Ambiguous question on Turbo Tax

Hi All. My wife is a US citizen who is on the Further Leave to Remain visa at the moment. When filing her taxes (using Turbo Tax Self  Employed) she ran into a question that asked if her Visa limited the amount of time she could work in the UK. Last year the question had been phrased something like "Does ytour visa limit the length of your stay or employment in a foreign country" and this year it is phrased as "Does your via limit the time you can work outside of the US". This is relating to FORM 2555 FEIE.

I have two questions:

1- Are these questions effectively the same, or is there any difference in their meaning?

2-The FLR visa will have to be extended into an ILR in some time, but my wife is on track to stay here indefinitely as a permanent resident, which is her intention. Should she have answered YES or NO to the question, or does it not matter?

To give some further context, my wife is currently not employed but pays self employment tax on some independent contract work she doe for a UK company over the internet. The actual amounts are quite low (less than £1000 per month) and due to the fact we are still paying off her student debt her bank account has never gotten to £2000 as of yet.

I think it might be to do with form 2555 which allows the exclusion of foreign earned income. I would say that if she is not planning to use form 2555 then it doesn’t really matter.

I also think it might have been to do with the ACA if she is not covered by an ACA compliant plan. (The NHS is not an ACA compliant plan). There is a penalty for not having ACA compliant health insurance if you are not living full time outside the USA but that penalty was reduced to zero by the current administration so maybe the old question was no longer needed with that wording.

I think it might be to do with form 2555 which allows the exclusion of foreign earned income. I would say that if she is not planning to use form 2555 then it doesn’t really matter.

I also think it might have been to do with the ACA if she is not covered by an ACA compliant plan. (The NHS is not an ACA compliant plan). There is a penalty for not having ACA compliant health insurance if you are not living full time outside the USA but that penalty was reduced to zero by the current administration so maybe the old question was no longer needed with that wording.

Hi, yeah it's due to form 2555. She's filed that in anticipation of increased earnings in the future.

So would the correct answer be Yes or No to that question? And if we accidentally checked the wrong option last year then how would we fix it?

Thanks for your help!

From an immigration perspective she currently has limited leave to remain.

From an immigration perspective she currently has limited leave to remain.

Hi, thanks. So if we answered that question incorrectly in last year's filing, what can we do to fix it? Keeping in mind that her earnings are low enough at this point that form 2555 it would not have made a difference to the actual amount paid, I think.

Hi, thanks. So if we answered that question incorrectly in last year's filing, what can we do to fix it? Keeping in mind that her earnings are low enough at this point that form 2555 it would not have made a difference to the actual amount paid, I think.

If it makes no difference to the tax paid then I wouldn’t send in a correction.

Go through the Q&A on the link below and I expect you will see no need to file (unless the tax owed is greater than you paid or you are owed a refund)

https://www.irs.gov/help/ita/should-i-file-an-amended-return

Whoa! Let's start this again from the top.

This question, or a version of this question, has been on form 2555 since 1981 that I know of, long before ACA was a twinkle in Obama's eye. 

If the wife filed a 2018 return, then it is likely that, correctly, they are filing for the 'bona fide' resident option for the 2019 tax year. Bona fide residence indicates a permanent residence abroad for the tax year which is the purpose (IMO) for the question. For example, a person may stay in foreign country A for 5 months on a tourist visa, go to foreign country B for 4 months on a tourist visa, then on the foreign country C for 3 months on a tourist visa, all the while working remotely for a company in foreign country D for the entire year. Since they had no permanent residence in any of the countries or any tax obligation to those countries, they would not be allowed the FEIE on a bona fide residence basis. Bona fide residence allows the person to avoid the 330 day requirement of physical presence. Someone working and permanently resident in some Middle Eastern countries, for example, may have no local tax obligation but may meet the permanent residence requirement therefore allowing the FEIE.

TIGTA have issued several reports concerning people filing 2555 claiming FEIE,  but are doing so fraudulently or incorrectly by not qualifying for the required residence.  I forget which report it is, but here are 2 from the last 10 years:
https://www.treasury.gov/tigta/auditreports/2010reports/201040091fr.html
https://www.treasury.gov/tigta/auditreports/2013reports/201330112fr.pdf

When I first came to the UK it was on a one year work permit which could be extended after one year. At that time, the Frank Hirth tax people would put 'N/A' as a response to this question (as noted in the top line instructions for bona fide residence). As for an FLR visa (30 months?), it does have a time period, but that period can be transitioned to a further visa and ultimately ILR, so a time limited  non-residence visa abroad, as in the example of the transient worker in paragraph 3 above, doesn't come into consideration. (IMO)

I do agree there is no need to readdress a past filing to correct a response if the permanent residence requirements were met for that tax year.

