United States 2nd Circuit Court of Appeals Reports
YING v. C.I.R., 25 F.3d 84 (2nd Cir. 1994) EDWARD YING,
PETITIONER-APPELLEE, CROSS-APPELLANT, AND FELILU YING,
PETITIONER-APPELLEE, v. COMMISSIONER OF INTERNAL REVENUE,
RESPONDENT-APPELLANT, CROSS-APPELLEE. Nos. 930, 977,
Dockets 93-4155, 93-4185. United States Court of Appeals,
Second Circuit. Argued December 17, 1993. Decided May 24,
1994. Page 85
Charles Bricken, U.S. Dept. of Justice, Tax Div.,
Washington, DC (Michael L. Paup, Acting Asst. Atty. Gen.,
Gary R. Allen, Ernest J. Brown, of counsel), for
respondent-appellant, cross-appellee.
Jared J. Scharf, White Plains, NY (Morton A. Smith, Vincent
R. Barella, Hall, Dickler, Lawler, Kent & Friedman, White
Plains, NY, of counsel), for petitioner-appellee,
cross-appellant Edward Ying and for petitioner-appellee
Felilu Ying.
Appeal from the United States Tax Court.
Before: WINTER and PRATT, Circuit Judges, and WARD,[fn*]
District Judge.
[fn*] Honorable Robert J. Ward, Senior United States
District Judge for the Southern District of New York,
sitting by designation.
GEORGE C. PRATT, Circuit Judge:
[1] This case arises out of different income tax treatments
of a husband and a wife, both of whom were permanent
resident aliens in the United States. The United States Tax
Court, Laurence J. Whalen, Judge, held that the husband was
ineligible for a tax exemption under § 893 of the
Internal Revenue Code (“IRC”), because he had filed a
waiver under § 247(b) of the Immigration and
Nationality Act (“INA”), but that the wife, who had filed
an identical waiver, was eligible for the exemption. Ying
v. Commissioner of Internal Revenue, 99 Tax Ct.Rep. (CCH)
48, 452, 1992 WL 208182 (1992). For the reasons set forth
below, we affirm the Tax Court’s judgment with respect to
the husband, but reverse with respect to the wife.
[2] DISCUSSION
[3] The Immigration and Nationality Act of 1952 established
“`a comprehensive and complete code covering all aspects of
admission of aliens to this country, whether for business
or pleasure, or as immigrants seeking to become permanent
residents.'” Toll v. Moreno, 458 U.S. 1, 13, 102 S.Ct.
2977, 2984, 73 L.Ed.2d 563 (1982) (quoting Elkins v.
Moreno, 435 U.S. 647, 664, 98 S.Ct. 1338, 1348, 55 L.Ed.2d
614 (1978)). An alien is defined as Page 86 “any person
not a citizen or national of the United States”. 8 U.S.C.
§ 1101(a)(3)(1982). Aliens are further categorized
as either immigrants or nonimmigrants. While immigrants are
admitted according to a system of preferences, see 8 U.S.C.
§ 1153, and are subject to numerical limits by
country, see 8 U.S.C. § 1151, nonimmigrants generally
enter for a limited period and for a specific purpose. See
Int’l Longshoremen’s & Warehousemen’s Union v. Meese, 891
F.2d 1374, 1380 (9th Cir. 1989). Immigrants are generally
aliens who apply for permanent admission to the United
States, see id., whereas most nonimmigrants are precluded
from establishing a domicile in the United States. See
Toll, 458 U.S. at 14, 102 S.Ct. at 2984. There is a
statutory presumption that all aliens are immigrants. See 8
U.S.C. § 1184(b).
[4] Nonimmigrants who are employees of designated
international organizations are entitled to certain
privileges, exemptions, and immunities by virtue of their
occupational status. For example, congress has allowed them
to establish domicile in the United States. Toll, 458 U.S.
at 14, 102 S.Ct. at 2984. In addition, they typically do
not have to pay federal and, in many instances, state or
local taxes on the salaries paid by the international
organizations. Id. Where this tax exemption was not included
as part of an international agreement or treaty, congress
provided for it in the International Organizations
Immunities Act (“IOIA”). Id. at 15-16, 102 S.Ct. at
2985-2986 (citing IOIA § 4(b), 59 Stat. 669, 670
(1945), amending IRC § 116(h)(1)).
