Karen Russell: I want to welcome everyone for joining us. An today's webinar is going to be
Claiming Tax Treaty Benefits for NRA individuals. We're glad you're here. My name is Karen
Russell, and I'm the Senior Stakeholder of Liaison with the Internal Revenue Service and I will
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specific information. Again welcome, we're glad you joined us today. Before we move along with
our session, let's make sure you're in the right place. Today's webinar is claiming tax treaty
benefits for NRA individuals. And the webinar is scheduled for approximately 100 minutes. I
would like to introduce our speakers, we have Andy Daxon, Dora Diaz and Henry Dong, all are
senior revenue agents in the large business and international division with the withholding
exchange and international individual compliance practice area. Andy and Dora work in the area of
withholding individual practice network, and Henry works with the U.S. business activities
practice network. Andy has been with the IRS for over 30 years, and 18 of those were spent in
either the outbound offshore investments area dealing with U.S. persons or the inbound
international area dealing with foreign persons. Andy has been with the practice network for over
10 years. Dora has a Bachelor of Science degree majoring in accounting from San Francisco State
University and has 30 years of audit experience working with the service. She works withholding
an international tax compliance issues dealing with U.S. persons and non-resident aliens. Henry
graduated from the University of Michigan Law School and he has been with the IRS for more than
20 years and has extensive knowledge and experience in international tax compliance issues
related to non-resident alien individuals. And with that, I'm going to turn it over to Andy to
begin the presentation. Andy, it's all yours. Andy Daxon: Thank you, Karen. Hello everyone and
welcome to today's IRS webinar. In today's session, we're going to cover the basics of income
tax treaty benefits that are most often claimed by non-resident alien individuals to exempt
income or to reduce the rate of taxation when filing a U.S. income tax return. So, our objectives
for today are to describe common treaty provisions applicable to non-resident aliens to
understand the eligibility requirements to claim the common treaty benefits, to explain how to
claim treaty benefits properly on the correct form, and finally to identify some improper treaty
claims. But before we start discussing the specific details of treaties, which are also referred
to as double taxation agreements or convention, let's start with an overview of treaty concepts
which are important for non-resident aliens. And that is individuals who are not U.S. citizens,
who are not lawful permanent residents or green card holders and who are not and who do not meet
the substantial presence test. The U.S. currently has bilateral tax treaties with more than 60
countries that allocate the taxing rights over each nation's affected citizens and residents.
Most treaties contain articles that exempt certain amounts of U.S. sourced income from federal
taxation. For non-resident aliens, there are basically two levels of tax rules that we're going
to discuss today. First, the U.S. tax law which is under the Internal Revenue Code, and second, a
bilateral tax treaty between the U.S. and individual's country residence. The main purpose of
tax treaties is to reduce double taxation by allocating the taxing rights over items of income
between the two contracting countries of parties to that treaty. In some cases, both contracting
states will be able to tax the same item of income. When this occurs, there is a double taxation
article that alleviates double taxation, which is usually accomplished by the provision of a
foreign tax credit under the domestic law of the country. Additionally, treaties provide
procedures to resolve disputes and the resolution of difficulties and doubts as to the
application of the treaty between the two contracting states. These are commonly known as mutual
agreement procedure. Treaties also reduce tax evasion by providing for the exchange of information between the contracting state tax administration, there are three basic models of
the income tax treaties or convention. First, there is the United States model. The U.S. model is
prepared by the U.S. Treasury Department, which uses the model convention as a starting point in
the treaty negotiation. However, it's only the starting point, and the final treaty will be a
product of negotiations between the two countries. The U.S. model convention was last updated in
2016. It's accompanied by a technical explanation, which is prepared whenever the U.S. Treasury
negotiates a new treaty or a new protocol. The technical explanation describes the provisions and
how the U.S. Treasury interprets those provisions. Second, there's the Organization of Economic
Cooperation and Development Model, like the U.S. model and may be used in negotiating a treaty
and has commentary to better explain the treaty articles. This model generally imposes more
restrictions on the taxing rights of the source country. Therefore, the source country of the
income has lesser taxing rights under it as compared to the UN model, which we're going to talk
about next. And here's the UN model, which is the United Nations model double-tax convention
between developed and developing countries. This model is designed primarily for negotiations
between developed and developing countries, and countries with economies in transition. The model
alleviates double taxation by preserving the appropriate taxing rights to the developing
countries. This model generally favors a greater taxation right to the source country, that is
the country of the investment as opposed to the country of the residency of the investor.
Provided here is a list of the common treaty provisions relevant to both non-effectively
connected income, which is generally passive income and effectively connected income, which is
generally earned from the operation of a trader business, or providing services in the U.S. by
non-resident aliens. Some of the articles relate to a specific type of income, such as
dividends, royalties, gains, business profits, income from employment, and director fees. And
some articles relate to a specific type of situation that's reading the income, such as the
teachers researchers article, which includes income from personal services performed at U.S.
institutions for purposes of teaching or research. For the students and trainees article, which
includes income from personal services performed at U.S. institutions, as students and trainees,
as well as scholarship and fellowship grants, and the Entertainers and Sportsmen article, which
includes income from activities exercise as entertainers or athletes. For today's session, we
will not go over all of these articles due to time constraints, but we'll focus on some examples
of the more common articles that our examiners may see. For a non-resident alien to claim treaty
benefits for U.S. tax purposes, he or she must meet all the qualifications listed on the slide.
First, there must be a tax treaty between U.S. and a foreign country where the non-resident alien
is claiming residency, and the non-resident alien must be a resident of that foreign country
under the treaty. Second, the article cited must cover the type of income, the non-resident alien
is claiming as a benefit for and third, a non-resident alien must meet all of the applicable
criteria of the treaty article claimed. Non-resident alien should have a valid social security
number or individual tax identification number to file the required tax forms to claim treaty
benefits. Examples include the Forms W-8 BEN and Form 8233 for claiming exemptions of income,
which will be discussed a little more in depth later on in this presentation. Generally, only
non-resident aliens may use the terms of a tax treaty to reduce or eliminate U.S. federal tax on
income. But there are treaty provisions with exceptions to the saving clause that allow a treaty
benefit to continue even after the individual has become a U.S. resident alien for federal tax
purposes. An example is the student article, which is Article 20 in the U.S.-China income tax
treaty, which provides that individuals may claim the benefits of Article 20 even after they
become U.S. resident that they otherwise qualify. Note that any individual who is a resident of a
contracting state under its domestic law will also be a resident of that country for treaty
purposes, and that citizenship it by itself does not determine residency. A dual resident is an
individual who's treated as a resident under U.S. domestic law and as a resident of another
contracting state under the domestic law that contracting state. While the individual is subject
to tax in both countries, the individual will be treated as a resident of a single country for
purposes of the treaty. An individual who is a U.S. resident alien under U.S. domestic law, who
is claiming to be a resident of another contracting state. Under the treaties tiebreaker rules,
must timely file a Form 1040-NR with an attached Form 8833, which is titled treaty based return
position disclosure under Section 6114 or 7701(b). Form 8833 will be discussed later in this
presentation. If the individual is a resident under local law in both states, then we look to the
tiebreaker tests of the treaty. The tiebreaker tests are applied in the order in which they are
stated in a particular treaty. Therefore, first, we look to see where the individual has a
permanent home. If the individual has a permanent home in both states, then we look to where the
individual's personal and economic relations, otherwise known as center of vital interests are
closer if in both states, then we look to where the individual has habitual abode. Again, if in
both states then we look to which country the individual is a national or citizen of. If a
citizen or national in both states, then treaty residency is determined by the competent
authorities of each country by mutual agreement. Because these tests are applied in order in
which they appear in a treaty, if residency can be determined under the first tiebreaker test,
then you do not need to proceed to the next test. If an individual remains a resident of both
contracting state after an application of all of the tiebreaker rules. Again, the competent
authorities will try to assign a single contracting state of residence through mutual agreement.