In short, there may be a correct answer, but for someone on continuing FLR (IMO) the answer one way or the other (yes, no, N/A) may not really matter.

Welcome to IRS form filling ambiguous questions.

Whoa! Let's start this again from the top.

This question, or a version of this question, has been on form 2555 since 1981 that I know of, long before ACA was a twinkle in Obama's eye. 

If the wife filed a 2018 return, then it is likely that, correctly, they are filing for the 'bona fide' resident option for the 2019 tax year. Bona fide residence indicates a permanent residence abroad for the tax year which is the purpose (IMO) for the question. For example, a person may stay in foreign country A for 5 months on a tourist visa, go to foreign country B for 4 months on a tourist visa, then on the foreign country C for 3 months on a tourist visa, all the while working remotely for a company in foreign country D for the entire year. Since they had no permanent residence in any of the countries or any tax obligation to those countries, they would not be allowed the FEIE on a bona fide residence basis. Bona fide residence allows the person to avoid the 330 day requirement of physical presence. Someone working and permanently resident in some Middle Eastern countries, for example, may have no local tax obligation but may meet the permanent residence requirement therefore allowing the FEIE.

TIGTA have issued several reports concerning people filing 2555 claiming FEIE,  but are doing so fraudulently or incorrectly by not qualifying for the required residence.  I forget which report it is, but here are 2 from the last 10 years:
https://www.treasury.gov/tigta/auditreports/2010reports/201040091fr.html
https://www.treasury.gov/tigta/auditreports/2013reports/201330112fr.pdf

When I first came to the UK it was on a one year work permit which could be extended after one year. At that time, the Frank Hirth tax people would put 'N/A' as a response to this question (as noted in the top line instructions for bona fide residence). As for an FLR visa (30 months?), it does have a time period, but that period can be transitioned to a further visa and ultimately ILR, so a time limited  non-residence visa abroad, as in the example of the transient worker in paragraph 3 above, doesn't come into consideration. (IMO)

I do agree there is no need to readdress a past filing to correct a response if the permanent residence requirements were met for that tax year.

In short, there may be a correct answer, but for someone on continuing FLR (IMO) the answer one way or the other (yes, no, N/A) may not really matter.

Welcome to IRS form filling ambiguous questions.

The OP has said she will be filing correctly for 2019 so the other question comes down to should she file a correction for 2018.

The link I posted from the IRS says that if there is no change to the tax being paid or refunded then no need to file a correction since it was a genuine mistake and filing a correction would cost the IRS (US taxpayer) money to process the correction. Since the OP uses TurboTax then it is only a few minutes work to not use form 2555 and see what difference, if any, it makes to the assessed tax. If the tax assessed is different from the 2018 filed return then for sure an amended return is needed.

To be absolutely certain of no comeback from the IRS even if no extra tax is due then the OP should file an amended return.

https://www.irs.gov/forms-pubs/about-form-1040x

 

Since the OP uses TurboTax then it is only a few minutes work to not use form 2555 and see what difference, if any, it makes to the assessed tax. If the tax assessed is different from the 2018 filed return then for sure an amended return is needed.

We must assume the OPs wife correctly qualified for 2555 for 2018, using the bona fide residence (since there was a response to the  question for 2018). In her case, the length of the visa has nothing to do with the correctness of filing 2555 and the response to the question, either yes or no, is unimportant under the circumstances. Why would they redo 2018 not using 2555 (unless to use 1116 instead)? Visas can change from year to year and as long as the residence requirements for 2555 bona fide were correct, and therefore the 2555 exclusion was correct, there would be no reason for the IRS to be interested in a change from yes to no, or vice versa, that will not alter the correctness of the filing.   

We must assume the OPs wife correctly qualified for 2555 for 2018, using the bona fide residence (since there was a response to the  question for 2018). In her case, the length of the visa has nothing to do with the correctness of filing 2555 and the response to the question, either yes or no, is unimportant under the circumstances. Why would they redo 2018 not using 2555 (unless to use 1116 instead)? Visas can change from year to year and as long as the residence requirements for 2555 bona fide were correct, and therefore the 2555 exclusion was correct, there would be no reason for the IRS to be interested in a change from yes to no, or vice versa, that will not alter the correctness of the filing.

I didn't assume anything since the op said they didn't know if they qualified for using the 2555 for 2018. Why do you think they did qualify?

