Clifford A. Abrahamsen & Sole K. Abrahamsen v. Commissioner

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