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Konglishman
Joined: 14 Sep 2007
Location: Nanjing
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 Posted: Tue Jan 19, 2010 9:59 am Post subject: Attention all Americans: taxes explained... |
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I have noticed that there are now several threads asking very basic questions about paying taxes while working overseas. Further, I have become concerned because it seems that there is lot of misinformation floating around in these threads. Hence, I have decided to create this thread which I might add has helped clarify my own understanding of how the IRS taxes foreign income.
Note that for your convenience, I will be showing quotes from the IRS website. Also, keep in mind that this original post has been edited a number of times in order to make sure that it is fully accurate and comprehensive.
First of all, it is very easy to contact the IRS directly and get your answers straight from the horse's mouth so to speak. So, I am going to leave all of their relevant contact numbers below. This way, if you doubt what I tell you later in this post, you can easily call the IRS yourself and confirm what I have written. By the way, it will be easiest if you just call the first number. If you are already in South Korea, as most of you probably are, then you can call the number on skype. Also, based on my experience, I have found that you are more likely to get someone who on the phone if you call in the morning (Eastern Time Zone).
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Live Telephone Assistance
When calling, you may ask questions to help you prepare your tax return, or ask about a notice you have received.
Telephone Assistance for Individuals:
Toll-Free, 1-800-829-1040
Hours of Operation: Monday � Friday, 7:00 a.m. � 10:00 p.m. your local time (Alaska & Hawaii follow Pacific Time).
Telephone Assistance for Businesses:
Toll-Free, 1-800-829-4933
Hours of Operation: Monday � Friday, 7:00 a.m. � 10:00 p.m. your local time (Alaska & Hawaii follow Pacific Time).
Telephone Assistance for Exempt Organizations, Retirement Plan Administrators, and Government Entities:
Toll-Free, 1-877-829-5500
Hours of Operation: Monday � Friday, 7:00 a.m. to 5:30 p.m. Central Time.
Telephone Assistance for people with hearing impairments:
Toll-Free 1-800-829-4059 (TDD)
Hours of Operation: Monday � Friday, 7:00 a.m. � 10:00 p.m. your local time (Alaska & Hawaii follow Pacific Time).
For further information, see Tax Topic 102.
Telephone Assistance for Individuals who believe they may be a victim of Identify Theft: No Tax Administration Impact - Did not receive a notice from the IRS. Toll-Free 1-800-908-4490 (Automated and live assistance)
Hours of Operation: Monday � Friday, 8:00 a.m. � 8:00 p.m. your local time (Alaska & Hawaii follow Pacific Time). For additional information, refer to our Identity Theft and Your Tax Records page.
Telephone Assistance for people who live outside the United States
Hours of availability vary by location. Please see our International Services page.
Face-to-Face Assistance
In certain areas, IRS also has local offices you may visit to receive assistance. |
http://www.irs.gov/help/article/0,,id=96730,00.html
Second, lets discuss the Form 2555 (Foreign Income Exclusion). This allows any foreign income at or below $91,400 to be nontaxable. If your foreign income is more than $91,400, then you will only be taxed as if you were making $91,400 less. In other words, your first $91,400 of foreign income is excluded for tax purposes. Of course, for the majority of you, this means that you will not owe any taxes. But once again, you are still required to file your taxes with the IRS.
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| If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to $91,400 of your foreign earnings. In addition, you can exclude or deduct certain foreign housing amounts. |
http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html
Now, lets move on to the exact requirements that you will need to fulfill in order to qualify for the foreign income exclusion. Note that using the physical presence test is the most convenient requirement to fulfill. Also, for reasons that I will discuss later, you probably do not want to file as a bona fide resident.
