PHILIP YAMALIS: OK. I'm getting prompted here that it's the top of the hour, so let's get started. Welcome, ladies and gentlemen to our IRS presentation, United States Taxation of Employees of Foreign Governments and International Organizations. We're definitely glad you're joining us today. My name is Philip Yamalis and I am a Senior Stakeholder Liaison at the Internal Revenue Service. And, I have the pleasure of being your moderator for today's webinar, which is slated for 100 minutes. Before we begin, if we have anyone in the audience that is with the media, we ask that you please send us an email message to the address provided on this slide.

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You might want to also close all the extra windows and applications that you have open on your viewing device, that usually fixes the problem as well. We hope that you received the PDF version of the Power Point, and a reminder email sent to you, but if you haven't you can download it now by clicking on the materials button on the left side of your screen. As I mentioned earlier, closed captioning is available for today's presentation. If you are having trouble hearing the audio through the computer speakers, please click the CC button on the left side of your screen, this feature will be available throughout the webinar. Now, during this presentation today we'll take a few breaks to share knowledge-based questions with you. At those times a polling style feature will pop up on your screen with a question and multiple-choice answers. Select the response that you believe is correct by clicking on the radio button next to your selection and then simply click submit. Now, if you do not get the pop-up box for responding, please enter your response timely in the ask question feature so that we can track your participation. Don't forget to allow the pop-up feature to come up on the webinar. Now, if you have a topic-specific question today during the webinar, please submit it by clicking the ask question button. Enter your question in the text box and click submit. Please, I cannot over-emphasize this enough, do not, again, do not enter any sensitive or taxpayer-specific information. Nobody wants to go through a disclosure, do they? Now, we ask that you wait for your specific topic to be addressed today before submitting your question, because of course the answer might be in the material that we cover today. All right, let's move right along with our webinar today. Let me take this opportunity to introduce today's speakers. Our first speaker is Bethany Krause . Bethany is a Senior Revenue Agent with Withholding and International Individual Compliance in the IRS Large Business and International Division. Welcome, Bethany .

We also have with us Tracy McFee. Tracy is a senior revenue agent with the International Individual Compliance in our Large Business and International Division. And a welcome to you as well, Tracy . Now, as technical specialists, both Bethany and Tracy facilitate and coordinate the identification, development and resolution of international issues with the Internal Revenue Service, both have expertise with tax issues of non-resident alien as well as U.S. citizens working abroad. So, with that let me go ahead and turn it over to Bethany to begin the presentation. Welcome, Bethany . BETHANY KRAUSE : Thank you, Philip. And I want to add my welcome to everyone as well. Our topic today is the U.S. Taxation of Compensation received from Foreign Governments and International Organizations. During our webinar today, we will list the considerations in determining whether compensation from a foreign government or international organization is subject to United States income tax, and/or self-employment tax. We will describe the effect of U.S. tax residency status and/or visa type on taxation, explain the exemption under Internal Revenue Code Section 893, and note the consequences of signing or not signing U.S. Citizenship and Immigration Services Form I-508. OK. Generally, compensation for personal services performed for a foreign government at a foreign embassy or foreign consular office, or a miscellaneous foreign government office, or for an international organization in the United States is U.S. source, not foreign source income under the Internal Revenue Code. And that is because the income is sourced where it is earned. Before we go any further, let me define a couple of things. I just said the term "miscellaneous foreign government office," that's kind of a mouthful. And I want to explain that. That refers to an office of a foreign government that is not an embassy or consular office, and that meets certain requirements, including that it is created, controlled and funded by the foreign government, and that it does not engage in commercial activities. The term "international organization," is defined in Internal Revenue Code Section 7701(a)(18). And it says there that it means any public international organization that the President of the United States has designated by Executive Order as being entitled to the privileges, exemptions and immunities provided for in the International Organizations Act. Generally, an employee's compensation received from a foreign government or an international organization for services rendered here in the United States is subject to U.S. taxation unless it's specifically exempted under the Internal Revenue Code, or under a provision in a tax treaty or other international agreement to which the U.S. is a signatory party, if one exists. Sometimes there might not a treaty or an agreement. In that case there wouldn't be an exemption available. A person's residency status for U.S. tax purposes is really, really important because the U.S. tax implications for a U.S. citizen, or dual citizen or a green card holder, or a non-immigrant visa holder working for a government, a foreign government or international organization here in the United States will vary, so that's one of the keys to determining the taxability is the person's residency for U.S. tax purposes.

And we'll go into that in further detail in a little bit. I also want to make note that foreign governments and international organizations are required to notify the State Department when they hire an employee or when an employee or a person leaves their employ. And also, that includes -- and including locally employed staff and part-time employees and members of their families. And I also want to mention that the State Department is also to be informed by the foreign government or international organization as to any changes in the residency status of individuals that work there, such as when a non-immigrant visa holder who is already employed there acquires a green card or changes their job position. Employees of foreign governments may be able to, as I mentioned a little bit ago, they may be able to exempt their foreign government compensation from U.S. income tax if they satisfy the requirements of any one of the following independent tax exemption provisions. Now, here we are talking about foreign government compensation. How that can be exempted. And the first one is the Vienna Conventions. That would probably one of the first places to look. And next, any applicable article in a bilateral consular agreement or income tax treaty between the country that the person is working for, and/or is a national of, and Section 893 of the Internal Revenue Code would be the third option.

Those are the three places where one might be able to find exemption or relief from U.S. tax on those earnings. And two things that I want to make note of here. First of all, these provisions which we will discuss in greater detail later in this presentation don't apply to any other U.S.

source income that the employee might receive. It only applies to their wages from the foreign government. And secondly, these provisions generally don't apply to employees who are U.S.

citizens or lawful permanent residents. OK, what about employees of international organizations?

Employees of international organizations such as the World Bank or the U.N., United Nations, may be able to exempt their international organization compensation. That's a mouthful, a tongue twister (laughter). Their international organization compensation from U.S. income tax if they satisfy the requirements of a provision, if there is any in the agreement that created the international organization which is sometimes referred to as the Charter, or if there is nothing there that helps them, then they could consider whether they satisfy the requirements of IRC, Internal Revenue Code 893. Again, such an exemption would apply only to the compensation that they are getting from the international organization, not to any other U.S. source income. And once again an exemption like that would not generally apply to a U.S. citizen or a lawful permanent resident. We are now going to talk in more detail about how this applies based on whether the individual working for the foreign government or international organization is a U.S. citizen, a U.S. lawful permanent resident, or is in the United States on a non-immigrant visa.

And I get that this is going to be a lot of information, because what we have here is two categories of employers, we've got the foreign government and then we've got the international organization. There are some differences there. And then underneath each of those there is a possibility that the person working there is a U.S. citizen or a green card holder, or is here on a non-immigrant visa, meaning they are not a green card holder and they are here on another type of visa. So, like I say, it's a lot of possibilities, two different categories of employers and for each of those, three different categories of employees. So, if you get a little lost as we go along sometimes it helps to look at the heading on the slide because even I at moments I am like who are we talking about, so you've got to look at the slide heading, sometimes, to determine that. But we'll try to keep it clear as we keep going. So now Tracy is going to go into detail on the taxation of a U.S. citizen working in the U.S. for a foreign government, and then for an international organization. Tracy. TRACY MCFEE : Thank you, Bethany . Foreign embassies and international organizations are not required to file Form W-2 and withhold on their U.S. citizen employees for income, Social Security and Medicare taxes.

However, some embassies and international organizations may choose to voluntarily issue forms 1099 and gross up their U.S. citizen's employees' income in order to cover both income and self-employment taxes. This is usually done quarterly so that the U.S. citizen employee can make estimated tax payments since there is no withholding. Now, audience, if you are following along in our handout copy of the PowerPoint, it shows our first polling question next. However, we had a last minute change and we are going to cover the rest of this topic before asking our polling question. At this time, you can go to page five of your handout and we'll cover the first two slides on page five. Then we'll ask the polling question. We apologize for this last-minute change, but we wanted to make sure that we covered all the pertinent information before asking your question. Under U.S. law foreign governments and international organizations are not required to report compensation or withhold income and employment tax with respect to their employees. And I just mentioned this previously, but I want to reemphasize it.

