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Second Visit or Multiple Visits to the U.S.: Changing Status,Visa, U.S. Tax Obligations, by Jean Mammen, EA

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Changing Status, Changing Visa, Changing U.S. Tax Obligation

 Part III of III

For a first-time visitor to the U.S., determining U.S. tax obligations can follow a straight path. And the same is true if you have never visited the U.S. See Part I

If this is your second visit, or if you have changed visa type, more possibilities exist, and more analysis is needed. See Part II for the effects of visa type changes

SECOND VISIT/MULTIPLE VISITS TO THE US

If you leave the US, and then return on another visit, you must then look back at your past visa history to determine which form to use to report income, 1040NR or 1040.

Q: Were you a tax resident of the U.S. during any part of your most recent year in the U.S.?

Maybe you were gone only a few months, maybe you were outside the US for several years, but while here you were already a tax resident. You may or may not be a tax resident in your first year of this visit.

Q: Were you outside the U.S. for more than a full calendar year between this visit and your most recent visit? Yes? No?

If you were gone less than a full calendar year, were you a tax resident during any part of last year? And when you returned, did you become a tax resident again during this year?

If so, you continued to be a tax resident of the U.S. while you were outside the U.S.

Even if your only income was from foreign sources, and none of it was from U.S. sources, it is subject to U.S. taxation by the U.S. Internal Revenue Code provisions for form 1040.

Residency persists during this absence from the U.S. by the “no lapse” sections of the U.S. tax code: IRC 301.7701(b)-4(e)(1) and (2)

Q: Was your most recent year in the U.S. within the three-year window for counting days for the substantial presence test (SPT)? Did you have any countable days of presence? As a tourist? On an “all the rest, count your best’ visa type? Or on a student or exchange visitor (teacher, trainee, researcher) visa like F or J, after the eXempt period had ended?

If so, do the calculation over the three years to determine if you meet the SPT during this tax year.

Q: On your most recent visit, were you not able to count days for the SPT because you were on an A or G visa?

If so, double-check back through the three-year window, and do the SPT calculation over the three years, as if this were your first visit to the U.S,

Q: Is your current visa a student visa (F, J, M)? If so, to determine if you have already used up some of the 5 calendar years of the student eXempt/eXclusion period, look back all the way to 1985. Why 1985? That is the year this section of the tax code came into effect. Treasury Regulation governing the transition: 301.7701(b)-3(b)(7)(iv). Look back at your visa history during all your prior visits to the U.S. since 1985. In how many of those calendar years were you on an F, J, M, or Q visa?

Subtract that number of years from the 5 years in the ‘student’ look back period. The result is the remaining number of calendar years during which you are eXempt/eXcluded from counting days to meet the SPT.

Example:  8 years ago you were in the U.S. as a J visa high school exchange student, for an entire academic year. Now you are in the U.S. on a student F visa for a multi-year combined Master’s degree and Ph.D. program. The eXempt period on an F visa is 5 years. During your lookback period you were in the U.S. on a J visa for parts of two calendar years. 5-2=3. You have three years remaining in your eXempt period. You will start counting days of presence for the SPT on your first day in the U.S. of your fourth year in the U.S. on this student visa

Example: You accompanied your parents to the U.S. when you were a child. They left your twin sister back home with Grandmother. You were in the U.S. for all or part of three calendar years. That visit took place sometime between 1985 and last year. Your parents were on J visas. You had a J2 visa, as a dependent. Now you and your twin sister are students in the U.S. on F1 visas.

The student eXempt period lasts five years. You have already spent 3 years in the U.S.  on an F, J, M, or Q visa. Only two years remain in your eXempt period. You will start counting days for the SPT on your first day in the U.S. in the third year of this visit. Your sister will not begin counting days until after her fifth year is past. She will begin counting days on her first day in the U.S. in her 6th year on this visit.

If you have income – whether U.S. source or foreign source, you might file on Form 1040 as a tax resident as soon as your third year as a student in the U.S. Your sister would file a U.S. tax return only if she has U.S. source income, until at least her sixth year. Until then, if she needs to file a U.S. tax return, she will use form 1040NR.

Q: Is your current visa a J or Q exchange visitor visa as a teacher, trainee, researcher, etc? Look back at the six previous years to see in how many of them you were in the U.S. on an F, J, M, or Q visa. If that number is two years or more, you have exhausted the eXempt period.