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To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:
-A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year
-A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
-A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months |
http://www.irs.gov/businesses/small/international/article/0,,id=96817,00.html
Also, if you lived overseas for part of a given tax year after having previously passing the bona fide residence test or the physical presence test during the previous tax year, then the Foreign Income Exclusion for the given tax year will be prorated. Pages 19 to 20 show how the Foreign Income Exclusion is prorated in this type of situation.
http://www.irs.gov/pub/irs-pdf/p54.pdf
Next, lets discuss the Korea Income Tax Treaty. As many of you already know, if you work for a public school or university, this usually allows you to be exempt from paying the Korean income tax for the first two years. It is also interesting to note that this allows Korean teachers teaching in the USA, to be exempt from paying the Federal Income Tax for the first two years.
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| (1) Where a resident of one of the Contracting States is invited by the Government of the other Contracting State, a political subdivision, or a local authority thereof, or by a university or other recognized educational institution in that other Contracting State to come to that other Contracting State for a period not expected to exceed 2 years for the purpose of teaching or engaging in research, or both, at a university or other recognized educational institution and such resident comes to that other Contracting State primarily for such purpose, his income from personal services for teaching or research at such university or educational institution shall be exempt from tax by that other Contracting State for a period not exceeding 2 years from the date of his arrival in that other Contracting State. |
http://www.irs.gov/pub/irs-trty/korea.pdf
Presumably, after two years, someone could leave Korea for an extended period of time and then qualify again for the Korean tax exemption. However, it is unclear to me how that might work. For example, it might be as simple as getting a new job in Korea after two years and leaving for a short period of time. Or perhaps, the regulations prevent one from taking advantage of the tax treaty in such a scenario. As I am not personally intending to be in Korea beyond another two years, it has not occurred to me until now to ask the NTS (Korean National Tax Service) about this. Perhaps, when I get around to it, I will a Korean friend ask them about this specific question.
Now, in order to be allowed to take advantage of the Korea tax treaty, you must apply for the Certificate of Residency from the IRS. When I talked to the IRS, I was told that it takes 45 days for the application to be processed. You will find the application and instructions below.
http://www.irs.gov/pub/irs-pdf/f8802.pdf
http://www.irs.gov/pub/irs-pdf/i8802.pdf
Also, it is worth noting that if you did not file your taxes when you were supposed to, this can potentially prevent you from getting the Certificate of Residency. So, file your taxes!
You will find this disqualification on page 3 of the 8802 instructions. Note that being a nonresident U.S. citizen is not considered as a possibility. Therefore, simply living outside of the U.S., is not a disqualification.
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Who Is Not Eligible for Form 6166
In general, you are not eligible for Form 6166 if, for the tax period for which your Form 6166 is based, any of the following applies:
-You did not file a required U.S. return.
-You filed a return as a nonresident (including Form 1040NR, U.S. Nonresident Alien Income Tax; Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents; Form 1120-F, U.S. Income Tax Return of a Foreign Corporation; Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation; or any of the U.S. possession tax forms).
-You are a dual resident individual who has made (or intends to make), pursuant to a tie breaker provision within an applicable treaty, a determination that you are not a resident of the United States and are a resident of the other country. For more information and examples, see Reg. section 301.7701(b)-7.
-You are a fiscally transparent entity organized in the United States (that is, a domestic partnership, domestic grantor trust, or domestic LLC disregarded as an entity separate from its owner) and you do not have any U.S. partners, beneficiaries, or owners.
-The entity requesting certification is an exempt organization that is not organized in the United States. |
http://www.irs.gov/pub/irs-pdf/i8802.pdf
I have noticed that a number of posters on this forum, seem to think that using the Korean tax exemption disqualifies one from using the Foreign Income Exclusion. In fact, I initially thought the same thing. However, after my upcoming employer asked me to get the Certificate of Residency, I decided that I had better find out for sure. So, I called the IRS and to my pleasant surprise, was told that the Korean tax exemption in no way disqualifies one from using the Foreign Income Exclusion. Now, I have found a very good quote from the IRS which directly implies this to be the case. You can find the quote on page 34 of Publication 54.
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| Saving clauses. U.S. treaties contain saving clauses that provide that the treaties do not affect the U.S. taxation of its own citizens and residents. |
http://www.irs.gov/pub/irs-pdf/p54.pdf
In short, it does not matter what kind of benefits you are getting from a tax treaty. It will have no effect on how you are taxed by the U.S. government. Therefore, you can still file the Foreign Income Exclusion even if you are exempted from paying the Korean income tax.
