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 be the moderator for today's webinar which is slated for 100 minutes. Before we begin, if there is anyone in the audience that's with the media, please send an email to the address on the slide. Be sure to include your contact information and the news publication you're with. Our Media Relations and stakeholder liaison staff will assist you and answer any questions you may have. As a reminder, this webinar will be recorded and posted to the IRS video portal in a few weeks. And the portal is located at www.irsvideos.gov. And please note, continuing education credits, or certificates of completion are not offered if you view any version of our webinars after the live broadcast. We certainly hope you don't experience any technology issues. But if you do this slide shows helpful tips and reminders. We've posted a technical help document that you can download from the materials section on the left side of your screen. And it provides the minimum system requirements for viewing this webinar, along with best practices and quick solutions. If you have completed and passed your system check and you're still having problems by one of the following. The first option is to close the screen where you're viewing the webinar and relaunch it. And the second option is to click on settings on your browser viewing screen and select HLS, you should have received today's PowerPoint in a reminder email. But if you didn't, don't worry, you can download it by clicking on the materials drop down arrow on the left side of your screen as shown on this slide. Closed captioning will be available for today's presentation. If you're having trouble hearing the audio through your computer speakers, click the "closed captioning" drop down arrow located on the left side of your screen. And this feature will be available throughout the webinar. So during our presentation, we will take a few breaks to share knowledge-based questions with you. And at those times a polling-style feature will pop up on your screen with a question and multiple choice answers. Select the response you believe is correct by clicking on the radio button next to your selection and then clicking Submit. Some of you may not get the polling question and this could be because you have your pop up blocker on.

So please take a moment right now to disable your pop up blocker so you can get the questions and answer them. If you have a topic specific question today, please submit it by clicking the ask question drop down arrow, which will reveal a text box, type your question in the text box and then click send. And this is very important, please do not enter any sensitive or taxpayer 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 businesses. And when appropriate, we will offer certificates and CE credit for these upcoming webinars. We invite you to visit our video portal at www.irsvideos.gov where you can view archived versions of our webinars. Again, continuing education credits, or certificates of completion are not offered if you view an archived version of any of our webinars on the portal.

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 at least 100 minutes after the official start time you will receive a certificate of completion that you can use with your credentialing organization for two possible CPE credits. If you stay on for at least 50 minutes or you stayed on for at least 50 minutes from the official start time of the webinar, you will qualify for one possible CPE credit. And again the time that we spent chatting, I spent chatting with you before the webinar started does not count towards that 50 or 100 minutes. So if you're eligible for continuing education from the IRS and you registered with your valid PTIN, your credit will be posted to your PTIN. account. And if you qualify and have not received your certificate or credit by November 18, please email us at the address shown on this slide cl.sl.web.conference.team@irs.gov. And if you're interested in finding out who your local stakeholder liaison is, you can also send an email to this address and we will get that information to you. We would appreciate it if you would take a few minutes to complete a short evaluation before you exit. If you'd like to have more sessions like this one, let us know that, if you have thoughts on how we can make them better, please let us know that too. If you have requests for future webinar topics, or pertinent information you would like to see in an IRS back sheet or tax tip or an FAQ on irs.gov. Please include those comments or your suggestions in the comment section of the survey. I click the survey on the survey button on the right side of your screen to begin and if it doesn't come up, it's probably because your popup blockers on, so make sure you disable that. It has been a real pleasure to be with you and on behalf of the Internal Revenue Service and our presenters. I would like to thank you for attending today's webinar. It is important for the IRS to stay connected with the tax professional community, individual taxpayers, industry associations, along with federal state and local government organizations.

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