to continue to tax its citizens and resident as defined in the treaties residency article under Generally, with specific exceptions, the saving clause reserves the right of a contracting state
the contracting states domestic law as if the treaty was not in effect. Even if a U.S. citizen is
a resident of the other contracting states under the tiebreaker rules, the United States may tax
the U.S. citizen, as if the treaty had not come into force, unless an exception to the saving
clause applies. The saving clause is usually listed at the end of the table of articles and an
income tax treaty, and is generally found within the treaty in Article 1, but may be found in
other articles. However, many tax treaties have an exception to the saving clause, which may
allow an individual to continue to claim certain treaty benefits, even after becoming a U.S.
resident for tax purposes. In most, but not in all income tax treaties, there are exceptions to
the saving clause for private pensions, government pensions, certain annuities, alimony, child
support, social security, government compensation, et cetera. So, Karen, can we please pause
here for our first polling question? Karen Russell: We sure can, Andy. So, audience, here is our
first polling question. And it is what is the first factor for the tiebreaker rules in the
resident article of most tax treaties? Is it A, nationality. B, the existence and location of a
permanent home. C, habitual abode or D, center of vital interest. So again, what is the first
factor for the tiebreaker rules in the resident article of most tax treaties. A, nationality. B,
the existence and location of a permanent home. C, habitual abode or D, center of vital
interest. Take a moment. Think about it. Click the radio button that best answers the question.
I'll give you just a few more seconds to make your selection. If the question isn't popping up,
that's probably because your pop-up blocker still on. Okay, let's go ahead and stop the polling.
And let's share the correct answer on the next slide. And the correct answer is B, the existence
and location of a permanent home is the first factor in the tiebreaker rules for resident. And we
had 79% accuracy rate. Andy, do you want to just give a brief explanation as to why that is the
first factor for the tiebreaker rule? Andy Daxon: Sure, Karen. So, in most treaties, the way
they're written in the particular models. Again, the first tiebreaker test is permanent home,
which is then followed by economic, personal and economic relations, which again is the center of
vital interest. Third, is followed by habitual abode. And then finally, before you get to
competent authorities, the fourth tiebreaker test is citizenship or nationality. Karen Russell:
Okay. So, the first factor, that is the first factor. Okay, Andy, thank you so much for sharing
that information. And it looks like our next topic is dependent personal service and income from
employment. Dora, I'm going to hand off the mic to you. Dora Diaz: Thank you, Karen. Hello,
everyone. So, I will be reviewing some treaty articles. But due to time constraints, I will be
reviewing only the most common treaty article. Let's begin with the dependent personal service
article or income from employment. This article deals with the taxability of personal service
income on non-resident aliens under income from employment. In general, wages and salaries earned
in the U.S. as an employee are taxable to NRA. Many tax treaties provided an exception if the
NRA meets three conditions. First, the NRA is physically present in the U.S. for short periods of
time during a year, typically within 183 day limit. The taxpayer is paid by non-U.S. employer,
and the payment is not borne by a U.S. permanent establishment of the employer. Let's look at an
example. Here is Article 16, paragraph two of the U.S. India tax treaty, which is the article on
dependent personal services. I find it easier to interpret a treaty article if I insert the
countries involved and the taxpayers information. So, in this example, the countries have been
inserted to make reading the treaty easier. The article states notwithstanding the provisions of
paragraph one, renumeration derived by a resident referring to the NRA of a contracting state in
this case India. In respect of employment exercise in the other contracting states, referring to
the U.S. shall be taxable only in the first mentioned state. In this case, India, if the
recipient is present in the U.S., referring to the U.S. for a period or periods not exceeding in
the aggregate 183 days in the relevant taxable year. Next, it states the remuneration is paid by
on behalf of an employer who is not a resident of the other state, referring to the U.S. and the
remuneration is not borne by a permanent establishment or a fixed base or trade or business,
which the employer has in the other state, meaning in the U.S. So, a non-resident alien from
India may claim treaty exemption for poor compensation from employment income if all three of the
conditions are met. Now, let's discuss each of these conditions in more detail. The first
qualification for exemption under the dependent personal service article is the 183-day
threshold. The resident of the other treaty country partner cannot be physically present in the
U.S. for 183 days or more. In counting the physical presence stays, any partial day is counted as
one day, such as the day of arrival and departure. So only short-term visitors who are in the
U.S. less than 183 days from the other treaty country may claim exemption from their U.S. source
dependent personal service income. Please note that any code and reg sections dealing with Safe
Harbor exceptions, is outside the scope of this webinar and we will not be discussing it. The
next qualification for exemption is the taxpayers must be employed by a foreign employer. It is
important to determine who is the real employer. Some items to consider include who bears the
salary cost, who has control or direction and who is responsible for the conduct and risk of end
results of the work. This slide lists some factors to consider to determine the taxpayer's
employer. And our last qualification is the full foreign employers does not have a permanent
residence or a fixed place of business in the U.S. For the NRA to be eligible for treaty
benefits. All three factors we discussed must be met. If the NRA works for a U.S. employer, or
the foreign employer has a fixed place of business in the U.S., then all wage income earned,
while present in the U.S. is taxable in the U.S. as U.S. source income. Next, let's discuss
independent personal services, or when an NRA is self-employed in the U.S., rather than being an
employee. Compensation for such service includes payments for contract labor, payments for
professional services, such as fees to an attorney position or accountant, consulting fees and
amounts paid to visiting professors, teachers, researchers, scientists, and prominent speakers.
Certain treaties do have an independent, excuse me, do not have an independent personal services
article. If this occurs, you should review the business profit article and determine if it is
applicable. Here is an example of the U.S-India tax treaty in Article 15 Independent Personal
Services. According to Article 15, it state, income derived by a person who is an individual and
the resident of India for professional services or other independent activities shall be taxable
only in India, except in the following circumstances, when such income may also be taxed in the
U.S. So it exempts a resident from India, from U.S. taxation on independent personal service
income, if both of the following conditions are met. When such individual does not have a fixed
place of business regularly available in the U.S., and two such individual has been in the U.S.
during the year for no more than 90 days. So, if an individual is a resident of India and meets
both conditions of Article 15, income derived from professional services or other independent
activities, then the professional income shall be taxable only in India. Karen, I think this is a
great time for a second polling question. Karen Russell: I totally agree. Okay. Audience here is
our second polling question. So, under Article 16(2) of U.S-India tax treaty, NRA, who is a
treaty resident of India is exempt from U.S. tax on income from employment in U.S., if the NRA
physical - NRA's physical presence in the U.S. does not exceed 183 days for the taxable year.