As a result, U.S. citizen employees who generally do not qualify for any of the tax exemptions that Bethany mentioned earlier must report their earnings as wages and pay self-employment tax on them, under the Self-Employment Contributions Act or SECA. Self-employment tax is computed on a schedule SE which is included with a Form 1040. OK, now while a U.S. citizen employed by a foreign government or international organization in the U.S. is considered self-employed for self-employment tax purposes, they are not considered self-employed for any other federal tax purposes. So therefore, they may not claim deductions for expenses on Schedule C and are not qualified to establish a simplified employee pension plan or SEP, and there is no allowable deduction for contributions to any such employee -- self-employed pension plan. U.S. citizen employees will also be required to make estimated tax payments if they expect to have tax due at the end of the year because their compensation is not subject to income tax withholding.

Estimated payments are made using Form 1040-ES, Estimated Tax for Individuals, and the forms are filed quarterly, usually on April 15th, June 15th, September 15th, and January 15th. Now, we are coming close to June 15th right now. For 2019, the due date for the second quarter of the estimated tax payment is actually going to be on June 17th because June 15th falls on Saturday.

Also, just be aware that there is a penalty for failure to make estimated tax payments on a timely basis. And now it's time for our first polling question. Philip, are you ready? YAMALIS: I am, Tracy. Thanks so much. All right, as Tracy explained earlier about the change in the order of the polling question, if you are following along on the handout, the polling question is the third slide on page four. You can go there now, OK? Are you ready? Let's do it. Our first polling question is, "A United States citizen working in the United States for a foreign government or an international organization is, A, considered self-employed for purposes of self-employment tax only, B, considered self-employed for all purposes, C, neither A or B." I will give you a few more seconds to make your selection. Take a minute. Click on the radio button that you believe most closely answers this question based on the information that Tracy just shared with us. Again, I will give you a few more seconds to make your selection here. OK, let's stop the polling now and let's share the correct answer on the next slide. And the correct answer is A, considered self-employed for purposes of self-employment tax only. Now, let's see how many of your responded correctly. Producer? All right, I see about 67 percent of you responded correctly. So, Tracy , why don't we go ahead and give a little bit more clarification on why self-employed for purposes of self-employment tax only is the correct answer here? MCFEE: OK, Philip. I guess that wasn't so clear when I talked about it earlier, so let me clarify. So, a U.S. citizen who is employed by a foreign government or international organization who is working in the United States is considered to be an employee usually under the common law factor. So therefore, they are an employee of the international organization or foreign government. However, there is no requirement and we can't impose a requirement under the Internal Revenue Code to have foreign governments or international organizations withhold or pay employment taxes on behalf of their employee. Now, these employees are eligible to be covered under the U.S. Social Security system. So in order to pay your required Social Security and Medicare taxes so you can get coverage under the U.S. Social Security system, a U.S. citizen employee of a foreign government or international organization will need to file a self-employment tax schedule or Form SE with their Form 1040 and report and pay Social Security and Medicare taxes as if they were self-employed. However, they are not going to be considered employed for any other purpose, or self-employed for any other purpose. YAMALIS: Well, that makes sense. As you said earlier, we can't impose that the foreign organization is paying the proper tax, so that's why we consider that employee self-employed for tax purposes. MCFEE: That's right, Philip. And hopefully that cleared up that particular question for our audience.

YAMALIS: All right, so why don't we continue and talk about the U.S. citizen that's working abroad for one of those foreign government or international organizations? MCFEE: OK, let's go ahead and talk about that category of employee. So, we've already talked about how U.S. citizens working in the U.S. for a foreign government or international organization reports and pays U.S.

income and self-employment taxes. So, the audience is probably wondering how a U.S. citizen who is working abroad or overseas for a foreign government or international organization is taxed.

Well, it's a little bit different. A U.S. citizen who is working outside the United States will also report his or her earnings from a foreign government or international organization as wages for U.S. income tax purposes. But they are not required to pay self-employment tax on them.

Such an individual may be eligible to exclude foreign earned income if they meet the requirements of Internal Revenue Code Section 911 and that code section deals with the foreign earned income exclusion. And in order to exclude income under Internal Revenue Code Section 911 you have to meet all the requirements set forth in the tax code of that particular section. So, a U.S. citizen working in the U.S. for a foreign government or international organization pays U.S. income and self-employment tax, a U.S. citizen working outside the United States for a foreign government or international organization pays income tax -- U.S. income tax -- but not self-employment tax on those wages, so hopefully that clears things up. Now, I want to note that if an individual works both within and outside the United States that there's a Revenue ruling, it's Revenue ruling 67-153, and again, that's Revenue ruling 67-153 which discusses the method for allocating the income for services performed both within and without the United States. Generally, the same rules regarding reporting of compensation income and the payment of self-employment taxes that apply to a U.S. citizen will also apply to a dual citizen of the United States and another country, so again, we are talking about a dual citizen who is working for a foreign government or an international organization. However, if that individual is a dual U.S. Philippine citizen, they may be able to exempt their foreign government or international organization compensation from U.S. tax under Internal Revenue Code Section 893, which is compensation of employees of foreign governments or international organizations. And we are going to cover the requirements of IRC Section 893 later in this presentation. Lawful permanent residents working for a foreign government or international organization is the next topic we are going to discuss. An alien individual who is granted the right to permanently reside and work in the United States is referred to as a lawful permanent resident. We also refer to him as a green card holder, and they are subject to U.S. taxation on their worldwide income, whether they are living in the United States or abroad. Similar to a U.S. citizen, the compensation of a lawful permanent resident or green card holder working for a foreign government or international organization here in the United States is generally not exempt from U.S. tax. However, a green card holder must generally report those earnings as wages, but unlike a U.S. citizen they are not subject to self-employment taxes on them and they cannot voluntarily pay self-employment tax on those wages.

So again, it's another little twist here under the tax code. When we are talking about a green card holder or lawful permanent resident, those terms are interchangeable, if they are working for a foreign government or international organization here in the U.S., then they are going to be generally subject to income tax on those wages and will report them as wages on their tax return, their U.S. income tax return Form 1040. However, they will not be subject to self-employment tax on them. So, a U.S. citizen does pay self-employment tax on the same type of compensation, whereas a green card holder in the U.S. would not pay self-employment tax on that compensation. So, as we noted earlier, foreign governments and international organizations are not required to withhold on or report compensation, or Social Security taxes and Medicare taxes with respect to their employees. If a green card holder expects to have tax due at the end of the year, then they also must make estimated tax payments. And as I mentioned earlier, estimated tax payments are made using Form 1040-ES estimated tax for individuals and are due quarterly, April 15, June 15, September 15th, and January 15. And again, as a reminder, it's important to make these payments because there is a penalty for failing to do so in a timely manner. OK, Philip, I think it's time for our next polling question. YAMALIS: OK, Tracy , I have to agree with you. So, our second polling question is, "A lawful permanent resident or a green card holder, working in the United States for a foreign government or international organization must generally report their compensation as wages? Is that true or false?" Take a minute and click on the radio button that you believe most closely answers the question. Click on A if you believe it's true, click on B, if you believe it's false. And it's based on the information that Tracy just shared with us. Let me give you just a few more seconds to make your true, false selection. All right, I'm going to shoot for 100 percent on this one, right, Tracy? We are going to stop the polling now and let's share the correct answer on the next slide. And the correct response is, A, true. Let's see how you did. Ninety-five percent of you responded correctly on that. I don't think Tracy could have made it any clearer. All right, way to pay attention. Thanks, folks. And, Tracy, I believe you are going to cover non-immigration alien with the A or G visa holders next, is that correct? MCFEE: That's correct, Philip, and great job, everyone. OK, let's talk about non-immigrant alien A or G visa holders.

