Sole Abrahamsen, a green card holder, and her husband, Clifford Abrahamsen were the Petitioners in 142 T.C. No. 22, decided on June 9, 2014.
This green card holder and her husband had not declared her wages from work at the Finnish Mission to the United Nations on several years of tax returns. When queried, they claimed the wages were exempt from U.S. income tax under one or another exception.
Green cards holders (resident aliens) are taxed the same as U.S. citizens: gross income “from whatever source derived”, IRC 61(a), minus exemptions, adjustments, deductions, credits or other items allowed in the tax code to determine taxable income and tax liability, as provided in IRC 62, 63, 67, and 68, code sections on credits, and treaties that provide for exemptions. The tax code recognizes treaties as equivalent authority by IRC 894 and IRC 7852(d).
The plaintiffs cited several reasons why the wife’s wages were not taxable:
- The U.S. tax code: IRC 893(a) or 7701(b)(5)(B). Taxpayers often must show that the other country could and would offer equivalent tax treatment to a U.S. citizen or resident.
- Three treaties:
- The U.S.- Finland Tax Treaty
- The Vienna Convention on Diplomatic Relations
- The Vienna Conventions on Consular Relations
- And the International Organizations and Immunities Act
The June 9, 2014, U.S. Tax Court ruling analyzed the petitioners’ arguments and dismissed each one as not applicable.
The court summarized its ruling:
Held: I.R.C. sec. 893 does not apply to wages P-W (plaintiff’s wife) received from the Mission during 2004-09 because she had previously executed a valid waiver of rights, privileges, exemptions, and immunities.
Held, further, neither the U.S.-Finland tax treaty, the Vienna Convention on Diplomatic Relations, the Vienna Convention on Consular Relations, nor the International Organizations Immunities Act provides an income tax exemption to permanent U.S. residents working in nondiplomatic positions for international organizations.
Click below for the full text of the Tax Court ruling: https://www.ustaxcourt.gov/InOpHistoric/AbrahamsenDiv.Lauber.TC.WPD.pdf
The court explained its ruling on the various claims as follows:
IRC Section 893: It sets the criteria for excluding foreign government and international organization compensation from U.S. taxation. Taxpayers often must show that the other treaty signatory country could and would offer equivalent tax treatment to a U.S. citizen or resident.
The IRS produced a copy of the original I-508 waiver signed by the plaintiff. By signing the waiver, an individual working in the U.S. under visa A, G or E (treaty trader or investor) states that they wish to become a lawful permanent resident alien and so are giving up any rights, privileges and exemptions associated with that work status.
The court ruling stated:
“petitioners cite no statute or judicial precedent to support their assertion that we can ignore a validly executed waiver. We accordingly conclude that the waiver was effective as of January 29, 1992. All income that Ms. Abrahamsen received from the Mission after that date is ineligible for the section 893 exemption and is subject to Federal income tax unless some other exemption applies. See Ying v. Commissioner, 99 T.C. 273, 293 (1992)”
U.S. – Finland Treaty
The savings clause in the treaty made the wages paid by the Finnish mission to the plaintiff’s wife taxable by the country where the petitioner was resident, despite the provisions of any other treaty article, such as the one on government work.
The Tax Court opinion stated:
“Specifically, petitioners contend that tax exemption is afforded by article 19 of the Treaty, which concerns remuneration received for “Government Service.” “Article 1, paragraph 3 of the Treaty contains a “saving clause” that over-rides certain of its other provisions. This saving clause provides that “[n]otwithstanding any provision of the [Treaty] except paragraph 4, a Contracting State may tax a person who is treated as a resident under its taxation laws.” Treaty, Tax Treaties (CCH) para. 2945.01, at 73,011. Article 1, paragraph 4 states that benefits conferred under article 19, dealing with government service, are unaffected by the saving clause, but only in the case of “individuals who are neither citizens of, nor lawful permanent residents in, that State.” Ibid.
“During the years at issue Ms. Abrahamsen was a “lawful permanent resident in” the United States, and the exclusion set forth in article 1, paragraph 4, does not apply. The saving clause is thus operative, and it authorizes the United States to tax any person “who is treated as a resident under its taxation laws.” As a permanent resident, Ms. Abrahamsen was a “resident” for U.S. tax purposes. See sec. 7701(b)(1)(A)(i). Thus, regardless whether her compensation from the Mission was derived from “Government Service” within the meaning of article 19, her wages were subject to Federal income tax under the saving clause. 3
3 The Treaty was amended in 2006. See 2006 Protocol to the 1989 U.S.-Fin. Income Tax Treaty, May 31, 2006, Tax Treaties (CCH) para. 2946. This amendment, which applies to petitioners’ Federal income tax liabilities for 2008-09, see id. art. IX, does not affect the analysis. Under the 2006 amendment, the United States may tax Ms. Abrahamsen as a “resident.” See id. arts. I and II. Because she was a U.S. permanent resident during 2008-09, she is covered by the saving clause. See id. art. I(4) and (5).
Diplomatic Status
The Vienna Conventions provide many protections for diplomats and consuls. The Court found that Ms. Abrahamsen was neither one.
“Petitioners argue that Ms. Abrahamsen’s wages were exempt from taxation pursuant to other provisions of international law. Central to these arguments is the assertion that Ms. Abrahamsen held diplomatic status for the years at issue. Petitioners provide no support for this assertion. Rather, they simply describe her duties and conclude that her “position with the Mission is clearly diplomatic in nature.”