The employer is a foreign individual or entity. The remuneration paid is not borne by a U.S.
permanent establishment of the employer, or all the above. So again, under Article 16 (2) of
U.S-India tax treaty, a non-resident alien, who is a treaty resident of India is exempt from
U.S. tax on income from employment in U.S., if A, the NRA's physical presence in the U.S. does
not exceed 183 days for the taxable year. B, The employer is a foreign individual or entity. C,
The remuneration paid is not borne by a U.S. permanent establishment of the employer, or D, all
the above. Take a moment. Click the radio button to press answers to question. I'll give you a
few more seconds to make your selections. Okay. So, let's go ahead and stop the polling now. And
we will share the correct answer on the next slide. And the correct response is, D, all of the
above. The taxpayer must meet all three conditions, if the taxpayer fails may need any one of
them, then their service income earned in the U.S. is taxable. And our accuracy rate is 92% way
to go. Dora, thank you so much for sharing that information. Henry, it looks like you're going to
continue with teachers and researchers. Henry Dong: Yes, that's right. Thanks, Karen. One of the
most commonly treaty benefit by non-resident aliens, we see is the teacher and researcher
article, which is included in some of the bilateral income tax treaties U.S. entered. Typically,
under the teacher and researcher article, some of or all of the income earned by the professors,
teachers, researchers, and research scholars is exempt from U.S. taxation. Again, the extent on
benefits provided and the condition of being eligible for those benefits differs from one
country, one treaty to the other. And here is an example from the U.S.-Philippines income tax
treaty on this type of article. The Article 21 is title Teachers, note that we have identified
certain terms by contracting state, other contracting state, one country, other country, income,
individual et cetera, with actual name of specific country or person. As Dora had mentioned
before, this is a good trick when reading treaties to make much easier to read and understand.
So, reading this article from the perspective of non-resident alien teacher from Philippines, the
paragraph one in this article basically means that, first, an NRA has to be resident of the
Philippines. Second, he is invited by the U.S. government agencies or U.S. educational
institution. Third, he came to U.S. for period not expected to exceed two years. And finally,
the primary purpose of visiting U.S. is for teaching or research at the university or other
recognized educational institution. If he qualify for all the four conditions, we just mentioned,
then his income from the personal services for teaching or research at such university or
educational institution shall be exempt under U.S. tax treaty for two-year period. With J-1 visa
with a Form DS-2019, which a department state form that indicates a teacher or professor is
evidence that the primary purpose of the individual's temporary presence is primarily to teach.
Translate the paragraph two of this article in plain English. It basically means that the treaty
benefit does not apply to income from research if such research is undertaken primarily for the
private benefit of a specific person or persons. For example, doing research projects, that are
undertaken to discover or perfect product processes or design, but for the expected to be
commercially exploited by the researcher or the nonresident aliens' present employer do not
qualify under these articles provisions. Again, it is essential for taxpayer to both - to meet
both criteria listed on paragraph one and two, to be eligible to claim treaty benefit. The
students' trainees article is another article we see often claimed by the foreign students. This
type of article typically applies to Students and Trainees and Business Apprentice. Foreign
Nationals immigration status documents, such as compliance with visa status are often used to
determine their primary purpose of being in the U.S. For example, foreign students in F-1 or J-1
status engaged in practical training or teaching assistant while attending colleges may be
eligible for the student trainee article benefit. But not for teachers, researchers article
benefit, because their primary purpose of being here is to study as a student, but not to teach.
Sometimes scholarship fellowship grants require the recipient to perform personal services such
as acting as a teacher assistant or research assistant. The part of grant that relates to this
type of income shall be treated as compensation for personal services and only a portion can be
exempt. For example, under 2016 model, the amount is $10,000 instead of claiming the full
exemption under the scholarship provision. So, it is important to remember that benefits
conferred by either the student trainees or teachers, researchers articles varies by treaties To
determine whether an individual is eligible for treaty benefit, always review and analyze the
text of the treaty as well as any contemporaneous or subsequent protocols, memorandum of
understanding, or exchanges of notes between the U.S. and the treaty country. And look up
secondary resources such as treasury technical explanations, case law, IRS guidance and relevant
articles for additional reference. Most treaties with student article generally had no dollar
limit on scholarship income, but have time limit that is usually five years. But as we just
mentioned, each treaty is different. And you can look up the precursory provisions to make sure
that eligibility applicable to your current situation. For example, the U.S.-China tax treaties
does not have pre-time limit as I'm going cover in foreign slide. So under paragraph one of
Article 20 of U.S.-China income tax treaty, a student business apprentice or trainees who is or
was immediately before visiting the U.S. a resident of China and who is present in the U.S.
solely for the purpose of his education, training, or obtaining special technical experiences
shall be exempt from tax in the U.S. for the following three types of payments depending on the
situation, let's look at them on next slide. So the first is payment from abroad are exempt as
long as they're for funding the taxpayer's educational purpose in U.S. Second scholarship or
fellowship grants are tax free. Note that the payment must not be amounts for performance of
personal services. And third if the payment is for personal service performed in the U.S., then
the amount is limited to $5,000. Please note that unlike most students and trainee articles in
other countries. There is no income, I'm sorry, there's no time limit to claim the benefit under
the U.S.-China treaty. Again, benefits conferred by either students or teachers articles vary by
treaty. The IRS Publication 901 and the treaty tables has good information on treaty benefits
related to foreign students, trainees, teachers and researchers. And here are example of some
of the common provisions on treaties related to foreign student and scholars. Under the abroad
clause , student and trainees are generally not taxed on scholarship and fellowship payments
received from sources outside of the U.S. Once in a lifetime clause, refers to treaty provisions
that allow an individual to only claim the benefit once under the particular treaty provision.
The Retroactive Clause refers to treaty provisions that specify that benefits under a particular
article will be lost if the individual's stay in the U.S. exceeds the time limit stated in the
article, it will requires retroactive taxation of previously claimed exempt income. So, in
other words, the NRA will be taxed on income for all years and he has to amend the prior-year
return to treat previously exempt income as taxable and we will provide you an example later
regarding the retroactive clause under U.S. India Treaty Article 22. Some treaties have
combination clauses where it specify that if even article or an individual seeks benefits under
two different articles such as student article and teacher researchers article that benefits
provided in total, shall not extend for more than a total of five years or other specified
period of time. And most teacher researcher article has a not for profit clause, it basically
means that the exemption from taxation only apply to income from research undertaken for the
public interest. The treaty benefit is not available if income earned is for work primarily for
the private benefit of a specific persons or persons and if you can remember that
U.S.-Philippines treaty provisions on the example, I went over earlier contains such not for
profit clause. Karen, how about having another polling question now? Karen Russell: Absolutely,
Henry. I've got one. Okay, audience, here is our third polling question. It is related to the
concepts that Henry just went over. Okay, so if a professor or teacher remains in the host state
for more than the specified two year period, he may be subject to tax in that state under its law
for the entire period of his presence. And that statement describes which clause, is it the
abroad clause, the once in a lifetime clause, the retroactive clause or the combination clause.