Under U.S. immigration law and Department of State rule the only non-immigrant aliens who are authorized to be employed by a foreign embassy, foreign consulate, miscellaneous foreign government office or a foreign government mission to an international organization in the United States are those aliens who are admitted in an A1, A2, G1, G2 or G3 visa status. Now, you need to be aware that aliens with an A3 or G5 visa, again, I didn't mention them up in this first bullet, they are not considered to be foreign government or international organization employees but rather they are the personal or domestic employees of foreign government or international organization officials who are paid from the private funds of the particular foreign government or international organization official. Only non-immigrants submitted to the United States under a G4 visa are authorized to work for an international organization. Now, I also want to note the aliens admitted under any other class of non-immigrant visa such an H or L class visa are not permitted to work for a foreign government or international organization in the United States. Under U.S. tax law, a non-immigrant alien present in the United States in A or G visa status with the exception of the A3 or G5 visa holders are considered a foreign government related individual, a category of exempt individual whose days of physical presence in the United States do not count for purposes of the substantial presence test. And the substantial presence test is used to determine if someone is a resident alien for U.S. income tax purposes.

The term foreign government-related individual means an individual or member of the individual's immediate family who is temporarily present in the United States as a full-time employee of an international organization by reason of a diplomatic status or by reason of a visa other than a visa that grants lawful permanent residence that the Secretary of State of the Treasury has determined represents full-time diplomatic or consular status. Please note that an exempt individual is not someone who is exempt from U.S. income tax, rather the term, "exempt individual" refers to an individual who is exempt from counting days of physical presence for purposes of determining U.S. residency status under the substantial presence test. Generally, an individual present in the United States under an A or G visa, other than the A3 or G5 class visa will be considered a foreign government related individual whose days of physical presence, as I mentioned earlier, will not count for purposes of the substantial presence test. And that will result in them being treated as non-residents for federal income tax purposes, for as long as they maintain their A or G visa status. So an individual who is present in the United States under an A3 or G5 visa, as I mentioned earlier, as a personal employee, attendant, or domestic worker for either a foreign government or an international organization official, they will not be considered a foreign government related individual, and must count all days of presence in the United States for determining whether or not they meet the substantial presence test. And if that individual is present in the United States for 183 days or more under the substantial presence test, that A3 or G5 visa holder will be considered a U.S. resident alien for federal income tax purposes and will be subject to U.S. tax at graduated rates on worldwide income in the same manner as a U.S. citizen or green card holder. Various tax exemption options, we are going to go through some of them, each of which are independent of the other, may permit an A or G visa employee to exempt their foreign government compensation from federal income tax, each of the tax exemptions listed has specific requirements that must be satisfied in order for that non-immigrant visa holder's foreign government compensation to qualify for exemption from U.S.

tax. The first place to look and the first consideration is you look at Article 34 or 37 of the multi-lateral Vienna Convention on diplomatic relations or Article 49 of the multi-lateral Vienna Convention on consular relations, whichever is applicable. After that you are going to consider applicable bilateral consular conventions if they exist. And if you need more information on these types of agreements you can contact the Department of State Office of Foreign Missions, and they will help you with it. Now, if the compensation doesn't qualify for exemption under any of the provisions I just discussed, the next step is to check the tax treaty if there is one in existence between the U.S. and that particular foreign country. Publication 901, which is titled U.S. Tax Treaties, is a good resource for this purpose. You can also find the text of the tax treaties, in fact the complete text of them, on irs.gov. And we'll share that web address with you at the end of this webinar. The final consideration is whether Internal Revenue Code Section 893 is applicable. And stay tuned, we are going to talk about Code Section 893 shortly. Now that I've talked about exemptions that may be available to non-immigrant visa holders employed by foreign governments let's now turn our attention to those non-immigrant visa holders who are employed by international organizations, which as I mentioned earlier can only be G4 visa holders. Now, a G4 visa holder working for an international organization here in the United States may be able to exempt their wages from U.S. tax if they satisfy the requirements either of a provision if one exists in an international agreement or charter that created the international organization or under Internal Revenue Code Section or IRC 893. To claim the exemption, an international organization employee must be able to demonstrate that he or she meets the requirements of either the internal organization agreement provision or IRC 893. And they must know the number of the executive order designating the organization as an international organization and the article number of the international organization agreement tax exemption provision if one exists. Now, as I mentioned earlier, the tax exemptions available under the international agreements, including international organization charters generally do not apply to U.S. citizens and lawful permanent resident employees of foreign governments and international organizations. However, sometimes the tax exemption exclusion is not set forth within the actual provision of the agreement, but it is found in a U.S. Senate reservation. So, it is critical to review the international agreement and any reservations carefully to determine whether the provision is applicable to the particular foreign government or international organization employee. And this can be fairly complex. For example, Section 18(b) of the convention on privileges and immunities of the United Nations provides that the salaries and emoluments paid to U.N. officials are exempt from taxation. When this agreement was ratified by the United States Senate, it was subject to certain reservations. One of those reservations is that immunity from taxation does not apply with respect to U.S. nationals and lawful permanent residents. So, if after reviewing and considering any applicable treaties or international agreements no relief can be found, then the next step to take is to look at Internal Revenue Code Section 893 and see if it's applicable to the employee. IRC Section 893 applies only to wages, fees or salary earned as a foreign government or international organization employee. And I want to stress the term here employee, because this exemption does not apply to independent contractors. Now, for purposes of determining whether someone is an employee or an independent contractor, we would apply the common law rule to see whether that individual meets those common law factors to be considered as an employee, or whether they fall under treatment as an independent contractor. And a good place to look at what those rules are is to refer to IRS publications 1779 which is independent contractor or employee and IRS Publication 15-A which is the employer supplemental tax guide. The exemption under U.S. tax law applies only to current foreign government employees and not to former employees, so pensions received by former employees are not exempt from tax under Internal Revenue Code Section 893. Now, Phillip, we've covered a lot of material here, but I think it's a good time for another polling question.

YAMALIS: Yes, I think this is perfect timing, Tracy , so let's do it. Once again, our third polling question is going to be at true false question, so A for true, B for false. The question is, "IRC Section 893 applies to both employees and independent contractors working in the United States for foreign governments and international organizations." Again, that would be A, true, or B false. Take a minute and click on the radio button that you believe most closely answer this true-false question, based on the information of course that Tracy just shared with you, do you think the correct answer is true, or B false? I will give you just a few more seconds to make your selection. All right, a couple more seconds. All right, let's go ahead and stop the polling now and we'll share the correct answer on the next slide. And there it is, the correct response is B, false. Let's see how you responded. And, OK, I see about 68 percent of our audience responded correctly on that, Tracy , so let me ask you to give us just a bit more clarification on that. MCFEE: OK, Philip, will do. I know I covered, yes, I covered a lot of materials, so I can understand why people might have gotten a little confused. So, Code Section 893 is specific in that it only applies to wages, fees or salaries earned as a foreign government or international organization employee. Section 893 does not extend this exemption to independent contractors. YAMALIS: Right. MCFEE: So, under U.S. tax law, if you are an independent contractor you're not going to qualify for Code Section 893. YAMALIS: I think MCFEE: Yes, so that's why that question, the response to it is B, false. YAMALIS: All right.

Let's move on and talk about when 893 does not apply. MCFEE: OK, so we are going to continue our discussion of 893, so everybody, you are going to learn more and more about it. So as already mentioned and just explain it again that the exemption under 893 does not apply to independent contractors. Another group it doesn't apply to are employees of controlled commercial entities. Or it also will not apply if services are performed primarily in connection with the commercial activity of a foreign government either within or outside the United States.