The exemption provides in pertinent part: Wages, fees, or
salary of any employee of a foreign government or of an
international organization * * * received as compensation
for official services to such * * * organization shall not
be included in gross income and shall be exempt from
taxation under this subtitle if —
(1) such employee is not a citizen of the United States,
or is a citizen of the Republic of the Philippines
(whether or not a citizen of the United States) * * *
[5] IRC § 893(a)(1) (1988).
[6] While the derivation of this unusual tax-exemption
provision does not affect our analysis of the statute’s
application to this case, we take a moment to mention its
historical underpinnings here. The predecessor of IRC
§ 893(a) was § 116(h) of the Internal Revenue
Code of 1939, which provided reciprocal exemptions for
employees of foreign governments in the United States.
Pub.L. No. 76-1, 53 Stat. 1, 50 (1939). However, at that
time the Commonwealth of the Philippines was not yet an
independent, self-governing country, see Philippine
Independence Act of 1934, Pub.L. No. 73-127, § 10(a),
48 Stat. 456, 463 (withdrawal of United States sovereignty
10 years after inauguration of new government); see also
Olegario v. United States, 629 F.2d 204, 209 (2d Cir. 1980)
(independence scheduled for 1946), cert. denied, 450 U.S.
980, 101 S.Ct. 1513, 67 L.Ed.2d 814 (1981), and therefore
could not be considered a “foreign government” as
contemplated by § 116(h).
[7] Because the United States wanted to provide benefits
reciprocal to those the Philippines was extending to United
States officers and employees on duty in the Philippines,
in 1942 congress extended the tax exemption to employees of
the Commonwealth of the Philippines. It amended the
exemption provision by adding “or of the Commonwealth of
the Philippines” after every mention of “foreign
government” and by adding “or is a citizen of the
Commonwealth of the Philippines” after “[i]f such employee
is not a citizen of the United States.” See Revenue Act of
1942, § 149, Pub.L. No. 77-753, 56 Stat. 798, 842.
[8] With the passage of the International Organizations
Immunities Act in 1945, IRC § 116(h) was again
amended, this time to extend the exemption to include
employees of international organizations. Pub.L. No.
79-291, 59 Stat. 669, 670 (1945). By providing this tax
exemption, the federal government “undoubtedly sought to
benefit the employing international organizations by
enabling them to pay salaries not encumbered by the full
panoply of taxes, thereby lowering the organizations’
costs.” Toll, 458 U.S. at 16, 102 S.Ct. at 2985.
[9] Finally, the Internal Revenue Code of 1954 renumbered
§ 116(h) as § 893 and made Page 87 some
minor changes. Because by this time, the Philippines had
gained its independence, the specific references to the
Commonwealth of the Philippines as an alternative to
“foreign government” were deleted, and the sole remaining
citation to the “Commonwealth of the Philippines” was
changed to “Republic of the Philippines”. The 1954 version
of the exemption provision is the one that is before us
today.
[10] Felilu and Edward Ying initially became eligible for
the tax exemption when they gained employment with the
United Nations, one of the “international organizations”
contemplated by the statute. See notes following 22
U.S.C.A. § 288 (1990). Neither Felilu nor Edward was
a citizen of the United States during any of the taxable
years in issue or at any time prior to those years. Felilu,
a citizen of the Republic of the Philippines, was employed
as an accounting clerk with the United Nations from 1968 to
1985. Edward, a citizen of Jamaica, was employed by UNICEF,
an agency of the United Nations, preparing budgets for
projects in various countries from 1969 to 1985.
[11] For those who enter the country as immigrants, but
either at the time of entry or subsequently acquire an
occupational status entitling them to nonimmigrant status,
the INA requires the Attorney General to adjust their
status to “nonimmigrant”. See INA § 247(a), 8 U.S.C.
