Income Tax Treaty Interpretation and Practice for Tax Professionals: Claiming and Reporting Tax Treaty Positions for Individuals

Description

The United States has in force income tax treaties with over 60 countries. The treaties are intended to eliminate or reduce double income taxation. Benefits are available to nonresident aliens (and, to a limited extent, to U.S. citizens living abroad) with respect to U.S. Federal income taxes and to U.S. citizens and residents with respect to foreign country income taxes. Tax advisers working with nonresident aliens with U.S. investments or business activities and U.S. individuals with foreign source income need to know the procedures for claiming and reporting treaty-based return positions.

While each income tax treaty has its own specific terms and requirements, common themes and terminology are found in all U.S. income tax treaties. Under most income tax treaties, U.S. taxpayers may claim exemption from source country taxation for personal services income. Other provisions include reduction or exemption of withholding taxes on interest and dividends.

A foreign person claiming a tax benefit under a U.S. income tax treaty may need to report the position on IRS Form 8833. Failure to file Form 8833 with the IRS may result in a $1,000 penalty for each year an individual fails to disclose his or her treaty position. The disclosure must include specific information about the treaty, including the article of the treaty that applies and the Internal Revenue Code section changed by the claimed treaty position.

The panel will provide comprehensive guidance on how to read and interpret key income tax treaty provisions, report treaty-based positions on Form 8833, obtain U.S. resident certification (Form 8802) to claim reduction or exemption from foreign income taxation under a treaty and complete Forms W-8BEN and W-8BEN-E to establish exemption from U.S. withholding taxes.