Now, I just used the term controlled commercial entity, so what is that? A controlled commercial entity is an entity that is 50 percent or more owned by a foreign government and that is engaged in commercial activity, either inside or outside the United States. So, who else is not covered by 893? Well, IRC 893 also does not apply to NATO employees. And that's because NATO is a political and military alliance, not an international organization. However, the wages of NATO employees may still qualify for tax exemption under the provisions of the NATO Status of Forces Agreement which we sometimes also refer to as SOFA and the NATO Headquarters Protocol Agreement. OK, so how do you qualify for an exemption under 893 if you are eligible to get it? To qualify for the exemption under Section 893, a foreign government employee must meet all three of the following requirements, the first of which is the employee must not be a U.S.

citizen, or if they are a U.S. citizen, they must also be a citizen of the Philippines. The second is the employee must perform services of a similar character to those performed in the United States -- performed by U.S. government employees in foreign countries. So again, the second requirement is the employee must perform services of a similar character to those performed by U.S. government employees in a foreign country. And the third requirement is the employee must be able to show that the foreign government grants an equivalent tax exemption to the U.S.

government employees performing similar services in its country. This IRC Section 893 tax exemption is broader in scope than the exemptions available to foreign government employees under the Vienna Convention in that it applies to all foreign embassy and consulate employees, including those with "permanently resident-in status" and miscellaneous foreign government office employees. Now, I just used another new term, so let me define it for you. The term "permanent resident-in status" refers to green card holder and also A and G visa status employees where the foreign government does not pay the employee's transportation cost to and from the United States. Internally, the State Department refers to these A and G visa employees as either PA or PG visa holder employee. Collectively, both categories are often referred to as local hires.

Unlike foreign government employees, an employee of an international organization must satisfy only one requirement to qualify for the 893 tax exemption. OK. So, it's different for international organization employees than it is for foreign government employees, so now we're only talking specifically about international organization employees. So, to qualify for the Section 893 tax exemption as an international organization employee, the condition is that you must not be a U.S. citizen or if you are a U.S. citizen, you also have to be a citizen of the Philippines. Unlike for foreign government employees, the similar service and tax reciprocity requirements will not apply to international organization employees. So, for foreign government employees you have to meet either both the similar service and tax reciprocity requirement, where if you're an international organization employee, those requirements do not apply to you.

OK. So, I've just given you some more new terms. There's a lot of terminology in today's webinar, so we're going to define the next the terms that I just used and that is similar services and tax reciprocity. So, what do I mean by that? Although, the 893(b) requires the Secretary of State to certify to the Secretary of Treasury which countries meet the similar services and tax reciprocity requirement, the certification is not a prerequisite for the tax exemption. So, the similar services requirement is that the foreign government employee here in the United States has to perform similar services to that of a U.S. government employee performing those services in a foreign country. And the tax reciprocity requirement is that the foreign government employee here in the United States who is going to be exempt from taxation under 893 would also that same circumstance would apply to the U.S. government employee working overseas. So, performing in a similar situation. So, I hope that is somewhat clear, if not we can clarify that more in a little bit, but let's go on and talk a little bit more about 893.

So, I already mentioned that Code Section 893(b) requires the Secretary of State to certify to the Secretary of Treasury which countries meet the similar services and tax reciprocity requirements. However, this certification is not a prerequisite to somebody being eligible to take a tax exemption under Code Section 893. So, what happens in cases where the State Department has issued the 893(b) certification? Well, in cases where there is an 893(b) certification, the IRS will apply the certification to all tax years for which the tax and law are the same as those on which the certification was based. However, in cases where State Department has not issued an 893(b) certification or it's not applicable to the foreign government employee in question, the employee has the burden of proof to establish to the IRS that the similar services and tax reciprocity requirements have been met. Now, it's important to note that while the State Department has issued a number of 893(b) certifications in the past, those certifications are only applicable only to the foreign embassy and consular employees and not miscellaneous foreign government office employees. To date, no certifications have been issued by the State Department covering miscellaneous office miscellaneous foreign government office employees.

For further information regarding the foreign countries to which the State Department has previously issued an 893(b) certification and their current validity, you can contact the Department of State's Office of Foreign Missions. OK. So, let's talk about the interaction of Section 247, The Immigration and Nationality Act and IRC Section 893. So, although, IRC Section 893 does not specifically exclude lawful permanent residents from eligibility for the tax exemptions like U.S. citizens, generally, green card holders will not be eligible for the tax exemption by reason of U.S. immigration law. OK. So green card holders generally are not going to be eligible for Section 893 exemption from U.S. tax because of U.S. immigration law and that's because Section 247 of The Immigration and Nationality Act requires individuals who are green card holders at the time of their initial employment with a foreign government or international organization or who subsequently acquire lawful permanent resident status, so they come in under a visa and then they become a lawful permanent resident, while a resident of the U.S. while working for a foreign government international organization. If that happens then they're required to have their immigration status adjusted to that of a non-immigrant A or G visa holder unless they execute a waiver which is a U.S. citizenship and immigration services USCIS Form I-508. This waiver will cause the individual to give up all privileges and immunities associated with their occupational status, including any exemption from U.S. tax with respect to their foreign government or international organization compensation. That is why green card holders because of the interplay between because of the restrictions and the interaction with Section 247, once they sign that I-508 waiver then they're not going to qualify for exemption under 893 because basically they've waived that right. Under Section 247 of The Immigration and Nationality Act, which is 8 USC Section 1257, individuals who are lawful permanent residents at the time of their initial employment, so we're talking about a green card holder and at the time they were a green card holder when they become employed by a foreign government or international organization, or those who subsequently acquire a lawful permanent resident status, so they came in and they weren't a green card holder but then while they're working for the foreign government or international organization they become a green card holder, they have to sign the waiver.

In other words, they have they must sign the form, the USCIS Form I-508. Foreign governments and international organizations are required to notify the State Department when they hire a lawful permanent resident or when an employee becomes a lawful permanent resident. Form I-508 is a three-part form. The original is retained by USCIS, which is U.S. Citizenship and Immigration Services, while the other copies are provided to the State Department and the IRS. Failure to file failure to sign Form I-508 within 10 days of receiving notice from USCIS, they will send to that notice on Form I-509, that will result in the employee immigration status being adjusted by USCIS from lawful permanent resident immigrant status to A or G non-immigrant visa status.

Now, if you need further information about the immigration consequences of not signing and filing Form I-508, then you need to contact or please contact USCIS directly. Signing Form I-508 has some consequences. First of all, by signing the form, it will allow the employee to retain their green card but it will also result in them losing all privileges and immunities associated with their occupational status under U.S. law, including any tax exemptions applicable with respect to their foreign government or international organization compensation. Once a green card holder employee signs and files the USCIS Form I-508 waiver, they will no longer be able to claim the tax exemption under Code Section 893 of the Internal Revenue Code. Philip , it's now time for our fourth polling section. Would you like to share the question with our attendees? YAMALIS: Sure. So, our fourth polling question is also a true/false question. The question is signing United States CIS Form I-508 disqualifies one from claiming the exemption under IRC Section 893. Take a minute. Click on the radio button that you believe most closely answers the question based on the information that Tracy just shared with us. Do you think the correct answer is, A, true or B, false? Let me give you just a few more seconds to make your selection. OK. True or false. Let's go ahead and stop the polling now. We'll share the correct answer on the next slide. And the correct response is, A, true. Let's see what percentage of you responded correctly. All right, Tracy , I got 86 percent of our respondents responded correctly. And I'll let you clarify that a bit in terms of why it would be a true response. MCFEE: OK. So, I can understand that it's a complicated concept, but basically when you sign a USCIS Form I-508, you are waiving your right to certain privileges and immunity, including the exemptions from tax, from U.S. tax. Therefore, that would make you ineligible for IRC Section 893. YAMALIS: There it is. OK. Well, it looks like you're continuing so hopefully, you were able to get a drink of water there because you're going to continue with explaining some of those consequences of signing that Form I-508 just a bit more. MCFEE: OK.

