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Tax claim for a postdoc

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franto

Junior Member
What is the name of your state (only U.S. law)? I live outside U.S.

I am a Spanish citizen that worked as a postdoc in U.S for a couple of years. During this time I received a W-2 form and I filled my taxes every year. All the federal taxes I paid were refunded after I claimed to IRS that they were exempt of U.S. taxation under the Spain-US tax treaty. The article that applies to my case is:

ARTICLE 22
Students and Trainees
1. (a) An individual who is a resident of a Contracting State at the beginning of his visit to
the other Contracting State and who is temporarily present in that other Contracting State for
the primary purpose of:
(i) studying at a university or other accredited educational institution in that other
Contracting State, or
(ii) securing training required to qualify him to practice a profession or
professional specialty, or
(iii) studying or doing research as a recipient of a grant, allowance, or award
from a governmental, religious, charitable, scientific, literary, or educational organization,
shall be exempt from tax by that other Contracting State with respect to the amounts described in
subparagraph (b) of this paragraph for a period not exceeding five years from the date of his arrival in
that other Contracting State.
(b) The amounts referred to in subparagraph (a) of this paragraph are:
(i) payments from abroad, other than compensation for personal services, for
the purpose of his maintenance, education, study, research, or training;
(ii) the grant, allowance, or award; and
(iii) income from personal services performed in that other Contracting State in
an aggregate amount not in excess of 5,000 United States dollars or its equivalent in
Spanish pesetas for any taxable year.


Now I no longer live or work in the U.S. but last week I received a IRS letter that reports and adjustment to the income that was exempt from taxation for those 2 years. In summary they invite me to pay almost $10000 in terms of adjustment to the income, penalties and interests. They claim that as I received my income with a W2 form, all my wages qualified as personal services and therefore are taxable in the US and not exempt from taxation as they had previously considered (since they had refunded me the federal taxes I had paid). I do not agree with the IRS since as a postdoc I consider I was receiving training as a scientist and not providing any personal service to the university were I stayed, regardless the fact that my income was reported in a W-2.

I would like to know which action should I take to this IRS letter. They say that if I don't respond I will receive a notice of deficiency and later send the case to the U.S Tax Court. I don't have any money or property in the U.S and it would be very difficult for me to pay all what they request. I also wonder if all this can cause me problems to enter in the U.S. if I decide to go there for tourism in the future (I don't plan to work or live there in the future).
 
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davew128

Senior Member
What is the name of your state (only U.S. law)? I live outside U.S.

I am a Spanish citizen that worked as a postdoc in U.S for a couple of years. During this time I received a W-2 form and I filled my taxes every year. All the federal taxes I paid were refunded after I claimed to IRS that they were exempt of U.S. taxation under the Spain-US tax treaty. The article that applies to my case is:

ARTICLE 22
Students and Trainees
1. (a) An individual who is a resident of a Contracting State at the beginning of his visit to
the other Contracting State and who is temporarily present in that other Contracting State for
the primary purpose of:
(i) studying at a university or other accredited educational institution in that other
Contracting State, or
(ii) securing training required to qualify him to practice a profession or
professional specialty, or
(iii) studying or doing research as a recipient of a grant, allowance, or award
from a governmental, religious, charitable, scientific, literary, or educational organization,
shall be exempt from tax by that other Contracting State with respect to the amounts described in
subparagraph (b) of this paragraph for a period not exceeding five years from the date of his arrival in
that other Contracting State.
(b) The amounts referred to in subparagraph (a) of this paragraph are:
(i) payments from abroad, other than compensation for personal services, for
the purpose of his maintenance, education, study, research, or training;
(ii) the grant, allowance, or award; and
(iii) income from personal services performed in that other Contracting State in
an aggregate amount not in excess of 5,000 United States dollars or its equivalent in
Spanish pesetas for any taxable year.


Now I no longer live or work in the U.S. but last week I received a IRS letter that reports and adjustment to the income that was exempt from taxation for those 2 years. In summary they invite me to pay almost $10000 in terms of adjustment to the income, penalties and interests. They claim that as I received my income with a W2 form, all my wages qualified as personal services and therefore are taxable in the US and not exempt from taxation as they had previously considered (since they had refunded me the federal taxes I had paid). I do not agree with the IRS since as a postdoc I consider I was receiving training as a scientist and not providing any personal service to the university were I stayed, regardless the fact that my income was reported in a W-2.

I would like to know which action should I take to this IRS letter. They say that if I don't respond I will receive a notice of deficiency and later send the case to the U.S Tax Court. I don't have any money or property in the U.S and it would be very difficult for me to pay all what they request. I also wonder if all this can cause me problems to enter in the U.S. if I decide to go there for tourism in the future (I don't plan to work or live there in the future).
How much was on your W-2? BTW, just because they had previously refunded your money doesn't mean a thing.
 

franto

Junior Member
Around $30000 one year and $34000 the other, from which according to their new revision only $5000 were tax exempt for federal taxes.
 

davew128

Senior Member
Around $30000 one year and $34000 the other, from which according to their new revision only $5000 were tax exempt for federal taxes.
Hate to be the one to tell you this, but based on what you've stated and the applicable treaty position, the IRS is correct. You didn't read the treaty provision correctly. Your W-2 wasn't "payments from abroad, other than compensation for personal services, for
the purpose of his maintenance, education, study, research, or training;". If you think it should be treated differently then you need post additional information about the work you did for the W-2 and then discuss it with your employer. However if your employer wasn't the educational institution you were attending, don't expect a different result.
 

franto

Junior Member
Thanks for your answer. My employer was the university. As I said, the IRS thinks that the fact that my income was reported in a W-2 form means it comes from personal services, while I think I was not providing any personal real service to the university since I didn't have any other job duty than being trained for scientific research in a laboratoy. But, anyway, my objective here was not to discuss the applicability of the treaty, since I know it can have many interpretations and the fact that the university classified my income as a wage in W2 form does not help my case .

