 and 1099. ➢ 2021 estimated tax payments and amount applied from 2020 return. ➢ Earned Income Tax Credit (EITC). ➢ Nontaxable combat pay election. ➢ 2021 Child Tax Credit. ➢ American Opportunity Tax Credit. ➢ Amount paid with request for extension to file. ➢ Excess Social Security and tier 1 RRTA tax withheld.

Filing Dates

The annual income tax return for individuals is due by the 15th day of the fourth month after the close of the tax year, thusually April 15 . However, when the 15th falls on a weekend (Saturday or Sunday) or a holiday, the due date becomes the next regular working day. Therefore, if the 15th happened to be Saturday, the return would be due on Monday, April 17th. Most individuals, sole proprietorships, and single-member LLCs will have until Friday, April 15, 2022 to file their income tax return for the 2021 tax year. Note that this also affects the deadline for the first installment payment of estimated income tax.

To meet this test, the taxpayer must be physically present in the United States on at least:

1. 31 days during the current year, and 2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting: a. All the days he or she was present in the current year, and b. 1/3 of the days he or she was present in the first year before the current year, and c. 1/6 of the days he or she was present in the second year before the current year.

Qualifying Relative for Head of Household Filing Status

1. Not a qualifying child test. 2. Member of household or relationship test. 3. Gross income test. 4. Support test.

Taxation of Nonresident Aliens

1. A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year. a. The taxpayer must file even if: b. The taxpayer's income did not come from a trade or business conducted in the United States. c. The taxpayer has no income from U.S. sources. The taxpayer's income is exempt from income tax. 2. A nonresident alien individual not engaged in a trade or business in the United States with U.S. income on which the tax liability was not satisfied by the withholding of tax at the source. 3. A representative or agent responsible for filing the return of an individual described in (1) or (2). 4. A fiduciary for a nonresident alien estate or trust. 5. A resident or domestic fiduciary, or other person, charged with the care of the person or property of a nonresident individual may be required to file an income tax return for that individual and pay the tax (Refer to Treas. Reg. 1.6012-3(b)).

There are three types of relief available

1. Innocent Spouse Relief provides a taxpayer relief from additional tax he or she owes if his or her spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits. 2. Separation of Liability Relief provides for the allocation of additional tax owed between the taxpayer and his or her former spouse or his or her current spouse from whom the taxpayer is separated because an item was not reported properly on a joint return. The tax allocated to the taxpayer is the amount for which he or she is responsible. 3. Equitable Relief may apply when the taxpayer does not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return and generally attributable to the taxpayer's spouse. He or she may also qualify for equitable relief if the correct amount of tax was reported on the joint return, but the tax remains unpaid.

He or she is considered unmarried on the last day of the tax year if he or she meets all the following tests:

1. The taxpayer files a separate return. 2. The taxpayer paid more than half the cost of keeping up his or her home for the tax year. 3. The taxpayer's spouse did not live in his or her home during the last 6 months of the tax year. The taxpayer's spouse is considered to live in his or her home even if he or she is temporarily absent due to special circumstances. 4. The taxpayer's home was the main home of his or her child, stepchild, or foster child for more than half the year.

Head of Household

1. The taxpayer is unmarried or considered unmarried on the last day of the year. 2. The taxpayer paid more than half the cost of keeping up a home for the year. 3. A qualifying person lived with the taxpayer in the home for more than half the year (except for temporary absences, such as school). However, if the qualifying person is the taxpayer's dependent parent, he or she does not have to live with him or her

Qualifying Widow(er) With Dependent Child

1. The taxpayer was entitled to file a joint return with his or her spouse for the year his or her spouse died. It does not matter whether the taxpayer actually filed a joint return. 2. The taxpayer's spouse died in 2019 or 2020 and the taxpayer did not remarry before the end of 2021. The taxpayer has a child or stepchild for whom he or she can claim as a dependent. 3. This child lived in the taxpayer's home all year, except for temporary absences. There are exceptions for a child who was born or died during the year and for a kidnapped child. 4. The taxpayer paid more than half the cost of keeping up a home for the year.