§ 1257(a); see also Nauck v. Immigration &
Naturalization Serv., 475 F.2d 1008, 1009 (2d Cir. 1973).
Because only immigrants may be “permanent residents” and
permanent residence is a requirement of naturalization, see
8 U.S.C. § 1427(a), immigrants who want to become
naturalized United States citizens do not want to lose
their “immigrant” status. Therefore, INA § 247(b)
provides:
The adjustment of status required by subsection (a) of
this section shall not be applicable in the case of any
alien who requests that he be permitted to retain his
status as an immigrant and who, in such form as the
Attorney General may require, executes and files with the
Attorney General a written waiver of all rights,
privileges, exemptions, and immunities under any law or
any executive order which would otherwise accrue to him
because of the acquisition of an occupational status
entitling him to a nonimmigrant status under paragraph
15(A), (E), or (G) of section 1101(a) of this title.
[12] 8 U.S.C. § 1257(b) (emphases added).
[13] The “written waiver” is INS Form I-508, which is titled
“Waiver of Rights, Privileges, Exemptions and Immunities”.
In 1973 and 1974 respectively, Felilu and Edward executed
and filed this waiver in order to attain permanent
residence status. The waiver read:
I, (name) ________ believing that I have an occupational
status entitling me to a nonimmigrant classification under
paragraph * * * (15)(G) (International Organization
Representative), of Section 101(a) of the Immigration and
Nationality Act and desiring to acquire and/or retain the
status of an alien lawfully admitted for permanent
residence, do hereby waive all rights, privileges,
exemptions and immunities which would otherwise accrue to
me under any law or executive order by reason of such
occupational status.
[14] (emphases added).
[15] This case turns upon whether or not Felilu and Edward
waived their eligibility for the international-organization
tax exemption by signing the above waiver. On September 11,
1987, the Commissioner of Internal Revenue, believing that
Felilu’s and Edward’s waivers had disqualified them from
the tax exemption, sent them a notice that on their joint
returns they had underpaid their income taxes for fiscal
years 1981 to 1985. The Commissioner alleged that the Yings
had failed to report monies earned through their employment
with the United Nations, which was taxable income, and
determined that they were liable for self-employment tax on
such monies. The notice assessed significant tax
deficiencies against them for each of the five years, as
well as additions for fraud and delinquency penalties. See
IRC §§ 6653(b)(1),(b)(2), (d).
[16] The Yings filed a petition with the United States Tax
Court seeking a redetermination of the deficiencies and
additions. They claimed that they had properly reported
all Page 88 of their taxable income and that as salaried
employees, they were not liable for self-employment tax.
Furthermore, they claimed that both of their salaries from
the United Nations were tax exempt, that they had
overreported Felilu’s income, and that they were therefore
entitled to a refund for each of the five years at issue.
[17] The Yings moved for summary judgment, alleging that
because their income came from an international
organization and they were not citizens of the United
States, their income was exempt under IRC §
893(a)(1). The Commissioner then cross-moved for partial
summary judgment, seeking as determination that the income
received by the Yings from the United Nations and UNICEF
from 1981 to 1985 was “includable in gross income in such
years and is subject to United States taxation in such
years”. The Commissioner asserted that by signing the
waivers, both Felilu and Edward had waived the
international-organization tax exemption otherwise
available to them.
[18] In an opinion dated August 31, 1992, the Tax Court
granted Felilu’s motion for summary judgment, but denied
Edward’s and the Commissioner’s motions for summary
judgment. It held that because Felilu Ying was a Philippine
citizen, her income was exempt from taxation, despite her
filing of the waiver. However, it held that Edward Ying, as
a citizen of Jamaica, had waived his eligibility for the
exemption by filing the waiver.
[19] The parties settled all of the issues that remained
outstanding, and the Tax Court entered its final decision
on April 30, 1993. Both Edward Ying and the Commissioner
now appeal.
[20] A. Edward Ying.
