jmail7[at]andrewmitchel.com wrote:
- quote -

explanation. You are correct that under Article IV, he will be
treated as a resident of Italy and a nonresident of the US, if
his permanent home is in Italy.

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- quote -

I agree.

- quote -

I generally agree with most of what Alan says. However, I disagree
with the form number (should be 1040NR) if you can claim that you are
resident of Italy under the treaty tie-breaker provisions. However,
this does not mean that you can avoid U.S. tax. You will calculate
U.S. tax on Form 1040NR for the U.S. source income.

Andrew Mitchel, Esq.
Essex, Connecticut
http://www.andrewmitchel.com

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Yossarian wrote:
- quote -

treaty that exempts you from tax in the US. You are a resident
alien for tax purposes (see Section 7701(b) of Title 26 US Code)
because you pass the substantial presence test. You file Form
1040 and pay US tax on your taxable income.

It appears that you are also a resident of Italy and subject to
their taxation either because you are an Italian national or a
lawful permanent resident of Italy or you are domiciled there.
They will tax you and provide relief in the form of a tax credit
for US taxes you pay on the same income they are taxing. The
credit will not be larger than what you have to pay Italy. In
other words, you are going to pay tax based on whichever country
has the higher taxes.

Article 4 is saying that that whenever you see the term "resident
of a contracting state" in the treaty, use the rules in that
Article. The Article then says that if you fall into the category
of being a dual resident (and you appear to fall into this
category as I assume you are domiciled in Italy), use a set of
rules to determine which country will treat you as a resident for
purposes of the treaty definition. This does not preclude the US
from taxing your income just because Italy is the one treating
you as the resident for purposes of the definition. It makes your
income foreign source income to Italy and that is why Italy
provides the tax credit.

- quote -

alien under the substantial presence test. You file Form 1040.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On 3 Set, 16:53, jma...[at]andrewmitchel.com wrote:
- quote -


First of all, thanks everyone for the very informative posts.
Double Tax treaty: using that, every year I obtain a credit from Italy
for what I paid in US, my problem is that the reimboursment in Italy
is lower than what I paid in US (basically because the maximum credit
that Italy allows cannot exceed the amount of taxes paid in Italy, and
for various reasons I pay more taxes in US)

"tie breaker rule": this is very interesting!
I have found a link to the tax treaty
http://www.pd.infn.it/~dorigo/us-italy_tax_treaty.html

Considering article 4, point a), I should be considered resident in
Italy (even if living in Us for more that 183 days). In a case like
this, can I use the form 8833 (http://www.irs.gov/pub/irs-pdf/
f8833.pdf)?
If so, how should I file the 1040NR, the income should be considered
"0" there?

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

It appears that there is something odd about this whole story.

The taxpayer is working in the US but receives an Italian pay stub.
Either the company has verified and the employment is deemed to be
occurring in Italy or they are supposed to be registered within the US
with an EIN and appropriate FICA and employers taxes paid on this
employment. Another choice is that the employer is withholding taxes
under the tax treaty for payments made to a non-resident.

While the taxpayer is being paid by the Italian company and his/her
pay is being billed to the American company does not change the oddity
of this situation.

I have a client who is working in a foreign country, yet is paid
domestically. The foreign sub-company must still pay the employer's
taxes on that salary to the foreign country. However, my client must
pay taxes first to the foreign country on the income, then claims
credit for those taxes domestically using the local tax slip. (At
least, used to do this... they switched companies this year and, after
six years of doing this type of return, I am finally going to get a
simplified tax return for him.)

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Sep 3, 8:35 am, Alan <sfcnm-...[at]yahoo.com> wrote:

- quote -

Does this mean that the US will get to tax the income in full, while
Italy will get tax only if their tax rate on this income is higher
than the US?

