Foreign Tax exempt income?

[Roberts]

I'm thoroughly confused. Client is a citizen of Switzerland and in the US as a resident alien on a fellowship. He has a special income provision he receives from Switzerland that his US tax attorney has declared to be Tax-exempt income in the US. He says it should be reported on the US tax return as Tax-exempt income under Article 19 of the tax treaty to avoid the impression of tax evasion.

Where the heck do I report income that is tax exempt? )

[Chief]

I'm thoroughly confused. Client is a citizen of Switzerland and in the US as a resident alien on a fellowship. He has a special income provision he receives from Switzerland that his US tax attorney has declared to be Tax-exempt income in the US. He says it should be reported on the US tax return as Tax-exempt income under Article 19 of the tax treaty to avoid the impression of tax evasion.

Where the heck do I report income that is tax exempt? )

You need to know the treaty for identification of this income. It seems to me that line 21 other income would be the only place to report it. Does your client have other based US income that is reported on the 1040. This is strictly my opinion. Am interested in what others post of your sub ject.

[Roberts]

US income

The client receives a US living expense stipend that isn't declared to the IRS. Client is declaring it on line 21 as other income (per University letter of instructions). I am really stumped where to declare tax exempt INCOME.

I didn't know if I should be doing a 2555 but the foreign income isn't "earned" and taxed as such. Plus he lived the entire year within the US and 2555 seems to be for Americans working in foreign countries. When I called the IRS for advice they just kept referring me to read Publication 54 - which I had already done and it didn't help.

[Roberts]

oh yeah

His tax exempt income is subject to tax in his foreign country which he is paying - but the income is coming from a subsidiary of a government agency. Don't know if that matters but it seems to have mattered when the attorney wrote up his tax opinion.