Clifford A. Abrahamsen & Sole K. Abrahamsen v. Commissioner ( 2014 )

CLIFFORD A. ABRAHAMSEN AND SOLE K. ABRAHAMSEN,
PETITIONERS v. COMMISSIONER OF INTERNAL
REVENUE, RESPONDENT
Docket No. 20466–11. Filed June 9, 2014.
I.R.C. sec. 893 excludes from gross income and exempts
from taxation income received by an employee of a foreign
government or international organization if certain conditions
are met. The I.R.C. sec. 893 exemption can be waived, and it
must be waived by a person who wishes to become a perma-
nent resident of the United States. The exemption does not
apply to income received by a permanent resident after filing
the waiver. Sec. 1.893–1(b)(5), Income Tax Regs. P–W entered
the United States in 1983 to work for Finland’s Permanent
Mission to the United Nations (Mission) in New York. She left
the Mission to work for a bank and, while employed there,
obtained U.S. permanent resident status. As a condition of
obtaining that status she executed, in 1992, a waiver of
rights, privileges, exemptions, and immunities otherwise
available to her by virtue of her occupation. In 1996 she re-
commenced employment with the Mission and remained
employed by the Mission throughout the years at issue. Ps did
not report as income the wages the Mission paid to P–W
during 2004–09. Ps claim that her wages were exempt from
taxation pursuant to I.R.C. sec. 893, the U.S.-Finland tax
treaty, the Vienna Convention on Diplomatic Relations, the
Vienna Convention on Consular Relations, and the Inter-
national Organizations Immunities Act.
1. Held: I.R.C. sec. 893 does not apply to wages P–W
received from the Mission during 2004–09 because she had
previously executed a valid waiver of rights, privileges,
exemptions, and immunities.
2. 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 exemp-
tion to permanent U.S. residents working in nondiplomatic
positions for international organizations.
Stephen M. Rosenberg and Richard B. Feldman, for peti-
tioners.
Jane J. Kim, for respondent.
405
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406 142 UNITED STATES TAX COURT REPORTS (405)
OPINION
LAUBER, Judge: This case is before the Court on the par-
ties’ cross-motions for summary judgment under Rule 121. 1
The issues for decision are: (1) whether Ms. Abrahamsen’s
wages for 2004–09 are exempt from Federal income tax; and
(2) whether petitioners are liable for section 6662 accuracy-
related penalties. Petitioners resided in New York when they
petitioned the Court.
Background
In 1983 Ms. Abrahamsen, a Finnish citizen, came to New
York to work for Finland’s Permanent Mission to the United
Nations (Mission). The Mission is Finland’s official diplo-
matic delegation to the United Nations. Ms. Abrahamsen
entered the U.S. on a G–1 visa, which is issued to govern-
ment officials and employees entering the U.S. as ‘‘non-
immigrants’’ to work for organizations such as the United
Nations. See 8 U.S.C. sec. 1101(a)(15)(G)(i) (2006); 22 C.F.R.
sec. 41.12 (1983). She was employed by the Mission in an
administrative support role.
Ms. Abrahamsen left the Mission in 1985 and began
working for the New York branch of Kansallis-Osake-Pankki
(Kansallis), a Finnish bank. She apparently held an E–1 visa
while initially employed with Kansallis. An E–1 visa is
known as a ‘‘treaty trader’’ visa and, like a G–1 visa, treats
its holder as a ‘‘nonimmigrant’’ for immigration law purposes.
See 8 U.S.C. sec. 1101(a)(15)(E); 22 C.F.R. sec. 41.12. Ms.
Abrahamsen was employed by Kansallis from 1985 to 1996.
On January 29, 1992, Ms. Abrahamsen obtained perma-
nent resident status in the United States. As a condition of
obtaining that status, she executed U.S. Citizenship and
Immigration Services (USCIS) Form I–508, Waiver of
Rights, Privileges, Exemptions and Immunities. By signing
Form I–508, Ms. Abrahamsen acknowledged that she was
then employed in an occupation under which she had non-
immigrant status and declared that she desired ‘‘to acquire
and/or retain the status of an alien lawfully admitted for
1 Unless otherwise indicated, all statutory references are to the Internal
Revenue Code in effect for the tax years at issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
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(405) ABRAHAMSEN v. COMMISSIONER 407
permanent residence.’’ She affirmed by signing this form that
she agreed to ‘‘waive all rights, privileges, exemptions and
immunities which would otherwise accrue to [her] under any
law or executive order by reason of [her] occupational
status.’’ 2
Ms. Abrahamsen recommenced employment with the Mis-
sion apparently during the spring of 1996. She worked for
the Mission in various capacities including secretary (May
1996–May 2004), adviser (May 2004–April 2009), and attache´
(April 2009–present). The United Nations did not notify the
United States that she was holding a diplomatic title during
the years at issue, and her name did not appear on the List
of Officers Entitled to Diplomatic Privileges and Immunities
that is maintained by the U.S. Mission to the United
Nations.