[21] Relying on the text of INA § 247(b), Edward
argues that the waiver he executed applies only to rights,
privileges, exemptions, and immunities arising out of laws
that entitled him to a nonimmigrant status under paragraph
(15)(A), (E), or (G) of INA § 1101(a), see 8 U.S.C.
§ 1257(b), and that the international-organization
tax exemption is not among the laws that entitled him to
nonimmigrant status.
[22] We disagree. The plain language and the legislative
history of the statute authorizing the waiver, as well as
the related regulations, indicate that the tax exemption is
among the “rights, privileges, exemptions, and immunities”
that Edward relinquished by executing the waiver.
[23] Turning to paragraph 15(G) of INA § 1101(a),
which is explicitly mentioned in both the waiver and its
authorizing statute, we note that it defines “immigrant” as
every alien except, inter alia, officers or employees of an
“international organization entitled to enjoy privileges,
exemptions and immunities as an international organization
under the International Organizations Immunities Act”. 8
U.S.C. § 1101(a)(15)(G)(i), (iv). The tax-exemption
provision at issue was enacted as part of IOIA and was
codified as part of the Internal Revenue Code. See IOIA
§ 4, 59 Stat. at 670. Because the tax exemption was
part of the law that entitled Edward to a nonimmigrant
status, namely the IOIA, it is clearly among the exemptions
contemplated by the waiver.
[24] The legislative history of INA § 247
demonstrates that congress intended the waiver to put the
affected “nonimmigrants” in a position consistent with the
assumption of responsibilities of United States
citizenship. According to the House Report, the waiver was
intended to cover the situation where aliens who have
entered as immigrants obtain employment with * * *
international organizations * * *. Normally, they would be
classified as nonimmigrants and because of the nature of
their occupation, would be entitled to certain privileges,
immunities, and exemptions. The committee feels that it is
undesirable to have such aliens continue in the status of
lawful permanent residents and thereby become eligible
for citizenship, when, because of their occupational
status they are entitled to certain privileges,
immunities, and exemptions which are inconsistent with an
assumption of the responsibilities of citizenship under
our laws. Such an adjustment shall not be required if the
alien executes an effective waiver of all rights,
privileges, exemptions, and immunities under Page 89
any law or any Executive order which would otherwise
accrue to him because of his occupational status.
[25] House Report No. 1365, 82d Cong., 2d Sess., reprinted
in 1952 U.S.C.C.A.N. 1653, 1719 (emphasis added). Because
no one would dispute that paying taxes is a primary
“responsibility” of United States citizenship, an exemption
from income tax is necessarily “inconsistent” with that
responsibility.
[26] We note here that over forty years ago the Attorney
General came to a similar conclusion. In an opinion
rendered one year after the passage of the INA, he wrote of
the waiver:
[I]t is clear that the Congress intended to deprive
immigrant aliens employed in the international
organizations * * * of the privileges and exemptions
resulting from the occupational status which would not be
equally available to American citizens similarly situated.
[27] 41 Op.Atty.Gen. 131, 136 (1953). The Attorney General
then concluded that the tax exemption was an exemption that
an immigrant alien waives when he files the waiver under
INA § 247. Id. at 137.
[28] Finally, the regulations promulgated under the
tax-exemption provision provide further support for this
position:
Except to the extent that the exemption is limited by the
execution and filing of the waiver provided for in section
247(b) of the [INA] * * * wages, fees or salary of any
officer or employee of an international organization * * *
received as compensation for official services to the
international organization is exempt from Federal income
tax.
[29] Treas. Reg. § 1.893-1(b)(1) (emphasis added).
The regulations further state that an employee of an
international organization who executes “the waiver
provided for in section 247(b) of the [INA] thereby waives
the exemption [for employees of international
organizations].” Treas. Reg. § 1.893-1(b)(4).
[30] Because we hold that the international-organization
tax exemption is among the exemptions Edward waived by
filing his INA § 247(b) waiver, we affirm the Tax
Court’s decision with respect to Edward Ying.
[31] B. Felilu Ying.