Married Taxpayers Filing Separately

1. The taxpayer's tax rate generally is higher than on a joint return. 2. The taxpayer's exemption amount for figuring the alternative minimum tax is half that allowed on a joint return. 3. The taxpayer cannot take the Credit for Child and Dependent Care Expenses in most cases, and the amount he or she can exclude from income under an employer's dependent care assistance program is limited. 4. If the taxpayer is legally separated or living apart from his or her spouse, the taxpayer may be able to file a separate return and still take the credit. See Joint Return Test in Publication 503 - Child and Dependent Care Expenses, for more information. 5. The taxpayer cannot take the exclusion or credit for adoption expenses in most cases. 6. The taxpayer cannot take the education credits (the American Opportunity Tax Credit and Lifetime Learning Credit) or the deduction for student loan interest. 7. The taxpayer cannot exclude any interest income from qualified U.S. savings bonds he or she used for higher education expenses. 8. If the taxpayer lived with his or her spouse at any time during the tax year: The taxpayer cannot claim the Credit for the Elderly or the Disabled. The taxpayer must include in income a greater percentage (up to 85%) of any Social Security or equivalent railroad retirement benefits he or she received. The following credits are reduced at income levels half those for a joint return: The Child Tax Credit. The Retirement Savings Contributions Credit. The taxpayer's capital loss deduction limit is $1,500 (instead of $3,000 on a joint return). If the taxpayer's spouse itemizes deductions, the taxpayer cannot claim the standard deduction. If the taxpayer can claim the standard deduction, his or her basic standard deduction is half the amount allowed on a joint return.

Amended Returns

1. Use Form 1040X - Amended U.S. Individual Income Tax Return, to file an amended tax return. An amended return cannot be e-filed. The taxpayer must file it on paper. 2. The taxpayer should consider filing an amended tax return if there is a change in his or her filing status, income, deductions, or credits. 3. The taxpayer normally does not need to file an amended return to correct math errors. The IRS will automatically make those changes. Also, do not file an amended return because the taxpayer forgot to attach tax forms, such as W-2s or schedules. The IRS normally will send a request asking for those. 4. Generally, the taxpayer must file Form 1040X within three years from the date he or she filed the original tax return or within two years of the date he or she paid the tax, whichever is later. Be sure to enter the year of the return the taxpayer is amending at the top of Form 1040X. 5. If the taxpayer is amending more than one tax return, prepare a 1040X for each return and mail them to the IRS in separate envelopes. The taxpayer will find the appropriate IRS address to mail the return to in the Form 1040X instructions. 6. If the taxpayer's changes involve the need for another schedule or form, he or she must attach that schedule or form to the amended return. 7. If the taxpayer is filing an amended tax return to claim an additional refund, wait until he or she has received the original tax refund before filing Form 1040X. 8. Amended returns take up to 12 weeks to process. The taxpayer may cash the original refund check while waiting for the additional refund. 9. If the taxpayer owes additional taxes with Form 1040X, file it and pay the tax as soon as possible to minimize interest and penalties. 10. The taxpayer can track the status of the amended tax return three weeks after it is filed with the IRS's new tool called, 'Where's My Amended Return?' The automated tool is available on www.IRS.gov and by phone at 866-464-2050. The online and phone tools are available in English and Spanish. The taxpayer can track the status of the amended return for the current year and up to three prior years. 11. To use either 'Where's My Amended Return' tool, just enter the taxpayer identification number (usually a Social Security number), date of birth and zip code. If the taxpayer has filed amended returns for more than one year, he or she can select each year individually to check the status of each. If the taxpayer uses the tool by phone, he or she will not need to call a different IRS phone number unless the tool tells him or her to do so.

Question 5. A taxpayer should correct his or her return, after it was filed, for all of the following reasons except:

A. The taxpayer wants to change his or her filing status from married filing jointly to married filing separately

As previously noted, a taxpayer is eligible to file the 2021 return as a qualifying widow(er) with dependent child if he or she meets all of the following tests

As previously noted, a taxpayer is eligible to file the 2021 return as a qualifying widow(er) with dependent child if he or she meets all of the following tests

Question 2. Mike is divorced. His dependent daughter, Sara, lived with him all year. Property taxes of $1,000 and mortgage interest of $4,000 on the home where he and Sara live are divided equally with his ex-wife. Mike also paid all the utilities of $100 per month. What amount of the yearly household expenses can Mike use to determine if he qualifies for the head of household filing status?