However, if you are a legal resident or a bona fide resident of South Korea, then you will likely not qualify for the 6166 (Certificate of Residency). In this case, a legal resident would be a F series visa holder. Note that E series visa holders do not count as legal residents since they are only considered to be guest workers.
You could also be determined to be a bona fide resident if you have been in South Korea for a year or longer and clearly do not intend to go back to the U.S. In short, you would have established a permanent home in Korea. And of course, the IRS will consider you a bona fide resident of South Korea if you filed the Foreign Income Exclusion as a bona fide resident.
The reason that you could be denied due to being a legal resident or bona fide resident of Korea is because you would be arguing that you are a dual resident if you are applying for the Certificate of Residency. However, it is still possible that you could qualify. If so, you will need to provide evidence and explain why you qualify according to the provisions of the Korea Income Tax Treaty.
Also, I should mention the more common situation of a nonresident worker who files the 2555. Note that many if not most E series visa holders fit into that category. If you fit into this category, then you will need to provide a statement explaining why you should still be considered a resident of the U.S. Also, you will need to provide documentation of things such as your driver's license, bank account, etc.
Finally, read the following below which is on page 3 of the instructions for 8802.
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Individuals With Residency Outside the United States
If you are in any of the following categories for the year which certification is requested, you must submit a statement and documentation, as described below, with Form 8802.
1. You are a resident under the internal law of both the United States and the treaty country for which you are requesting certification (you are a dual resident).
2. You are a green card holder or U.S. citizen who filed Form 2555, Foreign Earned Income.
3. You are a bona fide resident of a U.S. possession.
If you are a dual resident described in category 1, above, your request may be denied unless you submit evidence to establish that you are a resident of the United States under the tie breaker provision in the residence article of the treaty with the country for which you are requesting certification.
If you are described in category 2 or 3, attach a statement and documentation to establish why you believe you should be entitled to certification as a resident of the U.S. for purposes of the relevant treaty. Under many U.S. treaties, U.S. citizens or green card holders who do not have a substantial presence, permanent home, or habitual abode in the United States during the tax year are not entitled to treaty benefits. U.S. citizens or green card holders who reside outside the United States must examine the specific treaty to determine if they are eligible for treaty benefits and U.S. residency certification. |
http://www.irs.gov/pub/irs-pdf/i8802.pdf
Now, in order to determine if you qualify for the Certificate of Residency as a dual resident, you must examine what the Korea Income Tax Treaty says. Note that the treaty shows that you qualify if it determines that for purposes of avoiding double taxation, you will be considered only a resident of the U.S. You will find the rules that determine whether or not this is true under Article 3 Fiscal Domicile.
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(2) Where by reason of the provisions of paragraph (1) an individual is a resident of both Contracting States:
(a) He shall be deemed to be a resident of that Contracting State in which he maintains his permanent home;
(b) If he has a permanent home in both Contracting States or in neither of the Contracting States, he shall be deemed to be a resident of that Contracting State with which his personal and economic relations are closest (center of vital interests); (c) If his center of vital interests is in neither of the Contracting States or cannot be determined, he shall be deemed to be a resident of that Contracting State in which he has a habitual abode;
(d) If he has a habitual abode in both Contracting States or in neither of the Contracting States, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and
(e) If he is a citizen of both Contracting States or of neither Contracting State the competent authorities of the Contracting States shall settle the question by mutual agreement.
For the purpose of this paragraph, a permanent home is the place where an individual dwells with his family. |
http://www.irs.gov/pub/irs-trty/korea.pdf
Of course, if you have not worked abroad before or not within the last year, then you would not have filed the 2555 (Foreign Income Exclusion). So, if you are applying applying for a university or public school job in Korea, then you can very easily apply for the 6166 (Certificate of Residency) without any extra documentation.
Once again, let me emphasize that in all situations in which you were able to get Korean tax exemption, you are still able to file the Foreign Income Exclusion.
