[ConfusedTom]

Hi,

I am a UK citizen.

In 2003 as part of my BSc degree in the UK I worked in the US for about 6 months on a J-1 visa, and was paid with taxes being withheld from my pay cheques.

I returned to the UK and while finishing my degree I continued to work for the same US company, but from the UK. They paid me to an ATM card and I took the money out in the UK.

I registered as self-employed in the UK, and filled out self-assessment tax forms each year and paid tax on the money I earned.

The details of my earnings:

2003 - 2004
- W-2 - ~$10,000
- 1099-Misc - ~$28,000
- Fex tax WH: ~$1200

2005 - 2007
- 1099-Misc - ~$20,000

The IRS has sent me a tax bill for over $10,000, because I didn't file my tax returns. They have said I may not be eligible for any of that tax, and that I should file the tax returns, and have sent me 1040NR-EZ forms for 2003-2007.

I'm mostly confused by what exactly my situation is regarding tax treaties between the US and the UK. I know there is one - but I cannot understand it at all.

Can someone confirm that all the 1099-Misc money doesn't need to go on the 1040NR-EZ forms at all (as it only asks for amounts from W-2's)?

Also - the W-2 amounts (~$600) for 2004 (when I was in the UK) are made exempt by taxation treaties?

Therefore, the only tax I'd owe is the Federal tax from W-2 amounts during 2003, which I already had withheld. Is that correct?

Any help would very very greatly appreciated, as this is very confusing!

[MukatA]

You must file tax returns for all these years.
The 1099-misc income is considered self employed income or independent contractor income. It is subject to 15.4% SE tax. But nonresidents are exempt from SE tax.
You with return you must file Form 8843 to claim your exempt status.

You should immediately contact AtlantaTaxExpert at [email protected] to do your tax returns. He has good experience on such returns.

[ConfusedTom]

Hi MukatA,

Thank you so much for your prompt reply.

I realised I needed to file all the returns, but not about the form 8843, which will apply for 2003 when I had a J-1 visa. The other years I had no Visa and was not in the US - so I'm guessing no form 8843 and just the 1040NR-EZ's with the W2 amounts.

Thanks also for the referral - the website looks extremely helpful and I'll probably be emailing them now. If only I'd found them before.

Thanks again - greatly appreciated.

[IntlTax]

I disagree with MukatA on this one.

You are a nonresident alien. Nonresident aliens are only subject to U.S. tax on their U.S. source income. The income you received was from the performance of services. Services are sourced to the location where the services are performed. To the extent the services were performed in the U.K. the income was foreign source income and is not subject to U.S. income taxes or U.S. social security taxes.

The U.S. company that paid you should not have sent you a Form 1099 because the services were performed outside the U.S. It is the 1099 that is making the IRS think that you owe U.S. tax.

For the years that you did not perform any services in the U.S. you do not need to file any U.S. tax returns. You should send a letter to the IRS explaining that all of the services were performed outside the U.S. and therefore the income is not subject to U.S. tax and also explain that the Form 1099s were sent to you in error.

[AtlantaTaxExpert]

I already answered this post on the other forum, but I will expound on that answer here.

IntlTax has it correct, but I believe that a letter to the IRS will be insufficient to satisfy them. As noted on the other forum, Form 1040NR plus Form 8843 will be needed for tax year 2003, and some tax will probably be due.

For 2004 through 2007, Form 1040NR-EZ will be needed, claiming the W-2 and 1099 income as EXEMPT income (this is different than the other forum's post, which cited Form 1040NR; Form 1040NR-EZ will suffice). Form 8833 will also need to be filed to properly cite the appropriate provision of the U.S.-U.K. Tax Treaty to show the IRS that the money is NOT subject to U.S. income taxes.

Finally, if you are still receiving income, have the company STOP issuing Form 1099-MISC.

[IntlTax]

For the years that Tom received a W-2, I agree that it makes sense to prepare U.S. tax returns. For the other years, in my opinion, it is unnecessary to prepare tax returns. And you certainly don't need a Form 8833 -- there is no need to invoke the treaty when the income wasn't subject to U.S. tax in the first place. Treaties are needed where U.S. tax law would subject the income to tax and the treaty provides otherwise. That is not the case here.

[AtlantaTaxExpert]

I concede that the 1099 income is NOT subject to U.S. taxes under U.S. tax law.

However, that point is also covered in the tax treaty, and submitting the tax returns and the Form 8833 for the years in question is a valid method for addressing the problem, and meets the IRS request for submission of tax returns.

It has been my experience that, once the IRS requests filing of a tax return, they will only be satisfied by such a filing, even if the tax law clearly shows that such a filing is not needed.

[IntlTax]

In my experience, if no tax return is required and the reason no tax return is required is accurately explained to the IRS, then no return needs to be filed.

[AtlantaTaxExpert]

I have tried that without success, but perhaps I failed to explain it properly.

To each his own, I suppose!