Okay, so if a teacher or professor, professor or teacher remains in the host state for more than
a specified two-year period, he may be subject to tax in that state under its law for the entire
period of his presence. And that statement describes which clause, abroad once in a lifetime,
retroactive or combination A is abroad, B is a once in a lifetime, C is retroactive, and D is
combination clause. So, take a moment and click the radio button that best answers the question.
Okay, just a few more seconds to make your selection. All right, we're going to stop the polling
and we will share the correct answer on the next slide. And the correct response is C,
retroactive clause. That's where Henry discussed that professor may have to amend his returns to
claim exempted income. So, let's see here, oh 55% got that right. Henry, do you want to discuss
briefly the retroactive clause and why that is the correct response? Henry Dong: Sure. Okay, I
understand some of you first may know kind of familiar with this kind of treaty terms. So, kind
of explain to that what the meaning of the retroactive clause again, that basically means that
if taxpayer coming to U.S. intends or expect to be more than the time limit available for treaty
benefit, then the taxpayer should not have claimed the benefit because, for example, a taxpayer
can expect come here to start to teach for three years. And the treaty provisions only allow him
only available for those who come here for two years, then this individual should not have
claimed a treaty benefit to begin with, because he's not qualified under the original article
clause of the treaty provision. But if he done so, he will end up upsetting three years, he
will have to file to claim the benefit in the first two years, he will have to file an amended
return to treat those previous exempt income as taxable income because he's not eligible under
original article clause. Hope this helps, back to Karen. Karen Russell: Thank you. Thank you very
much. Okay, so let's see here. Dora, I believe you're up again, and you're going to discuss
claiming tax treaty benefits and tax withholding. Dora Diaz: That's correct, Karen. Now let's
look at what forms to use to claim exemption or a reduced rate of withholding from the payer,
depending on the type of income being paid. Form 8233 exemption from withholding is used for
compensation of services performed by an NRA, which includes both independent and dependent
personal service income. To claim the exemption of reduced rate of withholding Form 8233 must be
filed annually. Next, we have Form W-8BEN beneficial owner certificate of foreign status for U.S.
Tax Withholding, which is for all other income payments, including scholarship and fellowship
grants. Generally Form W-8 certificate series are valid from the date signed until the last day
of the third succeeding calendar year, unless a change in circumstances occurs that makes any
information on the form incorrect. For example, a Form W-8BEN signed on September 30, 2015 remains
valid through December 31, 2018. Also we have Form 1042-S foreign person U.S. source income
subject to withholding, all income exempt under a tax treaty will be reported on Form 1042-S. The
claim of treaty benefit on Form 1040-NR, the NRA individual would report it by completing Item L
on Schedule OI, other information. Here, they will list the country where they are claiming
residents, the specific paragraph of the treaty article that supports the claimed exemption and
the amount of income being exempted, whether or not an NRA submits the required form to claim an
exemption from U.S. income tax withholding, the NRA must file Form 1040-NR to report and claim
the treaty benefit. And if an NRA fails to submit a Form 8233, the Form used to claim an
exemption of tax withholding because the income is exempt under a treaty provision, the NRA can
still claim the treaty benefit when filing their tax return and claim a refund of the tax that
was withheld. They have to attach the same information to the return, that would have been
required on a Form 8233. Next, let's discuss Form 8833 treaty based return position disclosure
under IRC 6114 or 7701(b). Section 6114 specifically requires reporting on the Form 8833 for
treaty based return positions, and Section 7701(b) are definitions of resident alien and
non-resident aliens. Generally, a taxpayer who takes a treaty based return position is required
by Section 6114 and the regulations to disclose that position by using Form 8833, unless
reporting is specifically waived. Some required reporting include a reduction or modification in
the taxation of gain or loss from the disposition of real property interests based on a treaty, a
change to the source of an income of an item of income or reduction based on a treaty a credit
for a specific foreign tax, for which a foreign tax credit would not be allowed by the Internal
Revenue Code. For a more comprehensive list, refer to the instructions of Form 8833. Form 8833
is required to be filed with the income tax return if an income tax return is required.
Otherwise, the Form 8833 is required to be filed by itself, usually by the due date of the
income tax return that can be filed at any time. A separate form is required annually for each
treaty based return position taken by the NRA. Although an NRA may treat payments or items of
income of the same type received from the same payer as a single item for reporting purposes.
Next, let's discuss exceptions from reporting on Form 8833. As mentioned earlier, certain treaty
based return positions are waived from reporting on Form 8833, which includes claim reduced
withholding rate on FDAP income, claiming treaty exemption on income of artists, athletes,
students, trainees, or teachers. Claiming a reduction or modification of taxation under social
security, totalization agreement or diplomatic or consular agreement. If you are a partner or
beneficiary of a partnership or estate that reports the required information on its return. And
finally, if the payment or items of income that are otherwise required to be disclosed, total no
more than $10,000. Karen, I think it's a good time for another polling question. Karen Russell: I
certainly agree. That was some good information. And let's get to the question, while the
information is fresh in the audience's head. Okay, so which of the following situation requires
the filing of Form 8833 to claim treaty benefits. A, claim a reduced withholding rate on FDAP
income. B, claim a change to the source of an item of income or deduction based on a treaty. C,
claim reductions and/or modification of taxation under an international social security agreement
or a diplomatic or consular agreement or D, claim an exemption of income from dependent personal
services, pensions and social security or on income of artists, athletes, students, trainees, or
teachers. Again, we're asking for which of the following situation requires the filing of Form
8833 to claim treaty benefits. A, claim a reduced withholding rate on FDAP income. B, claim a
change to the source of an item of income or a deduction based on a treaty. C, claim of
reduction modification or modification of taxation under international social security agreements
or a diplomatic or consular agreement or D, claim an exemption of income from dependent personal
services, pensions and social security on income of artists, athletes, students, trainees, or
teachers. So take a moment and click the radio button that best answers that question. Let's
allow a few more seconds. Okay, so again, which of the following situations requires the filing
of Form 8833 to claim treaty benefits. Is it A, B, C, or D? Alright, let's stop the polling and
we will share the correct response on the next slide. And the correct response is B. File Form
8833 to claim a change of source of an item of income or deduction based on a treaty. Now let's
say how many got that right. And 45% of that got that right. 45% of the audience got that
correct. Dora you might want to go into why B is the correct response just to provide some
clarity to the audience. Dora Diaz: Sure, Karen. The audience just needs to remember that the one
item that did require the filing of the form was item B. The answers A, C and D are items that can be waived. And if the audience ever needs to verify where the requirements, whether the
requirement is applied, the best thing to do is actually to look at the instructions and it does
give you the requirements. Karen Russell: Perfect. All right. The instructions. Thanks, Dora.
Andy, I'm going to send it back to you and it looks like you're going to go over some examples of
treating them manipulations. Andy Daxon: Yes, I am Karen. And thank you. So what some
non-resident aliens may try to accomplish by filing their U.S. tax returns a certain way to claim
a specific treaty exemption that may not be applicable, or may not be the most applicable treaty
exemption to their specific situation. This is an example of a treaty manipulation. We're going
to review some examples of a treaty manipulations now. On this slide here is our first example.