Petitioners did not report as income for 2004–09 the wages
that Ms. Abrahamsen received from the Mission. After exam-
ining petitioners’ returns, the Internal Revenue Service (IRS
or respondent) mailed petitioners timely notices of deficiency
for 2004–09. These notices increased petitioners’ income by
including Ms. Abrahamsen’s wages from the Mission and
determined a section 6662 accuracy-related penalty for each
year. Petitioners timely petitioned this Court seeking
redetermination of the deficiencies and penalties.
The parties have filed cross-motions for summary judg-
ment. Petitioners contend that Ms. Abrahamsen’s wages
from the Mission were exempt from taxation pursuant to sec-
tion 893 and provisions of international law. Respondent con-
tends that Ms. Abrahamsen’s wages are taxable and that
petitioners are liable for accuracy-related penalties.
2 There is some uncertainty concerning the type of visa Ms. Abrahamsen
held at various times. Petitioners say that she entered the United States
on a G–1 visa, whereas respondent says that she had an E–1 visa by the
time she obtained permanent resident status. Quite possibly both parties
are correct; in any event, her immigration status during these earlier years
is immaterial to our analysis. The parties agree that she was a permanent
resident during the tax years at issue, and the Form I–508 that she signed
in 1992 would waive her nonimmigrant rights regardless whether she pre-
viously held a G–1 or an E–1 visa.
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408 142 UNITED STATES TAX COURT REPORTS (405)
Discussion
I. Summary Judgment
Summary judgment is intended to expedite litigation and
avoid unnecessary and expensive trials. See FPL Grp., Inc. &
Subs. v. Commissioner, 116 T.C. 73, 74 (2001). Either party
may move for summary judgment upon all or any part of the
legal issues in controversy. Rule 121(a). A motion for sum-
mary judgment or partial summary judgment will be granted
only if it is shown that there is no genuine dispute as to any
material fact and that a decision may be rendered as a
matter of law. See Rule 121(b); Elec. Arts, Inc. v. Commis-
sioner, 118 T.C. 226, 238 (2002). The moving party bears the
burden of proving that there is no genuine dispute as to any
material fact, and the Court views all factual materials and
inferences in the light most favorable to the nonmoving
party. Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985).
We agree that summary judgment is appropriate as to the
taxability of Ms. Abrahamsen’s wages, and we will grant
respondent’s motion and deny petitioners’ motion insofar as
it relates to this issue. With respect to the penalties, peti-
tioners contend that they reasonably and in good faith relied
upon the advice of tax professionals to complete their
returns. We conclude that petitioners’ ability to satisfy the
section 6664(c)(1) ‘‘reasonable cause’’ exception to the
accuracy-related penalty presents a triable issue that pre-
cludes summary judgment. We will therefore deny both
motions for summary judgment insofar as they concern the
penalties.
II. Taxability of Wages
Alien individuals who are lawful permanent residents of
the United States are treated as ‘‘resident aliens’’ of the
United States. Sec. 7701(b)(1). ‘‘Resident aliens, like other
individual taxpayers, must include compensation for services,
such as wages, in their gross income.’’ Harrison v. Commis-
sioner, 138 T.C. 340, 343 (2012). Because Ms. Abrahamsen
was a resident alien during the tax years at issue, her wages
would be included in gross income under general principles.
Petitioners contend that her wages were exempt from Fed-
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(405) ABRAHAMSEN v. COMMISSIONER 409
eral income tax under section 893 or provisions of inter-
national law.
A. Section 893
Section 893 excludes from gross income (and exempts from
taxation) income received by an employee of a foreign govern-
ment or international organization as compensation for offi-
cial services performed for that entity. To qualify for this
exemption, the individual must not be a U.S. citizen; the
services performed must be similar to services performed by
U.S. Government employees abroad; and the foreign govern-
ment must provide a corresponding exemption to U.S.
Government employees performing similar services in that
country. Sec. 893(a).
The exemption afforded by section 893 can be waived, how-
ever, and a nonresident alien must waive it if she wishes to
become a permanent resident of the United States. See 8
C.F.R. sec. 245.1(b)(9) (1992). To waive this exemption, an
individual executes and files with the Attorney General the
relevant waiver form specified in the Immigration and
Nationality Act, Pub. L. No. 82–414, sec. 247(b), 66 Stat. at
218 (1952) (current version at 8 U.S.C. sec. 1257(b) (2012)).
See sec. 1.893–1(b)(4), Income Tax Regs. The required form
is USCIS Form I–508. The exemption from taxation provided
by section 893 does not apply to income that an individual
receives after filing Form I–508. See sec. 1.893–1(b)(5),
Income Tax Regs.
Petitioners originally argued that Ms. Abrahamsen had not
waived her section 893 exemption even though such a waiver
was required in order to secure the ‘‘permanent resident’’
status she acquired in 1992. However, respondent has pro-
duced a copy of the Form I–508 that Ms. Abrahamsen
executed on January 29, 1992, in connection with obtaining
that status. Petitioners do not dispute that this form is gen-
uine or that the signature on the form is Ms. Abrahamsen’s.