Philip, let's finish our discussion of those consequences. OK. So, compensation received by a green card holder employee prior to the date of signing the USCIS Form I-508 is eligible for exemption from tax under IRC Section 893 provided that they meet the similar services and reciprocal exemption requirements of that code section. So, up until the day you sign that I-508, even if you're a green card holder, if you meet the eligibility requirement of Section 893, which means that you meet the similar services and reciprocal exemption requirement, then that compensation up until that date will be exempt from tax under 893. However, once you sign the waiver, the USCIS Form I-508, any compensation you receive on that date that you signed the waiver or after that date you signed the waiver is not going to be eligible from exemption from tax under Section 893. And that is also further explained in Treasury Regulation 1.893-1 (a)(5)

and (b)(4). There's also a court case that addresses that issue and that is Clifford A. Abrahamsen v. Commissioner, 142 T.C. No.22 and that is a court case from June 9, 2014.

Signing USCIS Form I-508 has no effect on any tax exemption derived under an international agreement such as a tax treaty, consular agreement, international org charter or other things of similar nature that is not dependent on the provisions of the Internal Revenue Code. And that's further explained in Treasury Regulation 1.893-1(c). . Now, I'm sure the audience is ready to hear another voice. Bethany , you're up now. Can you go over some examples to help our audience understand this? KRAUSE: Certainly, Tracy , I'd be happy to do that. OK. Our first example that shows the effect of signing USCIS Form I-508 involves Oscar . And Oscar is in the United States on an A-2 visa. He's an administrative or technical staff employee at a foreign consular office here in the United States. So, he's working for a foreign government here in the U.S. at that foreign government's consular office. Oscar recently applied for a green card. And as part of that application process, he signed a USCIS Form I-508. And I saw some questions before I came back on here and they were about why would someone sign USCIS Form I-508. And that is part of the application process for getting a green card, which means for becoming a permanent resident of the United States. So, when a person is applying for a green card, they are signing a Form I-508 as part of that process. So, hopefully, that answers the question of why a person would be signing that form. So, here we have an example involving Oscar . And as part of his process of applying for a green card, he has signed the U.S. Customs and sorry, I want to say Customs, now, that was the old name years ago U.S. Citizenship and Immigration Services Form I-508. OK. So, under the bilateral remember we talked about how you look at the agreements and then you drop down to the code, so let's see if he can find some relief anywhere under the bilateral consular agreement between the foreign country and the U.S., it provides that official emoluments, salaries, wages or allowances received by a consular employee as compensation for his services at a consulate are exempt from U.S. tax unless the person is a national of the receiving state which in this case would be the United States and not also a national of the sending state which would be the country which has a consular office here. Since Oscar is not a U.S. national and since the signing of the I-508 has no effect on the bilateral consular agreement, Oscar's wages from the foreign government are exempt from U.S. tax. And, again that was a little strange wording there, the second set of quotes. So, if you're having a hard time wrapping your mind around it, I'll go over it one more time. What it's saying is unless he's a national of the U.S. and not also a national of the other country and in this case because he's not a national of the U.S., then we don't have to finish the sentence. But if he were and there are instances like that where a person could be a citizen or national of both countries, anyway, in Oscar's situation that's not the case, he's only a national of the U.S., I mean, he's only a national of the foreign country, not the U.S. and since that's the case, in signing a 508, of course, doesn't have an effect on the bi-consular agreement. It would have an effect if he had turned the code, but he doesn't, made the turn to the code because he already found relief under a bilateral consular agreement. So, Oscar's wages from the foreign government are exempt from U.S. tax. Now, we'll look at another example. And this one involves Juliet . She is in the United States on a G-4 visa and she works for the World Bank which is an international organization. Juliet recently applied for lawful permanent residence status and as part of that process, she signed USCIS Form I-508.

Article VII Section 9B of Articles of Agreement of the World Bank provides that the salaries and emoluments paid by the bank to its employees who are not local citizens or local nationals are exempt from taxation. Because Juliet is not a U.S. citizen or national and, again, the signing of an I-508 doesn't have an effect on an international agreement so it has no effect on the tax exemption in this Articles of Agreement with the World Bank, then Juliet's World Bank wages are exempt from U.S. tax. OK. Let's look at another example. Sierra works for a foreign embassy in the United States as an administrative or technical staff employee. She has an A-2 visa and she has never applied for a green card and she is considered by the State Department to be a local hire. In other words, she was here and was hired here. She cannot find relief under the Vienna Convention nor under the applicable bilateral consular agreement. The foreign country for which she works does not have an income tax treaty with the U.S. So, now that she's looked at all of those, her final hope would be Internal Revenue Code Section 893. If she can show that the similar services and tax reciprocity requirements were met, then Sierra's wages would be exempt from U.S. tax under the Internal Revenue Code Section 893. OK. This is our last example, and this involves Charlie . And he is a lawful permanent resident who works in the United States for the United Nations. When he began his employment with the UN, he signed USCIS Form I-508. The tax exemptions provided under the Vienna Convention do not apply to international organizations and their employees, so that doesn't give him any relief. While there is a tax exemption under the Convention of Privileges and Immunities of the UN, it doesn't apply to U.S. citizens and lawful permanent residents by reason of the Senate reservation. So, remember, he had already signed a USCIS Form I-508 when he started working at the UN meaning he had a green card, so he would be a lawful permanent resident. The only potential tax exemption that he could have now that he's already dropped down this far, he already looked to international agreements, the Vienna Conventions don't apply, looked at the international agreement, the Convention on Privileges and Immunities of the UN, that didn't help him because of a Senate reservation in there and Tracy , I think, we'll go into more detail on that if she hasn't already. I think she just did. And the only potential tax exemption available to Charlie then would be 893, the code section. But because he signed the I-508, he's not able to exempt his wages under Internal Revenue Code Section 893. So, in this case, Charlie's wages would be taxed by the United States, his wages from the UN for working here. OK. Listed on this slide are some resources that you might find helpful. Publication 519, U.S. Tax Guide for Aliens has a chapter, Chapter 10 of that publication, deals with employees of foreign governments and international organizations. Publication 901, U.S. Tax Treaties, is another helpful resource and both of these publications are available online at IRS.gov. The third bullet here is a web address that'll take you to a landing page and then the landing page has links to a number of different irs.gov web pages that you may find helpful. Here are some more resources. Here's a link to income tax treaties between the U.S. and foreign countries as well as a couple of phone numbers in case you need assistance, an 800 number for people calling from within the U.S. and an international number for those outside the United States. OK. I'm going to turn things over to Philip now to open up the question and answer session. Philip?

YAMALIS: OK, Bethany . Thank you and thanks for those excellent resources which are provided of course in your resource document. So, it's me again. It's Philip Yamalis. I'll be moderating the question and answer session. Before we start the Q&A session, I definitely want to thank everyone for attending today's presentation on the United States taxation of employees of foreign governments and international organizations. Tracy McFee and Bethany Krause will be answering your questions today. Now, if you haven't input your questions, there is still time to do so. Go ahead and click on the "ask question" button, type your question and simply click "submit" and it will make its way over to us. Now, one thing before we start, we might not have time to answer all the questions submitted, however, let me assure you that we're going to try to answer as many questions that we have time for. Now, also, if you are participating to earn a certificate and related continuing education credit, you'll qualify for two credits by participating for at least 100 minutes today. Now, that's 100 minutes from the official start time of the webinar which mean the first eight or nine minutes that we took chatting, that chatting that we engaged in before the top of the hour, that did not count towards 100 minutes. I'm sorry. But if you stay on at least 50 minutes from the official start time of the webinar to

top of the hour, you will qualify for one credit. Again, the time we spent chatting before the webinar doesn't count towards that 50 or 100 minutes. So, I see that Tracy and Bethany , we've received quite a few questions. So, I want to get started so that we can get to as many as possible. However, I do see in the question and answer box here that many requests were repeating some of the citations and references that you made to us. So, can I ask you to repeat some of those citations now before we get into some of the actual questions and answers? Tracy ? MCFEE: Certainly, Philip. We can do that. One of the citations that both Bethany and I mentioned was Clifford A. Abrahamsen versus Commissioner and that citation is 142 T.C. No. 22 and that's from June 9, 2014. And this case was cited when I talked about the consequences of signing the USCIS Form I-508 specifically that compensation received on or after the day of signing the form is not eligible for exemption from tax under IRC Section 893. So, that was one of the references we made to a court case. I know that we mentioned several regulations in particular and code sections, one code section that we mentioned of course, and we covered in great detail was Internal Revenue Code section 893. That deals with an exemption from U.S.