B. $3,700

Question 3. During 2021, Soraya was a nonresident alien engaged in a business in the United States. All of her income was from self-employment not subject to wage withholding. Soraya is a calendar-year taxpayer. When is Soraya's income tax return due if she does not apply for an extension of time to file (ignoring weekends and holidays)?

B. June 15, 2022

Question 1. Reed Johnson's wife died in 2019. Reed has not remarried. He has continued during 2020 and 2021 to keep up a home for himself and his child, who lives with him. For 2019 he was entitled to file a joint return for himself and his deceased wife. Reed can also file as a qualifying widower with a dependent child for which of the following years?

C. 2020 and 2021

The taxpayer does not need to file Form 1040-NR if:

His or her only U.S. trade or business was the performance of personal services; and His or her wages were less than $4,300; and He or she has no other need to file a return to claim a refund of overwithheld taxes, to satisfy additional withholding at source, or to claim income exempt or partly exempt by treaty. He or she was a nonresident alien student, teacher, or trainee who was temporarily present in the United States under an "F," "J," "M," or "Q" visa, and he or she has no income that is subject to tax under Section 871 (that is, the income items listed on page 1 of Form 1040-NR). He or she was a partner in a U.S. partnership that was not engaged in a trade or business in the United States during 2021 and his or her Schedule K-1 (Form 1065) includes only income from U.S. sources that he or she must report on Schedule NEC.

Form 1040X

If an individual discovers an error after the return has been filed, he or she may need to amend the return. The IRS may correct errors in math on a return and may accept returns with certain forms or schedules left out. In these instances, do not amend the return. However, do file an amended return if there is a change in filing status, income, deductions, or credits. The tax owed will not be subtracted from any amount the taxpayer had credited to his or her estimated tax. If the taxpayer overpaid tax, he or she can have all or part of the overpayment refunded, or the taxpayer can apply all or part of it to his or her estimated tax. If the taxpayer chose to get a refund, it will be sent separately from any refund shown on his or her original return.

Interest and Penalties

If the taxpayer files a claim for refund or credit in excess of the amount allowable, he or she may have to pay a penalty equal to 20% of the disallowed amount, unless the taxpayer can show a reasonable basis for the way he or she treated an item. The penalty will not be figured on any part of the disallowed amount of the claim that relates to the Earned Income Tax Credit or on which accuracy-related or fraud penalties are charged. In addition to any other penalties, the law imposes a penalty of $5,000 for filing a frivolous return

There are three types of relief available

Innocent spouse relief. Separation of liability, (available only to joint filers who are divorced, widowed, legally separated, or have not lived together for the 12 months ending on the date the election for this relief is filed). Equitable relief.

IRS Correspondence

Many of these letters can be dealt with simply and painlessly. There are a number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify the taxpayer of a change to his or her account or request additional information. The notice normally covers a very specific issue about the account or tax return. Each letter and notice offer specific instructions on what the taxpayer needs to do to satisfy the inquiry. If the taxpayer receives a correction notice, he or she should review the correspondence and compare it with the information on the return. If the taxpayer agrees with the correction to the account, usually no reply is necessary unless a payment is due. If the taxpayer does not agree with the correction the IRS made, it is important that he or she respond as requested. Write to explain why the taxpayer disagrees. Include any documents and information the taxpayer wishes the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left part of the notice. Allow at least 30 days for a response. Most correspondence can be handled without calling or visiting an IRS office. However, if the taxpayer has questions, call the telephone number in the upper right corner of the notice. Have a copy of the tax return and the correspondence available when calling. It is important that taxpayer keep copies of any correspondence with his or her records.

