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tax2020return
Returning Member

Claiming standard deduction for F-1 OPT student visa under U.S-India Tax Treaty

Hello,

 

I was on my F-1 OPT visa including cap gap from July 2017 - Sept 2018 & my H-1B commenced from Oct 2018.

I had filled 1040NR for that year and claimed for standard deduction as per the U.S-India tax treaty.

 

However, I received a Notice of Deficiency from IRS for claiming this standard deduction on my 1040NR.

I filled for my petition and am currently in talks with the IRS Appeals Officer.

 

The Appeals Officer is stating that since I had already graduated in 2017, & my "primary purpose" of stay was not education in 2018 (as I was employed & earning compensation on my F-1 OPT), I cannot avail the tax treaty.

It seems like the negotiation with Appeals Officer is not working out & I might need to go to the U.S Tax Court to handle this.

 

I need help with some useful information/resources which supports my case as the treaty does not clearly define the term "student".

 

 

6 Replies
pk
Level 13
Level 13

Claiming standard deduction for F-1 OPT student visa under U.S-India Tax Treaty

@tax2020return ,  the US-India tax treaty  ONLY allows for equal treatment for the Indian "student" i.e.  treat just like US "student".   US F-1 visa requires compliance with  "student" requirement.  In your case for the year 2018 you were on F-1 and then Oct. through  Dec  on H-1B.  Thus the question about treating you as a student.  One could  argue that you were a student because of the visa  ( F-1 ) but IRS would argue that since you were on CAP-GAP, you were effectively working as an employee ( not trainee ) because  you had applied for . approved  for H-1B.  It is not a battle worth having.

 

If your whole aim is to be able to use the standard deduction, it would be far easier to  exercise the first year choice for year 2018, file an amended  1040 return and thereby achieve your goal without raising the heckles  of the IRS.  That is my view

tax2020return
Returning Member

Claiming standard deduction for F-1 OPT student visa under U.S-India Tax Treaty

If I go for first year choice, won’t I be considered a dual status person.

Can a dual status person get standard deduction?

 

pk
Level 13
Level 13

Claiming standard deduction for F-1 OPT student visa under U.S-India Tax Treaty

@tax2020return  dual status person needs to file both a 1040 ( covering the  world income  for the resident portion of the year  ) and  1040-NR ( covering the Non-Resident portion of the year  and on US sourced/connected  income ). The only deduction available to such person is  Itemized  deduction.

 

What you are asking for is to be considered a resident for the whole year , be taxed on your world income for the whole year and thus avail yourself of the standard deduction.

 

Does that make sense ?

tax2020return
Returning Member

Claiming standard deduction for F-1 OPT student visa under U.S-India Tax Treaty

Yes,

But then would we be liable to pay FICA (social security/medicare) taxes that aren’t liable under 1040 nr?

 

pk
Level 13
Level 13

Claiming standard deduction for F-1 OPT student visa under U.S-India Tax Treaty

@tax2020return ,  I don't think so  --- as long as you are  with F-1 and in required training as part of your education, there is no FICA.   The question  would be  were you an employee or a trainee --- an employee is subject to FICA whereas a trainee is not.  Once you are H-1B, you are an employee and therefore FICA is obligatory

tax2020return
Returning Member

Claiming standard deduction for F-1 OPT student visa under U.S-India Tax Treaty

I came on H1 on Oct 1 2018. Before that i was on F1 so i was an exempt individual until then. As I understand the date from which i can apply the first choice rule would be Oct 1, correct?

so I will be a dual citizen in that case.

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