While I believe that I have been very comprehensive in this post, I think some examples are in order.
Edit: Okay, everyone. Originally, I said that I was going to add some examples to this post. However, this post is already very long. So, I will put some examples in a separate post later in the thread.
Last edited by Konglishman on Fri Jan 29, 2010 9:38 am; edited 17 times in total |
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naturegirl321
Joined: 18 Jul 2006
Location: Home sweet home
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| Posted: Tue Jan 19, 2010 1:35 pm Post subject: |
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Thanks for all the info.
The cert of residency doesn't make sense. I mean, I file the 2555 based on NOT having US residency, and now the IRS is going to give me a residency cert?
Or maybe it's just like a proof of having filed taxes? |
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Konglishman
Joined: 14 Sep 2007
Location: Nanjing
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| Posted: Tue Jan 19, 2010 3:26 pm Post subject: |
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| naturegirl321 wrote: |
Thanks for all the info.
The cert of residency doesn't make sense. I mean, I file the 2555 based on NOT having US residency, and now the IRS is going to give me a residency cert?
Or maybe it's just like a proof of having filed taxes? |
Thanks for mentioning that. I had intended to ask the IRS a few more questions about the requirements for the Certificate of Residency. As soon as I give the IRS a call and get a little more information on that, I will update the original post. |
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naturegirl321
Joined: 18 Jul 2006
Location: Home sweet home
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| Posted: Tue Jan 19, 2010 3:37 pm Post subject: |
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Thanks. Good luck with the IRS: I called them three years ago. Spent 45 minutes on the phone. They said that they didn't know the answer to my wqustion. And that the office I had to talk to had no phone number. And I had to write a letter.
Logic would say that if I'm saying I'm not a resident. They' won't give me the cert of residency. BUt you said you got it. My question to you is: DId you file the 2555 the year before you got the cert of residency? |
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lifeinkorea
Joined: 24 Jan 2009
Location: somewhere in China
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| Posted: Tue Jan 19, 2010 5:04 pm Post subject: |
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| First of all, it is very easy to contact the IRS directly and get your answers straight from the horse's mouth so to speak. |
I didn't experience that at all. I filled out an application form, paid the fee with my credit card which has the big guy's name on it, and waited a month or so. I got back a letter saying I didn't fill everything out. Ok, I sent back what they requested and waited another few months. I get a letter back saying I didn't pay.
At that point I spent close to $200.00 in figuring out what the heck they wanted.
So, I thought I would try to call them. No one answered, I called several times. Finally, I left a message and gave up.
IRS, if you are watching, I am willing to work WITH YOU, but I am not going to pay twice for a fee and keep paying 15 dollars a pop to reach you by snail mail. |
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T-J
Joined: 10 Oct 2008
Location: Seoul EunpyungGu Yeonsinnae
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| Posted: Tue Jan 19, 2010 5:15 pm Post subject: |
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The response I received from the IRS:
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NOTE: Thank you for your inquiry. Our response to your tax law question appears below. I hope this information has been helpful. If you have a follow-up question or another general tax law question, please return to our web site at: www.irs.gov.
Please do not use your "reply" button to respond to this message. More helpful information is provided at the end of this message.
Your Question Was:
A number of expats living in South Korea are under the impression that they can claim an exemption from Korean taxes for two years by submitting a 6166 U.S. tax residency form and still claim foreign income exclusion with the 2555. I understand the purpose of the tax treaty is to prevent double taxation and that avoiding taxes in both countries could lead to problems for these filers. If you could provide clarification that I can forward on to them it would be most appreciated.
The Answer To Your Question Is:
Thank you for your inquiry dated November 24, 2009. We apologize for any delay in responding to your inquiry concerning how Residency Certification affects individuals filing the foreign earned income exclusion.
Many United States (U.S.) treaty countries require that the Internal Revenue (IRS) to certify that the person claiming treaty benefits is a resident of the U.S. for federal tax purposes. The IRS provides this residency certification on Form 6166, (a letter of U.S. residency certification). Form 6166 is a computer generated letter printed on stationary bearing the U.S. Department of Treasury letterhead, and the facsimile signature of the Field Director, Philadelphia Accounts Management Center.
