811.5123/2358

The Secretary of State to the Swedish Minister ( Boström )

The Secretary of State presents his compliments to the Honorable the Minister of Sweden, and refers again to a note from the Chargé d’Affaires ad interim dated August 30, 1935, regarding the payment by Swedish business men, visiting the United States for the purpose of buying goods or studying the market, of a tax based upon their income derived from Sweden.

The appropriate authorities of this Government have advised the Secretary of State, in response to the Chargé d’Affaires’ inquiries that the general rule stated in section 211 (a) of the Revenue Act of 193419 is that in the case of a non-resident alien individual gross income includes only the gross income from sources within the United States. It is specifically provided in section 119 (a) (3) of that Act that compensation for labor or personal services performed in the United States shall be treated as income from sources within the United States. Article 119–4 of Regulations 86 pertaining to the income tax under the Revenue Act of 1934 provides that gross income from sources within the United States includes compensation for labor and for personal services performed within the United States regardless of the residence of the payor or the place in which the contract for services was made, or of the place of payment. Section 146 (e) of the Revenue Act of 1934 provides that no alien shall depart from the United States unless he first procures from the collector or agent in charge a certificate that he has complied with all the obligations imposed upon him by the income, war-profits, and excess-profits tax laws. It follows, therefore, that under the Revenue Act of 1934 and Regulations 86 a non-resident alien who comes to the United States for business purposes is liable for Federal income tax on income received as compensation for services performed in this country and that such tax as may be due and owing is required to be paid before he is permitted to leave the United States.

Applying these general statements to the case of Mr. Engstrom, mentioned in the note of the Chargé d’Affaires, he was liable to Federal income tax upon the compensation received for services rendered by him in the United States during his stay therein regardless of its [Page 494] duration, and the amount of tax due was required to be paid prior to his departure from the United States.

The specific provision of law which treats as income from sources within the United States the amount received as compensation for labor or personal services performed in the United States is not new, but was contained in the Revenue Act of 1921 and was reenacted without change in each subsequent revenue act. The method of taxing the income of non-resident aliens in this respect has thus existed over a period of several years.

While the conclusions set forth above appear to be inescapable under the existing tax laws of the United States, the Minister is informed that consideration is being given to the advisability of recommending to the Congress changes in the law which would tend to alleviate the situation discussed above.

The enclosure20 to the note of the Chargé d’Affaires is returned herewith.

  1. 48 Stat. 680.
  2. Not printed.