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

jmail7[at]andrewmitchel.com wrote:
- quote -

electing to tax the compensation earned in the US by someone who
is a resident or citizen of Italy, it is foreign sourced income
to Italy. As such, under Article 23 of the treaty, Italy would
provide the foreign tax credit against its income taxes.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Sep 3, 1:38*am, "Condor" <Con...[at]loosecannon.net> wrote:
- quote -

I agree with the earlier posters that you meet the substantial
presence test and therefore would be treated as a resident of the U.S.
if not for the treaty. The closer connection exception referred to by
Condor is not part of the treaty and does not apply to your situation
because you are in the U.S. for more than 183 days during the year
(see instructions to Form 8840). You need to look at the "tie-
breaker" provisions of the treaty to determine whether you can claim
relief under the treaty to not be considered a resident of the U.S.
If you do claim to not be treated as a U.S. resident under the treaty,
you may need to file a separate form on your tax return claiming a
treaty-based return position (I can't recall the form number right
now).

Also, if Italy is taxing you on the U.S. income, you will not qualify
for the "normal" foreign tax credit rules because the income will not
be "foreign source" income. As a result, you would need to look at
the treaty to see what the provisions are for avoiding double
taxation. These provisions may allow you to "resource" a portion of
the US source income to be treated as foreign source income, or it may
provide other rules.

Andrew Mitchel, Esq.
Essex, Connecticut
http://www.andrewmitchel.com
http://intltax.typepad.com

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

- quote -

As Alan responded, you meet the substantial presence test to be considered a
U.S. resident for tax purposes because of your presence in the U.S. for more
than 183 days. Even though you clearly meet the substantial presence test,
you still can qualify to be taxed as a nonresident alien if you are able to
demonstrate a "Closer Connection" to Italy than to the U.S. If you assert a
closer connection exception to the substantial presence test, you must
attach IRS Form 8840 to your tax return. The closer connection exception
criteria are explained on page 7 of Publication 519.

http://www.irs.gov/pub/irs-pdf/p519.pdf

http://www.irs.gov/pub/irs-pdf/f8840.pdf


Condor

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Yossarian wrote:
- quote -

and nonresident aliens are taxed: Residents on worldwide income
and they file a 1040. Nonresident aliens on US source income and
they file a 1040-NR. Any income you earn performing services in
the US holding an E-1 visa, is US source income regardless of
where the payments come from. The page at GSU does not tell you
who is a resident and who is a nonresident for tax purposes.
There is a link on that page to IRS Pub 519, US Tax Guide for
Aliens. http://www.irs.gov/pub/irs-pdf/p519.pdf In that Pub you
will find a definition of the substantial presence test. If you
have a substantial presence in the US, you are treated as a
resident alien for tax purposes and all of your worldwide income
becomes subject to US taxes. You state that you are present in
the US for more than 183 days. That is enough to pass the
substantial presence test and make you a resident alien for tax
purposes. You would file a 1040, not a 1040-NR. As a resident
alien you may avail yourself of all the tax benefits in the law
that are available to US citizens.

Lastly, assuming that Italy is your home country, there is a tax
treaty between the two nations. However, as you spend more than
183 days in the US, there is no exemption from US taxes on income
paid to you from a foreign employer for work performed in the US.
In addition, under the treaty, Italy does not necessarily have to
tax the income you earn in the US that is taxed by the US unless
they so desire. This is known in tax treaties as the "savings
clause." If Italy is taxing your compensation earned in the US,
you would be eligible for a foreign tax credit on your US tax
return (1040) for taxes you pay to Italy on the same income being
taxed by the US. This is explained in IRS Pub 514 and the
instructions for Form 1116. See link below.
http://www.irs.gov/pub/irs-pdf/f1116.pdf
http://www.irs.gov/pub/irs-pdf/i1116.pdf
http://www.irs.gov/pub/irs-pdf/p514.pdf

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Hello everybody,
Question from an expat.
I am european, I work in USA, with a E1 non resident visa, in the
american branch of an italian company.
I get my salary directly from the italian company (in euro). It is
taxed also by the italian "irs".
My residency is still officially italian, but I live in US form more
that 183 days per year.
The question: is it correct to consider such income a "US taxable
income"?
I have always filed the 1040 NR considering that income (+ all the
benefits) as a US income, even if it is not coming directly from the
american company.

For example http://law.gsu.edu/taxclinic/index/s...esident_aliens

it says "A non-resident alien (NRA) usually is subject to U.S. income
tax only on U.S. source income"

And since the service is performed in US, the source is US and the
income for the service (my salary) should be considered a taxable
income.

Is my interpretation correct?

thanks in advance for the answers

Y.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >