I have a client who has a nonresident, alien spouse and they elected to file with him as a resident alien and applied for an ITIN in conjunction with their filing.  All good so far. Now we have the ITIN and it´s time to file the state returns.

The taxpayer is filing in two ¨states,¨ Arizona and the District of Columbia.  The couple was not married during the period that corresponds with the Arizona residency.  The taxpayer is a foreign service officer who was assigned to Canada during that time but Arizona taxes all domiciliaries on worldwide income regardless of location as residents.  Arizona allows married filing separately even for taxpayers who file jointly on their federal returns. DC allows the same.

The taxpayer´s spouse earned income in Canada, paid taxes in Canada, filed his Canadian tax return.  He also has a first year, loss generating Schedule C business in Canada, and has a Schedule E rental property which had positive net income.  The couple was better off with the election and MFJ status than the other options (MFS, etc). The couple got a ¨court house¨ wedding mid year which corresponded with the taxpayer´s reassignment from Canada to DC.

The question is this:  Can the taxpayer file both state-level returns as married filing separately given this set of facts?  As a follow-on question, if she does, and the spouse never files a DC state-level tax return, will there be a problem?  The spouse has no nexus with Arizona -- they were not married during that time frame.