Hi, thanks. So if we answered that question incorrectly in last year's filing, what can we do to fix it? Keeping in mind that her earnings are low enough at this point that form 2555 it would not have made a difference to the actual amount paid, I think.

I guess I am just so familiar with TurboTax that I would simply open up the return, fix the return by answering the question correctly, and if more tax is owed then send in an amended return.

PS - the OP said that they are doing it correctly for this year (2019) so last year is 2018 by my reckoning.

PS - the OP said that they are doing it correctly for this year (2019) so last year is 2018 by my reckoning.

Yes, there are two questions: was last years 2018 return correct and what is the answer to the TurboTax question for 2019?

Provided filing using 2555 bona fide residence was correct, I would bet serious hard cash that changing an answer to the Visa question 15c will not result in any other alterations to the 2018 tax return, but if 'yes', an explanation must be attached. The question doesn't appear in the physical presence test.

For 2019, the question as it's posed on the real, actual form 2555 is the same as usual:
"15c Did your visa limit the length of your stay or employment in a foreign country?"
It appears the variation to wording is from TurboTax. (From the OP:  "Does your vi(s)a limit the time you can work outside of the US".) You're the old hand at TT, so I'll let you recommend how to answer TT. Given the TT question, my suggestion would be to answer 'NO' or 'N/A'. A continuing FLR, and reapplications, doesn't limit time for working outside the US, unless the FLR is allowed to lapse completely during the relevant 2555 tax year and no further visa is obtained - anywhere in the world. Typical US-centric question from TT, but I would answer no or N/A if not using TT anyway.

Fun and games.

It is unclear why she is paying self-employment tax as this is not required. Is she filing Form 8858 to report so-called "Foreign Branch" activity?

It is unclear why she is paying self-employment tax as this is not required. Is she filing Form 8858 to report so-called "Foreign Branch" activity?

Hi. So we have not filled form 8858 because my wife has no limited-liability entity, or named or incorporated business in the UK. She merely does some work for a UK company over the web. The work does not constitute "employment", instead she is considered an independent contractor. The nature of the work is similar to Amazon's Mechanical Turk in some ways, but mainly revolves around doing social media moderation based on the training and standards provided by the company. So this is why she is paying the self-employment tax. This may be considered overkill by some, but better safe than sorry with the IRS!

As far as form 2555 is concerned, in 2018 my wife had been resident in the UK for over a year (she arrived in Feb 2017). The FEIE applies to any earned income, but doesn't reduce the self-employment tax amount, as you may know. The reason we filed this was to have this facility when she transitioned to full employment with higher income.

The OP has said she will be filing correctly for 2019 so the other question comes down to should she file a correction for 2018.

The link I posted from the IRS says that if there is no change to the tax being paid or refunded then no need to file a correction since it was a genuine mistake and filing a correction would cost the IRS (US taxpayer) money to process the correction. Since the OP uses TurboTax then it is only a few minutes work to not use form 2555 and see what difference, if any, it makes to the assessed tax. If the tax assessed is different from the 2018 filed return then for sure an amended return is needed.

To be absolutely certain of no comeback from the IRS even if no extra tax is due then the OP should file an amended return.

https://www.irs.gov/forms-pubs/about-form-1040x [nofollow]

Hi, thanks for your response. If you guys say that the answer to the question could be either, we may not change our answer to the question this year! In which case an amendment would not be necessary, correct?

Hi. So we have not filled form 8858 because my wife has no limited-liability entity, or named or incorporated business in the UK. She merely does some work for a UK company over the web. The work does not constitute "employment", instead she is considered an independent contractor. The nature of the work is similar to Amazon's Mechanical Turk in some ways, but mainly revolves around doing social media moderation based on the training and standards provided by the company. So this is why she is paying the self-employment tax. This may be considered overkill by some, but better safe than sorry with the IRS!

As far as form 2555 is concerned, in 2018 my wife had been resident in the UK for over a year (she arrived in Feb 2017). The FEIE applies to any earned income, but doesn't reduce the self-employment tax amount, as you may know. The reason we filed this was to have this facility when she transitioned to full employment with higher income.

Form 8858 was added to the requirements for individuals to file with effect from the 2018 US tax year.

What is required is:
1.   A US person
2.   Carrying out a “business”
3.   Where that business is located outside the United States

US courts have interpreted numerous kinds of activities to be a "business".  Whether a foreign branch operation exists is determined under all the facts and circumstances.  Because the IRS may take a different view from you or I as to whether a foreign branch exists, the cautious approach is to file Form 8858.