Here we have NRA B, who is a citizen and resident of Ukraine, and she's a professional golfer
who plays both on the European and the LPGA tours in the U.S. In 2019 NRA B traveled to the U.S.
to play in and eventually win the U.S. Women's Open golf tournament. In 2020, the subsequent
year, the NRA B filed her Form 1040-NR, reported the winnings, but reported the winnings as
exempt from U.S. taxation under Article 14, which is the independent personal services article
of the U.S.-Ukraine income and capital tax treaty. So the question here is whether NRA B's
winnings from the U.S. Women's Open are exempt from U.S. taxation under the U.S.-Ukraine treaty.
First, we must determine if the golf winnings are taxable under the U.S. local law, which again
is the Internal Revenue Code. Since NRA B is a non-resident alien, only for U.S. source
non-effectively connected income and effectively connected income is taxable under the code
specifically Sections 871(a) and 871(b) respectively. In this case, the winnings from the U.S.
Open are taxable under the code. Next, we need to see if the treaty exemption claimed is correct.
To find the answer, we need to start by looking at the treaty. First to determine if NRA B meets
the residency article. And second to determine if the application of Article 14 is correct. In
this case, we are going to assume that NRA B meets the residency article and is a resident of the
Ukraine. So we need to look at Article 14 of the U.S. Ukraine income in capital tax treaty. When
we search for the U.S. Ukraine treaty, we must find the treaty that is applicable to the year we
are looking at. Therefore, it is important to verify when a treaty entered into force. We must
also determine whether there were any protocols signed that would be applicable to our year. A
protocol generally is an agreement that supplements a previous treaty or international
agreement. In this case, there has been only one treaty, which was signed in 1994, but entered
into force in 2000. And there have been no amendments or protocols. Here on the side slide we see
paragraph one of Article 14 of the 1994 treaty, which provides that income in the case. In this
case golf winnings derived by an individual, in this case, NRA B, who is a resident of a
contracting state. In this case, she's a resident in the Ukraine from the performance of personal
services and an independent capacity. That's her as a golfer, she'll be taxable only in that
state, which is referring to the Ukraine, unless a such services are performed or were performed
in the other contracting state, which again is the U.S. and the income is attributable to a fixed
base that the individual has or had readily available to him or her in that other state and
again, the other state is U.S. In such a case, the income attributable to that fixed base may be
taxed in that other state, in the other state, again is the U.S. in accordance with principles
similar to those of Article 7, which is the business profits were determining the amount of
business profits and attributing business profits to a permanent establishment. So NRA B's
treaty position that our income from winning the U.S. Women's Open tournament, and the U.S. is exempt from U.S. taxation under Article 14 seems to be appropriate at first glance. That is
because NRA B is a resident of Ukraine that performed personal services as a golfer in the U.S.,
but she did not have a fixed base in the U.S. where she earns U.S. sourced income from. So our
NRA B's winnings exempt from U.S. taxation. Well, the answer is no. If you read Article 14 only,
you would think that NRA B's position is correct. However, in reviewing the U.S.-Ukraine treaty,
we find that there's another article that appears to be more applicable to NRA B's situation than
Article 14. And that article is Article 17, which is here shown on the slide. And it provides
that although Articles 14, which again is independent personal services, and Article 15, which is
the dependent personal services might provide different results. This article provides that
income earned by U.S. excuse me, earned in the U.S. are residents of the Ukraine as
entertainers or athletes, which NRA B is a professional golfer, so she's an athlete may be taxed
by the US. So therefore, the golf winnings are not exempt from U.S. taxation. Let's take a look
at another example. Here we have NRA C, and she who is a citizen and resident of Japan, who
lived and worked in Seattle for four months during the year earning wages as an employee of
Amazon. NRA C filed her Form 1040-NR claiming her wages were exempt from U.S. taxation under
paragraph two of Article 14, which is the income from employment article of the U.S.-Japan tax
treaty. Again, we must first determine if the wages are taxable under the code. Since NRA C, is a
non-resident alien and her wages were for services performed within the U.S., they are subject
to U.S. taxation under 871(b). We're going to assume again that NRA C is a resident of Japan
under the U.S.-Japan treaty. Next, we must look at the U.S. Japan tax treaty determine if NRA
C's treaty position is correct. As provided earlier, we must look to the applicable income tax
treaty that addresses the year or years we're looking at. U.S.-Japan treaty was signed in 2003
with a contemporaneous protocol and entered into force in 2004. A second protocol was signed in
2013 and entered into force in 2019. In reviewing the claimed exemption, we start with paragraph
two of Article 14 of the U.S.-Japan tax treaty. And it provides that wages earned in one country,
which is a party to the treaty by a resident of the other country, that is also a party to the
treaty are taxable in that other country unless the resident was in the other country 183 days or
less. And the employer is not a resident of that other country. And the employer did not have a
permanent establishment in that other country, which paid the wages. So translated into plain
language, it means that a U.S. may tax wages earned in the U.S. by a resident of Japan, unless
the resident of Japan is in the U.S. for 183 days or less in a given year, and the wages are paid
by an employer who is not a U.S. resident, or permanent establishment of that employer. So do we
think NRA sees wages are exempt from U.S. taxation? The answer is no. Again, we must look to the
three tests in paragraph 2 of Article 14 of the U.S.-Japan tax treaty. First, was NRA C in the
U.S. for 183 days or less? Well, the answer is yes, she was. So she meets this test. Second, was
NRA C'S wages paid by an employer who is not a resident of the U.S. Well, in this case, the
answer is no. And NRA C'S wages were paid by Amazon, which is a corporation incorporated in and
headquartered in the U.S. Therefore, she did not meet the second test. She did not meet all
three tests paragraph 2 of Article 14, NRA C'S wages she received from Amazon are not exempt from
U.S. taxation under Article 14 of the US-Japan income tax treaty. Here we have another example.