taxation that pertains to individuals who are employed by foreign governments or international organizations who are not U.S. citizens or if they are U.S. citizens are citizens of the United States and the Philippines. And in order to meet the requirements of 893 in addition to not being a U.S. citizen or not a citizen of the U.S. and or if you are a U.S. citizen that you also are a citizen of the Philippines, you also must meet two other requirements if you're a foreign government employee and that's that you must perform services of similar character to those performed by U.S. government employees in the foreign country and that the employee must be able to show that they met the foreign that the foreign government grants an equivalent tax exemptions to U.S. government employees who are performing similar services in its own or foreign country. So, basically, it's equivalency that a U.S. government employee who is performing services in a foreign country for the U.S. government, they would have to be treated in much the same manner that the foreign government employee is being treated here in the U.S.

So, hopefully that clears that information is helpful. Most of the other references that we made throughout the presentation including the Treasury Regs are included on the slide.

YAMALIS: Very good. So, refer to that resource document and thanks. That was a great synopsis, a good way to clarify those and hopefully that answered a lot more questions. But I do want to refer our audience to that technical to that resource document, the handout where you'll see those all listed there for you. So, let's go ahead and get into some more of these questions.

I'm going to start off by asking you, Bethany . The question came in that says, "Hey, look, I'm a tax practitioner and not all clients tell us that they work for a foreign government. They come in. We prepare their taxes. What's the sure way to recognize a foreign or an international organization?" KRAUSE : OK. Well, Philip, as we mentioned during the presentation, they don't have, the foreign governments and international organizations are not required to report on forms W2 or 1099 nor are they required to do any kind of withholding. And so, when you're preparing taxes for people, there's always even if they're not an employee of a foreign government or international organization, there are various types of income that aren't subject to reporting. Sometimes people work side jobs as kind of a contractor and get cash, et cetera.

So, I think that probably the best answer I could give to that is when you're preparing tax returns, the burden is certainly on the taxpayer to tell you about income, but it seems that it would also be a good idea for the tax preparer to ask some pertinent questions about various sources of income. YAMALIS: Right. KRAUSE: And I would think particularly in this case, I mean, if it's your main source of livelihood, I'm sure the taxpayers are very aware they got this income. So, I guess the issue is maybe the practitioner just asking some questions about what sources of income did you have during the year, and some practitioners that I've known in the past actually had a questionnaire that they had people fill out and maybe a blank for other types of income and that sort of thing. So, I think it's a matter of probing for it a bit. YAMALIS: Very good. Yes. And that's why we're treating those types of employees self-employed that there's burden on the organization to clarify and to report those wages on a W2. That's why we're asking those employees to be considered self-employed in that instance. I think I'm understanding this now excellent. So, I do want to clarify before going to the next question that there is no resource document. I want to clarify that those citations that Tracy just went over are on the slides and they can be downloaded. You can download that PDF of the slides for future reference so that you can have those citations. So, I did want to clarify it. I think I mentioned resource document. It is the PDF of the slides. So, I hope you understand that, and I apologize if I did not emphasize that earlier. So, Bethany, let me go on and then follow up with this question. Are foreign entities then required to submit a W2? Are there any that do you know of that would withhold the federal withholding or Social Security Medicare taxes out of W2? KRAUSE: Well, I think the term "foreign entity" there I think the person might have meant a foreign government. Again, they're not required to do submit W2s. Now, having said that, there are some in the past and a few currently foreign governments and/or international organizations that have voluntarily given their people forms 1099 or something like that. Some of them give their folks a statement of earnings and that is helpful for those people in preparing their tax returns. And there are a handful of them, too, that have voluntarily taken it upon themselves to help the people remit taxes to the government. So, in some instances, that may take the shape of them grossing up the person's wages by the amount that's sent in or what have you. So, if you're lucky enough to work for one of those organizations or governments, then, they may be already helping you with that by giving you a 1099 or a statement of earnings at the end of the year and letting you know, "Hey, we remitted this to the government on your behalf." You would have to have agreed to that, too, though is my understanding. YAMALIS: Got you. All right, but there aren't any foreign entities, or I mean foreign governments or international organizations that are submitting W2s that we're aware of. KRAUSE: No, not that I'm aware of. No.

If there are, I'm not really aware of it. Tracy may know something different, but I don't know that I have seen W2s per se. YAMALIS: OK. Tracy, do you want to give your input on that?

MCFEE: Well, I don't recall an instance where we've seen W2s issued in that scenario. So, the few instances that we've seen of it, they filed a 1099 in lieu of W2 or issued to the employee what we would consider to be something in the same format as a W2, but not an actual IRS form or U.S. form W2. YAMALIS: OK. So, remember folks, if they're working for a foreign organization, or a foreign government, I mean, a world organization or foreign government, we're not looking at W2s. We're looking at self-employed income and that's how we're reporting it. So, let me follow up then, Bethany, with a question to you. This so-called 1099 income or self-employed income, where does it get reported? Does it get reported on line one, wages and salaries, or line 21, other income on the 1040? KRAUSE : It should go on the line one as wages and salaries and then as Tracy had explained, they then report it on Schedule SE and assert self-employment tax on that if they are a U.S. citizen. YAMALIS: OK. KRAUSE: And if they're not a U.S. citizen, then, those earnings are not subject to self-employment tax. YAMALIS: Very good. KRAUSE: And I don't want to be misleading. This is very specific to everything we're talking about today is very, very specific to employees of foreign governments and international organizations. YAMALIS: Correct. That's a good caveat to throw in there so that we don't allow anyone to misunderstand what we're talking about. OK. Tracy, let me go ahead and throw a question at you. So, if they don't withhold social security tax on a U.S. citizen employee, will these employees collect Social Security benefit in the future? I think I know the answer to that. Let's throw it over to you. MCFEE : Well, Philip, I'm not going to test your knowledge on this one. So, I'll go ahead and answer it. The answer is yes, as long as the U.S. citizen who is working for the foreign government or international organization here in the United States files a Schedule SE to report and pay their self-employment tax as if they were self-employed. So, again remember as we mentioned earlier that the foreign governments and international organizations that have U.S.

citizen employees here in the United States are not required to withhold and pay Social Security or Medicare taxes along with income taxes on behalf of their employees. So, the only way for those people to get credit for social security tax purposes is for them to report, the employee themselves, to report and pay self-employment tax on their wages from the foreign government or international organization. They're only self-employed for self-employment tax purposes. But by filing that Schedule SE with the Form 1040, they will get credit for the compensation that they received and for the taxes they paid for social security purposes. So, that's the benefit of doing that. YAMALIS: Of course. I want to thank the tax practitioner that asked that question because I think that helps clarify matters. File the self-employment, the Schedule SE, in this way, you're eligible for the social security benefit later and their retirement benefits. So, thanks for that question. That was that helped clarify things, I think. All right, so, let me continue with you, Tracy. Can folks repeat the similar services requirement and tax reciprocity requirement that's out there? MCFEE: Sure, Philip. I'll be glad to go over that one more time.