Subtract that number of years from the two years available as eXempt status in the “teacher or trainee” J visa look back period. If you counted one (1) year, you have one eXempt year left before you start counting days for the SPT. If you counted two (2) or more years, you begin counting days for the SPT on your first day in the U.S. on this visit. If you counted zero (0) years on an F, J, M, or Q visa, you have the full two-year eXempt period remaining.

Example: You left the U.S. two years ago this August, after a twenty-four month stay as a J visa researcher. You returned to the U.S. on the two-year anniversary of your departure, again as a J visa researcher.

You had been in the U.S. during parts of three calendar years during the six-year lookback window. You began counting days for the SPT on the day in August that you arrived in the U.S. on this visit.  The count did not reach 183 days before December 31st. You file on form 1040NR.

You had been out of the U.S. for a full calendar year, plus some months before and after that full year. Thus, your prior status as a tax resident, during the January through August of your third calendar year in the U.S. during your previous visit, was extinguished during that full year outside the U.S.  Your previous visit was within the six-year look back period. It exhausted the two-year eXemption period potentially available for this visit.

 

This Series

FIRST VISIT / NO VISIT: If you have U.S. source income, how do you choose between form 1040NR or form 1040?. What are the tax and tax residency effects?

See Part I

 

VISA TYPE CHANGE:  What are the tax and tax residency effects when you change visa types?

See Part II

 

SECOND VISIT/MULTIPLE VISITS: If this is not your first visit to the U.S., how do you determine your tax status?

Part III, above

 

 

First Visit /No Visit to the U.S.: Changing Status, Visa, U.S. Tax Obligation, by Jean Mammen, EA

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Changing Status, Changing Visa, Changing U.S. Tax Obligation

Part I of III

For a first-time visitor to the U.S., determining U.S. tax obligations can follow a straight path. And the same is true if you have never visited the U.S.

If you have changed visa status, or if this is your second visit, more possibilities exist, and more analysis is needed.

FIRST VISIT/NO VISIT: If you have US source income to report, choosing between form 1040 and form 1040NR is relatively simple. Determine if any days you were physically in the US may be counted towards meeting the substantial presence test (SPT).

If you have no visa, or any visa except F, J, M, or Q, or A1, A2, G1, G2, G3, G4, you usually immediately begin to count all days where you spent any time at all in the US.

A common exception to counting days is for people who live in Mexico or Canada and cross the border regularly to work in the US during some period of the tax year. These “commuters” do not count as days present in the U.S. any day they commuted to or from their U.S. workplace, no matter what their visa type. IRC 7701(b)(7)(B); 301.7701(b)(3)

If you are not in the U.S., there are no days to count.

And A1, A2, and G1, G2, G3, and G4 visa holders are never going to count days.

Counting: Count the days that may be counted to see if they add up to 183 days in the tax year and meet the SPT.

Filing requirement if SPT is not met: If you have any US source income at all you will file form 1040NR. If you were not in the U.S. or this is your first visit to the US and you spent fewer than 183 countable days in the U.S., then 0+ is the threshold even if the income is not taxable. An exception is if the only US source income is from wages, and the wages are less than the amount of one personal exemption. ($4,000 for 2015)

Filing requirement if SPT is met: You will file on form 1040 as a tax resident if you meet the SPT by December 31st, and your income exceeds the form 1040 filing threshold. If you began counting days July 2, you could meet the SPT in your first year in the US.

Taxable income for form 1040 is total worldwide income from any source derived that is not specifically exempt from US income tax.  The threshold for filing is when taxable income exceeds the sum of the personal exemption and the standard deduction appropriate to your filing status (single, married filing jointly, married filing separately, etc.).  You will also pay FICA tax (Medicare and social security) on wage income if your employer and job are part of the US economy, unless you are a student in an on-campus job.

FIRST VISIT, second year: If you have any visa other than F, J, M, or Q, or A1, A2, G1, G2, G3, G4, you could meet the SPT in your second year in the US and change from tax non-resident to tax resident.

FIRST VISIT, third and sixth year: In the third year of your first visit to the US, J visa exchange visitors usually start counting days for the SPT on their first day in the US after January 1st.  Students usually do so in their sixth year in the US. You could meet the SPT by December 31st and become a tax resident for the year if you spend most of your days in the U.S.

