- 1 Form 8833
- 2 Understanding How IRS Form 8833 Works
- 3 Completing Form 8833
- 4 Explaining your Treaty Position
- 5 Do All Treaty Positions have to be Reported on Form 8833?
- 6 Form 8833 Exceptions
- 7 Specific Treaty Positions that Must be Reported
- 8 Reporting specifically required by Form 8833 Instructions
- 9 Dual-Resident Taxpayer
- 10 Termination of U.S. Residency
- 11 IRS Offshore Disclosure with Expatriation or a Treaty Position?
- 12 What is the Board Certified Tax Law Specialist Credential?
- 13 Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)
- 14 Tax Law Specialty Firms are Best Prepared to Represent You in Specialized Tax Matters
- 15 Why Do We Care?
- 16 Serious Tax Matters; Serious Tax Consequences
- 17 Golding & Golding – IRS Offshore Disclosure Lawyers
- 18 What Type of Attorney Should I Hire?
- 19 We Specialize in Safely Disclosing Foreign Money
- 20 Who Decides to Disclose Unreported Money?
- 21 Beware of Copycat Law Firms
- 22 IRS Penalty List
- 23 What Should You Do?
- 24 Be Careful of the IRS
- 25 4 Types of IRS Voluntary Disclosure Programs
Form 8833 U.S. Tax Treaties: It’s 2019, and If you are going to take a Treaty-Based position on your 2018 tax return, it is important you understand the Internal Revenue Service rules, requirements, and exceptions.
When it comes to International tax, even simple issues are generally more complicated than they first appear.
One of the more complex areas of international tax involves treaty positions. Namely, what do you do if you want to rely on a tax treaty in order to try to reduce or eliminate U.S. tax?
You submit a Form 8833 (unless you are otherwise exempted from having to file a Form 8833)
The IRS has provided form 8833 for U.S. taxpayers to use when they take a treaty position on their tax return, as to why a certain type of income should not be taxed when it would otherwise appear taxable in accordance with U.S. tax law principles.
Understanding How IRS Form 8833 Works
Let’s say you are a U.S. person that resides in the U.S., but are receiving some sort of benefit from a foreign country, and the benefit is non-taxable and that foreign country.
Since you are a U.S. Person and taxed on your worldwide income, the U.S. will tax you – even if it is tax free in the foreign jurisdiction.
Therefore, your decide to take a treaty position to try to get the income excluded on your U.S. tax return.
Completing Form 8833
Completing the form can seem a bit daunting, but overall it is generally not that bad.
First, it is important understand what treaty you are referring to. For example, if you were in the United Kingdom and making a claim based on the United Kingdom treaty, you should identify on form 8833 that the treaty is the UK treaty.
Then, it is also important to understand which portion (aka Article) of the treaty you are relying in taking your position.
It is also important to understand which Internal Revenue Code is overruled, modified or excepted by the treaty position.
In other words, what code section does the IRS rely on to tax you, and what portion of the treaty are you relying to reduce/avoid U.S. Tax.
Explaining your Treaty Position
This is very important.
This is the part of the form in which you are explaining in to the IRS why you believe your position permits you to avoid US tax on a particular type of income you are earning.
Do All Treaty Positions have to be Reported on Form 8833?
No, as with most things related tax, there are various exceptions, exclusions, and limitations the person may be able to rely on in order to avoid having to file the form.
Form 8833 Exceptions
Regulations section 301.6114-1(c) waives reporting on a Form 8833 for certain treaty-based return positions. In some instances, the waiver narrowly applies to exempt from reporting a treaty position that is specifically reportable, and thus careful review of the regulations is advised.
In addition, some waivers do not apply to positions that are specifically required to be reported under these form instructions
– Positions for which reporting is waived include, but are not limited to, the following. See Regulations section 301.6114-1(c) for other waivers from reporting.
