(IRS) Form 8833 instructions 2017/2018



What is Form 8833?

The Form 8833 is called the Treaty-Based Return Position Disclosure. The form is generally used by US taxpayers, who earn their income abroad and therefore would have to pay the income tax both in the USA and in the country of their stay or foreigners, who live and work in the United States. Fortunately, the USA has concluded a number of tax treaties with different countries around the world in order to enable such people to avoid paying the tax twice. However, if they want to benefit from this opportunity, they have to fill in the Form 8833 and submit it together with the expatriate or US resident tax return. The provisions of the tax treaty are applicable both in the USA and the country that has concluded it, which is why a US resident can use them also in the treaty country, where they earned their income.

How to complete Form 8833?

The form has a number of fields that need to be completed. In a nutshell, the taxpayers have to give the details about themselves, specify the treaty country, and the provisions of the treaty which apply to their income, as well as explain the position that has been taken. The taxpayer, who files the Form 8833, has to remember that a separate form has to be submitted for every treaty-based return position that is to be reported.

In the first part of the form, the taxpayer needs to provide the data about themselves. This includes the name and identifying number, which is basically the individual identification number of the taxpayer or their social security number. Then they have to enter the reference ID number, address in a country of stay and address in the United States of America. They should not provide the abbreviated name of the country, but the full one.

Next, the taxpayer has to check one or both of the boxes in order to provide the information whether they are disclosing treaty-based return position in compliance with section 6114 of the Internal Revenue Code or in accordance with the Regulations section 301.7701(b)-7. The former one should be chosen by US taxpayers, whereas the latter by dual-resident taxpayers.

In the next line there is a box, which has to be checked by the taxpayers, who are citizens or residents of the U.S. or they have been incorporated in the United States of America.

The subsequent part of the form consists of the information about the treaty position the taxpayers want to use in order to claim tax benefit. We have to enter the country with which the treaty has been concluded and the article, on the basis of which we want to take the return position. Next, we have to specify, which Internal Revenue Code provision or provisions have been modified or overruled by the treaty-based return position. In line three, we have to give the name and identifying number of the income payor, if we are familiar with it, from who we receive fixed, determinable annual or periodical income. The types of income mentioned in the preceding sentence include dividends, salaries, wages, other types of compensation, annuities, premiums, rents and interest. In the next line, the taxpayer is required to give the provisions of the article of the treaty, specifying the limitations on benefits, on which they rely in order not to apply that article.

In the fifth line the taxpayers are obliged to answer the question, whether they are revealing the treaty-based return position that has to be reported on the basis of the section 301.6614-1(b) of the Regulation. If the taxpayer gives a positive answer to this question, they have to specify the articles, which require reporting, and also fill in line six of the form. In this line, they are obliged to provide the explanation of the treaty-based return position that is taken by them, which means they have to present in a nutshell all the circumstances on which the position is based, as well as the character and the value of gross receipts, gross payment, gross income item or any other item for which the individuals or companies claim tax benefits. If it is not possible for the taxpayer to provide the exact amounts, they have to include a reasonable estimate.

Where to file form 8833?

Well the general principle is the same as in the case of the majority of federal IRS forms, this one also has to be attached to the tax return. However, if the taxpayer is not obliged to file a tax return, the form 8833 has to be submitted to the Internal Revenue Service Center, to which the taxpayer would file their tax return if they were required to do it.

If the treaty-based position will not be disclosed by the taxpayer, they may have to pay the financial penalty. In the case of C corporation, the penalty will amount to $10,000, and in the case of other entities, it will be $ 1,000.

When is form 8833 required?

There are certain treaty-based return positions that have to be disclosed, but some of them are exempt from the reporting obligation. All principles are included in the section 301.6114-1(b) of the Regulations. Below we will mention situations where it is necessary to file the form, as well as some exceptions.