In this example, NRA D is a citizen and resident of India. She applied for and received an F-1
visa, which is for students to enter the U.S. prior to applying for her visa, NRA D was admitted
to attend the University of Portland as a student. However, once NRA D arrived in the U.S. She
ended up not attending the university at all. Instead, NRA D sought and obtained a temporary
software programming job at a U.S. corporation located in Portland, where she worked as an
employee for four months before returning to India. In a subsequent year, NRA D filed a Form
1040-NR reporting the wages paid to her by the U.S Corporation. The claim the wages are exempt
from U.S. taxation under Article 21 which is titled payments received by students and
apprentices of the U.S.-India tax treaty. Again, first look to see if the wages earned by NRA D
are taxable under the code which they are then we must look at the India-U.S. income tax
treaties determine if NRA D meets the residency article and whether her treaty position is
correct. And again, in this example, we're going to assume that NRA D meets the residency
article. As provided earlier, we must look at the applicable income tax treaty that addresses the
year years we're looking at. In this case, it is the India U.S. treaty entered into force in
December of 1990 with an effective date of January 01, 1991. No protocols or amendments have
been entered into after this date. We must then look at paragraph 1 of Article 21 which provides
a student or business apprentice, who is a resident of one country, who is in the other country
for educational or vocational training is exempt from taxation by the other country on payments
that originate from outside the other country for education, training, etc. Now, we must
determine if the article is applicable to NRA D situations. Again, the question is, are the wages
received by NRA D exempt from U.S. taxation under paragraph 1 of Article 21 of the U.S.-India
tax treaty? The correct answer is no. In this case, NRA D entered the U.S. on a student visa, but
ended up not attending college, instead, she worked for a U.S. Corporation. Although, she
entered the U.S. on a student visa, the determination as to whether the treaty article applies is
based on what she actually did once she arrived in the U.S. In this case, she did not attend
school at all, but provided personal services as an employee to the U.S. Corporation while she
was in the U.S., therefore, Article 21 does not apply. If we were to look at the tables of
articles in the U.S.-India tax treaty, we would find Article 16, which is titled dependent
services. This article provides that wages paid by a U.S. resident to a resident of India for services provided within the U.S. are not exempt from taxation by the U.S. This article is more
appropriate and applicable to NRA D's facts. As an NRA D worked for a U.S. Corporation, which is
a U.S. resident, and our services were provided within the U.S. Therefore her wages are not
exempt from us taxation under the treaty. Now, Dora is going to go over our last manipulation
example and a few other treaty related issues. Dora Diaz: Thank you, Andy. For our final example
of treaty manipulation. Here we have NRA F, who is a resident of India. In February of 2017 he
applied and received a J-1 visa, which is for professors to enter and work in the U.S. NRA F
entered the U.S. on March 01, 2017 and worked as a professor from March 06, 2017 through 2019 at
the University of South Florida. NRA F filed his 2017, 18 and 19 Forms 1040-NR claiming his wages
from the University of South Florida were exempt from U.S. taxation under Article 22, payments
received for professors and teachers of the U.S. India tax treaty. As Andy reviewed in the prior
examples, we should first determine if the wages earned by NRA F are taxable under the code,
which they are. Then we must review the U.S.-India tax treaty to determine if NRA F is a treaty
resident of India, which we will assume he is. Finally, we need to determine if his treaty
position is correct. We must look at paragraph 1 of Article 22 payments received by professors or
teachers. And the treaty provides them an individual resident of one country who visits the
other country for a period not exceeding two years for the purpose of teaching or engaging in
research at a university college or other recognized educational institution in that country
shall be exempted from tax by the first mentioned country on any wages repayment, etc. for
teaching or research for a period not exceeding two years from the date he first visits the
first mentioned country. So basically, a resident of India who works in the U.S. performing
research or teaching at a U.S. educational institution for a period not exceeding two years is
allowed to exempt income earned performing those services for the first two years after the date
they first arrived in the U.S. So our NRA F's wages exempt from U.S. taxation under Article 22
paragraph 1. The correct answer is no. In this case NRA F was in the U.S. from March 01, 2017
through the end of the 2019 and earned income from research or teaching during this period, and
claimed all of his income is exempt from U.S. taxation under Article 22. Article 22 of the
treaty provides an exemption for a period not exceeding two years from the date of arrival in the
U.S. Therefore, it appears the income earned during 2017, 18 and 19 up to March 01 is exempt from
U.S. taxation, and that the income earned after March 01 is not exempt from U.S. taxation.
However, as mentioned previously, you should look to see if there are supplements to the treaty,
such as protocol and technical explanations. There are no protocols. However, there is a U.S.
treasury technical explanation. The technical explanation of Article 22 explains that if a
professor or teacher remains in the host state for more than the specified two year period, he
may be subject to tax in that state under its laws for the entire period of his presence.
Therefore, under Treasury interpretation, since NRA F exceeded the two year period as provided
in Article 22, all of the income earned by NRA F for his research or teaching for tax years
2017, 18 and 19 is taxable by the U.S. This example illustrates the concept of the retroactive
clause, as Henry discussed earlier related to NRA students, teachers and researchers, and was
tested in the concept in the polling question number three. Now let's discuss how treaties and
the internal revenue code interact with one another. The previous example showed how treaties
may exempt certain income from U.S. taxation. It is important to note that although income tax
treaties can exempt income from taxation, they do not impose a tax that is not imposed by the
code. Additionally, tax treaties cannot take away any tax benefits provided by another agreement,
to which the U.S. is a party such as a consular agreement, which will be addressed later during
this webinar. These two rules are generally found in the same paragraph in Article 1 of U.S. tax
treaties, usually called the general scope, or scope article. For example, the U.S.-Ukraine tax
treaty provides in paragraph 2 of Article 1 that the treaty shall not restrict in any manner, an exclusion, exemption, deduction, credit or other allowance accorded by the laws in the either
country or by any other agreement between the country. An example of how treaties does not impose
a tax that is not in the code can be illustrated in the following example. NRA G is a resident
of Japan. He sits on the board of directors of the ABC Inc, a U.S. company and resident of the
U.S., which holds all of its board meetings in Japan as its office is in Tokyo, NRA G attends
all the board meetings and receives director fees for his services. Article 15 of the U.S.-Japan
Treaty provides that the U.S. may tax those director fees. Section 871 of the code provides that
NRA are taxed on their U.S. sourced FDAP and effectively connected income. The code also
provides that director fees are a sourced to where the services are performed. So can the U.S.
tax the director fees, NRA G received based upon what the Treaty and the code provides. The
correct answer is no. Under Section 871 of the code, the U.S. will not tax NRA G on his director
fees as NRA G is an NRA and the director fees were paid for services performed outside of the
U.S. As such, they are foreign sourced income as defined in Section 861. So the U.S. may not tax
the director fees under the code. Even if the treaty provides the certain income may be taxed
under a provision of the treaty. If a tax is not imposed by the code, then it is not taxed by
the U.S. Now let's discuss treaty consistency. Taxpayers must be consistent with the application
of any treaty and cannot cherry pick provisions out of a treaty. What does, what do we mean by
cherry picking? It means that taxpayers may not pick between the provisions of a treaty and
domestic law to achieve a better tax result or apply the provisions in an inconsistent manner.
