DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 301 and 602
[TD 8733]
RIN 1545-AP35
Treaty-Based Return Positions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final regulations under section
6114 of the Internal Revenue Code of 1986 providing that
reporting is specifically required if the residency of an
individual is determined under a treaty and apart from the Code.
The IRS concluded, in the process of completing the regulations
under section 7701(b), that the rules of section 6114 should
apply to individuals determining their residency under a treaty.
These final regulations are necessary to implement the section
6114 rules to individuals determining their residency under a
treaty. Also contained in this document are final regulations
relating to section 7701(b) and conforming changes to regulations
under sections 6038 and 6046.
EFFECTIVE DATE: These regulations are effective December 15,
1997.
FOR FURTHER INFORMATION CONTACT: David A. Juster, telephone
(202-622-3850) (not a toll-free number), regarding sections 6114
and 7701(b) and Carl M. Cooper, telephone (202-622-3840) (not a
toll-free number) regarding sections 6038 and 6046, both of the
Office of Associate Chief Counsel (International), within the
Office of Chief Counsel, IRS.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in these final
regulations have been reviewed and approved by the Office of
Management and Budget in accordance with the Paperwork Reduction
Act (44 U.S.C. 3507) under control number 1545-1126. Responses
to these collections of information are mandatory.
An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless the
collection of information displays a valid OMB control number.
The estimated annual burden per respondent varies from 1/2
hour to 3 hours, depending on individual circumstances, with an
estimated average of 1 hour.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the
Internal Revenue Service, Attn: IRS Reports Clearance Officer,
T:FP, Washington, DC 20224, and to the Office of Management and
Budget, Attn: Desk Officer for the Department of the Treasury,
Office of Information and Regulatory Affairs, Washington, DC
20503.
Books or records relating to this collection of information
must be retained as long as their contents may become material in
the administration of any internal revenue law. Generally, tax
returns and tax return information are confidential, as required
by 26 U.S.C. 6103.
Background
On April 27, 1992, a notice of proposed rulemaking was
published in the Federal Register (57 FR 15272) proposing
amendments to the final Regulations on Procedure and
Administration (26 CFR 301.6114-1), published in the Federal
Register on March 14, 1990 (55 FR 9438) and on July 12, 1990 (55
FR 28608). The proposed amendments related to 301.6114-1(b) and
(c) and 301.7701(b)-7(c)(2). No written comments responding to
the notice were received. No public hearing was requested or
held. The proposed amendments are adopted without change by this
Treasury decision. This Treasury decision also includes
modifications to 1.6038-2(j), 1.6046-1(g), 301.6114-1(d),
301.7701(b)-3(b)(3) and (4), 301.7701(b)-7(c)(1) and 301.7701(b)-
8(b)(1) and (2).
Explanation of Provisions
Section 301.6114-1(b) is amended by adding paragraph (b)(8)
to provide that reporting is required under section 6114 where
residency of an individual is determined under a treaty and apart
from the Internal Revenue Code (Code). The regulations provide,
however, that reporting is waived for an individual if payments
or income items reportable by reason of paragraph (b)(8) do not
exceed $100,000 in the aggregate. Section 301.6114-1(d)
currently provides that when reporting is required under section
6114, a taxpayer must furnish as an attachment to his or her
return a written statement with the information as set forth in
paragraph (d). Section 301.7701(b)-7(b) currently provides that
a dual resident taxpayer who claims a treaty benefit as a
nonresident of the United States must file a statement in the
form required by paragraph (c) of that section. Section
301.6114-1(d) is now amended to provide that, when reporting is
required under section 6114, a taxpayer must furnish, as an
attachment to his or her return, a fully completed Form 8833
(Treaty-Based Return Position Disclosure Under Section 6114 or
7701(b)) or appropriate successor form. Section 301.7701(b)-
7(c)(1) is amended to provide that the written statement required
to be furnished under paragraph (b) of that section, as an
attachment to a dual resident taxpayer's return, must be in the
form of a fully completed Form 8833 (Treaty-Based Return Position
Disclosure Under Section 6114 or 7701(b)) or appropriate
successor form. Form 8833 was developed to provide standardized
reporting of the information currently required by 301.6114-
1(d) and 301.7701(b)-7(c).
