Taxes on a foreigner's income

Dear Tax Talk,
I'm a freelance software developer working from Poland over the Internet. I have ongoing projects for a U.S. company that periodically pays me consultancy fees directly to my U.S. bank account. I have a U.S. Individual Taxpayer Identification Number from Internal Revenue Service on file with my bank account.

Now I'm going to visit my U.S. client two or three times a year on a B-1 visa (for no more than two weeks during one stay). This makes me a non-resident alien according to the Internal Revenue Service. I do not work while I'm in the United States; I simply participate in business meetings to coordinate the project's further development. I'm paid for the work I do in my home country, afterwards, on contract basis.

Do I have to file a U.S. tax return and pay any taxes? All my income is clearly apparent to the IRS since I use a U.S. bank account and I have the taxpayer identification number. Thanks in advance for any advice. -- Alex

Dear Alex,
You won't have any U.S. tax implications from your visits to the United States provided you're not otherwise compensated for the visits.

In the United States, income is taxed based on its source. Service income is sourced where the services are performed.

Since you're paid for services performed in Poland, there is no U.S. source income regardless of the fact that the money is deposited into a U.S. bank account. Since the visits to the U.S. are not remunerated, you have no U.S. source income from these visits. Even if you were compensated for the visits, as a nonresident you could earn up to $3,000 without any U.S. tax implication provided you were in the United States less than 90 days in total.

Technically, a lot of business people travel to the United States on a regular basis and continue to receive compensation back home for these visits. Under IRS rules, the compensation that these foreign business people receive back home should be allocated to U.S. sources and if the amount exceeds $3,000 they would be required to pay U.S. taxes. For example, assume an executive from France earns $200,000 a year and spends 10 percent of his working days in the U.S. on business. Technically, the Frenchman would have earned $20,000 from U.S. sources and would have to pay tax to the IRS on $20,000.

The IRS even has a tax form that the alien is supposed to complete, U.S Form 1040-C, Departing Alien Income Tax Return. The form is a tax-clearance certificate from the IRS that theoretically would have to be presented to some authority before the alien departs. In my experience, I've never seen it done or even heard it talked about. Further, there are no tax, immigration or customs authorities present when an alien boards an aircraft to leave the country, so I'm not sure who would get the certificate or even ask for it.