My wife and I run an LLC in CA. I am a citizen and my wife is French with a permanent resident card. We are equal members of our LLC Partnership. I filed with TurboTax for our business and when asked if my wife was a US Citizen, I said no since she isn't. I then got a notice from the IRS saying we may be required to file other forms such as forms 8804, 8805, and 8813. I am trying to determine if I need to file those and if I filed with TurboTax correctly on that question. Thank you for any help!
Taking form 8804 for example, a US permanent resident is not considered a "foreign person" according to the instructions.
As to your course of action, it could be to respond to the notice, to keep the notice without responding, and/or to file an amended return. It would depend on what the notice says and what your return contained.
You should not count your wife as a foreign person in this case. Yes turbotax is wrong (IMO), it should ask US person and not citizen.
Determining if a Partner Is a Foreign Person
A partnership must determine if any partner is a foreign partner subject to section 1446. A foreign partner (as defined in section 1446(e)) is any partner who isn't a U.S. person, as defined in section 7701(a)(30). As such, a foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust or estate, or a foreign organization described in section 501(c).
U.S. citizens are automatically U.S. persons under Internal Revenue Code (IRC) section 7701(a)(30)(A), but noncitizens are only U.S. persons if they are U.S. residents (i.e., resident aliens).
Under IRC section 7701(b), a resident alien is either
- a lawful permanent resident (i.e., a green card holder) or
- an individual who is “substantially present” in the United States. (Under certain circumstances, an individual can also elect to be treated as a U.S. resident.)
Substantial presence is based on day count; if an individual is present in the United States at least 31 days in the current year and the sum of 1) the days that individual is present in the United States during the current tax year, 2) one-third of the days that individual is present in the United States during the first preceding tax year, and 3) one-sixth of the days that individual is present in the United States during the second preceding tax year equals or exceeds 183, then that individual is substantially present in the United States.