In an effort to provide standardized reporting of the
information currently required to be reported, under
301.7701(b)-8(b), by taxpayers claiming the closer connection
exception and exempt individuals and individuals with a medical
condition, the Service has developed Form 8840 (Closer Connection
Exception Statement) and Form 8843 (Statement for Exempt
Individuals and Individuals with a Medical Condition).
Accordingly, 301.7701(b)-8(b)(1) is amended to provide that the
statement filed by alien individuals claiming the closer
connection exception, described in 301.7701(b)-2, must be in the
form of a fully completed Form 8840 or appropriate successor
form. Section 301.7701(b)-8(b)(2) is amended to provide that the
statement filed by exempt individuals and individuals with a
medical condition, described in 301.7701(b)-3, must be in the
form of a fully completed Form 8843 or appropriate successor
form.
Sections 3121(b)(19), 3306(c)(19) and 3231(e)(1) of the Code
provide that "J" class visa holders (teachers and trainees) are
exempt from FICA, FUTA and Railroad Retirement Act taxes,
respectively. Section 320 of the Social Security Independence
and Program Improvements Act of 1994, Public Law 103-296 (108
Stat. 1464), extends the FICA, FUTA and Railroad Retirement Act
tax exemptions and certain other tax rules to "Q" class visa
holders (participants in international cultural exchange
programs). Accordingly, conforming changes have been made to
301.7701(b)-3(b)(3) and (4) to reflect the revisions in the Code
to the definitions of a teacher or trainee and student contained
in section 7701(b)(5).
Section 301.7701(b)-7(c)(2), adopted as proposed, provides
that, for purposes of stating the approximate amount of subpart F
income to be included in the statement required to be furnished
under paragraph (b) of that section by a dual resident taxpayer
who is a shareholder in a controlled foreign corporation (as
defined in section 957 or section 953(c)), the approximate amount
of income may be based on the audited foreign financial
statements of the CFC if there are no other United States
shareholders in that CFC. Parallel rules with respect to
information reporting under sections 6038 and 6046 are added in
1.6038-2(j)(2)(ii) and 1.6046-1(g). Under these rules, a
taxpayer who claims a treaty benefit as a nonresident of the
United States, but who is a United States person for purposes of
the information reporting requirements of sections 6038 or 6046,
may satisfy certain information reporting requirements by filing
the audited foreign financial statements of the foreign
corporation with respect to which the information reporting is
required. ob体育ever, these rules apply only if the taxpayer is the
sole United States person for purposes of the information
reporting requirements with respect to the foreign corporation.
If there are other United States persons for those purposes, then
the taxpayer must report the information required by the
regulations in the form and manner generally prescribed.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It has also been
determined that section 553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply to these regulations, and
because the notice of proposed rulemaking preceding the
regulations was issued prior to March 29, 1996, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to
section 7805(f) of the Code, the notice of proposed rulemaking
preceding these regulations was submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on
its impact on small business.
Drafting Information
Various personnel from the Office of Associate Chief Counsel
(International), within the Office of Chief Counsel, IRS and the
Treasury Department participated in developing the regulations.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes,
Income taxes, Penalties, Reporting and recordkeeping
requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1, 301 and 602 are amended as
follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.6038-2 is amended by:
1. Redesignating paragraph (j)(2)(ii) as paragraph
(j)(2)(iii).
2. Adding new paragraph (j)(2)(ii) to read as follows:
1.6038-2 Information returns required of United States persons
with respect to annual accounting periods of certain foreign
corporations beginning after December 31, 1962.
* * * * *
(j) * * *
(2) * * *
(ii) If an individual who is a United States person
required to furnish information with respect to a foreign
corporation under section 6038 is entitled under a treaty to be
treated as a nonresident of the United States, and if the
individual claims this treaty benefit, and if there are no other
United States persons that are required to furnish information
under section 6038 with respect to the foreign corporation, then
the individual may satisfy the requirements of paragraphs
(f)(10), (f)(11), (g), and (h) of this section by filing the
audited foreign financial statements of the foreign corporation
with the individual's return required under section 6038.
