Category: International; Individuals Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Taxpayer (TP) was at the beginning of 1993 a citizen and resident of France. He came to the U.S. on 1/3/93 on a J-type visa to teach at a U.S. university. On 6/16/93, TP received a Green Card. TP has permanently settled in the U.S. TP otherwise meets in all respects the requirements for exemption from taxation under Article 17 of the U.S.-France Income Tax Treaty. The only issue is whether TP's change in status and the award of a Green Card overrides Article 17. First, there seems to be no black-and-white answer to this question. Accordingly, there seems to be no answer which is free from doubt. However, it seems to me that TP should be entitled to Article 17 exemption notwithstanding his Green Card status for the following reasons. 1. The language of Article 17 seems to be in place specifically to override what would otherwise be the case for a resident of one state on a more-than-brief teaching assignment in the other state. Clearly a potential change in residency status as a result of the time spent in the other state is contemplated by the Article 17, and the result of that potential change in residency status in negated by the language of the treaty. 2. The legislative history of §7701(b) under the 1984 Tax Act (which revamped the rules with respect to resident alien status and created the so-called "Green Card" test for residency) clearly provides that §7701(b) is not to override treaty provisions related to residence. But, see Item 2. below. It is clear that there is considerable exposure with respect to this conclusion. 1. It could be argued that Article 17 does not contemplate the kind of overt change of status in which TP engaged. Thus, the entire provision is contrary to the intent of the contracting parties and should be inapplicable in TP's case. 2. The legislative history of §7701(b) under the 1984 Tax Act directly speaks only to the issue of general residency provisions of tax treaties and conflicts between §7701(b) and those provisions. It seems to me that §7701(b) and the general residency provisions of the U.S.-France Treaty Article 3 are not in conflict, i.e., both provisions would treat TP as a U.S. resident. It could be argued that Congress did not intend for any other treaty provisions to override §7701(b). 3. There are significant disclosure requirements with respect to treaty-based provisions. Accordingly, there is a significant possibility of IRS scrutiny in this matter. This is particularly so if TP's teaching income has been reported on Form W-2. |
