[Dav1984]

Dear tax experts,
I've a question concerning my ITALY-US tax treaty .
My J1 visa was originally issued for 1 year, and because last year I won my own fellowship (received through university payroll that issues a 1042S) it has then been extended for additional 2 years. However the Italian tax treaty has a prospective loss provision (the language in the treaty that says "not expected to exceed two years at the beginning of the visa") in the Teacher/Researcher article. Even if my visa was originally issued for 1 year and after renewed, and I originally didn't plan to stay for more than 2 years, the IRS might anyway deny the treaty as I read an article where according to the prospective loss provision the IRS deny the treaty using objective facts (see the attached file).
I'm planning to continue to ask also for my second year of tax return the tax treaty benefit as I'm sure that I fit the tax treaty provisions.
As I'm quite a fan of your work on this website I imagine that you passed through any possible exception, so I wanted to know according to your experience if I might have any issue with IRS and how is frequent in a case like mine to have the treaty denied even if the first visa was only a 1 year visa, extended during the stay.
Thank you very much!

[AtlantaTaxExpert]

The IRS will not deny the treaty for the FIRST year, because you came under the expectation that it was only for one year.

However, with the extension, you clearly expect to stay beyond TWO years, so do NOT claim the treaty exemption for your SECOND tax year.

[Dav1984]

... but according to the ITA-US tax treaty also the second year should be covered as long as when I entered in the US I didn't have the intention to stay for more than one year and my expectation change once entered in the US.
The point is that the IRS might deny the whole tax treaty assuming facts (like the extension of the visa with the same sponsor) that might infer that I came in the US with the expectation (or the expectation of my sponsor) to stay more than 2 years.
I don't know how these things happen!

[AtlantaTaxExpert]

When you got off the plane, you expected to stay there ONE year. That is clear based on the J-1 visa you received.

The EXTENSION changes the expectation and thus your ability to claim the exemption the second year. You CAN claim the second year based on your interpretation of the treaty, but I do not believe the IRS would agree, and if they challenge it, they WILL go after BOTH years and not just the second year.

[Dav1984]

I have a licence from my university to use the Thomson Reuters/Windstar online tax return wizard for non resident-aliens. That program interprets the treaty in this way:
- if I put a consecutive period since I arrived in the US, as shown by my extended DS2019, it doesn't give the treaty benefits as the cumulative time of my DS-2019 goes above 2 years;
- if I put the program dates of my original DS-2019 as a separate visit nonimmigrant status record, and then enter the extension period, the program grants me the treaty as it recognizes that my initial stay was not plan to exceed two years and the change happened when I arrived in the US.

[AtlantaTaxExpert]

So it is a matter of interpretatioln.

If you feel confident that you can claim the sedonc year exemption, then GO FOR IT! It is likely the IRS will not challenge it.

But if they do challenge it, expect a long, drawn-out argument with the IRS, and that is an argument you usually will LOSE!

[Dav1984]

Thank you very much!! I'll go for it as I also have many elements eventually in support of my claim!

[AtlantaTaxExpert]

Glad to help!