* * * * *
Par. 3. In 1.6046-1, paragraph (g) is amended by adding a
sentence at the end to read as follows:
1.6046-1 Returns as to organization or reorganization of
foreign corporations and as to acquisitions of their stock, on or
after January 1, 1963.
* * * * *
(g) * * * If an individual who is a United States person
required to make a return with respect to a foreign corporation
under section 6046 is entitled under a treaty to be treated as a
nonresident of the United States, and if the individual claims
this treaty benefit, and if there are no other United States
persons that are required to furnish information under section
6046 with respect to the foreign corporation, then the individual
may satisfy the requirements of paragraphs (b)(10), (11) and
(12), (c)(3)(ii)(d), and (g) of this section by filing the
audited foreign financial statements of the foreign corporation
with the individual's return required under section 6046.
* * * * *
PART 301--PROCEDURE AND ADMINISTRATION
Par. 4. The authority citation for part 301 continues to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.6114-1 also issued under 26 U.S.C. 6114; * * *
Par. 5. Section 301.6114-1 is amended by:
1. Removing the language "(c)(1)" in paragraph (b)(4)
introductory text and adding "(c)(1)(i)" in its place.
2. Removing the language "(c)(1)" in paragraph (b)(5)
introductory text and adding "(c)(1)(i)" in its place.
3. Removing the language"(c)(4)" in paragraph (b)(6) and
adding "(c)(1)(iv)" in its place.
4. Removing the language "or" at the end of paragraph
(b)(6).
5. Removing the period at the end of paragraph (b)(7) and
adding "; or" in its place.
6. Adding a paragraph (b)(8).
7. Paragraphs (c)(1) through (c)(6) are redesignated as
paragraphs (c)(1)(i) through (c)(1)(vi), respectively.
8. Paragraphs (c)(7) introductory text, (c)(7)(i),
(c)(7)(ii), and (c)(7)(iii) are redesignated as paragraphs
(c)(1)(vii) introductory text, (c)(1)(vii)(A), (c)(1)(vii)(B) and
(c)(1)(vii)(C), respectively.
9. The introductory text of paragraph (c) is redesignated
as the introductory text of paragraph (c)(1).
10. Revising newly designated paragraph (c)(1)(ii).
11. Removing the concluding text immediately following newly
designated paragraph (c)(1)(vii)(C).
12. Adding paragraphs (c)(2), (c)(3), (c)(4) and (c)(5).
13. Revising paragraph (d).
The additions and revisions read as follows:
301.6114-1 Treaty-based return positions.
* * * * *
(b) * * *
(8) For returns relating to taxable years for which the due
date for filing returns (without extensions) is after December
15, 1997, that residency of an individual is determined
under a treaty and apart from the Internal Revenue Code.
(c) Reporting requirement waived. (1) * * *
(ii) For returns relating to taxable years for which the
due date for filing returns (without extensions) is on or before
December 15, 1997, that residency of an individual is determined
under a treaty and apart from the Internal Revenue Code.
* * * * *
(2) Reporting is waived for an individual if payments or
income items otherwise reportable under this section (other than
by reason of paragraph (b)(8) of this section), received by the
individual during the course of the taxable year do not exceed
$10,000 in the aggregate or, in the case of payments or income
items reportable only by reason of paragraph (b)(8) of this
section, do not exceed $100,000 in the aggregate.
(3) Reporting with respect to payments or income items the
treatment of which is mandated by the terms of a closing
agreement with the Internal Revenue Service, and that would
otherwise be subject to the reporting requirements of this
section, is also waived.
(4) If a partnership, trust, or estate that has the
taxpayer as a partner or beneficiary discloses on its information
return a position for which reporting is otherwise required by
the taxpayer, the taxpayer (partner or beneficiary) is then
excused from disclosing that position on a return.