Form 6166 will only certify that, for the certification year (the period for which certification is requested), you were a resident of the United States for purposes of U.S. taxation and you filed and paid your incomes taxes.
Generally you can not have it both ways. You can not file Form 2555, (Foreign Earned Income) and also qualify for the Residency Certification.
Some treaties have other requirements that may affect the use of your foreign certification, please review treaty limitations if applicable.
To apply for residency certification you must use Form 8802, (Application for United States Residency Certification). There is a user fee of $35.00 for each Form 8802, which covers 1-20 copies of Form 6166.
Please review the instructions for Form 8802, for information on when and how to apply.
Give a close look to Special Rules (Individuals With Residency Outside the United States).
Forms, instructions, as well as treaty information are available on the Internal Revenue Service web site www.irs.gov.
We hope this information is helpful and thank you for using our service.
IRS forms and publications may be accessed on our web site at the following address: www.irs.gov or ordered through our toll-free forms line at: 800-829-3676
Expect delivery within 10 business days.
Other useful toll-free numbers include:
800-829-1040 IRS Tax Help Line for Individuals
800-829-4933 Business and Specialty Tax Help Line
800-829-1954 Refund Hotline
866-562-5227 Disaster Relief Toll-Free Number, Monday
through Friday, 7 am to 10:00 pm local time
We are interested in your opinion and providing the best possible service to you. Please take a moment to answer our survey at: http://www.irs.gov/help/page/0,,id=13155,00.html
This answer is based on our understanding of the facts you presented in your question. Omission of facts may affect the answer given.
Here's a tip for navigating the IRS web site. Use the "search" button at the right side of the web page. Enter key words or phrases for your topic in the entry box.
For security reasons and to protect taxpayer privacy, the IRS does not address taxpayer account-related issues for which personal, identifying information would be needed through e-mail.
Our basic Electronic Tax Law Assistance service is designed to assist the general public in complying with their Federal tax obligations by helping them with questions they have about the tax law and procedural issues. Our goal is to provide complete and accurate responses to as many taxpayers as possible.
If you have additional questions, you may contact us either by phone at 1-800-829-1040 or by email through our web site www.irs.gov.
EMPLOYEE ID: 0212510 Mr. Hunter Tel.:English--(215) 516-2000 Spanish--(800)-829-1040 msg#: 1813434
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Bolded the important part for emphasis.
Last edited by T-J on Tue Jan 19, 2010 7:16 pm; edited 1 time in total |
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Konglishman
Joined: 14 Sep 2007
Location: Nanjing
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| Posted: Tue Jan 19, 2010 7:09 pm Post subject: |
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| naturegirl321 wrote: |
Thanks. Good luck with the IRS: I called them three years ago. Spent 45 minutes on the phone. They said that they didn't know the answer to my wqustion. And that the office I had to talk to had no phone number. And I had to write a letter.
Logic would say that if I'm saying I'm not a resident. They' won't give me the cert of residency. BUt you said you got it. My question to you is: DId you file the 2555 the year before you got the cert of residency? |
I don't recall saying that I had received the certification of residency. If I did, then I must have mistyped or left out a key word by accident. 
As I do seem to recall, I did say that the IRS said that it was not a problem to have filed 2555. Also, I sent in the application for the certificate of residency a few days after Christmas and hopefully will receive it soon. Anyways, to answer your question, I did file 2555 for the year of certification. |
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lifeinkorea
Joined: 24 Jan 2009
Location: somewhere in China
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naturegirl321
Joined: 18 Jul 2006
Location: Home sweet home
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| Posted: Tue Jan 19, 2010 8:04 pm Post subject: |
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| Konglishman wrote: |
| naturegirl321 wrote: |
| My question to you is: DId you file the 2555 the year before you got the cert of residency? |
I don't recall saying that I had received the certification of residency. If I did, then I must have mistyped or left out a key word by accident.