– That a treaty reduces or modifies the taxation of income derived by an individual from dependent personal services, pensions, annuities, social security, and other public pensions, as well as income derived by artists, athletes, students, trainees, or teachers;
– That a Social Security Totalization Agreement or Diplomatic or Consular Agreement reduces or modifies the income of a taxpayer
– That a treaty exempts a taxpayer from the excise tax imposed by section 4371, but only if certain conditions are met (for example, the taxpayer has entered into an insurance excise tax closing agreement with the IRS);
– That a treaty exempts from tax or reduces the rate of tax on FDAP income, if the beneficial owner is an individual or governmental entity
– If a partnership, trust, or estate has disclosed a treaty position that the partner or beneficiary would otherwise be required to disclose
– Unless modified by the instructions below, that a treaty exempts from tax or reduces the rate of tax on FDAP income that is properly reported on Form 1042-S and the amount is received by
– Related party (within the meaning of section 6038A(c)(2)) from a reporting corporation within the meaning of section 6038A(a) (a domestic corporation that is 25% foreign owned and required to file Form 5472)
– Beneficial owner that is a direct account holder of a U.S. financial institution or qualified intermediary, or a direct partner, beneficiary, or owner of a withholding foreign partnership or trust, from that U.S. financial institution, qualified intermediary, or withholding foreign partnership or withholding foreign trust (whether the Form 1042-S reporting is on a specific payee or pooled basis); or
– Taxpayer that is not an individual or a State, if the amounts are not received through an account with an intermediary Form 8833 (Rev. 9-2017) Page 4 or with respect to an interest in a partnership or a simple or grantor trust, and if the amounts do not total more than $500,000 for the tax year.
Specific Treaty Positions that Must be Reported
Regulations section 301.6114-1(b) specifically requires reporting on a Form 8833 for the following treaty-based return positions.
Note that this is not an exhaustive list of all positions that are reportable on a Form 8833 and that some specifically reportable positions are waived in certain circumstances under Regulations section 301.6114-1(c).
– That a nondiscrimination provision of the treaty prevents the application of an otherwise applicable Code provision, other than with respect to making an election under section 897(i);
– That a treaty reduces or modifies the taxation of gain or loss from the disposition of a U.S. real property interest
– That a treaty reduces or modifies the branch profits tax (section 884(a)) or the tax on excess interest (section 884(f)(1) (B))
– That a treaty exempts from tax or reduces the rate of tax on dividends or interest paid by a foreign corporation that are U.S.-sourced under section 861(a)(2)(B) or section 884(f)(1)(A);
– That a treaty exempts from tax or reduces the rate of tax on fixed or determinable annual or periodical (FDAP) income that a foreign person receives from a U.S. person, but only if:
(1) The amount is not properly reported on Form 1042-S and the foreign person is:
– (a) a controlled foreign corporation (as defined in section 957) in which the U.S. person is a U.S. shareholder (as defined in section 951(b));
– (b) a foreign corporation that is controlled by a U.S. person within the meaning of section 6038;
– (c) a foreign corporation that is a 25-percent shareholder of the U.S. person under section 6038A; or
– (d) a foreign related party, as defined under section 6038A(c)(2)(B);
(2) The foreign person is related to the payor under section 267(b) or section 707(b) and receives income exceeding $500,000, in the aggregate, from the payor and the treaty contains a limitation on benefits article; or
(3) The treaty imposes additional conditions for the entitlement of treaty benefits (for example, the treaty requires the foreign corporation claiming a preferential rate on dividends to meet ownership percentage and ownership period requirements):
– That income effectively connected with a U.S. trade or business of a taxpayer is not attributable to a permanent establishment or a fixed base in the United States
– That a treaty modifies the amount of business profits of a taxpayer attributable to a permanent establishment or a fixed base in the United States
– That a treaty alters the source of any item of income or deduction (unless the taxpayer is an individual)
– That a treaty grants a credit for a foreign tax which is not allowed by the Code
– That the residency of an individual is determined under a treaty and apart from the Code. See Dual-resident taxpayer below.
Reporting specifically required by Form 8833 Instructions
The following are amounts for which a treaty-based return disclosure on Form 8833 is specifically required under these instructions.
– Amounts described in paragraph a or c, above, that are received by a corporation that is a resident under the domestic law of both the United States and a foreign treaty jurisdiction (a dual resident corporation).
– Amounts described in paragraph a or c, above, that are received by a corporation that is a resident of both the jurisdiction whose treaty is invoked and another foreign jurisdiction that has an income tax treaty with that treaty jurisdiction.
– Amounts described in paragraph a or c, above, that are received by a foreign collective investment vehicle that is a contractual arrangement and not a person under foreign law. See Example 7 of Regulations section 1.894-1(d)(5). •
– Amounts described in paragraph a or c, above, that are received by a foreign “interest holder” in a “domestic reverse hybrid entity,” as those terms are used in Regulations section 1.894-1(d)(2).
– If you are an individual who is a dual-resident taxpayer and you choose to claim treaty benefits as a resident of the foreign country, you are treated as a nonresident alien in figuring your U.S. income tax liability for the part of the tax year you are considered a dual-resident taxpayer.
