I and my spouse have recently been granted green card under family sponsored programme. I am about 80 years and my spouse is about 75 years old. We are citizens of India having worked there till retirement. We have an apartment in India and we have investments in bank deposits which earn interest of about $ 26,000 per annum. It includes dividend income from Indian companies of $ 300. We file income tax returns in India individually and pay taxes there. We have no income in the United States. We are staying with our children who are US citizens. We may go back to India next year and by which we do not lose the resident status there. At the same time we satisfy the 183 days rule in the US. We have no earned income in India except that my spouse gets government pension which is equivalent to about $ 3000 and it is included in the aforesaid income of $ 26,000. The total taxes we paid in July 2013 in India amounts to about $ 1000. We have no insurance in the US. We wish to know the following:
(i) Whether the interest, dividend and pension income of $ 26,000 is exempt from tax in the US?
(ii) Have we to file a tax return in the US in 2013 and if so in which form.
(iii) Where should we disclose the foreign income of $ 26,000 in the tax return?
(iv) If there is a tax liability, what is the amount of such liability?
(v) Can we use the currency exchange rate to be notified by the treasury in December 2013 for converting the foreign income?
(vi) Is there is any other obligation apart from reporting our foreign assets to the treasury?

#1;NO; as you mentioned, QUOTE,” I and my spouse have recently been granted green card under family sponsored programme.”as US residents, you are subject to US taxes, fed and state taxes on your US source and world wide income(I mean your income that you /your spouse earn in India).However, since you paid taxes to Indian taxing authority(ies) on your income that you/your spouse earned in India, you may claim foreign tax credit on your US returns on the taxes that you paid to India. The foreign tax credit is intended to reduce the double tax burden that would otherwise arise when foreign source income is taxed by both the US and the foreign country from which the income is derived. Four tests must be met for the tax to qualify for the credit:
1. The tax must be a legal and actual foreign tax liability;2.The tax must be imposed on you;3.You must have paid or accrued the tax, and;4.The tax must be an income tax (or a tax in lieu of an income tax). Qualified foreign taxes do not include taxes that are refundable to you, that are used to provide a subsidy to you or someone related to you. To choose the deduction, you must itemize deductions on Form 1040, Schedule A. To choose the foreign tax credit you generally must complete Form 1116 and attach it to your Form 1040 . HOWEVER, as long as you are CA full residents, then you can’t deduct capital gain tax that you paid to India on your CA return, so in CA, residents are subject to double taxation on their capital gain income. As you are a cash basis taxpayer you can only take the foreign tax credit in the year you pay the qualified foreign tax unless you elect to claim the foreign tax credit in the year the foreign taxes are accrued. Once you make this election, you cannot switch back to claiming the taxes in the year paid in later years.
NOTE:you can claim the credit for qualified foreign taxes without filing Form 1116 if all of your foreign source income is passive income, such as interest and dividends; All of your foreign source income and the foreign income taxes are reported to you on a qualified payee statement, such as Form 1099-INT or Form 1099-DIV , and the total of your qualified foreign taxes is not more than the limit given in the Form 1040 Instructions for the filing status you are using, $21K+additional std deduction for 2013.If you claim the credit directly on Form 1040 without filing Form 1116, you cannot carryback or carryover any unused foreign tax to or from this year.

#2;As mentioned above, you, as US residents , must file your US returns, fed and state, on your world wide income that you/your spouse earned in India.UNLESS you itemize deductions on Sch A , you may file short form of 1040A;however, if you do not qualify to use Form 1040A, then you can file a form 1040. Form 1040A is for less-complicated tax returns, so it is easier to use. If you can qualify for Form 1040A, you should use it.

#3;As long as you claim your FTC on form 1116then you need to report in on form 1116 and on form 1040/1040A.


#4;Sorry I can’t tell the amount of tax liability because you may claim your FTC on your US returns since you paid taxe to India.


#5;You need to use/apply weighted average foreign currency rate between US $ and Indian Rupee.



#6;As US residents, you are required to file an FBAR, TD F 90.22-1, if you had a financial interest in or signature authority over at least one financial account located outside of the US and the aggregate value of all foreign financial accounts exceeded $10K at any time during the calendar year to be reported.A US resident who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.The FBAR is a calendar year report, which must be filed with the Department of Treasury on or before June 30 of the year following the calendar year reported. Generally, extensions of time to file an FBAR are not granted. The FBAR is not filed with a federal tax return. Any filing extensions of time granted by the IRS to file a tax return does not extend the time to file an FBAR. A person required to file an FBAR who fails to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10K per violation for violations that are not due to reasonable cause. If non-willful, up to $10K; if willful, up to the greater of $100K or 50 percent of account balances; criminal penalties may also apply. ALSO, taxpayers with specified foreign financial assets that exceed certain thresholds($50K on the last day of the tax year or $75K at any time during the tax year (higher threshold amounts apply to married individuals filing jointly and individuals living abroad)must report those assets to the IRS on Form 8938, which is filed with an income tax return. The new Form 8938 filing requirement is in addition to the FBAR filing requirement.

Up to $10K for failure to disclose and an additional $10K for each 30 days of non-filing after IRS notice of a failure to disclose, for a potential maximum penalty of $60K; criminal penalties may also apply. Questions regarding the FBAR can be sent to [email protected].

NOTE: on Jan 9, 2012, the IRS reopened the Offshore Voluntary Disclosure Program following continued interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program offers people with unreported taxable income from offshore financial accounts or other foreign assets another opportunity to resolve their tax and information reporting obligations, including the FBAR. Although the program does not have a closing date, the IRS may end the program at a later time. Help in completing the FBAR is available Monday through Friday, 8 a.m. to 4:30 p.m. Eastern Time, at 866-270-0733 (toll-free inside the U.S.) or 313-234-6146 (not toll-free, for callers outside the U.S.).