As I do seem to recall, I did say that the IRS said that it was not a problem to have filed 2555. Also, I sent in the application for the certificate of residency a few days after Christmas and hopefully will receive it soon. Anyways, to answer your question, I did file 2555 for the year of certification. |
Nope, never said you got it, but that you filed. I simply assumed that you had gotten it. I would be interested to know if you do get it, having had filed the 2555.
According to T-J's post, I USUALLY can't do both. HOnestly, maybe you CAN. Here, look at page 3 about getting a tax cert with the 2555. And page 12, which says that I swear under penalty of perjury, etc, that I am and will continue to be a tax resident of the US. Which, I believe, goes against the 2555. http://www.irs.gov/pub/irs-pdf/i8802.pdf
But still. ALl I need is for the IRS to audit me becuase I claimed US tax exemption AND Korea Tax exemption.
I guess teh thing to do would be to TRY to get the tax cert. And if I don't get it, I don't get it. Life goes on with the 3% tax |
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Konglishman
Joined: 14 Sep 2007
Location: Nanjing
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| Posted: Tue Jan 19, 2010 8:57 pm Post subject: |
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| naturegirl321 wrote: |
| Konglishman wrote: |
| naturegirl321 wrote: |
| My question to you is: DId you file the 2555 the year before you got the cert of residency? |
I don't recall saying that I had received the certification of residency. If I did, then I must have mistyped or left out a key word by accident.
As I do seem to recall, I did say that the IRS said that it was not a problem to have filed 2555. Also, I sent in the application for the certificate of residency a few days after Christmas and hopefully will receive it soon. Anyways, to answer your question, I did file 2555 for the year of certification. |
Nope, never said you got it, but that you filed. I simply assumed that you had gotten it. I would be interested to know if you do get it, having had filed the 2555.
According to T-J's post, I USUALLY can't do both. HOnestly, maybe you CAN. But still. ALl I need is for the IRS to audit me becuase I claimed US tax exemption AND Korea Tax exemption.
I guess teh thing to do would be to TRY to get the tax cert. And if I don't get it, I don't get it. Life goes on with the 3% tax |
Yes, I am also wondering about T-J's post. It makes me think that the first IRS person whom I spoke to, could have possibly been confused.
As for the second IRS person, I didn't ask about the requirements for the Certificate of Residency. However, I did ask the second IRS person whether or not one is allowed to use the Korean tax exemption and the Foreign Income Exclusion simultaneously. I was told yes and that was when I was pointed to page 14 of publication 54 which I quoted near the end of the original post.
I guess that the second IRS person had just assumed that I had not filed 2555 the previous year. So, that means while getting the Certificate of Residency might be problematic for you and me, people who did not file 2555 the previous year, should then be able to get the Certificate of Residency and be able to make use of both the Korean tax exemption and Foreign Income Exclusion for the following two tax years.
If that is true, that will certainly be disappointing not to mention a waste of $35. However, it would still be good news for people who are coming to Korea immediately after having worked in the USA for a single tax year or more.
Well, hopefully, the next time that I call the IRS, I can get all of this fully clarified.
Last edited by Konglishman on Tue Jan 19, 2010 9:17 pm; edited 1 time in total |
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naturegirl321
Joined: 18 Jul 2006
Location: Home sweet home
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| Posted: Tue Jan 19, 2010 9:09 pm Post subject: |
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Oh my goodness, this is such a nightmare. Why are taxes so difficult?
Anyways, can't we just opt to PAY Korean taxes if we want to? You get it all back in the end right?
See, T-J's post says that usually you can't do both. The have extemptions, but mainly for Eastern Europe, not Korea.
I guess I'm really wary about signing something that says I'm a US resident now and was last year, when I just filed the 2555 that says that I wasn't
EDIT: Konglishman, I think you're right. Pubt 54, page 14 says that you ARE considered a US resident IF you make a statement to the authorities that says that you Don't have to pay taxes.
However, my understanding is that if you do that, say that you don't have to pay Korean taxes, then you can't file the 2555 and have to pay US taxes.