– If you are eligible to be treated as a resident of the foreign country pursuant to the applicable income tax treaty and you choose to claim benefits as a resident of such foreign country, attach Form 8833 to Form 1040NR, U.S. Dual-resident taxpayer.
– An alien individual is a dual-resident taxpayer if that individual is considered to be a resident of both the United States and another country under each country’s tax laws. If the income tax treaty between the United States and the other country contains a provision for resolution of conflicting claims of residence by the United States and its treaty partner, and the individual determines that under those provisions he or she is a resident of the foreign country for treaty purposes, the individual may claim treaty benefits as a resident of that foreign country, provided that he or she complies with the instructions below.
– Nonresident Alien Income Tax Return, or Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents. In order to be treated as a resident of the foreign country, you must timely file (including extensions) Form 1040NR or Form 1040NR-EZ with the Form 8833 attached. If you choose to be treated as a resident of a foreign country under an income tax treaty, you are still treated as a U.S. resident for purposes other than figuring your U.S. income tax liability (see Regulations section 301.7701(b)-7(a)(3)).
Termination of U.S. Residency
If you are a dual-resident taxpayer and a long-term resident (LTR) and you are filing this form to be treated as a resident of a foreign country for purposes of claiming benefits under an applicable U.S. income tax treaty, you will be deemed to have terminated your U.S. residency status for federal income tax purposes.
Because you are terminating your U.S. residency status, you may be subject to tax under section 877A and you must file Form 8854, Initial and Annual Expatriation Statement.
You are an LTR if you were a lawful permanent resident of the United States in at least 8 of the last 15 tax years ending with the year your status as an LTR ends.
For additional information, see the Instructions for Form 8854, Initial and Annual Expatriation Statement, and Pub. 519, U.S. Tax Guide for Aliens
IRS Offshore Disclosure with Expatriation or a Treaty Position?
Unlike other areas of International Tax, you need a law firm that practices exclusively in the area of IRS Offshore Disclosure, and your attorney should be a Board Certified Tax Law Specialist.
We’re here to help you.
What is the Board Certified Tax Law Specialist Credential?
Once an Attorney earns the prestigious Board Certified Tax Law Specialist credential, it proves to the general public that the attorney is dedicated to tax law, and has real tax law practice experience as an Attorney.
Few tax attorneys have passed the tax speciality exam (regarded as one of the most difficult tax exams in the country) — and met the additional education, experience, and recommendation requirements necessary for certification.
Once a person becomes “Board Certified in Tax,” it shows they have met the following requirements:
- Advanced tax education
- Extensive tax law experience
- Attorney & Judge recommendations for certification
In California for example, there are 200,000 active Attorneys, with tens of thousands of Attorneys practicing in some area of tax — and only 350 Tax Attorneys have successfully earned the designation.
Less than 1% of Attorneys nationwide have earned the credential.
Sean M. Golding, JD, LL.M., EA (Board Certified Tax Law Specialist)
IRS Offshore Disclosure is ALL we do.
Our Managing Partner, Sean M. Golding, JD, LLM, EA earned an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)
Mr. Golding and his team have successfully handled several hundred IRS Offshore/Voluntary Disclosure Procedure cases. Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.
He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.
Tax Law Specialty Firms are Best Prepared to Represent You in Specialized Tax Matters
Unless the firm has 50-100 attorneys, with a $25 million operating budget, a successful boutique tax-law firm will almost always have all of the attorneys in the firm devote the firms’s time, energy, and resources to one specific area of tax.
In other words, all the attorneys in the boutique tax firm practice the same, single area of tax law.
Some common niche areas of tax law include:
- Tax Litigation
- Employment Tax
- Sales Tax
- Offshore Voluntary Disclosure
For example, in employment tax, all tax attorneys in the firm handle employment tax related cases. In sales tax, all the tax attorneys in the firm handle sales tax. It may be “Sales Tax” in various different fields and industries — but the firm will limit the niche practice to sales tax.
The same is true for Offshore Voluntary Disclosure. If a firm handles Offshore Voluntary Disclosure, then all tax attorneys at the firm should be handling the same area of tax law.
This area of Offshore Disclosure law is constantly evolving, and becoming infinitely more complicated — including highly complex issues involving:
- International Cryptocurrency
- Increased Schedule B Enforcement (Paul Manafort)
- Foreign Gifts
- Foreign Inheritance
- Foreign Business
- Foreign Trusts
If a small firm has attorneys practicing 5-10 different areas of tax law (and even non-tax law related matters) – it can put your case at a severe disadvantage.