Filing Status

Marital status on the last day of the year determines marital status for the entire year. If more than one filing status applies, choose the status that gives the taxpayer the lowest tax obligation. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law. A married couple may file a joint return together. The couple's filing status would be Married Filing Jointly. If a spouse died during the year and the taxpayer did not remarry during the tax year, usually he or she may still file a joint return with that spouse for the year of death. A married couple may elect to file their returns separately. Each person's filing status would generally be Married Filing Separately. Head of household generally applies to taxpayers who are unmarried. The taxpayer must also have paid more than half the cost of maintaining a home for him or her and a qualifying person to qualify for this filing status. The taxpayer may be able to choose Qualifying Widow(er) with Dependent Child as his or her filing status if a spouse died during 2019 or 2020, he or she has a dependent child and he or she meets certain other conditions.

Qualifying Child for Head of Household Filing Status

Relationship. Age. Residency. Support. Joint return.

Alternative Minimum Tax

Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers' tax obligations. Congress created the AMT in 1969, targeting higher-income taxpayers who could claim so many deductions they owed little or no income tax. The taxpayer may have to pay the AMT if his or her taxable income for regular tax purposes, plus any adjustments and preference items that apply to the taxpayer, are more than the AMT exemption amount. The AMT exemption amounts are set by law for each filing status. For tax year 2021, Congress raised the AMT exemption amounts to the following levels: $114,600 for a married couple filing a joint return and surviving spouses. $73,600 for singles and heads of household. $57,300 for married filing separately.

Computation of Gross Tax Liability using the Tax Table

The Tax Table is set up based on amounts of taxable income below $100,000. A column is provided for each tax status, and the tax is determined by locating the amount shown under the correct column to the right of the taxable income amount. A person having taxable income of $100,000 or more must use the Tax Computation Worksheet (based on the Tax Rate Schedules) also provided by the IRS.

Abandoned Spouse

The abandoned individual pays more than half the cost of maintaining his or her household for the taxable year. The individual files a separate tax return. The individual's household is the principal home of a dependent child for more than six months of the tax year. The individual lives in a separate residence from his or her spouse for the last six months of the tax year.

Computations

The taxpayer can round off cents to whole dollars on his or her return and schedules. If he or she does round to whole dollars, he or she must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3. If the taxpayer has to add two or more amounts to figure the amount to enter on a line, include cents when adding the amounts and round off only the total.

Relief From Community Property

The taxpayer did not file a joint return for the tax year.The taxpayer did not include an item of community income in gross income on the separate return. The item of community income the taxpayer did not include is one of the following: Wages, salaries, and other compensation the taxpayer's spouse (or former spouse) received for services he or she performed as an employee. Income the taxpayer's spouse (or former spouse) derived from a trade or business he or she operated as a sole proprietor. The taxpayer's spouse's (or former spouse's) distributive share of partnership income. Income from the taxpayer's spouse's (or former spouse's) separate property (other than income described in (a), (b), or (c)). Use the appropriate community property law to determine what is separate property. Any other income that belongs to the taxpayer's spouse (or former spouse) under community property law. The taxpayer establishes that he or she did not know of, and had no reason to know of, that community income.Under all facts and circumstances, it would not be fair to include the item of community income in the taxpayer's gross income.

The taxpayer must meet all of the following conditions to qualify for innocent spouse relief:

The taxpayer filed a joint return that has an understatement of tax (deficiency) that is solely attributable to his or her spouse's erroneous item. An erroneous item includes income received by his or her spouse, but which was omitted from the joint return. Deductions, credits, and property basis are also erroneous items if they are incorrectly reported on the joint return. The taxpayer establishes that at the time he or she signed the joint return he or she did not know, and had no reason to know, that there was an understatement of tax. Taking into account all the facts and circumstances, it would be unfair to hold the taxpayer liable for the understatement of tax.

Tax Rate Schedules for 2021

While the current number of tax brackets has been retained, each one has been reduced. There are seven tax rates for individual taxpayers. They are: 10%, 12%, 22%, 24%, 32%, 35% and 37%. The tax rate of 37% applies to joint filers with taxable income over $628,300 (single filers over $523,600). The following are the tax rates schedules for tax year 2021 based on certain filing status

Personal Exemption

➢ For individual taxpayers, he or she will be required to file a tax return if his or her gross income for the taxable year is more than the standard deduction. ➢ For married taxpayers, he or she will be required to file a tax return if his or her gross income, when combined with his or her spouse's gross income, is more than the standard deduction for a joint return, provided that the taxpayer and his or her spouse lived in the same home; his or her spouse does not file a separate tax return; and neither the taxpayer nor his or her spouse is a dependent of another taxpayer who has income other than earned income in excess of $500