Substantial Presence Test (SPT):

When day counting is allowed, and you spent at least 31 countable days in the U.S. in the tax year, then:

Count all countable days present in the U.S. in the tax year, and add:

1/3 of all countable days present in the first prior year, plus

1/6 of all countable days present in the second prior year.

Add any fractions to the whole numbers.

If the total reaches 183 by December 31st, you have met the SPT. You are a U.S. tax resident.

 

LET ME COUNT!

G or A, No Way!

F, J, M, or Q, There’s a Delay Waiting for you!

All the rest, Count your best!*

*includes A3, G5

 

This Series

FIRST VISIT/NO VISIT: If you have U.S. source income, how do you choose between form 1040NR and Form 1040? What are the tax and tax residency effects?

See above

VISA TYPE CHANGE:  What are the tax and tax residency effects when you change visa types?

See Part II

SECOND VISIT/MULTIPLE VISITS: If this is not your first visit to the U.S., how do you determine your tax status?

See Part III

 

 

FATCA Comes to 1042-S, then to 1099, by Jean Mammen, EA

 
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FATCA – the Foreign Account Tax Compliance Act of 2012 is just reaching the tax forms provided to taxpayers. 2013 and 2014 were transitional years. Some 2014 reporting and forms are now FATCA-ready. The full effects for most taxpayers will come with 2015 reporting and forms. A few reporting requirements on financial institutions start in 2016 and 2017.

FATCA’s goal is to increase compliance with U.S. tax laws by U.S. citizens and resident aliens who have accounts outside the U.S., no matter where the account holder lives.  Its provisions also affect people who are not U.S. citizens or residents (called ‘foreign’) who have what may be U.S. source money in accounts anywhere in the world.

What might FATCA bring to forms you see?

– Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, was completely redesigned for 2014.  It now can include reporting required by FATCA or related provisions. See it on the IRS website, www.irs.gov

– More tax payers will be asked by financial institutions to document their non-U.S. status on a W-8BEN, or, U.S. status on a W-9.

WARNING: Many non-U.S. citizens have received FRAUDULENT requests for W-8BEN, often including requests for confidential personal information.

Verify with your financial institution that the request is coming from it and that it has a legitimate need for the information.

NEED: If the jurisdiction where the account is located has an Intergovernmental Agreement (IGA) with the U.S. or another country, the institution holding the account is likely required to obtain and keep, or sometimes share, certain account and account-holder information

– Bank deposit interest paid to a non-U.S. person may be reported to the IRS and the account holder on form 1042-S, even when it is not taxable on Form 1040-NR.

– A 1099 form may be elected by the institution where the account is located, in specific instances, to be the reporting form to the IRS, and also to the account holder, I.e. 1099-INT, 1099-DIV, 1099-MISC.

The 2015 1099’s have a box that may be checked: FATCA filing requirement. This box will be checked by a payer, a U.S. payer or an FFI – foreign financial institution, if it is reporting for chapter 4 (FATCA) purposes a distribution or payment to a U.S. account.

2014 Form 1042-S: It was completely redesigned to accommodate the reporting requirements of FATCA, chapter four of the U.S. Internal Revenue code, IRC 1471-1474. A new Box 4, for Chapter 4 information, was inserted next to a redesigned Box 3, which reports information required under chapter 3, IRC 1441 – 1465.

Foreign account and financial institution information is now shown on form 1042-S, as well as income and withholding of a foreign person’s U.S. source income.

Some familiar boxes have been renumbered, and are now located in new places, while new boxes were added to the form.

The code sheet is now three pages long, with codes to accommodate the many variables in institution or income type defined in FATCA. Find the codes in the Instructions for form 1042-S, on the IRS website..

A U.S. person who pays income, or must withhold on income paid, to a non-resident alien, or NRA, (and is thus a withholding agent) generally will report this information on IRS Form 1042-S. Form 1042 is the cover sheet for submitting it to the IRS.

The income may benefit from a tax treaty that excludes some of it from taxation, or a treaty or IRC provision or regulation may set tax withholding at a rate other than a graduated rate. Example: Fellowship income is withheld at 14%.

If codes for Internal Revenue Code (IRC) or tax treaty exemptions or special situations appear on a 1042-S, be sure to verify that they are accurate.

Bank deposit interest: New for 2014, bank deposit interest of more than $10 paid to an NRA (Non-resident alien) is reported to the IRS on form 1042-S, even though it is not taxable on form 1040NR.  IRC 871(i)(1), (2), and (3). Also see IRC 871(h). Traditionally, bank deposit interest was not entered on the 1040NR income tax return.

