PORTFOLIO

U.S. Income Taxation of Foreign Governments, International Organizations and Their Employees (Portfolio 913)

Tax Management Portfolio, U.S. Income Taxation of Foreign Governments, International Organizations, Central Banks, and Their Employees, discusses the income tax exemptions under §§892, 893, and 895.

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DESCRIPTION

The Portfolio discusses the development of the exemption under §892(a) for foreign governments, particularly the limitations placed on the scope of the exemption by the 1986 Tax Reform Act and by the 1988 temporary regulations. It analyzes in detail what types of organizations are exempt from tax and what kinds of income received by such organizations are exempt from tax. There is an extensive analysis of the issues raised by the regulations under §892 and the ambiguities still present in the law. Tax planning suggestions are also presented and analyzed. It further explores the broader income tax exemption available to certain international organizations under §892(b).  

The Portfolio also discusses §893, which exempts employees of foreign governments and international organizations from income tax, and §895, which exempts foreign central banks from income tax. The Portfolio also raises the possibility of exemption through income tax treaties, other international agreements, and other Code provisions.


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AUTHORS

U.S. Income Taxation of Foreign Governments, International Organizations, Central Banks, and Their Employees was authored by the following experts.
BRETT R. DICK, ESQ.
Brett R. Dick, B.A., University of Michigan (1967); J.D., University of Michigan Law School (1970); member, American Bar Association, Section of Taxation, Committee on U.S. Activities of Foreigners and Tax Treaties, Subcommittee on Source of Income; member, State Bar of California, Foreign Taxation Subcommittee; member, San Francisco Foreign Tax Club; member, San Francisco Tax Club; speaker at various conferences on international taxation.

BABAK E. NIKRAVESH, ESQ.
Babak E. Nikravesh, B.A., University of California, Berkeley (1992); J.D., UCLA School of Law (1996); Summer Session, The Hague Academy of International Law (1996); LL.M., London School of Economics and Political Science (1997); M.A., Stanford University (1998); member, American Bar Association, Section of Taxation.

TERESA A. MALONEY, ESQ.
Teresa A. Maloney, B.A., Catholic University of America (1981); J.D., Cornell Law School (1984); member, American Bar Association, Section of Taxation; member, National Association of Real Estate Investment Trusts.

TABLE OF CONTENTS

Detailed Analysis

I. Introduction

A. International Sovereign Immunity

B. Basic Statutory Provisions

1. Section 892

2. Section 893

3. Section 895

II. Exemption from U.S. Income Taxation of Foreign Governments and International Organizations Under § 892

A. Background

B. Scope of the § 892 Exemption

C. Exempt Organizations under the Temporary Regulations

1. "Foreign Government" vs. "Foreign Sovereign"

2. "Integral Parts" of a "Foreign Sovereign"

3. "Controlled Entities" of a "Foreign Sovereign"

4. Pension Trusts for Employees of Foreign Governments

5. "Political Subdivisions" and "Transnational Entities"

D. Exempt Income of Foreign Governments

1. Types of Income

a. Bank Interest

b. Income from Stocks, Bonds, or Other Domestic Securities

(1) Partnership Issues

(2) USRPHC and REIT Issues

c. Income from Financial Instruments

d. Special Issues

(1) USRPIs

(2) Notional Principal Contracts

2. Investment Sources vs. Commercial Activities

3. Cultural Events

4. Purchase of Goods

5. Not for Profit Activities

6. Governmental Functions

7. Activities Other than Trade or Business

8. Portfolio Investments

a. Dealer Activities

b. Volume of Transactions

c. Banking, Financing, etc. and Effectively Connected Activity

d. Trading

e. Real Property Activities

9. Controlled Commercial Entities

E. Exempt Income of International Organizations

F. Effective Date Issues

G. Tax Reporting

H. Withholding

III. Exemption from U.S. Income Taxation of Compensation of Employees of Foreign Governments and International Organizations Under § 893

A. Scope of the § 893 Exemption

B. Filing Requirements

C. Waiving the § 893 Exemption

IV. Exemption from U.S. Income Taxation of Foreign Central Banks Under § 895

V. Other Exemption Possibilities

A. Income Tax Treaties

B. Other International Agreements


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 S. Rep. No. 313, 99th Cong., 2d Sess. 415 (1986)

Worksheet 2 H.R. Rep. No. 841, 99th Cong., 2d Sess. (Vol. II), II-654 (1986) (Conference Report)

Worksheet 3 Qualifying International Organizations

Worksheet 4 Form W-8EXP, Certificate of Foreign Governments or Other Foreign Organization for U.S. Tax Withholding

Bibliography

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Statutes:

Treasury Regulations:

Treasury Revenue Procedures and Revenue Rulings:

Cases:

Reports and Treatises:

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