Do you think that sounds right? |
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Konglishman
Joined: 14 Sep 2007
Location: Nanjing
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| Posted: Tue Jan 19, 2010 9:43 pm Post subject: |
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| naturegirl321 wrote: |
Oh my goodness, this is such a nightmare. Why are taxes so difficult?
Anyways, can't we just opt to PAY Korean taxes if we want to? You get it all back in the end right?
See, T-J's post says that usually you can't do both. The have extemptions, but mainly for Eastern Europe, not Korea.
I guess I'm really wary about signing something that says I'm a US resident now and was last year, when I just filed the 2555 that says that I wasn't
EDIT: Konglishman, I think you're right. Pubt 54, page 14 says that you ARE considered a US resident IF you make a statement to the authorities that says that you Don't have to pay taxes.
However, my understanding is that if you do that, say that you don't have to pay Korean taxes, then you can't file the 2555 and have to pay US taxes.
Do you think that sounds right? |
Before all of this confusion entered the equation, my understanding was that the part just below that, labeled Special agreements and treaties, was an exception to that rule thereby allowing you the possibility to take advantage of both the tax treaty in question and the Foreign Income Exclusion at the same time.
Anyways, I need to get some sleep especially since my visa will be ready for me to pick up tomorrow. |
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naturegirl321
Joined: 18 Jul 2006
Location: Home sweet home
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| Posted: Wed Jan 20, 2010 4:54 am Post subject: |
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So I guess the question is: Does Korea and being an English teacher there fall under the special treaty and agreements?
Because their examples of of Americans employed with the Armed Forces or the UN.
EDIT: I think I get it. According to this, "statement to foreign authorities" on page 14 of Pub 54? If you say that you "are not subject to their income tax" then " you are not a bona fida resident"
So I guess then maybe if you are not consider a resident, then you could do the physical presence test?
And still get out of taxes via the 2555 as long as you have 330 days in Korea or another foreign country  |
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Konglishman
Joined: 14 Sep 2007
Location: Nanjing
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| Posted: Wed Jan 20, 2010 8:32 pm Post subject: |
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| naturegirl321 wrote: |
So I guess the question is: Does Korea and being an English teacher there fall under the special treaty and agreements?
Because their examples of of Americans employed with the Armed Forces or the UN. |
I would certainly consider the Korea Income Tax Treaty to be something that would fall under the category of Special agreements and treaties. So, then, any American who is "teaching or engaging in research, or both, at a university or other recognized educational institution" in Korea, would potentially qualify. Note that the quoted part comes directly from the portion of the Korea Income Tax Treaty that I quoted earlier in the original post.
Based on my general impression, I think in practice that "other recognized educational institution" means public school. So, basically, someone who is a public school English teacher or a university professor should fall under the Korea Income Tax Treaty as long as he or she was able to get the Certificate of Residency.
| naturegirl321 wrote: |
EDIT: I think I get it. According to this, "statement to foreign authorities" on page 14 of Pub 54? If you say that you "are not subject to their income tax" then " you are not a bona fida resident"
So I guess then maybe if you are not consider a resident, then you could do the physical presence test?
And still get out of taxes via the 2555 as long as you have 330 days in Korea or another foreign country |
That particular possibility had not occurred to me. I guess that might work too.
Anyways, after I picked up my visa earlier this morning, I called up the IRS again. And of course, I asked if filing the 2555 for a given tax year will disqualify a person from getting the Certificate of Residency for that particular tax year. His first response was that there was no reason that filing the 2555 would disqualify someone from getting the 6166.
Then, I mentioned that an acquaintance of mine (by that, I mean T-J) had emailed the IRS and was told that filing the 2555 was indeed a disqualification. The IRS person was puzzled by this and wanted to see the email, but unfortunately, I was not in front of the computer at the time as I had just gotten my visa from the embassy (I called the IRS on a cellphone). After talking about this further with him, he discovered the following on page 3 of the instructions of form 8802 (the application for the Certificate of Residency).
| Quote: |
Who Is Not Eligible for Form 6166
In general, you are not eligible for Form 6166 if, for the tax period for which your Form 6166 is based, any of the following applies:
-You did not file a required U.S. return.