Petitioners nevertheless argue that the waiver should not
be enforced given what they term ‘‘the unique facts of this
case.’’ We do not find the facts petitioners recite to be unique.
Petitioners claim that English is Ms. Abrahamsen’s second
language; that she signed the waiver more than 20 years
ago; that Form I–508 was difficult to understand; and that
she did not appreciate the long-term effects of signing the
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410 142 UNITED STATES TAX COURT REPORTS (405)
waiver. We expect that many foreign nationals seeking
permanent resident status in the United States could
advance similar arguments. If such arguments were suffi-
cient to nullify the Forms I–508 they signed, the carefully
constructed waiver procedure set forth in the regulations
would become the exception rather than the rule.
More importantly, petitioners cite no statute or judicial
precedent to support their assertion that we can ignore a val-
idly 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 Fed-
eral income tax unless some other exemption applies. See
Ying v. Commissioner, 99 T.C. 273, 293 (1992) (taxpayer
‘‘became ineligible for the benefits under section 893 when he
filed his waiver under section 247(b) of the Immigration and
Nationality Act’’), aff ’d in part, rev’d in part, 25 F.3d 84 (2d
Cir. 1994).
B. U.S.-Finland Tax Treaty
Petitioners alternatively contend that Ms. Abrahamsen’s
wages from the Mission are tax exempt pursuant to the U.S.-
Finland income tax treaty. See Convention for the Avoidance
of Double Taxation With Respect to Taxes on Income, U.S.-
Fin., Sept. 21, 1989, Tax Treaties (CCH) para. 2945 (Treaty).
Specifically, petitioners contend that tax exemption is
afforded by article 19 of the Treaty, which concerns remu-
neration received for ‘‘Government Service.’’
Article 1, paragraph 3 of the Treaty contains a ‘‘saving
clause’’ that overrides 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
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(405) ABRAHAMSEN v. COMMISSIONER 411
clause is thus operative, and it authorizes the United States
to tax any person ‘‘who is treated as a resident under its tax-
ation 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
C. Diplomatic Status
Petitioners argue that Ms. Abrahamsen’s wages were
exempt from taxation pursuant to other provisions of inter-
national 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 rel-
evant period Ms. Abrahamsen was employed by the Mission
as either an adviser or an attache´. 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’ argu-
ments 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
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 liabil-
ities 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 ‘‘resi-
dent.’’ 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).
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412 142 UNITED STATES TAX COURT REPORTS (405)
‘‘diplomatic agent.’’ Article 1 of the VCDR defines a ‘‘diplo-
matic 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 dip-
lomatic rank.’’ Because Ms. Abrahamsen did not have diplo-
matic rank, she was not a ‘‘diplomatic agent’’ under the
VCDR, and article 34 therefore did not exempt her wages
from taxation. 4
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 offi-
cial capacity and falling within their functions as such rep-
resentatives, 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 per-
4 There is no merit to petitioners’ suggestion that article 49 of the Vi-
enna Convention on Consular Relations (VCCR) exempts Ms.
Abrahamsen’s wages from U.S. tax. The VCCR does not apply to the Mis-
sion. See City of New York v. Permanent Mission of India to United Na-
tions, 533 F. Supp. 2d 457, 460 (S.D.N.Y. 2008) (holding that ‘‘[t]he tax sta-
tus 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).
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(405) ABRAHAMSEN v. COMMISSIONER 413
son shall, by reason of the provisions of this title, be consid-
ered as receiving diplomatic status * * * other than such as
are specifically set forth herein’’).
III. Penalties and Interest
Petitioners argue that, even if Ms. Abrahamsen’s income is
subject to tax, the Court should ‘‘vacate assessed penalties
and interest.’’ As noted earlier, we will deny both parties’
motions for summary judgment insofar as they address peti-
tioners’ liability for the section 6662(a) penalty. It is well set-
tled that this Court’s deficiency jurisdiction generally does
not extend to statutory interest. Lincir v. Commissioner, 115
T.C. 293, 297 (2000), aff ’d, 32 Fed. Appx. 278 (9th Cir. 2002).
Section 6404(h)(1), which gives us jurisdiction of actions
brought within 180 days after the IRS mails the taxpayer a
final determination not to abate interest, has no application
here.
IV. Conclusion
Because petitioners have not shown that Ms.
Abrahamsen’s wages are exempt from taxation, they must be
included in petitioners’ gross income for the years at issue.
We will therefore grant respondent’s motion and deny peti-
tioners’ motion insofar as they relate to this issue. Finding
there to be a genuine dispute of material fact as to whether
the reasonable cause exception to the section 6662 accuracy-
related penalty applies, we will deny both parties’ motions
for summary judgment insofar as they address that point.
An appropriate order will be issued.
f
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