Rev. Rul. 75-426

Advice has been requested whether the execution and filing of a waiver provided by section 247(b) of the Immigration and Nationality Act, 8 U.S.C. 1257(b) (1970) by a resident alien individual who is employed by the International Telecommunications Satellite Organization (INTELSAT) and whose compensation for official services to such organization is exempt from Federal income tax under a Headquarters Agreement would cause such individual to lose such exemption and be subject to such tax.

INTELSAT is an arrangement whereby 68 countries are participating in the establishment of a global commercial communications satellite system. The various countries either participate directly or through a designated communications entity, public or private. INTELSAT is operating under an agreement signed between the United States and other governments on August 20, 1971, and entered into force for the United States on February 12, 1973, 23 U.S.T. 3813, T.I.A.S. No. 7532 (Agreement). INTELSAT was designated as a public international organization entitled to enjoy the privileges, exemptions, and immunities conferred by the International Organization Immunities Act, 22 U.S.C. 288 (Supp. III, 1973) by Exec. Order No. 11,718, 3A CFR 177 (Supp. 1973).

Article XV(c) of the Agreement provides, in part and in effect, that the United States shall, as soon as possible, conclude a Headquarters Agreement with INTELSAT covering appropriate privileges, exemptions, and immunities. These appropriate privileges, exemptions, and immunities are to be granted to INTELSAT, to its officers, and to those categories of its employees specified in the Headquarters Agreement, to parties and representatives of parties and signatories and representatives of the signatories, and to persons participating in arbitration proceedings. The Headquarters Agreement shall include a provision that all signatories acting in their capacity as such, except the signatory designated by the United States, namely the Communications Satellite Corporation, shall be exempt from national taxation on income earned from INTELSAT in the territory of the United States. The Headquarters Agreement shall be independent of the Agreement and each shall prescribe the conditions of its termination.

Article I(f) of the Agreement defines "party" as a state for which the Agreement has entered into force or been provisionally applied. Article I(g) defines "signatory" as a party, or the telecommunications entity designated by a party, which has signed the Agreement and for which it has entered into force or been provisionally applied.

Section 893 of the Internal Revenue Code of 1954 provides that wages, fees, or salaries of any employee of a foreign government or of an international organization (including a consular or other officer, or a nondiplomatic representative), received as compensation for official services to such government or international organization shall not be included in gross income and shall be exempt from taxation under this subtitle if certain conditions set forth therein are met.

Section 1.893-1(b)(1) of the Income Tax Regulations provides that except to the extent that the exemption is limited by the execution and filing of a waiver and subject to the provisions of sections 1, 8, and 9 of the International Organizations Immunities Act, as amended (22 U.S.C. 288, 288e, 288f (Supp. III, 1973)), wages, fees, or salaries of any officer or employee of an international organization (as defined in section 7701(a)(18) of the Code) received as compensation for official services to such international organization is exempt from Federal income tax, if that officer or employee is not a citizen of the United States.

Section 1.893-1(b)(4) of the regulations provides that an officer or employee of an international organization who executes and files with the Attorney General the waiver provided for in section 247(b) of the Immigration and Nationality Act thereby waives the exemption conferred by section 893 of the Code. As a consequence, that exemption does not apply to income received by that individual after the date of filing of the waiver.

Generally, the exemption from Federal income tax of compensation of officers and employees of an international organization is derived from the provisions of section 893 of the Code. However, alien employees of an international organization may derive the exemption from Federal income tax on their official compensation from the articles of agreement under which such organization was created. In the instant case, the Agreement does not contain an overriding provision exempting from United States Federal income tax the salaries paid to its officers and employees by INTELSAT. In absence of such authority by treaty or international agreement, that is, an agreement between the United States and other countries, or a specific statutory provision, the United States Code controls the incidence of taxation. Thus, section 1.893-1(b) of the regulations governs in absence of such provisions.

Accordingly, the execution and filing of the waiver provided by section 247(b) of the Immigration and Nationality Act by a resident alien individual who is employed by INTELSAT and whose compensation is otherwise exempt from Federal income tax under section 893 of the Code will terminate such exemption.