Why? Because it is impossible for these types of “general tax firms” to establish set protocols, policies and procedures sufficient to handle all the complexities and nuances for multiple different types of niche tax law areas.
At our tax specialty firm, we handle matters involving Offshore Voluntary Disclosure, and each case is led by one or more highly experienced attorneys.
This guarantees that your case gets the time and dedication it deserves.
Why Do We Care?
Because each month, like clockwork, we get calls from individuals in an utter state of panic, because the “Expert” or “Specialist” who made themselves out to be knowledgeable, has no real knowledge of Offshore Disclosure.
It turns out, the Attorney has never handled a complex Offshore Disclosure.
Oftentimes, Golding & Golding is called upon to fix these messes. Click Here to learn about some of the representative matters we have handled.
Serious Tax Matters; Serious Tax Consequences
Getting hit with an eggshell audit, reverse-eggshell audit, or IRS Special Investigation involving offshore money is serious business – it’s not like getting a traffic ticket or speeding ticket.
The ramifications of serious tax inquiries by the IRS (especially in the area of Offshore Disclosure and Compliance), can result in serious consequences such as monetary fines, penalties and even jail time.
Golding & Golding – IRS Offshore Disclosure Lawyers
We are the only attorneys worldwide that focuses exclusively in IRS Offshore Disclosure, and each and every case is led and managed by Mr. Golding and his team.
What Type of Attorney Should I Hire?
IRS Voluntary Disclosure is a specialized area of law. An IRS Voluntary Disclosure is a complex undertaking. It requires the coordination of several moving parts, including strategy development, Tax Preparation, Legal Analysis, Negotiation and more.
You should hire a Tax Attorney who has the following credentials:
- ~20 Years of Private Practice experience representing his/her own clients
- Experienced in Criminal and Civil Tax Litigation
- Experienced representing clients in Eggshell and Reverse Eggshell Audits.
- Advanced Tax Degree (LL.M.)
- EA (Enrolled Agent) or CPA (Certified Public Accountant)
- Preferably a Board Certified Tax Law Specialist
We Specialize in Safely Disclosing Foreign Money
We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)
Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.
Examples of areas of tax we handle
- Unfiled Tax Returns
- Unreported Income Penalties
- International Tax Investigations (FATCA and more)
- FBAR Investigations
- International Tax Evasion
- Structuring Investigations
- Eggshell and Reverse Eggshell Audits
- Divorce and Offshore Accounts
- Foreign Mutual Funds
- Foreign Life Insurance
- Fixing Quiet Disclosure
- Foreign Real Estate Income
- Foreign Real Estate Sales
- Foreign Earned Income Exclusion
- Subpart F Income
- Foreign Inheritance
- Foreign Pension
- Form 3520
- Form 5471
- Form 8621
- Form 8865
- Form 8938 (FATCA)
Who Decides to Disclose Unreported Money?
What Types of Clients Do we Represent?
We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.
You are not alone, and you are not the only one to find himself or herself in this situation.
Beware of Copycat Law Firms
Unlike other attorneys who call themselves specialists or experts in Voluntary Disclosure but are not “Board Certified,” handle 5-10 different areas of tax law, purchase multiple keyword specific domain names, and even practice outside of tax, we are absolutely dedicated to Offshore Voluntary Disclosure.
*Click here to learn the benefits of retaining a Board Certified Tax Law Specialist with advanced tax credentials.
IRS Penalty List
The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:
Failure to File
If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.
The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
Failure to Pay
f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.
However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
Civil Tax Fraud
If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
A Penalty for failing to file FBARs
The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
A Penalty for failing to file Form 8938
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 3520
The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A Penalty for failing to file Form 3520-A
The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
A Penalty for failing to file Form 5471
The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A Penalty for failing to file Form 5472
The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.
A Penalty for failing to file Form 926
The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A Penalty for failing to file Form 8865
Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under IRC §§ 6651(f) or 6663
Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)
Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)
If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An Accuracy-Related Penalty on underpayments imposed under IRC § 6662
Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty
Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)
Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
A person convicted of tax evasion
Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
What Should You Do?
Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.
Be Careful of the IRS
With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.
4 Types of IRS Voluntary Disclosure Programs
There are typically four types of IRS Voluntary Disclosure programs, and they include:
- Traditional (IRM) IRS Voluntary Disclosure Program
- Streamlined Domestic Offshore Procedures (SDOP)
- Streamlined Foreign Offshore Procedures (SFOP)
- Reasonable Cause (RC)
Contact Us Today; Let us Help You.
Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)
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