What is Form 8833?
Form 8833 is a document that taxpayers must file with the Internal Revenue Service (IRS) if they are claiming a treaty-based return position. A treaty-based return position is when a taxpayer is claiming a tax treaty benefit that overrides the Internal Revenue Code (IRC). Form 8833 is used to disclose the taxpayer’s position and provide the necessary information to the IRS.
Example of a Treaty-Based Return Position
Sarah is a US citizen who owns a rental property in Canada. The US and Canada have a tax treaty that provides for certain tax benefits for US residents who own rental property in Canada. Specifically, the tax treaty provides that rental income earned by a US resident from a Canadian rental property is only subject to Canadian tax and is exempt from US tax.
To claim this exemption from US tax, Sarah must file Form 8833 with her US tax return. On the form, Sarah will need to provide a description of the treaty-based return position being claimed (i.e., the exemption from US tax on rental income earned from a Canadian rental property), the specific treaty article or provision that supports the position being claimed, and any other information necessary to support her position.
Countries that have tax treaty with the US
There are currently around 60 to 70 countries have a tax treaty with the US, below are some example of countries that have tax treaties with the US:-
- South Korea
- United Kingdom
For full list of countries that have tax treaty with the US, please refer to https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z.
Tax Deadline and Consequences of Failure to File Form 8833
Taxpayers who need to file Form 8833 must do so with their tax return by the due date, which is typically April 15th for individual taxpayers. However, the deadline may be extended for taxpayers who are living abroad or serving in the military.
Failure to file Form 8833 or filing an incomplete or inaccurate form can result in penalties and interest. The penalty for failing to file Form 8833 is $1,000 or 1% of the taxpayer’s total tax liability, whichever is less. The penalty for filing an incomplete or inaccurate form is $1,000 for each form that is incorrect or incomplete.
Form 8833 is an important document that taxpayers must file if they are claiming a treaty-based return position. Taxpayers must provide and keep records of accurate information and supporting documentation to avoid penalties and interest. If you are unsure about whether you need to file Form 8833 or how to properly complete it, it’s important to consult a tax professional.
Disclaimer: This information has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors or consult us regarding your own personal tax situation as this article was intended to be general in nature.