As an American, it doesn’t matter where you live or work. All your income is taxable by the IRS. This means that, unless you claim certain tax benefits using a form such as IRS Form 8833, you could face the prospect of having the same income taxed twice—once by the U.S., and once by another country.
Obviously, this is highly undesirable! But that’s why so-called “tax treaties” exist between the U.S. and various countries around the world. Such treaties enable taxpayers to only pay tax once on earned income. However, you must claim the exemption to benefit from it.
How do you claim this benefit? You may be required to complete IRS Form 8833, “Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).”
Form 8833 is quite technical and it can be challenging to get right. So, if you’re required to file a tax return with the IRS, and you’re wondering how to minimize your taxes, our attorneys can provide the answers. Here’s an overview of what you should know about tax treaties and IRS Form 8833.
What Are Tax Treaties?
A tax treaty is an agreement between two countries designed to prevent the same income being taxed twice. It works by outlining which country has the “first” right to tax certain types of income. Taxes covered by treaties vary, but they normally include taxes such as corporate tax and income tax.
Without such agreements, U.S. persons (including residents, non-residents, and dual residents), could face double taxation on their global income.
State-Level Taxes and Tax Treaties
It should be noted that tax treaties, while helpful, do not affect your liability for state-level taxes. This means that you may still be subject to U.S. state-level taxes regardless of your IRS tax liability. Our team can explain the differences in more detail as they relate to your situation.
What Is IRS Form 8833?
Taxpayers complete an IRS Form 8833, “Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b),” when they wish to reduce their tax liability based on provisions of a tax treaty between the U.S. and another nation. Specifically, you’re claiming that a treaty provision overrides the Internal Revenue Code, which will therefore exempt you from certain federal taxes.
Who Must File IRS Form 8833?
You may be expected to file an IRS Form 8833 if you’re a U.S. resident, or dual resident, wishing to claim international tax benefits on your IRS tax return.
As is described in the IRS Form 8833 full title, there are two relevant clauses in Title 26 of the Code which may be applicable to your situation: Section 6614 and Section 7701(b). Which section you’re relying on depends on whether you’re a resident or dual resident.
- U.S. persons (including residents, citizens, and entities) are relying on Section 6114 of the Code.
- Dual residents are relying on Section 7701(b) of the Code.
Countries That Commonly Use IRS Form 8833
While many countries maintain tax treaties with the U.S., several tend to involve more frequent use of this form due to the complexities of cross-border taxation. Below are some of the countries where Form 8833 is more commonly filed:
- Canada: With the United States’ largest trading partner and a high number of dual citizens, the U.S.-Canada tax treaty is frequently referenced when filing Form 8833. Issues such as residency, pension income, and tax credits often require treaty-based positions to avoid double taxation.
- United Kingdom: Due to the strong financial and business ties between the U.S. and the U.K., many taxpayers rely on the U.S.-U.K. tax treaty to address issues like dividend taxation, residency, and the taxation of foreign income. Residents of the U.K. who hold U.S. citizenship or have significant U.S.-based income are often required to file Form 8833.
- Germany: The U.S.-Germany tax treaty helps prevent double taxation, particularly concerning pensions, business profits, and income from employment. German citizens living or working in the U.S. or U.S. citizens residing in Germany often find themselves filing Form 8833 to clarify tax treaty positions.
- France: Similar to Germany, U.S. taxpayers with income sources in France often use Form 8833 to assert treaty-based positions, especially around issues like foreign tax credits and the treatment of passive income such as interest and dividends.
- Australia: With many U.S. expats in Australia, the U.S.-Australia tax treaty is frequently cited on Form 8833 filings. The treaty helps address taxation of retirement savings, capital gains, and income from business activities, ensuring compliance while mitigating double taxation.
- Japan: As one of the largest economies in the world with significant cross-border business activity, the U.S.-Japan tax treaty is often invoked on Form 8833. Common issues include the treatment of interest, dividends, royalties, and income from employment, requiring careful navigation of the treaty provisions.
By filing IRS Form 8833, taxpayers from these countries can claim tax treaty benefits, ensuring they are not subject to double taxation while adhering to both U.S. and foreign tax laws.
Need help understanding how Form 8833 applies to your foreign income? Reach out to our experienced international tax team. We’ve been helping taxpayers navigate international income for more than a decade!
Form 8833 Filing Exemptions
It’s important to clarify if you actually need to submit a Form 8833, since many don’t.