Taxpayers may elect to not claim a tax benefit, if they achieve a more favorable result under
domestic law. However, they cannot apply the Treaty and the code in an inconsistent manner in
order to minimize their U.S. tax liability by claiming, for example, to be a treaty resident in
the U.S. for some treaty provisions, and not for others. To illustrate this issue, we have the
following example. NRA H is a green card holder and is a resident of Portugal under the tiebreaker rules of the U.S.-Portugal income tax treaty, NRA H receives U.S. Social Security
income and U.S. pension income. If NRA H was allowed to cherry pick, he would elect to be treated
as a resident of Portugal under the treaty with respect to the pension income, as it would only
be taxed by Portugal presumably at a rate lower than the U.S. rate. Additionally, he would elect
to be treated as a U.S. resident under the treaty for purposes of Social Security income, as it
would be taxed only by the U.S. at a potentially lower rate, as the taxation of Social Security
income depends on his modified adjusted gross income. Under the no cherry picking rule, NRA H
must choose whether to claim treaty benefits as a resident of Portugal under the treaty for all
applicable provisions of the treaty and not to claim treaty benefits and be taxed under the
code. In other words, NRA H can either claim the benefits due to a resident of Portugal under the
treaty and not be taxed on his pension income by the U.S., but be taxed by the U.S. on Social
Security income through withholding at a lower rate or he can be taxed by the U.S. on his pension
income and Social Security income through withholding at a lower rate. Karen, do we have time
for one more polling question? Karen Russell: We have time we do and audience we have received a
lot of questions from you about where you can find a tax treaty that is going to be covered later
when the presenters go over resources and that information is also in the handout. So I just
wanted to bring that to your attention. Okay, so let's get to our final polling question. And it
is which statement is false? Is it A, taxpayer may elect out of treaty treatment if the U.S. Tax
Code provides a more favorable result. Is that the B, the U.S. cannot impose a tax be a treaty
that is not imposed by the code. C, taxpayer may pick and choose among provisions of the code and
treaty in any manner to minimize tax or D, U.S. tax treaties cannot take away any benefit
provided via another government between the U.S. and the other country or any U.S. tax. So which
of those statements is false? Again, is it A, the taxpayer may elect out of treaty treatment, if
the U.S. Tax Code provides a more favorable result. B, the U.S. cannot impose a tax via treaty
that is not imposed by the code. C, the taxpayer may pick and choose among provisions of the
code and treaty in any manner to minimize tax or D, U.S. tax treaties cannot take away any
benefit provided via another agreement between the U.S. and the other country or any U.S. tax
law. So take a moment, figure out which one of those statements is false. Click the radio button
next to that. Hopefully, we get 100% on this one. Save just a few more seconds. All right, let's
go ahead, I close the polling. And let's share the correct response on the next slide. And the
correct response is C, taxpayers may not pick and choose among provisions of the code and the
treaty in any manner to minimize tax, as discussed, the taxpayers must be consistent with the
application of any treaty and cannot cherry pick provisions out of the treaty. Then we had 71%
accuracy on that. I explained further but if you feel like you need to add anything to that
about the cherry picking please go ahead. Dora Diaz: Karen, the audience just needs to remember
that that when they're deciding whether or not to apply the treaty benefit or not, they just
have to be consistent with your application either it's the treaty or it's the code but it can't
be hopping between both, it has to be consistent. Karen Russell: Okay, thank you so much for
that. All right, so Henry, it looks like you're up next to go over how the attendees can find
the treaties, if they want to review them. Henry Dong: Thanks, Karen. good timing, okay, so for
those who are wondering where to find the treaties, here are two websites. That are very useful
in trying to locating the treaties, the protocols as well as technical explanations. The irs.gov
has a list of all treaties, A to Z, with the original text, along with the protocols and
technical explanations on those treaties. The irs.gov also have treaty tables that provide
summarized information on treaty benefits related to many types of income. They may be exempt, or
subject to a reduced rate of the tax. So we discuss some more than we discuss today. The treaty
table is a good starting point to quickly identify treaty benefits, they may be available for
those individuals from treaty countries to claim the treaty benefits and based on that
individuals facts and circumstances. And here are some additional resources that may be helpful
on treaty issues related to nonresident alien taxpayers, including Publication 519, which is a
great starting point also to provide general information on many issues, you may encounter
including treaties related to property treaty benefits, Publication 901 provides good guidance on
common treaty provisions and a special treaty exemption clauses. The publication covers
withholding rules also, including treaty benefit claims to reduce or exempt from tax withholding.
And we also have Pub. 4011 and 4152 also read additional resources, those publications are for
IRS VITA programs. But you can find that publication easy to read and understand. Again, all
these publications are available on irs.gov. So in today's session, we focus on income tax treaty
benefits. There are however a few other types of treaties or agreements that have provisions
affecting the imposition of tax, with links to where you can find are shown on this side. The
estate and gift tax treaties are treaties that address these issues on a standalone basis. They
are relatively few of these. These existing treaties can be found on irs.gov as I just
mentioned. Many double tax treaties already address estate and gift tax treaty issues. So,
consular agreements address various issues revolving around employees of one country who are
working at an embassy or consulate located in another country. Consular agreements are not
primarily tax related but have an article addressing the taxation and they are also Status of
Forces Agreements, also known SOFAs, which are either bilateral or multilateral agreements that
address military personnel of one country deployed into the other country. SOFAs are not
primarily tax related , but generally have an article or two addressing the taxation. Finally,
we have Social Security Totalization Agreements that are negotiated and administered by social
security administration and address social security benefit type issues. And here's a list of
commonly used tax forms for individual taxpayers as well as withholding agents to report U.S.
source income and claim tax treaty benefits for U.S. tax withholding and income reporting
purposes. Form 1040-NR annual tax return for NRA taxpayers to claim their treaty benefits on
their returns. Form W-8BEN are forms used for certifying NRA tax status and claiming treaty
benefits for exemption or reduced rate of tax withholding. The Form W-9 request for taxpayer
identification number and certification that a taxpayer will need that to file the returns or the
information return forms. The form 1042-S information returns provided by payer to NRA to report
income NRA received and withholding form the amount paid. And here are additional tax forms. The
Form 9250 are questionnaire that providing additional details related to eligibility to claim
treaty benefits. The Form 8833 is a form NRA provides to his or her employer to claim treaty
exemption for withholding purpose and Form 8833 is a treaty based return form the taxpayer may
have to complete and attached to their tax return to claim that certain treaty benefits as Dora
have been explained to you before. Okay, Karen. That's all we have. Are there any questions for
us? Karen Russell: Yes, there are. Thank you for going over that information. Before we get to
the questions though. I want to tell everyone in the audience it is me again Karen Russell, and I
will be moderating the Q&;A session. Before we start, I want to thank everyone for attending
today's presentation claiming tax treaty benefits for NRA individuals. Now we have gotten
questions. However, if you have not submitted your question, this is your opportunity. Go ahead
and click on the drop down arrow next to ask question, the ask question field to reveal the
textbox type in your question and click send. Andy, Dora and Henry are staying on with us and
we'll be answering the questions that have been submitted. And one thing before we really get
going with the Q&;A. We may not have time to answer all the questions submitted, but we will get
to as many as we can as time allows for. If you're participating to earn a certificate and
related continuing education credit, you will qualify for one credit by participating for at
least 50 minutes from the official start time of the webinar. And you'll qualify for two credits
time participating for at least 100 minutes from the official start time of the webinar, which
does not include that first few minutes that I spent chatting just before the top of the hour.
Okay, so let's get started. Let me get to my questions. Okay. Andy, let me send this one to you.
We received the question in the audience that said, that asks, do I need to receive a 1042-S to
receive my treaty benefit? Andy Daxon: Well, Karen, the answer is no. As Dora provided earlier,
when she talked about it, if you are eligible for a treaty benefit, you can claim it by filing
your tax return, which in this case would be a 1040-NR, in any required schedules. And it could
be allowed even if you do not receive a Form 1042-S, or if you do received a Form 1042-S and it's
not completed correctly. In other words, it might be missing the exemption code, or missing some
other items on it. For example, a resident of China comes to the U.S. to attend U.S. university
as a student, but is also paid $20,000 as part of that. And but unfortunately the payroll
department incorrectly identifies the individual as a U.S. person. So they withhold on the full
$20,000 in at the end of the year, give the student Form W-2 which reports the $20,000 of wages.
