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A J-1 scholar is considered a "non-resident alien" for the first two years (Example 4). I wonder how that interacts with the definition of "residence" in a tax treaty, for instance, the one with Germany. This reads in Article 4:

  1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation, or any other criterion of a similar nature, provided, however, that a) this term does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein; and b) in the case of income derived or paid by a partnership, estate, or trust, this term applies only to the extent that the income derived by such partnership, estate, or trust is subject to tax in that State as the income of a resident, either in its hands or in the hands of its partners or beneficiaries.

Now I wonder if one could ever be considered a resident of the US for purpose of the tax treaty, despite one's status as non-resident alien. I would guess "yes" since one is "liable to tax"; but then again, "under the laws of that state", one is not liable to tax by reason of residence or domicile, right? (Or wrong? Or, if it's right, by what other reason would one be liable to tax?) Domicile seems to imply residence, and one is not a resident under the US tax code (but a non-resident alien), so somehow that would mean one could not be a resident of the US for purpose of the tax treaty. So are you automatically a resident of the respective other country as a J-1 (if there is any, whatever little chance of being a resident there, that is)?

I am confused.

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Or, if it's right, by what other reason would one be liable to tax?

For example, by reason of having income from that state. Or (in the case of the US), by reason of having citizenship of that state. The quote you cited specifically mentions

a) this term does not include any person who is liable to tax in that State in respect only of income from sources in that State or capital situated therein

This would apply to "non-resident aliens" under US tax law -- they are generally only taxed on the part of their income that is connected to the US.

So you would not be a resident of the US for the purposes of the treaty.

(p.s. I want to mention that, even if you were to meet the definition for being a resident above, if you are also a tax resident of Germany, then the Article 4 Part 2 provisions for resolving which state you are a resident of will come into play. So in the end you might still not be considered a resident for the purposes of the treaty.)

  • @Brick: That's the 2 years that the OP is talking about. J-1 other than students are defined as "students and trainees", who are "exempt individuals" (exempt from the Substantial Presence Test) if they have not had 2 years in the previous 6 years as "exempt individuals". – user102008 Jan 13 '16 at 20:48
  • @Brick: As user102008 wrote, this is the "Exempt Individual" section under your link. The "2 out of 7" rule is, for some reason, not even mentioned there, but explained here: irs.gov/Individuals/International-Taxpayers/…. You can find examples here: irs.gov/Individuals/International-Taxpayers/… Finally, there's a 4-out-of-7 rule if all of a J1's moneys comes from a foreign employer. I found tax.thomsonreuters.com/wp-content/pdf/nra-tax/… very helpful. – bers Jan 21 '16 at 20:46

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