What I would like to know is what consequences could come if I chose not to answer the IRS letter. All this keeping in mind that I am not american, and I no longer live or work in the USA and I pay taxes in another country. So things like losing the US credit rate (if I ever had one) or not being able to ask for a U.S. mortgage don't bother me at all. Also I don't plan to go back there except for tourism maybe.
 
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cbg

I'm a Northern Girl
Your interpretation of providing service to the university is not the interpretation that matters. I work for a world-renowned university and deal with plenty of postdocs. I think you may rest assured that your self-serving interpretation is not shared by either the university or the US government. Or, for that matter, by the majority of your fellow post docs.
 

franto

Junior Member
Well, plenty of postdocs are hired with an allowance or grant and not receive any W2 form and their "job duties" do not differ in any way from W2 postdocs. In any case I understand this is not the explanation that matters to the IRS and I don't really want to discuss this point. My main question is:

What I would like to know is what consequences could come if I chose not to answer the IRS letter. All this keeping in mind that I am not american, and I no longer live or work in the USA and I pay taxes in another country. So things like losing the US credit rate (if I ever had one) or not being able to ask for a U.S. mortgage don't bother me at all. Also I don't plan to go back there except for tourism maybe.

Also, in case of agreeing and paying I would like to know if there is possibility of getting rid of the penalties and interests imposed by the IRS (they sum like $3000), since it was not my intention to commit any fraud and I filled the taxes to the best of my abilities and knowledge of the matter. The letter mentions a 15-day period for answering, but I received the letter last week and its date was June 16, thanks to the wonders of international email (it was sent by regular mail). So maybe it will be too late anyway?
 

cbg

I'm a Northern Girl
No, they're not going to drop the fees and penalties because you claim innocence. It was your responsibility to know what you were obligated to pay.

What happens with other post docs who are hired on a different basis is of no concern of yours.
 

tranquility

Senior Member
Well, plenty of postdocs are hired with an allowance or grant and not receive any W2 form and their "job duties" do not differ in any way from W2 postdocs. In any case I understand this is not the explanation that matters to the IRS and I don't really want to discuss this point. My main question is:

What I would like to know is what consequences could come if I chose not to answer the IRS letter. All this keeping in mind that I am not american, and I no longer live or work in the USA and I pay taxes in another country. So things like losing the US credit rate (if I ever had one) or not being able to ask for a U.S. mortgage don't bother me at all. Also I don't plan to go back there except for tourism maybe.

Also, in case of agreeing and paying I would like to know if there is possibility of getting rid of the penalties and interests imposed by the IRS (they sum like $3000), since it was not my intention to commit any fraud and I filled the taxes to the best of my abilities and knowledge of the matter. The letter mentions a 15-day period for answering, but I received the letter last week and its date was June 16, thanks to the wonders of international email (it was sent by regular mail). So maybe it will be too late anyway?
I agree with Dave128, this seems taxable. While facts could be developed for a person in the OP's position that make it not, they would be unusual. Still, that is not what he wants.

The IRS will not go after a foreign national who has no connection to the U.S. as a general rule. The statute may toll (It may not in this particular instance, but I would have to spend too much time to determine it.) and anytime the OP came into the sphere of the U.S. financially (Or, to the country physically.), actions might be taken. This is small beans and if the OP stayed away, the IRS is not going pigeon shooting. Even if he physically came to the country (without U.S. financial services), it might not result in a service of process, court with a default judgment, and the IRS seeking foreign bank enforcement of the judgment.

Now, as to the problem. Interest cannot be forgiven. Is is a part of what is owed. If there is some OIC issue, the total will be reduced, but the IRS cannot remove interest. Penalties are a bit to the judgment of the Commissioner. Not intending to commit fraud is NOT a good reason for removal of the penalties. Intending to commit fraud is a criminal offense and is not what the penalties are designed to address. One thing that could get the penalties removed is if the OP had his taxes professionally prepared and he relied on the opinion of the preparer. Since on the bare facts this seems taxable, I find that possibility unlikely. The OP can give his story of woe and hope the agent forgives the penalties, sometimes it happens. I have not seen it a ton on simple errors of law interpretation. But, maybe. While the letters have deadlines, they are so happy that people communicate with them over problems, something a little late will have no real consequence unless it was a final letter where a lien or levy is happening. Then, while the date may not guide the actuality, it guides the potential of the actuality. (They won't act before the deadline, but they might not act at the deadline.)
 

franto

Junior Member
Thanks tranquility, your answer has been really helpful.

Only one question, what does OIC issue mean? Could the total be reduced?

Thanks!
 

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