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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
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Experience:  15years with H & R Block. Divisional leader, Instructor
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Residents of Puerto Rico do not have the obligation of filing

Resolved Question:

Residents of Puerto Rico do not have the obligation of filing form 1040 unless theya re Federal employees. Can a US citizen residing in a place where he is not obliged to file the 1040 do so voluntarily and is the IRS obliged to process it? Can a US citizen claim he has a RIGHT to pay taxes irrespective of where he lives of if he is obliged or not?
Submitted: 2 years ago.
Category: Tax
Expert:  Megan C replied 2 years ago.
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

If you are a US Citizen, you are taxed on your worldwide income regardless of where you live. You are still required to file a 1040 annually, so doing so is still your obligation - even if you are living somewhere that you are not required to fill out a 1040 for.

So, the IRS isn't going to not process your return - in fact, if you didn't file one you'd get a notice from them.

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Customer: replied 2 years ago.


Incorrect. Residents of Puerto Rico are exempt from filing the 1040 for any income not derived from business in the States or salaries paid by the FEderal Government. The only Fedral tax the average taxpayer pays is Social Security. Your answer may be correct in general terms but Puerto Rico was statutorily exempt. My question is not about MY obligation as I certainly do not have any, but if I have the RIGHT to file even if I am exempt and if the IRS is obliged to process it.


I do not know of any case this has happened as people try to avoid filing instead on insisting on filing when they do not have the duty to do so. The question is: can the IRS refuse to process as any other tax filing a tax return filed by a resident of Puerto Rico?

Expert:  Megan C replied 2 years ago.
If you feel inclined to file a tax return, the IRS is not going to refuse to process it. They will definitely take your check.

** Please take a moment to rate my response as "Excellent" so that I may be compensated for assisting you today. Please let me know if my assistance was anything less than "OK Service", as I am compensated based on whether or not I have assisted you with your issue. If you need further clarifications, PLEASE WAIT TO RATE MY ANSWER UNTIL AFTER RECEIVING FOLLOW UP FROM ME. If I receive anything less than OK Service, I do not get paid, but the Web site will still collect your payment. Thank you for your kind understanding in this matter. If you have difficulties rating, then simply respond stating that you are having difficulties rating and thank me for my excellent, good, or ok service and we can get the rating applied by the site**
Expert:  Robin D. replied 2 years ago.

Hello and thank you for using Just Answer,

can the IRS refuse to process as any other tax filing a tax return filed by a resident of Puerto Rico?

No, as long as the person is also a US Citizen or a Resident Alien of the US.

If you are a U.S. citizen or resident alien and also a bona fide resident of Puerto Rico during the entire tax year, you generally must file the following returns.

  • A Puerto Rico tax return reporting income from worldwide sources. If you report U.S. source income on your Puerto Rico tax return, you can claim a credit against your Puerto Rico tax, up to the amount allowable, for income taxes paid to the United States.

  • A U.S. tax return reporting income from worldwide sources, but excluding Puerto Rico source income. There are Special Rules for Puerto Rico and an exception.

    If you are excluding Puerto Rico income on your U.S. tax return, you will not be allowed any deductions or credits that are directly or indirectly allocable to exempt income.

  • If all of your income is from Puerto Rico sources, you are not required (does not say not allowed) to file a U.S. tax return.

You stated "Residents of Puerto Rico are exempt from filing the 1040 for any income not derived from business in the States or salaries paid by the FEderal Government".

US citizens my exclude income but still must file a 1040 return. Wages and cost-of-living allowances paid by the U.S. Government (or one of its agencies) for working in Puerto Rico are subject to Puerto Rico tax. However, the cost-of-living allowances are excluded from Puerto Rico gross income up to the amount exempt from U.S. tax. In order to claim this exclusion, you must:

  • Include with your Puerto Rico tax return evidence to show the amount received during the year, and

  • Be in full compliance with your Puerto Rico tax responsibilities.

