Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 73-62

1973-1 C.B. 56

Sec. 151

IRS Headnote

An alien whose status changed during the year from nonresident engaged in trade or business in the U. S. to resident alien may claim additional exemptions limited to his earnings while a resident alien but may not use the optional tax table; I.T. 3926 superseded.

Full Text

Rev. Rul. 73-62 /1/

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in I.T. 3926, 1948-2 C.B. 48.

The question presented is whether, under the circumstances described below, the change of the taxpayer's nonresident alien status to a resident alien during the calendar year 1972 will affect his dependency exemptions for such year, and whether the taxpayer may compute his Federal income tax liability pursuant to the provisions of section 3 of the Internal Revenue Code of 1954.

The taxpayer is a citizen of a country which is not a contiguous country to the United States. The taxpayer's status changed on November 1, 1972, from that of a nonresident alien individual engaged in a trade or business within the United States to that of a resident alien individual. The taxpayer is married and has one child. The taxpayer's entire income for 1972 consisted of salary ($700 per month for a total of $8,400) received for services performed in the United States.

In his Form 1040, U.S. Individual Income Tax Return, for 1972 the taxpayer reported his salary, which constituted his entire income, claimed total exemptions of $2,250 for himself, his wife (who had no income), and his dependent child, and computed the tax pursuant to section 3 of the Code.

Section 3 of the Code provides optional tax tables for individuals who elect to use such tables in lieu of tax imposed by section 1 of the Code.

Section 4(d) of the Code provides, in part, that section 3 of the Code shall not apply to a nonresident alien individual. Section 142(b)(1) of the Code provides that the standard deduction shall not be allowed in computing the taxable income of a nonresident alien individual.

Section 151(b) of the Code provides an exemption of $750 (for taxable years beginning after December 31, 1971) for a taxpayer, and an additional exemption of $750 for the spouse of the taxpayer. Section 151(e) of the Code provides an exemption of $750 for each dependent, as defined in section 152 of the Code.

Section 152(b)(3) of the Code provides, in part, as follows:

(3) The term "dependent" does not include any individual who is not a citizen of the United States unless such individual is a resident of the United States, of a country contiguous to the United States, of the Canal Zone, or of the Republic of Panama.

Section 873(b)(3) of the Code, which pertains to deductions allowed to a nonresident alien individual, provides that the deduction for personal exemptions allowed by section 151 of the Code shall apply, except that in the case of a nonresident alien individual who is not a resident of a contiguous country only one exemption shall be allowed under section 151 of the Code.

In the case of a taxpayer who, during the taxable year, changes his status from that of a nonresident alien to that of a resident alien, or from that of a resident alien or citizen to that of a nonresident alien, the Federal income tax with respect to income for the period during which the taxpayer was a nonresident alien must be computed pursuant to the provisions of law relating to such individuals, whereas the tax with respect to income for the period during which the taxpayer was a resident alien or the provisions relating to them. See citizen must be computed pursuant to Revenue Ruling 64-60, 1964-1 (Part 1) C.B. 84.

The taxpayer in the instant case, a nonresident alien individual, engaged in trade or business in the United States for the first 10 months of 1972 is subject to Federal income tax in accordance with the provisions of section 871(b) of the Code which imposes a tax on nonresident alien individuals and, in accordance with section 873(b)(3) of the Code, is entitled, insofar as the period during which he was a nonresident alien individual is concerned, to an exemption for himself only. However, as a resident alien individual for the last two months of 1972 he is entitled to additional exemptions for his wife and dependent child. However, these exemptions, not required to be apportioned cannot exceed the taxpayer's taxable income for the period during which he was a resident alien. The taxpayers taxable income for that period amounted to $1,400. To allow more than that amount would in effect give the taxpayer more than one exemption for the period during which he was a nonresident alien.

Section 4(d) of the Code provides, in part, that section 3 of the Code shall not apply to a nonresident alien individual. Thus, even though the taxpayer's status changed from a nonresident alien individual to a resident alien individual, he may not elect to use section 3 of the Code to compute his tax liability as indicated above. The taxpayer must, on the same return, (see Revenue Ruling 56-365, 1956-2 C.B. 934), compute his Federal income tax liability for the first 10 months of the year pursuant to the provisions of section 871(b) of the Code and for the last two months under the applicable provisions relating to a resident alien individual or citizen. A nonresident alien is prevented by section 142(b)(1) of the Code from using the standard deduction.

Accordingly, the total exemptions allowable to the taxpayer in respect to his wife and dependent child cannot exceed $1,400. Further, the taxpayer is not entitled to determine his tax liability for 1972 under section 3 of the Code.

I.T. 3926 is hereby superseded, since the position stated therein is restated under the current law in this Revenue Ruling.

/1/ Prepared pursuant to Rev. Proc. 67-6, 1967-1 C.B. 576.