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Interpreting Tax Treaties: Tax-Free Interest, Foreign Tax Credits and Form 8833

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, May 31, 2022

Recorded event now available

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This course will provide tax advisers, professionals, and preparers with a solid overview and explanation of key income tax treaty provisions needed to determine whether their clients may take treaty-based return positions. The panel will discuss income tax treaties that exist between the U.S. and over 60 of its trading partners. The talk will focus on why treaties are so important to U.S. businesses, as well as to U.S. investors in foreign securities. The panel will talk about one or two specific treaties to illustrate the value of treaties in general.

Description

The United States has income tax treaties in force with over 65 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) concerning U.S. federal income taxes and to U.S. citizens and residents relating 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 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 waiver of withholding taxes on interest and dividends.

A foreign person claiming a tax benefit under a U.S. income tax treaty may report the position on IRS Form 8833. Alternatively, a taxpayer may take a silent treaty position. 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.

Listen as the panel provides comprehensive guidance on how to read and interpret key income tax treaty provisions, report treaty-based positions on Form 8833, how to claim reduction or exemption from foreign income taxation under a treaty, and complete Forms W-8BEN and W-8BEN-E to establish an exemption from U.S. withholding taxes.

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Outline

  1. Basic structure of income tax treaties
  2. Common features of tax treaties
  3. Persons who can benefit from an income tax treaty
  4. Application of the "savings clause" to U.S. citizens
  5. Personal services income
  6. Interest and dividends
  7. Compliance and forms

Benefits

The panel will discuss these and other critical matters:

  • Purposes of income tax treaties
  • Persons who can claim benefits
  • Common residency provisions and tie-breakers for dual residents
  • Savings clauses applicable to U.S. citizens
  • Exemptions for personal services income
  • Treatment of interest and dividends
  • How to complete Forms 8833 and W-8BEN with examples

Faculty

McCormick, Patrick
Patrick J. McCormick, J.D., LL.M.
Founder/Managing Partner
McCormick Tax

Mr. McCormick specializes in the areas of international taxation, tax compliance, and offshore reporting...  |  Read More

Rhoades, Rufus
Rufus Rhoades
International Tax Attorney
Rufus v. Rhoades

Mr. Rhoades provides tax consulting to law firms, accounting firms, and international trust companies. He specializes...  |  Read More

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