 

These wages are also subject to U.S. tax, but the cost-of-living allowances are excludable. A foreign tax credit is available in order to avoid double taxation.

 

The first tax expert was not incorrect as a US citizen must file both but their residency determines how the income is treated for both as well as the source of the income.

 

Customer: replied 2 years ago.

These two quotes are from your answer:


"If all of your income is from Puerto Rico sources, you are not required (does not say not allowed) to file a U.S. tax return."


 


and,


 


"US citizens my exclude income but still must file a 1040 return."


 


The first quote I know to be correct (except the part within parenthesis that is THE issue.


 


The second quote is not applicable. US citizens do not have to file the 1040 if they are residents of PR and all their income is from PR. That I also know.


 


The issue is: If I reside in Puerto Rico and all income is derived from there, and I decide to voluntarily file my 1040, is the IRS obliged to process it?


 


In part of your answer you stated: "If you feel inclined to file a tax return, the IRS is not going to refuse to process it. They will definitely take your check."


But its not that easy because the 1040 might show that I do not owe any taxes but because of the EIC, the Child Tax Credit and the Additional Child Tax Credit the IRS might be the one sending a check! That is why the question is: Can the IRS refuse to receive a 1040 from a resident of Puerto Rico whose total income is derived from PUerfto Rican Sources.


I return to your previous statement:" If all of your income is from Puerto Rico sources, you are not required (does not say not allowed) to file a U.S. tax return."


But one thing is to be allowed and another to be obliged. Can the IRS refuse?


 


 

Expert:  Robin D. replied 2 years ago.

Hello again,

Let me clear something up first. The first expert advised

"If you feel inclined to file a tax return, the IRS is not going to refuse to process it. They will definitely take your check." You have received 2 responses from 2 different experts.

 

Your concerns are much more clear now with your inclusion of the following:
"But its not that easy because the 1040 might show that I do not owe any taxes but because of the EIC, the Child Tax Credit and the Additional Child Tax Credit the IRS might be the one sending a check!"

The IRS will process and correct a return you send. Generally, if you are a bona fide resident of a U.S. possession, you cannot claim the EIC on your U.S. tax return. However, certain U.S. possessions may allow bona fide residents to claim the EIC on their possession tax return.To claim the EIC on your U.S. tax return, your home (and your spouse's if filing a joint return) must have been in the United States for more than half the year. If you have a child, the child must have lived with you in the United States for more than half the year. For this purpose, the United States includes only the 50 states and the District of Columbia. Special rules apply to military personnel stationed outside the United States. For more information on this credit, see Publication 596, Earned Income Credit.

Child Tax credit is determined on your Modified Adjusted Gross Income. For purposes of the child tax credit, your modified AGI is your AGI plus the following amounts that may apply to you.

  • Any amount excluded from income because of the exclusion of income from Puerto Rico. On the dotted line next to Form 1040, line 38, enter the amount excluded and identify it as "EPRI." Also attach a copy of any Form(s) 499R-2/W-2PR to your return.

  • Any amount on line 45 or line 50 of Form 2555, Foreign Earned Income.

  • Any amount on line 18 of Form 2555-EZ, Foreign Earned Income Exclusion.

  • Any amount on line 15 of Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa.

 

If you do not have any of the above, your modified AGI is the same as your AGI.

So in short, if you are resident of PR you are not allowed to claim EIC on your US tax return and the Child Tax Credit is handled differently too. The IRS will not refuse to process but they will refuse a credit that someone is not entitled to under US tax law.

 

The first quote I know to be correct (except the part within parenthesis that is THE issue.

The return can be filed and the IRS will process but they will correct if necessary.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer: replied 2 years ago.

Excellent! You just confirmed what I thought,

Expert:  Robin D. replied 2 years ago.
I am glad you are satisfied and I thank you in advance for a positive rating, as long as you realize that any EIC on a US return filed by a PR resident will not be allowed then you are welcome.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7847
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D.
Robin D.
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15years with H & R Block. Divisional leader, Instructor