[32] Discerning the effect of the waiver is more difficult
for Felilu than for Edward, because Felilu was a Philippine
citizen and the tax exemption provision specifically
mentions citizens of the Republic of the Philippines.
[33] The Tax Court held that Felilu’s waiver did not render
her ineligible for the tax exemption. In its analysis of
the exemption’s peculiar language — “if [] such
employee is not a citizen of the United States, or is a
citizen of the Republic of the Philippines (whether or not
a citizen of the United States)” — the Tax Court
concluded that the tax exemption was available to certain
United States citizens, namely those who were also citizens
of the Republic of the Philippines. Ying, 99 Tax Ct.Rep.
(CCH) at 5123. Because it determined that the waiver
applied “only to those rights and privileges which are not
available to American citizens”, id. at 5122, and that the
tax exemption was available to American citizens who were
also Philippine citizens, the Tax Court held that the
exemption could not be waived by citizens of the Republic
of the Philippines:
[I]n the case of an individual who is a citizen of the
Republic of the Philippines, * * * the exemption is not
“inconsistent with an assumption of the responsibilities
of citizenship”. This is true because section 893 permits
an American citizen, similarly situated, to enjoy the
benefits of section 893.
[34] Id. at 5123 (citations omitted).
[35] We agree with the Tax Court that the purpose of the
waiver is to place the immigrant in the same position that
she would be in if she were a United States citizen. As
noted previously, this was also the opinion of the Attorney
General. See 41 Op.Atty.Gen. at 137-38 (waiver “should
result in placing the employee of an international
organization * * *, who happens to be an immigrant, in a
position of parity with his fellow-American employee of the
same organization by allowing the immigrant employee no
greater privileges in connection with the employment than
an American citizen similarly employed”). Page 90
[36] We disagree, however, with the Tax Court’s use of a
dual United States-Philippine citizen as the model for a
“similarly situated American”. It is possible that such a
dual citizen might be eligible for the
international-organization tax exemption despite filing the
waiver, but we need not decide that question here. For the
relevant tax years, Felilu was a citizen only of the
Republic of the Philippines and was not a citizen of the
United States.
[37] Although people who are born in the United States and
subsequently move to the Philippines might qualify as dual
United States Philippine citizens, see, e.g., Jalbuena v.
Dulles, 254 F.2d 379, 381 (3d Cir. 1958); Petition of
Bautista, 183 F. Supp. 271, 274 (D.Guam 1960), Felilu does
not and cannot fall into that category, because she was not
born in the United States. Therefore, the appropriate
inquiry is not whether the exemption is a benefit that a
dual United States-Philippine citizen would receive, but
whether the exemption is a benefit that Felilu would
receive if she were a United States citizen.
[38] For Felilu to become a United States citizen, she must
follow the naturalization process set forth in the INA. One
requirement of naturalization is to “renounce and abjure
absolutely and entirely all allegiance and fidelity to any
foreign prince, potentate, state, or sovereignty of whom or
which the applicant was before a subject or citizen”. 8
U.S.C. § 1448(a)(2). Therefore, Felilu would have to
renounce her Philippine citizenship in order to become a
United States citizen. It is clear that if she had been a
United States citizen employed by the United Nations, she
would not have qualified for the tax exemption.
[39] In 1968, Felilu became eligible for the tax exemption,
because she was an employee of an international
organization designated by the IOIA and she was a citizen
of the Philippines. When she signed the INA § 247(b)
waiver in 1973, however, she waived all rights, privileges,
exemptions, and immunities that accrued to her by reason of
her occupational status. The tax exemption, which is
dependent upon a taxpayer’s occupational status, was one
such exemption.
[40] We hold that Felilu’s INA § 247(b) waiver had
the same effect as Edward’s identical waiver. Both Felilu
and Edward waived their eligibilities for the tax exemption
provided by IRC § 893(a) when they executed and
filed the waivers.
[41] CONCLUSION
[42] With respect to Felilu Ying, the Tax Court’s grant of
summary judgment is reversed and the case is remanded for
further proceedings. In all other respects the decision of
the Tax Court is affirmed.