The U.S. Tax Court today issued an opinion holding that unemployment compensation received by a nonresident alien was not exempt from U.S. income tax under a provision of the income tax treaty between the United States and Canada.
The case is: Guo v. Commissioner, 149 T.C. No. 14 (October 2, 2017). Read the Tax Court’s opinion [PDF 60 KB]
The taxpayer, a citizen of Canada, entered the United States in 2010 to work as a post-doctoral fellow at a university. The taxpayer resided in the United States until November 2011 when her employment contract with the university ended. After unsuccessfully attempting to find other employment in the United States, the taxpayer returned to Canada.
At a point in 2012, the taxpayer applied for and received unemployment compensation from the State of Ohio. For 2012, she timely filed a U.S. federal income tax return, and on that return she reported her unemployment compensation as exempt from tax under a provision of the United States-Canada income tax treaty. The taxpayer was a nonresident alien during 2012.
The IRS determined that the unemployment compensation received by the taxpayer was taxable income, and issued a notice of deficiency. The taxpayer countered that unemployment compensation was exempt from U.S. income tax under Article XV of the treaty (the treaty provision on “dependent personal services”). The IRS countered that under treaty Article XXII (concerning “other income”), the unemployment compensation was taxable income in the United States.
The Tax Court today agreed with the IRS and held that:
© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.