IRC § 893 (“U.S. Income Tax Exemption”) gives a U.S. income tax exemption to individuals who are employees of a foreign government, working in the United States, and who:
- Are not citizens of the United States;
- Perform similar services of a character that employees of the U.S. government in foreign countries would do; and
- Are employed by a foreign government that grants an equivalent exemption
The usefulness of this exemption is relatively straightforward for most individuals working in the U.S. on behalf of their governments. However, for a few individuals, this exemption is absurd. Why would a tax exemption ever be absurd? Well, the individuals who find it absurd are most likely looking at it in conjunction with the Immigration and Nationality Act (“INA”).
Section 247(a) of the INA requires the Attorney General to adjust the immigration status of an “immigrant” to a “nonimmigrant” if, at any point in time, the immigrant acquires an occupational status entitling him or herself to a non-immigrant status. Such occupational statuses are those which pertain to A (Government Officials), E (Treaty Traders), or G (International Organization Representatives) visas.
The impact of changing someone from an “immigrant” to a “nonimmigrant” is substantial since only immigrants may become permanent residents and obtain permanent residency. Permanent residency is a key requirement for naturalization. The question then became: how can The U.S. government give these individuals some leeway to work around this automatic change in immigration status? The U.S. government knew that many A, E, and G visa holders may want to eventually become U.S. citizens after spending time in the States. Section 247(b) of the INA, consequently, was enacted to provide these individuals some leeway.
Section 247(b) of the INA opens up an opportunity for an individual affected by § 247(a) to file a waiver “of all rights, privileges, exemptions, and immunities...” that would accrue to the individual vis-a-vis their occupational status. By submitting this waiver, the Attorney General does not adjust the individual's status as an “immigrant” to a “nonimmigrant.” A resident employee of a foreign government who is, or becomes, eligible for an A, E, or G visa may file the §247(b) waiver in order to preserve their status as an immigrant and remain eligible for U.S. naturalization – if such individual desires, or believes that one day they may desire, to become a U.S. citizen.
The effect of such waiver, however, results in this individual losing their U.S. Income Tax Exemption as such exemption arises from their occupational status as a non-U.S. citizen employee and the individual, by signing the waiver, has waived all exemptions accruing from their occupational status. Fortunately, there are ways around the loss of the coveted U.S. Income Tax Exemption – mainly U.S.-Foreign government treaties. Many immigrants, however, who are unsure whether they actually want to become a naturalized U.S. citizen in the future find themselves in a tricky situation: to sign the waiver (and possibly lose their U.S. income tax exemption) or not to sign the waiver (and possibly lose their ability to become a U.S. citizen in the future).