What is a Form 8833 Tax Treaty Position?
Form 8833: The IRS requires certain taxpayers who want to take a treaty position on their tax returns to submit a Form 8833 along with their tax return. The 8833 form is technically referred to as a Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b). It is used by Taxpayers when they want to rely on a treaty involving some application of the tax laws.
Some issues involving tax between different countries are not well established, and are up for interpretation.
If there is a tax treaty between the United States and the foreign country, the Taxpayer may be able to take a tax treaty position to reduce their taxes.
In some instances, taking a treaty position may open the taxpayer up to significant risk, that the Taxpayer should carefully consider before moving forward.
How to Take a Form 8833 Tax Treaty Position
When a person files a tax return and wants to take a treaty position, they attach a Form 8833 to their return and summarize their treaty position.
Each taxpayer who, with respect to any tax imposed by this title, takes the position that a treaty of the United States overrules (or otherwise modifies) an internal revenue law of the United States shall disclose (in such manner as the Secretary may prescribe) such position—
(1) on the return of tax for such tax (or any statement attached to such return), or
(2) if no return of tax is required to be filed, in such form as the Secretary may prescribe.
The Secretary may waive the requirements of subsection (a) with respect to classes of cases for which the Secretary determines that the waiver will not impede the assessment and collection of tax.
Note: If the taxpayer is a dual-resident taxpayer and a long-term resident, by electing to be treated as a resident of a foreign country for purposes of claiming benefits under an applicable income tax treaty, the taxpayer will be deemed to have expatriated pursuant to section 877A. For more information, see the instructions.
Form 8833 Instructions
As provided by the 8833 Form Instructions:
Purpose of Form
Form 8833 must be used by taxpayers to make the treaty-based return position disclosure required by section 6114 and the regulations thereunder (Regulations section 301.6114-1). The form must also be used by dual-resident taxpayers (defined later) to make the treaty-based return position disclosure required by Regulations section 301.7701(b)-7. A separate form is required annually for each treaty-based return position taken by the taxpayer, although a taxpayer may treat payments or income items of the same type received from the same payor as a
Who Must File
Generally, a taxpayer who takes a treaty-based return position must disclose that position, unless reporting is specifically waived. See Exceptions from reporting below. A taxpayer takes a treaty-based return position by maintaining that a treaty of the United States overrules or modifies a provision of the Internal Revenue Code and thereby causes (or potentially causes) a reduction of tax on the taxpayer’s tax return. For these purposes, a treaty includes, but is not limited to, an income tax treaty; estate and gift tax treaty; or friendship, commerce, and navigation treaty.
When and Where To File
Attach Form 8833 to your tax return (Form 1040NR, Form 1040NR-EZ, Form 1120-F, etc.). If you would not otherwise be required to file a tax return, you must file one at the IRS Service Center where you would normally file a return to make the treaty-based return position disclosure under section 6114 (see Regulations section 301.6114-1(a)(1)(ii)) or under Regulations section 301.7701(b)-7.
Common Examples of Form 8833 Tax Treaty Position
Here a few of the common tax treaty positions that require a Form 8833:
An alien individual is a dual-resident taxpayer if that individual is considered to be a resident of both the United States and another country under each country’s tax laws.
If the income tax treaty between the United States and the other country contains a provision for resolution of conflicting claims of residence by the United States and its treaty partner, and the individual determines that under those provisions he or she is a resident of the foreign country for treaty purposes, the individual may claim treaty benefits as a resident of that foreign country, provided that he or she complies with the instructions below.
Nonresident Alien Income Tax Return, or Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents. In order to be treated as a resident of the foreign country, you must timely file (including extensions) Form 1040NR or Form 1040NR-EZ with the Form 8833 attached. If you choose to be treated as a resident of a foreign country under an income tax treaty, you are still treated as a U.S. resident for purposes other than figuring your U.S. income tax liability (see Regulations section 301.7701(b)-7(a)(3)).
Expatriation and Dual-Resident Warning Trap
When a person seeks to claim residence in another country in order to reduce their U.S. tax liability they have strategize before filing the form. This is done to avoid inadvertently “expatriating” form the U.S.
As provided by Form 8854:
“Date of termination of long-term residency. If you were a U.S. long-term resident (LTR), you terminated your lawful permanent residency on the earliest of the following dates:
(4) If you were a dual resident of the United States and a country with which the United States has an income tax treaty, the date you commenced to be treated as a resident of that country and you determined that, for purposes of the treaty, you are a resident of the treaty country and gave notice to the Secretary of such treatment on a Form 8833 attached to a timely filed income tax return.
See Regulations section 301.7701(b)-7 for information on other filing requirements if you are such an individual.”
ECI & Permanent Establishments
That income effectively connected with a U.S. trade or business of a taxpayer is not attributable to a permanent establishment or a fixed base in the United States;
Disposition of U.S Real Property
That a treaty reduces or modifies the taxation of gain or loss from the disposition of a U.S. real property interest.
Should I Make a Form 8833 Tax Treaty Position?
Taking a Form 8833 tax treaty return position is serious business for individuals.
Oftentimes, taking a treaty position may put the taxpayer at odds with recent rulings and/or memoranda issued by the IRS. While a Private Letter Ruling (PLR) for example may not be binding on the IRS for your specific position, the IRS will generally follow its own precedence.
Therefore, if you take a treaty position that flies in the face of how the IRS is generally interpreting sections of the tax treaty, it may result in a significant headache down the line.
If the taxpayer is audited, and it involves unreported income, it may result in:
- Underreporting penalties
- Tax liability
If the taxpayer is audited, and it involves unreported asset reporting, it may result in:
- Offshore Penalties
- A much deeper probe into the Taxpayer’s position and overall return.
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