The position has to be disclosed if the treaty lowers or modifies the amount of tax on gain or loss from the disposal of U.S. real property interest, branch profits tax or tax on excess interest. What is more, it has to be revealed in the case the treaty exempts the taxpayer from the payment of tax or enables to reduce the amounts of tax that have to be paid on dividends or interest paid by U.S.-sourced corporation established and based abroad, in accordance with the section 861(a)(2)(B) or 884(f)(1)(A). The obligation also applies to the situation where, pursuant to the treaty, the taxpayer does not have to pay the tax at all or its rate is lowered on fixed or determinable periodical or annual income, which the foreigner obtains from a U.S. persons. However this is subject to a few exception, since the principle can be applied only if the income value has not been properly reported using the Form 1042-S and the foreigner is a controlled foreign corporation, which has a U.S. entity as a shareholder or it is controlled by US person in a way that is specified in the section 6038, or the foreign person is a foreign corporation and it has 25% of shares in the U.S. entity. It can be also applied in a situation, where a foreign person is associated with the payor pursuant to the section 267(b) or 707(b) and the income the foreign person obtains is larger than $500,000, subject that the treaty contains the limitation on benefits article. And it may also apply if the treaty enforces additional conditions on those entitled to treaty benefits.

When it comes to exceptions from reporting, we can mention here the situation, where the treaty lowers or modifies the value of tax that has to be paid on income derived by an individual from dependent personal services, annuities, social security, pensions or the income derived by students, trainees, teachers, athletes and artists or where the Social Security Totalization Agreement or Consular or Diplomatic Agreement lowers or modifies the taxpayer’s income. In addition, the form 8833 will not have to be filed if the taxpayer, pursuant to the provisions of the treaty, is exempt from the payment of the excise tax, however this is subject to some conditions that have been specified in the section 4371. Another exception is when the taxpayer, pursuant to the provisions of the treaty, is exempt from the payment of the tax on fixed or determinable annual or periodical income, or the tax on this income is lowered, and this has been correctly reported on the form 1042-S, and what is more, the income has been obtained from an associated entity or a beneficial owner, who is a direct account holder of a U.S. financial institution. This also applies to a direct partner, beneficiary, or the owner of a withholding foreign partnership or trust from the U.S financial institution, withholding foreign partnership, trust or qualified intermediary or the income has been received from a taxpayer, other than the State or individual, if the amount obtained does not exceed $500,000 for the tax year and it has not been obtained through an account with an intermediary or with respect to an interest in partnership or simple or grantor trust. Another exception relates to the situation, where the partnership, estate or trust has revealed the position that a beneficiary or partner would have to otherwise disclose or the provisions of the treaty make the taxpayer exempt from the tax on fixed or determinable annual or periodical income, or its value is lowered, and the beneficial owner is a government entity or an individual. However, the list of exceptions has not been exhausted, and if a taxpayer wants to obtain more information, they have to turn to the section 301.6114-1(c) of the Regulations.

Another issue that the taxpayers filing the form 8833 should be familiar with is that if they are dual-resident taxpayers or long-term residents, and they will submit this form to the Internal Revenue Service Center  in order to be recognised as a resident of a country other than the U.S.A. and be able to claim benefits pursuant to the income tax treaty, such a taxpayer, at the moment of filing the form, terminates their U.S. residency for the purposes of federal tax. This results in a series of consequences, for instance such a taxpayer will have to file the form 8854 Initial and Annual Expatriation Statement and may have to be subject to taxation in accordance with the section 877A. The specific and accurate information can be found in the U.S. Tax Guide for Aliens.

The Unites States of America has concluded a great deal of various treaties with many foreign countries, like Japan, Korea, Italy, Hungary, Poland or Spain to name only a few. The exhaustive list of the nations can be found on the website of the Internal Revenue Service. If the taxpayer wants to claim benefits pursuant to the provisions of the treaty, they have to carefully analyse it in order to verify, if the type of income has been covered by the treaty.

Form 8833 example china:

(IRS) Form 8833 instructions

Form 8833 example china Form 8833

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https://www.irs.gov/forms-pubs/about-form-8833-treaty-based-return-position-disclosure-under-section-6114-or-7701b

1 Comment

  1. TaxMaster1

    I can not find a list of countries with which we have treaties. I intend to open a business in Slovakia (yes, I know, not very promising market). If anyone knows how it works with this country, please reply to this comment, in the meantime, I am looking for more in decent sources because I do not want to entrust this issue to an accidental person on the internet forum. Btw I will save these instructions for the future, most likely I will have to use this formula, and here I have all the information in one spot 🙂

    Reply

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