Page 602 - TaxAdviser_2022

TAX TRENDS
Author:
James A. Beavers, CPA, CGMA,
J.D., LL.M.
A taxpayer
cannot the avoid
consequences of a
closing agreement;
merchandise held
by Amazon in
a Pennsylvania
warehouse under a
fulfillment program
does not create
Pennsylvania nexus
for a nonresident
retailer.
60 November 2022
Analysis of and reflections on
recent cases and rulings.
taxation for U.S. citizens working
Foreign Income & Taxpayers at Pine Gap, the United States and
Australia entered into two agreements
Engineer cannot escape in 1966 and 1969 (the Pine Gap agree-
closing agreement ments) that generally provide that the
A closing agreement, in which a tax- income U.S. citizens earn at Pine Gap
payer living and working in Australia will be deemed not earned in Australia,
waived his right under Sec. 911(a) to so long as it is actually taxed by the
elect to exclude foreign earned income, United States. The United States and
was validly executed and could not be Australia signed a new income tax
set aside due to malfeasance or misrep- treaty in 1982. To the extent the Pine
resentation of material fact by the IRS. Gap agreements are read as giving U.S.
citizens working at Pine Gap more
Background favorable treatment, the 1982 treaty
During the years at issue, Cory Smith would seem to have left those arrange-
was a U.S. nonresident citizen who
ments intact.
worked at the U.S.–Australian Joint For the United States and Australia,
Defense Facility at Pine Gap, Alice the relief provided under Sec. 911 pre-
Springs, Northern Territory, Australia sented a particular problem in resolving
issues of potential double taxation for
(Pine Gap), a military surveillance facil-
ity. Generally, the United States taxes U.S. citizens working at Pine Gap.
the worldwide income of its nonresident Sec. 911 provides that certain qualified
citizens, which creates the potential for
individuals may elect to exclude from
their double taxation — in Smith’s case, gross income and exempt from U.S.
the taxation of his income by both the federal income taxation certain foreign
earned income. However, the Pine Gap
United States and Australia.
U.S. law provides some relief from agreements provided that U.S. citizens
double taxation for U.S. citizens work- could avoid Australian taxation on their
ing abroad. Relevant to Smith is the Pine Gap income only if that income “is
relief provided by Sec. 911(a), which not exempt, and is brought to tax, under
allows qualified individuals to elect to the taxation laws of the United States.”
exclude foreign earned income from Australian domestic law similarly re-
their gross incomes and treats that quired that the relevant income not be PHOTO BY ARCHEOPHOTO/ISTOCK
income as exempt from U.S. federal “exempt from income tax imposed” in
income taxation. the United States for its sourcing re-
In addition to providing relief characterization rule to apply. Moreover,
through U.S. law, to avoid double the 1982 treaty preserved the benefits of
The Tax Adviser