Court Opinion

ID: 4339761
Source: CourtListenerOpinion
Date Created: 2018-11-14 07:54:00.849337+00
Date Added: 2024-06-11T14:48:37.499904
License: Public Domain

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

VerDate Mar 15 2010   13:35 Apr 28, 2015   Jkt 000000   PO 00000   Frm 00001   Fmt 3857   Sfmt 3857    V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ABRAHA~1   JAMIE
                                     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.

VerDate Mar 15 2010   13:35 Apr 28, 2015   Jkt 000000   PO 00000   Frm 00002   Fmt 3857   Sfmt 3857   V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ABRAHA~1   JAMIE
                                     (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.

VerDate Mar 15 2010   13:35 Apr 28, 2015   Jkt 000000   PO 00000   Frm 00003   Fmt 3857   Sfmt 3857   V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ABRAHA~1   JAMIE
                                     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-

VerDate Mar 15 2010   13:35 Apr 28, 2015   Jkt 000000   PO 00000   Frm 00004   Fmt 3857   Sfmt 3857   V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ABRAHA~1   JAMIE
                                     (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

VerDate Mar 15 2010   13:35 Apr 28, 2015   Jkt 000000   PO 00000   Frm 00005   Fmt 3857   Sfmt 3857   V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ABRAHA~1   JAMIE
                                     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

VerDate Mar 15 2010   13:35 Apr 28, 2015   Jkt 000000   PO 00000   Frm 00006   Fmt 3857   Sfmt 3857   V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ABRAHA~1   JAMIE
                                     (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).

VerDate Mar 15 2010   13:35 Apr 28, 2015   Jkt 000000   PO 00000   Frm 00007   Fmt 3857   Sfmt 3857   V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ABRAHA~1   JAMIE
                                     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).

VerDate Mar 15 2010   13:35 Apr 28, 2015   Jkt 000000   PO 00000   Frm 00008   Fmt 3857   Sfmt 3857   V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ABRAHA~1   JAMIE
                                     (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

VerDate Mar 15 2010   13:35 Apr 28, 2015   Jkt 000000   PO 00000   Frm 00009   Fmt 3857   Sfmt 3857   V:\FILES\BOUNDV~1.WIT\BV864A~1.142\ABRAHA~1   JAMIE