Firstly, there’s no need to complete Form 8833 with your federal tax return if you’re claiming certain types of treaty benefits which reduce income tax stemming from:
- Annuities
- Pensions
- Social Security
Other forms of income which are also exempt include income derived from:
- Athletics
- Teaching
- The arts
- Training
- Business partnerships (if the business reports the relevant information on its own return)
- Trusts (if the trust reports the required information on its return)
Form 8833 vs. W-8BEN
There’s sometimes confusion around whether a taxpayer should file a Form 8833 or Form Form W-8BEN, since they both relate to tax treaties. However, they are very different forms.
- Form 8833: Form 8833 is used by U.S. residents and dual residents to claim tax benefits through a treaty. It’s filed alongside your annual federal tax return.
- W-8BEN: W-8BEN is used to collect the tax information of Non-Resident Aliens (NRAs). Like Form 8833, it can be used to claim certain tax treaty benefits, but the benefits are applied at the tax withholding stage.
Avoid IRS penalties by checking with Gordon Law’s tax attorneys if you’re unsure which niche tax form is right for you.
Deadline for Filing an IRS 8833 Form
You must file IRS Form 8833 with your tax returns for each year you claim the benefit. For most individuals, the annual tax return deadline is April 15. For U.S. citizens and resident aliens living abroad, the tax deadline is June 15.
IRS Form 8833 Filing Instructions
Filing IRS Form 8833, “Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b),” can be complex. You may prefer to have an experienced international tax lawyer go over the form with you to ensure that it’s completed properly.
However, if you wish to file your own IRS 8833 form, here’s how to proceed:
- Complete your basic details, including your name, country of residence, and Taxpayer Identification Number (ITIN).
- Check the box for whichever treaty section of the Code you’re relying on—6114 or 7701(b).
- Declare which treaty you’re relying on (e.g., if you’re in the UK, you’re relying on the U.S./UK tax law treaty).
- Identify which provision of the Internal Revenue Code is overruled. In other words, determine which clause in the Code empowers the IRS to tax you, because you’re claiming that this clause doesn’t apply in your situation.
- Explain, specifically, what provision(s) of the treaty you’re relying on. It’s important to get this right, because this is why you believe you can claim a tax benefit.
- Specify what income the treaty provision applies to. You’re expected to provide a statement here, narrating why you think there’s a tax reduction or exemption.
- Some treaty-based return positions must be disclosed by law. Examples include certain types of interest paid by foreign corporations, or losses or gains from selling an interest in U.S. property. If your income falls under this mandatory reporting requirement, note this on the form.
As we can see, completing a Form 8833 can get complicated. Take the stress out of tax reporting—contact our experienced tax lawyers to ensure your taxes are filed accurately and you don’t pay any more U.S. tax than you need to.
Common Form 8833 Filing Errors
Given how technical these international tax forms can be, filing errors do happen. Common filing errors involving Form 8833 include:
- Missing Details: You’d be surprised how many people accidentally leave out key details, such as their ITIN, when filling out 8833 forms! Always double-check that you’ve answered every required part of the form.
- Late Filing: As with all tax forms, it’s crucial that you meet the filing deadline. You could face penalties if you file late.
- Missing Forms: Remember, you must provide a separate Form 8833 for every treaty benefit you claim. Failing to provide enough forms to cover every benefit relied upon can lead to penalties.
- Wrong Treaty Information: If you don’t include the right treaty benefit, or the treaty provisions you’re relying on, your Form 8833 may not be accepted.
The best way to avoid Form 8833 filing errors, and subsequent tax debt, is to let a tax attorney handle the matter for you. Don’t hesitate to give us a call to learn how our tax lawyers might help.
Penalties for Noncompliance with IRS Form 8833 Filing Requirements
If you don’t file an IRS Form 8833 when required, you could face IRS penalties. Typically, this means a fine of up to $1,000 per failure. So, for example, if you’re required to complete multiple forms, and you only submit one, these fines could add up.
Unsure How to File Your International Taxes? Contact Gordon Law Today!
IRS Form 8833 is technical, and the penalties for noncompliance are significant. However, that’s where we can help. Our experienced team can prepare Form 8833 on your behalf, and we’ll explain what other steps you should take for tax compliance. We’ll guide you through the entire filing process and answer any questions you have along the way.
Don’t get caught out by niche tax forms like IRS Form 8833. Avoid penalties and file your taxes without the stress by contacting Gordon Law.