If the taxpayer had actual knowledge of only a portion of an erroneous item, the IRS will not grant relief for that portion of the item. A taxpayer had actual knowledge of an erroneous item if:

➢ He or she knew that an item of unreported income was received. (This rule applies whether or not there was a receipt of cash.) ➢ He or she knew of the facts that made an incorrect deduction or credit unallowable. ➢ For a false or inflated deduction, he or she knew that the expense was not incurred, or not incurred to the extent shown on the tax return.

Married, Filing a Joint Return

➢ If the individuals are married as of the last day of the taxable year. A couple could be married at 11:59.59 p.m. on December 31 of the taxable year and still file a joint return for the entire year. ➢ If one spouse dies during the taxable year, provided that the surviving spouse has not remarried during the year. If remarried, the taxpayer may file jointly with his or her new spouse. ➢ If the individuals are not divorced or legally separated before the end of the taxable year under a final decree. ➢ If both spouses agree to file a joint return. ➢ If a non-resident alien is married to a citizen of the United States and they both elect to be taxed on their worldwide income. ➢ If the tax years of both spouses begin on the same date.

There are a number of reasons why a taxpayer may want to file a tax return even if he or she does not meet the minimum income requirements:

➢ If the taxpayer had taxes withheld from his or her pay, he or she must file a tax return to receive a tax refund. ➢ If the taxpayer qualifies, he or she must file a return to receive the refundable Earned Income Tax Credit. ➢ If the taxpayer is claiming education credits, he or she must file to be refunded the American Opportunity Tax Credit. ➢ If the taxpayer has a qualifying child but owes no tax, he or she can file to be refunded the Additional Child Tax Credit. ➢ If the taxpayer qualifies, he or she must file to claim the refundable Health Coverage Tax Credit. ➢ If the taxpayer adopted a qualifying child, he or she must file to claim the Adoption Tax Credit. ➢ If the taxpayer overpaid estimated tax or applied a prior year overpayment to this year, he or she must file to receive the refund.

A nonresident alien's income that is subject to U.S. income tax must generally be divided into two categories:

➢ Income that is Effectively Connected with a trade or business in the United States. ➢ U.S. source income that is Fixed, Determinable, Annual, or Periodical (FDAP)

Community Property

➢ That the taxpayer, his or her spouse (or his or her registered domestic partner), or both acquire during their marriage (or registered domestic partnership) while the taxpayer and his or her spouse (or his or her registered domestic partner) are domiciled in a community property state. ➢ That the taxpayer and his or her spouse (or his or her registered domestic partner) agreed to convert from separate to community property. ➢ That cannot be identified as separate property.

Home Office Deduction

➢ The business percentage of expenses that would be deductible by any taxpayer regardless of whether or not he is using the home in a trade or business, such as deductible mortgage interest, real estate taxes and casualty losses. ➢ All other business deductions such as wages and supplies that are not directly related to the use of the home office.

Form W-2 - Wage and Tax Statement

➢ The employer withheld any income, Social Security, or Medicare tax from wages regardless of the amount of wages; or ➢ The employer would have had to withhold income tax if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4; or ➢ The employer paid $600 or more in wages even if they did not withhold any income, Social Security, or Medicare tax.

Nonresident and Dual Status Aliens

➢ The green card test.➢ The substantial presence test for the calendar year (January 1-December 31).

A taxpayer should correct his or her return if, after it was filed, it is determined that:

➢ The taxpayer did not report some income .➢ The taxpayer claimed deductions or credits the taxpayer should not have claimed. ➢ The taxpayer did not claim deductions or credits that could have been claimed. ➢ The taxpayer should have claimed a different filing status.

Divorce and Separation

➢ The taxpayer has obtained a final decree of divorce or separate maintenance by the last day of the tax year. He or she must follow state law to determine if he or she is divorced or legally separated. ➢ The taxpayer has obtained a decree of annulment, which holds that no valid marriage ever existed. He or she must file amended returns for all tax years affected by the annulment that are not closed by the statute of limitations. The statute of limitations generally does not end until 3 years (including extensions) after the date the taxpayer files the original return or within 2 years after the date, he or she pays the tax.