The student can still file a Form 1040-NR, attach the Form W-2 to it, but exempt $5,000 of
$20,000 of wages as provided in the U.S. China treaty. And then also attach the Form 8833
explaining the reasons for the treaty exemption. So again, the answer is no they don't need to
have the specific 1042-S attached or have it to claim a treaty benefit. Henry Dong: Hey, Karen I
don't see we lost most of you. Karen Russell: Oh, I'm sorry, Henry. I'm sorry for what happened?
Andy, did you I thank you for answering your question. Did you hear me? Andy Daxon: Yes. Karen
Russell: I apologize. Okay. Henry. So the question for you is pertaining to a J-1 scholar from
China, claiming the teacher researcher treaty benefit, whether it's 36 months from the date of
entry or three years in general. Henry Dong: Okay, so I talking about it that how to interpret the
three year on the treaty, right. That's the question. Karen Russell: Yes. Henry Dong: Okay. Karen
Russell: It's they're wanting to know about them. Yes, date of entry. Henry Dong: Okay, so for
the treaty. So under this treaty, particular treaty provision, the term year and I mean actually
apply to most of the treaties. When we're talking about treaty that determine term year in the
treaty that generally means a period of prior 12 months. And usually don't need to be
consecutive to be continuously. So but it as 36 months in every gate, under Article 19, order,
the U.S. income tax treaty. The entry date is what is the audience asking about. So again the
answer sorry. Try to mention if people are following me. So as I said, this is not three years
from the day of first entry. So it is that cumulate of two years. So for example, taxpayer have
been here as a Professor before and he spent pretty much in the first visit. So he came here on
second visit. He was clear headed reminded, sit in mind to claim the treaty benefits under this
article under the thirty six- month rule. Karen Russell: Great. Thank you for that. Thank you.
Dora, you're up next. So how the question is, how do I find out what countries have treaties
with the U.S. Now we did provide the information that the treaties are on irs.gov. But maybe you
can go into a little more detail about how to look up the actual treaty. Where do we find
information on tax treaty rates? And where can information be found about treaty exceptions? Dora
Diaz: Sure, Karen. So, as Henry mentioned, we do have a website irs.gov. And if they search the
term treaty, tax treaties, then it'll actually send them to our landing page on tax treaties.
And there's a link for tax treaties, and it'll give them actually the tax for the treaty article,
as well as any protocols and any technical explanations. There's also a link for tax tables.
They're called table one and table two. And those links actually provide information about the
different types of income that a taxpayer would encounter as well as any tax rates and any
exceptions. And, of course, carrying there is also the Pub which is Pub 901, which is also the
same information about the tables is reflected in a publication as well. Karen Russell: Perfect.
Thank you for that. What is the word I'm looking for? I can't even think of it emphasizing the
about the publication. So Andy, here is a question for you. The practitioner says we have a
client who has a Form 1042-SSA. He is from Mexico on an F1 visa. And they are the practitioner
is inquiring about the tax treatment of the Form 1042-SSA. Andy Daxon: Sure Karen. So the form
and it's actually SSA-104S is the Social Security Administration's version of the IRS Form
1042-S. That it issues to non-resident aliens who receive Social Security benefits for a
particular year. The taxability of Social Security benefits received by non-resident aliens,
including those non-resident aliens in the U.S. under F1 visas is different from the taxation of
U.S. persons, and non-resident aliens 85% of the amount of the Social Security Administration
payments, which is considered for that income made to the non-resident aliens is subject to 30%
withholding by Social Security and the taxpayer again will receive the SSA-104S. And non-resident
alien will report the taxable amount of social security benefits received on line eight of
scheduled NEC Form 1040-NR, also the security payments may be exempt from U.S. tax or subject to
lower rate due to a tax treaty. However, under most tax treaties that the U.S. entered into
Social Security benefit payments paid by the Social Security Administration to a resident of a
contracting state are only taxable by the U.S. But however, some tax treaties provide that
residents or citizens of these countries are exempt or subjected to a reduced rate of U.S. tax
on the security received. Karen Russell: Right, that is a very comprehensive explanation. Thank
you for that. Henry, someone had a question specifically for you. And it's a quick question
related to the 10,000 tax treaty for Canadian students for purpose of the tax treaty is an
athlete scholarship income considered earned income? Henry Dong: No, this is a pretty good
question as to me. Yes. Again, the scholarship income right up the key here is a scholarship.
So the scholarship whether or not a scholarship is earned income depends how the scholarship was
earned, if it was performed personal services then it will not only be treated as scholarship
but will be treated as a compensation for personal services. So back to the question of whether
athlete scholarship is in this instance is applicable for a $10,000 exemption under the
dependent personal service article, then the short answer will be no. Because student received
that $10,000 athlete scholarship, does not so much that the student as it is a university
employees, for tax purpose and as well as treaty application. So the key determining factor
qualifier or treaty benefits under a dependent personal service article is whether or not an
individual is an employee. So in this case, it is no. So basically in other words, the athlete
scholarship is pretty much like any other title to academic scholarships, because the purpose
serves for the student to attend school and participate in sports activities. Probably I
answered the question. It is pretty good question. Karen Russell: Okay. Well, and actually that is
going to be all the time that we have for questions. And I want to thank Andy, Dora and Henry
for sharing their knowledge and expertise and answering the questions that we were able to get
to. So before we close out, Henry, what key points do you want the attendees to remember from
today's webinar? Henry Dong: Okay, thanks. Thanks, Karen. You're awesome. You cover a lot of
material today and the treaty is a pretty complex and covers a variety of stuff. But here are
some take-aways we do want you to remember after today's webinar. First, I know there are many
provisions cover to wide variety of income and benefits. Remember the common treaty provisions,
the most frequently utilized by nonresident alien individuals include students or teacher's
article and employment service type articles. Second, as we emphasized repeatedly during today's
webinar, the eligibility requirements to claim specific treaty benefits varies from one treaty
to the other. So always look up the specific treaty provisions to determine the applicability
and qualification for benefits. And third, the NRA taxpayers can claim treaty benefits on their
Form 1040-NR tax returns, and as Andy explained early already, regardless whether they claim
benefits to exempt from withholding their U.S. payers. So, for example, even if the taxpayer
did not request treaty exemption from withholding agent, or payors , and the payors withhold a
regular tax on it on Form W-2 or Form 1042-S, NRA may still claim, the treaty exempt amount
when he filed in the 1040-NR to get a tax refund, so they can get a tax refund, we're already
holding. And finally, improper tax treaty claims by NRA taxpayers, while manipulation of tax
treaty to minimize their U.S. tax liability is not allowed. And so it's very important to make
sure the taxpayer interpret the treaty correct when claiming treaty benefits. Okay, that's all
we have Karen back to you. Karen Russell: Thank you, Henry. Okay, audience we are planning
additional webinars throughout the year. And to register for upcoming webinars, visit irs.gov and
do a keyword search webinars and select webinars for tax practitioners or webinars for small
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Again, a big, big thank you to Andy, Dora and Henry for a great webinar and for sharing their
expertise with us and staying on to answer your questions. If you attend to today's webinar for
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