“The evidence respondent provided shows this assertion to be incorrect, at least for U.S. tax purposes. During the relevant period Ms. Abrahamsen was employed by the Mission as either an adviser or an attaché. The United Nations did not notify the United States that she held a diplomatic title with regard to either position, and her name did not appear on the List of Officers Entitled to Diplomatic Privileges and Immunities maintained by the U.S. Mission to the United Nations. Concluding as we do that Ms. Abrahamsen did not have diplomatic status or rank, we address petitioners’ arguments briefly.
Petitioners posit that article 34 of the Vienna Convention on Diplomatic Relations (VCDR) exempts Ms. Abrahamsen’s wages from taxation. Convention on Diplomatic Relations and Optional Protocol on Disputes, U.S.-Vienna, Apr. 18, 1961, 23 U.S.T. 3227. However, article 34 applies only to a “diplomatic agent.” Article 1 of the VCDR defines a “diplomatic agent” as a “head of the mission or a member of the diplomatic staff of the mission.” “Diplomatic staff” is defined to mean “the members of the staff of the mission having diplomatic rank.” Because Ms. Abrahamsen did not have diplomatic rank, she was not a “diplomatic agent” under the VCDR, and article 34 therefore did not exempt her wages from taxation. 4
4 There is no merit to petitioners’ suggestion that article 49 of the Vienna Convention on Consular Relations (VCCR) exempts Ms. Abrahamsen’s wages from U.S. tax. The VCCR does not apply to the Mission. See City of New York v. Permanent Mission of India to United Nations, 533 F. Supp. 2d 457, 460 (S.D.N.Y. 2008) (holding that “[t]he tax status of the consular portions of the premises is controlled by Article 32 of the Vienna Convention on Consular Relations” and that “[t]he tax status of the U.N. Mission portions of the premises is controlled by the Vienna Convention on Diplomatic Relations”), rev’d on other grounds, 618 F.3d 172 (2d Cir. 2010).
International Organization and Immunities Act This U.S. law provides for the rights, privileges and immunities, including exemptions from certain taxes, enjoyed by international organizations and their staff members who are not residents, and/or, in a few case, not citizens, of the country where they are located. These are similar to the rights, privileges, and immunities accorded to foreign government officials.
The court ruling states:
“Petitioners next argue that Ms. Abrahamsen’s wages are exempt from tax pursuant to the International Organizations Immunities Act (IOIA). See 22 U.S.C. sec. 288d (2006). Even if the IOIA applied to Ms. Abrahamsen, which respondent disputes, the law does not confer the benefits petitioners claim. Under the IOIA, employees of foreign governments and international organizations are “immune from suit and legal process relating to acts performed by them in their official capacity and falling within their functions as such representatives, officers, or employees.” 22 U.S.C. sec. 288d(b). This case arises from Ms. Abrahamsen’s earning income within the United States as a permanent resident of the United States. She is not being subjected to liability for any act performed in her official capacity, and the earning of income is not part of her official function as a representative of Finland to the United Nations. Therefore, the IOIA does not exempt her wages from Federal income tax. See United States v. Coplon, 84 F. Supp. 472, 474 (S.D.N.Y. 1949) (IOIA “does not confer general diplomatic status immunity” but confers immunity on U.N. officers and employees only “for the category of acts performed by them in their official capacity and falling within their functions as such officers or employees”); sec. 1.893-1(b)(3), Income Tax Regs. (quoting the relevant provisions of the IOIA, including that “[n]o person shall, by reason of the provisions of this title, be considered as receiving diplomatic status * * * other than such as are specifically set forth herein”).
Note: Revenue Ruling 2007-60 is not cited by the court and would not apply. It states that a treaty-based tax exemption continues to exist after an IRC section 247(b) waiver is signed that makes someone subject to the tax code and unable to claim income exclusion under the tax code.
The court held that the U.S.- Finland Treaty did not exempt the wages paid to the plaintiff’s wife from U.S. taxation.
The treaty founding the United Nations does not include an exemption from U.S. taxation on U.N. wages for green card holders (non-citizen U.S. residents), unlike the founding treaties of the IMF, IBRD, and IADB.
The I-508 Waiver: Revenue Ruling 2007-60 states:
Alien individuals employed by a foreign government or international organization in the United States, who file the waiver provided by section 247(b) of the Immigration and Nationality Act (USCIS Form I-508) will be entitled to any tax exemption conferred under the provisions of an applicable income tax treaty, consular agreement, or international agreement that is still in force, to the extent the application of the exemption is not dependent upon the Internal revenue laws of the United States.
References cited
https://www.ustaxcourt.gov/InOpHistoric/AbrahamsenDiv.Lauber.TC.WPD.pdf
IRC 61 Gross income
IRC 62 Adjusted Gross Income
IRC 63 Taxable Income
Standard deduction, personal exemptions, itemized deductions
IRC 67 Miscellaneous Itemized deductions, and other Schedule A deductions
IRC 68 Overall Limitation on Itemized Deductions
Credits Look up specific credit in the tax code
IRC 7701(b)(1)(A)(i) Resident of the U.S.
IRC 893(a) or 7701(b)(5)(8) Non-taxability of foreign government wages
IRC 894, 7852(d) Tax Treaty provisions equivalent to tax code
Rev. Rul. 2007-60 Provisions of a treaty are not affected by I-508 waiver
The Vienna Conventions on Diplomatic and Consular Relations
The International Organization Immunities Act Public Law 291, 12/29/1945
22 U.S.C, section 288(d)
E.O. 9698 Lists the public international organizations entitled to enjoy certain privileges, exemptions and immunities
List is available as:
State Department 9 FAM 41.24 Exhibit I, and
National Archives list found by searching on “E.O. 9698”