And basically, the whole concept behind the tax reciprocity and the similar services requirement is that the foreign country that is having the U.S. government employee U.S. citizen working in that country for the U.S. government, if the U.S. government sends its U.S. citizens to a foreign country and they are working in a similar capacity as a foreign individual here, so, they're a U.S. citizen working overseas for an organization or an international organization or a U.S. consulate or embassy, they need to be treated the same way as someone who's performed the same type of job here in the U.S. for the foreign government or international organization. So, a organizations, for example, and they're treated a certain way, those same rules should apply to foreign individual comes here to the United States and they perform services for international a similarly situated U.S. citizen who is in a foreign country performing similar services for an international organization or foreign government. So, basically, we're looking for both sides to be treated the same, both in terms of the services that are performed and their tax requirements. So, they have to be exempt if we're going to grant if a foreign individual here in the United States working for a foreign embassy or consulate is going to be granted a tax exemption here in the U.S., then, a U.S. government employee who's doing a similar service for the U.S. government at a consulate or embassy in that foreign country should also be exempt from tax. Do you think that helps, Philip? YAMALIS: It does. It does. Thank you so much. Let me turn it over to you, Bethany , and throw this question at you. Is a person working inside an embassy that is located within the United States, so the embassy let's say is in Washington, D.C., is that person considered to be working on United States soil for tax purposes or not?

Because, this particular tax preparer thought that embassies were considered foreign soil.

KRAUSE: No. They are considered to be working in the United States for tax purposes. Yes.

YAMALIS: OK. So, if they're working in an embassy that's within the United States for tax purposes, they're considered to be working in the United States. KRAUSE: Yes. And it works the other way as well. Let's just say that I somehow moved over to Europe and lived in a country there and another foreign country, a third foreign country had an embassy there and I got hired there as a local hire. Meaning, I didn't work for the U.S. government. I just happened to be living in Europe. I'm a U.S. citizen. I'm living over in Europe and let's say some other country from another part of the world has an embassy and they're in Europe or a consular office maybe, and let's say that I hired on to do some secretarial work there or something for them. They needed somebody to do some technical or secretarial type or clerical work. So, I said "OK, sure.

I'd like to earn some money there" and I get this job. Now, I'm a U.S. citizen and I'm working in a foreign country for a foreign government. And so, that is maybe I made a bad example, OK? That is foreign soil. Let's say that I was working in a U.S. embassy in a foreign country and I was an employee. If it's the State Department that's hiring me, then, I have a problem because it's U.S. government wages. So, I can't exclude them anyways under foreign earned income exclusion. But I am still working in a foreign country. Now, if for some reason let's say a temp service had hired me and the U.S. embassy and that country needed some typing done or something and the embassy contracted with the temp agency over in that country. And let's say I've been living in that country for years and I work for this temp agency and I'm now working in a U.S.

embassy. I'm a U.S. citizen. I'm working there, but I'm not working for the government. I'm working for a company that the government contracted with to have some typing done or something.

In that case, it is foreign earned income to me. The fact that I'm doing it in an embassy doesn't mean that it's not in a foreign country because that embassy is located in a foreign country. So, I know I've heard of that before, too, years ago that people used to think that. I guess apparently at this point, we don't. I hope that answers the question. When I say "people", I mean lay people. You'd hear about somebody rushing into an embassy to give birth to a child so that it can be on U.S. soil. I don't think that it necessarily works that way and it certainly doesn't when it comes to taxation. YAMALIS: All right. KRAUSE: So, I hope that adequately answered it. YAMALIS: Yes. Well then let me follow up with Tracy.

If a U.S. citizen is working abroad and the foreign country does not withhold taxes, can the citizen pay taxes in the United States? MCFEE: Well, Philip, this is a much broader question applied to all U.S. citizens, not just those working for a foreign government or international organization.

U.S. citizens are taxed on their worldwide income regardless of where they live or work. So, even if the foreign country does not withhold income taxes or other types of taxes or the first particular U.S. citizen is not liable for foreign taxes to that foreign country, that doesn't make a difference. They still are required to report their worldwide income on a U.S. income tax return. Now, they may not be fully taxed on that U.S. that worldwide income, they may be eligible to take for example foreign tax credit to mitigate the consequences of tax grab or they may be able to exempt or exclude foreign income under the foreign earned income inclusion, if they meet the requirements. But, they do need to report their worldwide income to the United States and pay any applicable tax. YAMALIS: Very good, very good way to look at it. And let me just follow up and ask you this question. What's the difference between a U.S. national and a U.S. citizen at least for tax purposes? MCFEE: Well, that's an interesting question because really "U.S. national" is a term that maybe a lot of people aren't really familiar with what it means. So, a U.S. citizen is any person who's a citizen of the United States and you can become a citizen of the United States by having been born in the United States or having been naturalized or by another application of law which would be basically having been born abroad to one or more U.S. parents. Those are ways of becoming a U.S. citizen. Unlike a U.S. citizen, a U.S. national is any person who has irrevocable right to reside in the territory of the United States without limitation and it will include citizens and all U.S. citizens who are also U.S.

nationals. But the term "U.S. national" also includes other, a relatively small number of people who have unlimited right to reside in the United States but who are not U.S. citizens. So, it doesn't include lawful permanent residents because they have the right they're given an immigrant status. So, when we're talking about U.S. nationals, we're referring to people born in certain U.S. territories such as American Samoa or the Swains Islands. YAMALIS: Right. MCFEE: And in those cases, those people are not U.S. citizen at birth, but they are U.S. nationals who have a right to reside in the territory of the United States without limitations. So, they're free to come and go from Swains Island or American Samoa to the U.S. without the need for a passport for example. YAMALIS: Right. MCFEE: And it also applies to territories and which territories it applies to really is based on history and when that particular territory had those rules in place, so you're not a U.S. national. If you were born in Guam after 1950, for example, you're a U.S. citizen, not a U.S. national. But if you were born prior to 1950, you could have been a U.S. national, not a citizen. So, that's just for example. YAMALIS: Very good. Thank you. I did see that we had a lot of questions regarding the taxation of green card holders that are working abroad as well as questions about how the spouse of an individual working here in the United States for a foreign government or international organization would file. We'll be having another webinar in the near future. Some of those questions will be addressed there in terms of determining residency status for U.S. tax purposes and that will be on the June 27 webinar that we'll have. So, we save a lot of questions dealing with the residency for that seminar. But, let's get back to international organizations. And, Bethany , let me address this question to you. Does the World Health Organization fall under this category of international organizations, the World Health Organization? KRAUSE: Yes. That is one of the international organizations, yes, that the President has designated. YAMALIS: Was that an easy question or what? KRAUSE: It was. And if you don't mind, I do see that someone was kind of shocked at this statement that if you're working for the State Department and you work overseas, I think there was some confusion because the person said, "If I have a U.S. employer or the State Department," well, there's a big difference. If you're working for a U.S. company and you meet all the requirements for the foreign earned income inclusion which we had a webinar on that a week ago and it's still available for folks to listen to, right, Philip? It's still up there on the website and will be I think long term. Is that correct? YAMALIS: It will be. It will be. It usually takes about two weeks to bring those webinars, the recorded webinars back. So, we're going to give it another few days to get it up there where it will be available to listen to. KRAUSE: OK. So, yes, if you're working for the U.S. government like the State Department or a U.S. embassy, you wouldn't be eligible for the foreign earned income inclusion, if you're working abroad for the State Department or any other agency or instrumentality of the U.S.