The following categories of income are usually considered to be connected with a trade or business in the United States:

➢ The taxpayer is considered to be engaged in a trade or business in the United States if he or she is temporarily present in the United States as a nonimmigrant on an "F," "J," "M," or "Q" visa. The taxable part of any U.S. source scholarship or fellowship grant received by a nonimmigrant in "F," "J," "M," or "Q" status is treated as effectively connected with a trade or business in the United States. ➢ If the taxpayer is a member of a partnership that at any time during the tax year is engaged in a trade or business in the United States, he or she is considered to be engaged in a trade or business in the United States. ➢ The taxpayer is usually engaged in a U.S. trade or business when he or she performs personal services in the United States. ➢ If the taxpayer owns and operates a business in the United States selling services, products, or merchandise, he or she is, with certain exceptions, engaged in a trade or business in the United States. For example, profit from the sale in the United States of inventory property purchased either in this country or in a foreign country is effectively connected trade or business income. ➢ Gains and losses from the sale or exchange of U.S. real property interests (whether or not they are capital assets) are taxed as if the taxpayer is engaged in a trade or business in the United States. He or she must treat the gain or loss as effectively connected with that trade or business. ➢ Income from the rental of real property may be treated as ECI if the taxpayer elects to do so.

To qualify for separation of liability relief the taxpayer must have filed a joint return and must meet one of the following requirements at the time he or she requests relief:

➢ The taxpayer is divorced or legally separated from the spouse with whom he or she filed the joint return. ➢ The taxpayer is widowed. ➢ The taxpayer has not been a member of the same household as the spouse with whom he or she filed the joint return at any time during the 12-month period ending on the date he or she files Form 8857 - Request for Innocent Spouse Relief.

Regardless of a taxpayer's gross income, he or she is generally required to file an income tax return if any of the following items apply:

➢ The taxpayer owes Alternative Minimum Tax. ➢ The taxpayer owes household employment taxes. ➢ The taxpayer owes additional taxes on a retirement plan (an individual retirement arrangement (IRA) or other tax-favored account) or health savings account. ➢ The taxpayer owes Social Security and Medicare taxes on unreported tip income. ➢ The taxpayer had net self-employment income of $400 or more. ➢ The taxpayer earned $108.28 or more from a tax-exempt church or church-controlled organization. ➢ The taxpayer received distributions from an MSA or Health Savings Account.

A person related to the taxpayer in any of the following ways does not have to live with the taxpayer all year as a member of the household to meet the relationship test:

➢ The taxpayer's child, stepchild, foster child, or a descendant of any of them (for example, a grandchild). (A legally adopted child is considered the taxpayer's child.) ➢ The taxpayer's brother, sister, half-brother, half-sister, stepbrother, or stepsister. ➢ The taxpayer's father, mother, grandparent, or other direct ancestor, but not foster parent. ➢ The taxpayer's stepfather or stepmother. ➢ A son or daughter of the taxpayer's brother or sister. ➢ A son or daughter of the taxpayer's half-brother or half-sister. ➢ A brother or sister of the taxpayer's father or mother. ➢ The taxpayer's son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. To meet the gross income test, a person's gross income for the year must be less than $4,300.

To meet the relationship test, a child must be:

➢ The taxpayer's son, daughter, stepchild, foster child, or a descendant (for example, his or her grandchild) of any of them. ➢ The taxpayer's brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant (for example, his or her niece or nephew) of any of them. ➢ An adopted child is always treated as the taxpayer's own child. The term "adopted child" includes a child who was lawfully placed with him or her for legal adoption. A foster child is an individual who is placed with the taxpayer by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.

To meet the age test, a child must be:

➢ Under age 19 at the end of the year and younger than the taxpayer. ➢ A student under age 24 at the end of the year and younger than the taxpayer. ➢ Permanently and totally disabled at any time during the year, regardless of age.

Single

➢ Unmarried, or ➢ Legally separated from his or her spouse under a divorce or separate maintenance decree.