But beginning for 2014, because of IRS Revenue Procedure 2012-24; Treasury Reg. 1.6049-4(b)(5) and 1.6049-8, as revised by TD 9584 issued April 19, 2012,  non-resident aliens might receive a reporting document, likely on Form 1042-S, reporting this non-taxable bank deposit interest. The inspiration for this may have been to make the intergovernmental agreements associated with FATCA more helpful to other countries.

This tax-exempt bank deposit interest would go on Line 9b when filing form 1040NR.

The codes on a 1042-S for tax-exempt bank deposit interest would be:

Box 1   Income – 29, Deposit interest

Box 3a Exemption Code – 02, Exempt under IRC (other than portfolio interest)

Hypothetical: Bank deposit Interest on Form 1040 vs. Form 1040NR

Two Canadians, A and B, live and work in the U.S., and have savings accounts at a U.S. branch of TD Bank. Each is credited with $ 11 in interest.

Canadian A has a TN visa, and met the SPT- Substantial Presence Test. She files Form 1040. She receives a 1099-INT, declares the interest on line 8a and pays taxes on it.

Canadian B has a G visa and files on Form 1040NR, if required to file. He received form 1042-S.  If he needed to file Form 1040NR anyway, or if this alone triggers a requirement to file (probably not), he declares the interest on Line 9b and does not pay taxes on it.

 

FATCA:  The Foreign Account Tax Compliance Act of 2012. See the FATCA page on the IRS website: www.irs.gov/fatca for all things FATCA related.

FATCA targets tax non-compliance by U.S. taxpayers.

Note that ‘U.S. taxpayer’ includes anyone who would pay U.S. taxes on U.S. source income, whether they are a foreign person or a U.S. person. The definitions of U.S. source income and U.S. account are complex. Tax authorities and financial institutions have spent the past few years working on the implementing regulations

Foreign financial entities subject to an IGA – intergovernmental agreement – report on financial accounts held by U.S. taxpayers.

For U.S. citizens and residents, this reporting may help determine if a form 8938 should be attached to form 1040 and what should be shown. For non-citizens who are not U.S. tax residents, this affects filing form 1040NR.

FATCA provisions: The four short sections of the Internal Revenue Code that constitute FATCA, Chapter 4, IRC sections 1471-1474, became more than a hundred Federal Register pages of implementing regulations. . TD 9657 (March 6, 2014), is 55 pages long in the Federal Register. This concerns both individuals and financial institutions. TD 9658 (March 6, 2014) takes up 85 pages.  It concerns financial institutions.  And then there are the more than 100 Intergovernmental agreements, IGA, following either Model 1 or Model 2, with their specifications on how governments or institutions in their jurisdictions will carry out the agreements.

The financial institutions in the more than 100 jurisdictions with operative IGA’s with the U.S. examine each and every account they house for indicia  (signs) of U.S. links either for the account holder or the source of the money in the account itself. If U.S. links are found, the financial institution may be required to withhold 30% of payments unless it can clarify the account status. There are some exceptions, such as for some accounts of U.S. $50,000 or less. If the financial institution does not already have adequate information, it asks the account holder for a W-8BEN, or a W-9.  If the account holder does not comply, the account holder is considered a recalcitrant account holder. The financial institution would then do the mandatory withholding of 30% of the money potentially taxable to the U.S. This is the ‘stick’, or maybe the ‘carrot’. The only way to recoup some or all of the money is to show that U.S. tax liability was less than 30%.

FATCA Reporting Requirements for Financial Institutions: For an overview of what the financial institutions must do to satisfy the IGA and the IRS, look through the instructions for Form 8966 – FATCA Report. These instructions include definitions of key terms, and authority citations to the U.S. Internal Revenue Code (IRC) and/or to U.S. Treasury Regulations. More extensive definitions are available at Reg. 1.1471-1(b).  Here each definition has a hyperlink to an authority citation. Find this regulation by entering its number in your search engine browser.

The FATCA Report presents facts about the accounts and account holders, but not payments or withholding.

FATCA Withholding and Payment Reporting: If the account holder is foreign, Form 1042-S is the main form used to report income or withholding to the IRS and the account holder. If not, Form 1099 is the most commonly used form. In some cases, even if the account holder is foreign, a financial institution may elect to use a form 1099 for the report to the IRS and to the account holder.

