The Foreigner and the Taxman: Are You “Married” for US Income Tax Purposes?

Life gets confusing when you’re an American and you’ve married a “foreigner”.  Aside from the cultural and social differences you may encounter, you cannot forget that your US tax situation will now become even more complex.  Many of my tax blog posts explain the thorny side of filing US income tax returns, FBARs and various information returns when one is married to  a non-resident alien (NRA) spouse.  Two of those posts are here and here. 

Many individuals who come to see me mistakenly believe that they can use the status “married filing jointly,” or MFJ, with the NRA spouse by simply ticking the relevant box on the tax return.  When married to an NRA, however, more is required to use the MFJ filing status.  Others are under the mistaken belief they can file the income tax returns as a “single” individual if they are married to an NRA spouse. This is incorrect.  You cannot file as a “single” individual if you are considered to be legally married.

My recent post explains the special election one can make using Internal Revenue Code Section 6013(g) which permits the US person to file a joint tax return with the NRA spouse – essentially the election  permits one to treat the foreign spouse as a US “resident” for income tax purposes. Without this election (or the spouse actually being a US “resident”, for example, under the “substantial presence” test), filing jointly would not be permitted. My earlier posts discuss how filing jointly with a non-US spouse can be very advantageous in some cases. Yes it is true, even though most clients cannot imagine that this might ever be a good idea.  In addition to better tax rates, there are many other tax advantages to filing a joint tax return with your spouse. Joint filers have a significantly higher standard deduction then the individual who is married filing separately, allowing the couple to deduct a significant amount of their income immediately.  Furthermore, couples who file jointly can often qualify for multiple tax credits such as the so-called Earned Income Tax Credit, American Opportunity and Lifetime Learning Education Tax Credits Exclusion and the Child and Dependent Care Tax Credit (or the credit for adoption expenses).

Are You “Married?”

As I said, life gets confusing when you’re an American and you’ve married a foreigner.  This complexity can sometimes include the conundrum whether you and your foreign spouse are even considered “married” in the first place. That is, are you “married” as defined by the US tax laws?  If you are not considered to be “married”, for example, then you cannot use the MFJ filing status.

What does it mean for US tax purposes to be “married”?   What if you have been married in a foreign country, does it count for US tax purposes? What if you married in a foreign country but you have never registered your foreign marriage with any US State?  These questions are so vexing that we have Internal Revenue Service (IRS) Treasury Regulations in place to help answer them!

In 2016 the IRS issued final regulations clarifying the definitions of “spouse,” “husband,” “wife,” and “husband and wife” for federal tax purposes. The final regulations now define “spouse,” “husband” and “wife” as any individual lawfully married to another individual, and “husband and wife” as any two individuals lawfully married to each other, regardless of the individuals’ sex.  (As an aside, this clarification was needed after the US Supreme Court ruled in Obergefell v. Hodges in 2015 that state prohibitions on same-sex marriages violated the Equal Protection clause of the US Constitution).  The issue of foreign marriages was also addressed in these regulations and is found in a separate rule contained in Treasury Regulation Section 301.7701-18(b)(2).

Foreign Marriages

To clarify how foreign marriages will be recognized for federal tax law purposes the special rule provides that two individuals entering into a relationship denominated as “marriage” under the laws of a foreign jurisdiction are married for federal tax purposes if the relationship would be recognized as marriage under the laws of at least one state, possession, or territory of the United States. This rule enables couples who are married outside the United States to determine marital status for federal tax purposes, regardless of where they are domiciled and regardless of whether they ever reside in the United States. While this rule requires couples to review the laws of the various US states, possessions, and territories to determine if they would be treated as “married”, it is sufficient if they would be treated as married in a single jurisdiction.  There is no need to consider the laws of all of the 50 states, the territories, and possessions of the United States (thank goodness!). However, for the couple to have to determine that the laws of at least one of these would be satisfied is in and of itself, a significant burden.

The foreign marriage rule also incorporates the “place of celebration” as the reference point for determining whether the legal relationship is a marriage or a legal alternative to marriage. This rule recognizes only legal relationships denominated as “marriage” under foreign law as eligible to be treated as “marriage” for federal tax purposes. In other words, a couple intending to enter into a legal alternative to marriage will not be treated as “married” for US tax purposes.

Sharia Marriages

From a US tax perspective things can get tricky when multiple Sharia marriages are in place, especially when the marriage took place outside of America.  While a Muslim man can contract religious Sharia-compliant marriages with up to four women in accordance with the Sharia regulations, only one relationship will be officially recognized as a “marriage” as far as US tax law is concerned.

For US tax purposes, following the above rule, a legal marriage is one that is officially recognized by the government in the country where the marriage took place and would be recognized as marriage under the laws of at least one state, possession, or territory of the United States.  In most Muslim countries, a marriage has to be registered.  Thus, determining which marriage is the legally recognized one from the US perspective will require understanding the law(s) of the place(s) where the marriage(s) took place in order to determine if those laws were satisfied and then to examine if the marriage meets the US laws of at least one US state, possession or territory. The first marriage that meets both prongs of the legal requirements would be the legally recognized marriage in the eyes of the US tax law.

Sharia and US tax law have many instances wherein the two collide.  I have written a detailed paper on this topic, published in Tax Notes International. It can be accessed here.

Let’s Not Talk About Divorce….

OK, let’s assume you are “married” as that term is defined for US tax purposes.  Life goes on and eventually the honeymoon ends, reality kicks in and leads you and your foreign spouse to divorce court. As if divorce were not a stressful enough time, the complexities of the US tax rules when a non-US spouse is involved just make it all the more difficult. Of course, foreign divorces can add further legal complexity to the mix and professional help should always be sought. From the US tax side, there will be major considerations for those paying or receiving alimony; there are also numerous tax implications in dividing up properties.  These topics are discussed in earlier blog posts and can be found here and here.

Conclusion

In summary, if you are a US person and are marrying or divorcing and foreign laws are implicated in any way, you have US tax issues to consider. Contact me to arrange a consultation.

Posted on April 11, 2019

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