Tax Treaty-Based Return Reporting Disclosures

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Jason B. Freeman

Jason B. Freeman

Managing Member

214.984.3410
jason@freemanlaw.com

Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine , a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

Tax Treaty-Based Return Reporting Disclosures

A taxpayer taking a treaty-based return position is generally required to disclose that position, unless an exception applies.  A treaty-based return position is a tax reporting position, maintaining that a U.S. tax treaty overrules or modifies an otherwise applicable provision of the Internal Revenue Code, resulting in a lower tax.  Generally, a separate IRS Form 8833 must be filed for each treaty-based return position.

Tax Treaties

While the substantial-presence rules are generally applicable, they do not override applicable tax treaty definitions of residency. And, if the individual is a dual-resident under the tax laws of both the U.S and a tax treaty country, the taxpayer may still be able to claim benefits under an income tax treaty.  For example, many U.S. tax treaties contain residency tie-breaker provisions that may render an individual a nonresident of the U.S. even though that individual meets the substantial presence test.

Our Freeman Law interactive tax treaty map provides a link to tax treaty materials for each U.S. treaty partner:

 

Who Must File a Form 8833?

Taxpayers utilizing a treaty-based return position must disclose that position through a Form 8833.  In addition, dual-resident taxpayers must utilize a Form 8833 to make the disclosure required by Treasury Regulation section 301.7701(b)-7.

What is a Treaty-Based Return Position?

Treasury regulations specifically require a Form 8833 for the following treaty-based return positions:

 

The foregoing list is not exhaustive of every position that must be reported on a Form 8833.  Moreover, some specifically reportable positions may be excepted under the Treasury Regulations.

 

Exceptions from Form 8833 Reporting

The Treasury regulations specifically waive the filing of a Form 8833 for certain treaty-based return positions, including:

 

Dual-Resident Taxpayers

An individual who qualifies as a resident of both the United States and another country is treated as a dual-resident taxpayer.  A dual-resident taxpayer of the United States and a country that has a tax treaty with the United States will generally resolve the conflicting claims of residency under the treaty’s tie-breaker provisions.  A dual-resident claiming treaty benefits as a resident of the foreign country must file a Form 1040-NR, U.S. Nonresident Alien Income Tax Return, with Form 8833 attached.

A dual- resident taxpayer may also be eligible for U.S. competent authority assistance.

As a word of caution, it is the IRS’s position that a taxpayer who is treated as a resident of a foreign country under an income tax treaty continues to be treated as a U.S. resident for purposes other than calculating and reporting U.S. income tax—such as information-return reporting obligations, including the following forms:

IRS Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations

IRS Form 3520, Reporting Transactions with Foreign Trusts and the Receipt of Foreign Gifts

Form 3520-A, Information Return of Foreign Trusts With a U.S. Owner

Form 8865, U.S. Persons and Foreign Partnerships

and certain other IRS forms.