Tag Archives: G visa

Visa Type Change: 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 II 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 you changed your visa type during your first visit, or if this is your second visit, more possibilities exist, and more analysis is needed.

VISA TYPE CHANGE:  What are the tax and tax residency effects if you changed visa types?

If your new visa allows counting days immediately, you do so.

Example: You had an F1 visa and were still in the eXempt period. You did not count days in the U.S. as days of presence. Now you have an H1b visa. You begin to count days.

 Example: Your new visa is a kind where you can never count days, such as a G visa, or do not count days during an eXempt or eXclusion period. You do not count days while in this period.

Tax residency status change? Immediately before you got the new visa type, what was your tax residency status?  Non-resident alien? Or tax resident? Filing on form 1040NR? or on Form 1040?

Example: First visit, you were in your sixth year on an F1 visa and had begun counting days. Maybe you reached 183 days and met the SPT, or maybe you had almost enough countable days.  Then, with just a short break, you get an H1b visa. You resume counting days. On December 31st, you add together your countable days from the F visa period and the H1b visa days.  Did you meet the SPT?  If so, you are now a US tax resident. You file on Form 1040.

Example: First visit, you were in the third year of an H1b visa. You rarely left the US. You had met the SPT. After a brief break, you got a G visa and stopped having countable days of presence in the US. You had already met the SPT. You were a tax resident. You will file on form 1040 for this tax year. But the following year, you are on the G visa for all the time you are in the US. You do not have 31 countable days in the US for that tax year. Or maybe you got the G visa the following year but before you spent 31 countable days in the US.  Either way, for this year you are now a non-resident alien. If you do have US source income, perhaps from rental real estate or investment income, you are back to filing on form 1040NR.

Example: You were in the US on an H1b visa and then decided to get an advanced degree. After a brief break, you got a student visa. On this student visa, whether F1 or J1, you are usually eXempt or eXcluded from counting days for any part of five calendar years. You had met the SPT in an earlier year. You were a tax resident. You filed on form 1040. If you had at least 31 countable days in the US during this year, and were in the US for most days in the prior two years, you would remain a tax resident through December 31st of this year and file as a tax resident on form 1040 at least one more time.

You must do the math to be sure whether or not you are a tax resident. If you spent just 31 days in the U.S. in this tax year, and 365 days in the US in each of the two prior years, your three-year day count exceeds 183 by 30 days. This leaves a small margin for spending days outside the US and still meeting the SPT.  31 + 1/3(365) + 1/6(365) = 31 + 121 2/3 + 60 2/3 = 213 1/3. Then 213 – 183 = 30.

The following year is your second year on a student visa. You spent no countable days in the U.S. You are a non-resident alien. You file on form 1040NR if you have any US source income.

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 Part I

 

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

Part II, above

 

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

 

 

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

 

 

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”