-You filed a return as a nonresident (including Form 1040NR, U.S. Nonresident Alien Income Tax; Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents; Form 1120-F, U.S. Income Tax Return of a Foreign Corporation; Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation; or any of the U.S. possession tax forms).
-You are a dual resident individual who has made (or intends to make), pursuant to a tie breaker provision within an applicable treaty, a determination that you are not a resident of the United States and are a resident of the other country. For more information and examples, see Reg. section 301.7701(b)-7.
-You are a fiscally transparent entity organized in the United States (that is, a domestic partnership, domestic grantor trust, or domestic LLC disregarded as an entity separate from its owner) and you do not have any U.S. partners, beneficiaries, or owners.
-The entity requesting certification is an exempt organization that is not organized in the United States. |
With regards to the above quote, there are a couple of things worth noting. For the nonresident possibility, the idea of a nonresident U.S. citizen is not considered and therefore is not a disqualification.
For the dual resident individual, there could be a problem. So, the only relevant disqualification comes down to who Korea legally considers to be a resident. If I am not mistaken, only F series visa holders are considered resident aliens of South Korea. Hence, it would appear that only F series visa holders are outright disqualified from getting the Certificate of Residency.
Obviously, the rest of the disqualifications mentioned are not relevant. Now, there is one more very important quote from the same page that needs to be considered.
| Quote: |
Individuals With Residency Outside the United States
If you are in any of the following categories for the year which certification is requested, you must submit a statement and documentation, as described below, with Form 8802.
1. You are a resident under the internal law of both the United States and the treaty country for which you are requesting certification (you are a dual resident).
2. You are a green card holder or U.S. citizen who filed Form 2555, Foreign Earned Income.
3. You are a bona fide resident of a U.S. possession.
If you are a dual resident described in category 1, above, your request may be denied unless you submit evidence to establish that you are a resident of the United States under the tie breaker provision in the residence article of the treaty with the country for which you are requesting certification.
If you are described in category 2 or 3, attach a statement and documentation to establish why you believe you should be entitled to certification as a resident of the U.S. for purposes of the relevant treaty. Under many U.S. treaties, U.S. citizens or green card holders who do not have a substantial presence, permanent home, or habitual abode in the United States during the tax year are not entitled to treaty benefits. U.S. citizens or green card holders who reside outside the United States must examine the specific treaty to determine if they are eligible for treaty benefits and U.S. residency certification. |
http://www.irs.gov/pub/irs-pdf/i8802.pdf
Both quotes can be found on page 3 in the link above.
The statement about category 1 seems to reinforce my earlier interpretation about dual residents who are presumably F series visa holders. So, a F series visa holder cannot get the Certificate of Residency unless he or she resides more often in the U.S. This means that even if a F series visa holder got the Certificate of Residency, he or she might not be able to get the Foreign Income Exclusion.
Now, the statement about category 2 shows that it is not impossible to get the Certificate of Residency even though the 2555 (Foreign Income Exclusion) was filed. According to the IRS person that I spoke to, the extra documentation could be things such as having a mailing address and bank account in the U.S. Also, it wouldn't hurt to own property. Further, if you have an intention to return to the U.S. after finishing your work contract, then that will also greatly help in the statement. However, it is quite possible that the specific provisions of the Korea Income Tax Treaty may make all of this a moot point. So, I am going to go ahead and read over the tax treaty very carefully. |
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carleverson
Joined: 04 Dec 2009
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| Posted: Wed Jan 20, 2010 10:50 pm Post subject: |
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This is a bit off-topic, but isn't the 2555-EZ not the 2555 the proper form we need to fill out to get our foreign income excluded??
Also, do we fill out a regular 1040 form for "U.S. Individual Income Tax Return" or another form??
One last question, if we are filing past years' tax returns is there a form we need to fill out to tell the IRS we're filing late???
If anyone could provide some answers, I'd be gateful. |
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