702.0641/61
The Secretary of State to the Ambassador in Great Britain ( Dawes )
Sir: The Department has studied the situation outlined in the Embassy’s telegram No. 97 of May 10, 11 a.m., conveying the refusal of the British Government to exempt American consular officers in Great Britain from the payment of income tax on that portion of their non-official income which is derived outside of the United Kingdom and stating that no condition of reciprocity has ever been made by the British Government with respect to the liability of foreign consuls in the United Kingdom to the payment of income tax.
Under existing regulations in the United States, British consular officers assigned to this country are regarded as non-resident aliens by the Bureau of Internal Revenue and are accordingly taxed upon only that portion of their income which is derived from sources within the United States (See Income Tax Regulations 74, Article 641). You are directed to bring this matter to the attention of the Foreign Office, taking care to emphasize the fact that in requesting relief from the United Kingdom’s income tax for American consular officers, this Government desires such relief to apply only to such portion of their non-official income as is derived from sources outside of the United Kingdom, on a basis of reciprocity.
In this connection, you may, in your discretion, inform the Foreign Office that I am advised that in order to tax the income of foreign consular officers in the United States from sources outside of the United States it would be necessary to classify them for taxation purposes as resident aliens. I am further advised that the matter of classification is not one of law but of regulation within the determination of the Treasury Department and that the classification of foreign consular officers as resident aliens or non-resident aliens could be made on a reciprocal basis. The Department would, naturally, be reluctant to request the Treasury to classify British consular officers as resident aliens for the purpose of levying income tax upon that portion of their non-official income derived from sources outside the United States. [Page 144] However, the Department feels that this aspect of the British Government’s decision with regard to the liability of American consular officers to the payment of the United Kingdom income tax should be brought to the attention of the Foreign Office, in order that, should relief be denied, there may be no occasion for misunderstanding if the State Department requests the Treasury to classify British consular officers as resident aliens.
Very truly yours,