Transmittal of FATCA withholding: Variable.  Sometimes amounts withheld must be transmitted timely to the IRS.  Sometimes withheld amounts may be kept in escrow by the payer/withholding agent until a specified event occurs.

Intergovernmental Agreement (IGA) Models: Almost all countries chose to follow Model 1.  The financial institution provides account information to the government of the jurisdiction where it is located or organized, which then passes on required information to the other country (here, the U.S.). In Model 2, adopted by only a few countries, the financial institution sends the specified account and account holder information directly to the other country, here, the U.S. Treasury.

Hope this helps.  I will update this post if more effects on information provided to taxpayers appears.

Jean

 

Green Cards and Wages from an Embassy or International Organization: U.S. Tax Court Explains It All , by Jean Mammen, EA

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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”

 

AWAY-FROM-HOME BUSINESS EXPENSES C A R E F U L !!!

 
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Most people who come to the US on a work visa (example H, L), or on a student or exchange visitor visa (ex. F, J) expect to stay longer than one year. They changed their tax home when they entered the US and do not qualify to take away-from-home business expenses.

Home for the purpose of claiming a tax deduction means your Tax Home – the area where you normally work and earn the money which will be taxed on your income tax return.

When you are temporarily away from your normal work location, you may claim some ‘ordinary and necessary’ business expenses if your employer does not reimburse you for them.

If your employer does not have an accountable plan, or if it does not include common business expenses, urge your employer to set  up or expand an accountable plan.

These deductions can be taken against wage income only through December 31, 2017. The Tax Cuts and Jobs Act of 2017 ended this type of miscellaneous deduction (subject to the 2% of adjusted gross income (AGI) floor, on Schedule A and Form 2106 through the year 2025.

Of course, on Schedule C or E, similar deductions may be business expenses.

Temporary has a time limit. Less than twelve months.

The rules are exactly the same on all the income tax forms, the 1040 forms, and the 1040NR forms.

To keep your original tax home when you leave it temporarily for a different location where you will have taxable income, you must realistically expect to spend less than one year working in that temporary location. You must either return to your original tax home (the first work location) or go to a different work location within a year’s time.

A visiting scholar coming to a university for a one or two semester program may be temporarily away from the tax home.  This scholar may claim the normal expenses that someone on a business trip might have:  lodging for one person (with receipts), one-half of meal expenses if there are receipts, or one half of the standard USG meals allowance (M) included in the standard per diem rate for that location, plus the incidental expenses amount. Plus other ordinary and necessary business expenses that are helpful and normal in that work situation.

The visitor may have rented a room, or, share an apartment with a colleague or a family member.  Only the pro-rated share of the rent and the utilities for one person may be claimed, and only if the visitor has receipts, or other proof of all payments, such as cancelled checks, and so on.

If the visitor has a cellphone on which he makes a mix of business and personal calls, or a mix of business and personal web searches, the visitor may claim a  ‘business percentage’ of the phone and data costs. This is based on actual total cost, and a careful analysis of how much of the total usage is business related and how much is personal. Again, receipts are necessary to claim a deduction.

Perhaps the visitor attends professional conferences and pays registration fees that are not reimbursed. These may be business expenses when away from home just as they would be when at home.

Someone who comes to the US with the realistic intention of spending more than a year in the US has changed their tax home.  They do not qualify to claim away-from-home expenses for lodging and food.

They do qualify to claim other business expenses, such as registration fees for professional conferences.

All types of itemized business expenses are claimed on Schedule A.  The amount that is claimable is the amount that is more than 2% of the adjusted gross income.

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Hello book lovers!

 
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This blog aims to work with and for readers of 1040NR? or 1040?: U.S. Income Tax Returns for Visa Holders + International Organization and Foreign Embassy Employees, by Jean Mammen, EA

Blog posts will cover new and timely topics related to the interests of readers of this book. Expect new posts when there is breaking news. And when I have new insights to share with you.

I hope you will write contributions or comment on areas where you have special experience and knowledge.

Perhaps you work often with a bilateral tax treaty, or are familiar with how pensions and retirement plans in other countries are treated by the U.S. tax code. Maybe you have written client handouts that you would share.

We would love to share in your hard-won insights!

Let me know,

Jean Mammen, EA

jean@1040nror1040.com

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