government because U.S. government wages are considered U.S. source regardless of where the services are being performed. On the other hand, if you're working overseas for a United States company, that's a completely different situation. And then, yes, you may in fact be eligible for the foreign earned income inclusion. And again, if you meet all the requirements and if you're in that situation wondering if it applies to you, then, please do feel free to once the webinar is up, download it and look at that. Thank you. YAMALIS: All right. Thanks, Bethany . All right, Tracy , here it is. What is that the United States CIS Form I-508, go ahead and give a little more clarification on that I-508 form. MCFEE OK. I know that we talked about it quite a bit and people are probably wondering what really it is about. Well, an I-508, the title of that form is a request for waiver of certain rights, privileges, exemptions, and immunities. So, non-U.S. citizens who work for a foreign government mission or international organization, if they are a lawful permanent resident or a nonimmigrant in an A, G, or E status who want to become a permanent resident of the United States, they need to file Form I-508. By doing so, they will waive certain diplomatic rights, privileges, exemptions and immunities associated with their occupational status including any exemption from paying U.S. income taxes on the salaries paid to them by a foreign government or organization. And this form is required to be in compliance with Section 247(b) of the Immigration and Nationality Act. So, it really is a condition of you having your green card or permanent resident status. If you do not sign the I-508 waiver, then, U.S. Citizenship and Immigration Services can change your permanent resident status from permanent resident to an A, G, or E visa status. So, it can affect your immigration status for U.S. purposes if you do not sign the I-508 and you want to be a lawful permanent resident of the United States. YAMALIS: Very good, very good. I think we have driven the I-508 into the ground and I thank you for that additional clarification, Tracy . I really do. So, Bethany , maybe you can even help me with what this question means. It says are the Philippines an example or the only exemption? I'm not sure I understand the meaning of that question and maybe you can help me with that. KRAUSE: I think that I do and I can. Earlier in the presentation when Tracy was talking about the 893 exemption, the only U.S. citizen that can qualify for that is one who is also a citizen of the Philippines. And I saw another question in it that said, "Well, why the Philippines? Why only the Philippines?" I do believe that the United States long ago had how would you put it I know a lot of people from the Philippines, they speak English. They told me they had American textbooks and everything. I think that that we had quite a presence I guess would be one way to put it. So, the Philippines had a relationship historically with the United States that may be different from that of many other countries and almost more like the relationship that the United States would have with a territory though not anymore. But the history behind it and of course the code is that code section is probably fairly old but it is still valid and is still there. So, the Philippine citizen does in fact get a special break if they are a dual citizen of the U.S. and the Philippines, then their U.S. citizenship doesn't count against them for purposes of IRC 893. And I saw another question amongst the questions that was about because as Philip is presenting them to us, I also sometimes see them coming in on my screen. So, I'm able to kind of see what's there. And just wanting to consolidate the answer, there was also a question about what about dual citizens in 893. So, hopefully I've answered that. If you're a dual citizen of the U.S. and another country because the issue with 893 one of the issues is you cannot be a U.S. citizen and claim that unless you're a dual citizen of the U.S. and the Philippines. So, if you're a dual citizen with any other country, it doesn't work. YAMALIS: So, the importance then of looking at the various tax treaties, too, the Philippines show a lot of this with the tax treaty that's on conjunction with the United States. It's important that we look at those tax treaties, too, in determining tax status, right? KRAUSE : It could be, but in this particular case, the person's finding relief they could find relief under Section 893 I mean if that's where they're looking for the relief and they're a dual citizen and they're working for a foreign government. Remember, 893 does not apply to an international organization employed to a government employee a foreign government employee. YAMALIS: Thanks for bringing that's exactly right. Thank you. Tracy , let me throw a question at you. What was the revenue ruling again that you mentioned on dual status? Do you remember? Can you repeat that for us?

MCFEE : Well, if you give me a minute, I can find it. YAMALIS: Well, I'll give you a minute and let me throw a question at Bethany while you're doing that. Bethany , does the income of a G4 visa holder married to a U.S. citizen, is that also excluded if they're filing jointly?

KRAUSE : If they're filing jointly, then, they're electing to be treated as a U.S. resident alien for U.S. income tax purposes and that is an option and that answers a few other questions that were in here about spouses. So, in this case, you're saying that the G4 visa holder is here and their spouse is a nonresident alien? YAMALIS: Right. KRAUSE : OK. And I have to think about the G4 visa holder for a minute and look back at the slides myself, because there's a lot of different Gs in there. But, let me put it this way. If the non yes, I think I saw that question. What crossed my mind was if the, quote/unquote, "nonresident alien" is living here and working here that at some point they're going to meet the substantial presence test after 183 days here. So, if they're here for 183 days during the year and then there's a whole counting thing and we will get into that in two weeks from today, two weeks from today on the 27th, we will have a webinar and it is we are presenting that webinar, it is with this audience today in mind that we decided to do another webinar on residency to answer questions like this. So, I think that if you come to that webinar, we will be better able to address that there. YAMALIS: OK. Let's do that. KRAUSE : But, the bottom-line is if one spouse is a U.S.

citizen or a resident alien even if that happened under the substantial presence test and the other spouse is not, there is the ability for the two spouses to make a joint return election under 6013(g) of the revenue code and file a joint return whereby the nonresident alien spouse is electing to be treated as a resident alien because they're married to a U.S. citizen or resident alien. So, I hope that answers the question to some degree and I think our webinar in two weeks will answer this much more clearly. YAMALIS: Stay tuned for more on the next webinar in two weeks. Excellent, thanks for the tease there to get us to come to that next webinar. We appreciate that. All right, Tracy , let me hand it back over to you to repeat that ruling again on dual status. MCFEE : I do recall that I gave a revenue ruling about individuals who were working both within or outside the United States, and that revenue ruling was actually on the slide and that was back on slide 29 which was Revenue Ruling 67-153. YAMALIS: 67-153. MCFEE : Yes. YAMALIS: Very good, very good. So, that slide number means nothing on your slide document. I understand the PDF of the slides but you will find that repeated there. MCFEE : Right. YAMALIS: OK. I think... MCFEE : Actually on the slide says titled U.S. citizens working abroad for foreign governments or international organization, if that helps the audience.

YAMALIS: Thank you for that clarification. I appreciate it. All right, guys, so I think we're getting to the point where we're running out of time for questions. In fact, that is the time.

My producer is signaling that that is all the time we have for questions. OK, Madam Producer, I hear you. Let me take this opportunity to thank Bethany and Tracy for sharing their knowledge and expertise throughout the presentation and for answering these questions for you.

Let me give you both, Bethany and Tracy , the opportunity before we close this question and answer session, what are some of the key points that you want us to remember from today's webinar. Let me begin with you, Beth. KRAUSE : OK, Philip, certainly. Just to recap, generally U.S. citizen employees of foreign governments and international organizations have to report their earnings as wages and pay self-employment tax on those earnings. Lawful permanent residents or green card holders must generally report those earnings as wages that are not subject to self-employment tax on them. And I'll turn it over to Tracy for the last couple of key points.

Tracy ? MCFEE : OK. Thank you, Bethany . So, we also want you to remember that a nonimmigrant visa holder's foreign government or international organization conversation is subject to U.S. income tax unless the individual qualifies for an exemption under the terms of an applicable international agreement or Internal Revenue Code Section 893. And signing Form I-508 which we've talked about a lot today which you sign when you apply for a green card results in losing any tax exemption applicable with respect to foreign government or international organization compensation, but it will have no effect on any pre-tax exemption drive under an international agreement. Finally, I would like you to remember that a nonimmigrant visa holder of foreign government or international organization compensation is subject to U.S. income tax unless the individual qualifies for exemption under the terms of the applicable international agreement or IRC Section 893, and finally, when signing USCIS Form I-508 which is again when applying for a green card will result in losing any tax exemption applicable with respect to foreign government or international organization compensation. OK, Philip, back to you. YAMALIS: Thank you, Tracy and Bethany . Thanks for those key points. I do want to remind our audience that we're planning additional webinars throughout the year. To register for any upcoming IRS webinars, please visit irs.gov. Use the keyword "webinar" on the search box and select "webinars for tax practitioners" or the "webinars for small businesses". And, yes, we'll be offering certificates and CE credit for other upcoming webinars. We heard Bethany allude to one coming up in two weeks. Also, we encourage you to visit the IRS video portal at www.irsvideos.gov. The video portal contains video and audio presentations on topics of interest to small businesses, individuals, tax professionals. You also find video clips of tax topics and archived versions of live webinars such as the one that we had just a week ago or like this one. They usually take about two to three weeks to become archived. So, give us a chance to get them up on there for you. Again, a big thank you to Bethany and to Tracy for a great and fantastic webinar today and for sharing their expertise and answering your questions. I also want to thank you for attending today's webinar on U.S. Taxation of Employees of Foreign Governments and International Organizations.