(5) This section does not apply to a withholding agent with
respect to the performance of its withholding functions.
(d) Information to be reported--(1) Returns due after
December 15, 1997. When reporting is required under this section
for a return relating to a taxable year for which the due date
(without extensions) is after December 15 1997, the taxpayer must
furnish, in accordance with paragraph (a) of this section, as an
attachment to the return, a fully completed Form 8833 (Treaty-
Based Return Position Disclosure Under Section 6114 or 7701(b))
or appropriate successor form.
(2) Earlier returns. For returns relating to taxable years
for which the due date for filing returns (without extensions) is
on or before December 15, 1997, the taxpayer must furnish
information in accordance with paragraph (d) of this section in
effect prior to December 15, 1997 (see 301.6114-1(d) as
contained in 26 CFR part 301, revised April 1, 1997).
(3) In general--(i) Permanent establishment. For purposes
of determining the nature and amount (or reasonable estimate
thereof) of gross receipts, if a taxpayer takes a position that
it does not have a permanent establishment or a fixed base in the
United States and properly discloses that position, it need not
separately report its payment of actual or deemed dividends or
interest exempt from tax by reason of a treaty (or any liability
for tax imposed by reason of section 884).
(ii) Single income item. For purposes of the statement of
facts relied upon to support each separate Treaty-Based Return
Position taken, a taxpayer may treat payments or income items of
the same type (e.g., interest items) received from the same
ultimate payor (e.g., the obligor on a note) as a single separate
payment or income item.
(iii) Foreign source effectively connected income. If a
taxpayer takes the return position that, under the treaty, income
that would be income effectively connected with a U.S. trade or
business is not subject to U.S. taxation because it is income
treated as derived from sources outside the United States, the
taxpayer may treat payments or income items of the same type
(e.g., interest items) as a single separate payment or income
item.
(iv) Sales or services income. Income from separate sales
or services, whether or not made or preformed by an agent
(independent or dependent), to different U.S. customers on behalf
of a foreign corporation not having a permanent establishment in
the United States may be treated as a single payment or income
item.
(v) Foreign insurers or reinsurers. For purposes of
reporting by foreign insurers or reinsurers, as described in
paragraph (c)(1)(vii)(B) of this section, such reporting must
separately set forth premiums paid with respect to casualty
insurance and indemnity bonds (subject to section 4371(1)); life
insurance, sickness and accident policies, and annuity contracts
(subject to section 4371(2)); and reinsurance (subject to section
4371(3)). All premiums paid with respect to each of these three
categories may be treated as a single payment or income item
within that category. For reports first due before May 1, 1991,
the report may disclose, for each of the three categories, the
total amount of premiums derived by the foreign insurer or
reinsurer in U.S. dollars (even if a portion of these premiums
relate to risks that are not U.S. situs). Reasonable estimates
of the amounts required to be disclosed will satisfy these
reporting requirements.
* * * * *
Par. 6. Section 301.7701(b)-0 is amended in the contents
listing by:
1. Adding entries for 301.7701(b)-7, paragraphs (c)(1)(i)
and (c)(1)(ii).
2. Removing the language "[Reserved]" in the entry for
301.7701(b)-7, paragraph (c)(2).
3. Adding entries for 301.7701(b)-8, paragraphs
(b)(1)(i), (b)(1)(ii), (b)(2)(i) and (b)(2)(ii).
The additions read as follows:
301.7701(b)-0 Outline of regulation provision for
section 7701(b)-1 through (b)-9.
* * * * *
301.7701(b)-7 Coordination with income tax treaties.
* * * * *
(c) * * *
(1) * * *
(i) Returns due after December 15, 1997.
(ii) Earlier returns.
* * * * *
301.7701(b)-8 Procedural rules.
* * * * *
(b) * * *
(1) * * *
(i) Returns due after December 15, 1997.
(ii) Earlier returns.
(2) * * *
(i) Returns due after December 15, 1997.
(ii) Earlier returns.
* * * * *
Par. 7. Section 301.7701(b)-3 is amended by revising
paragraphs (b)(3) and (b)(4) to read as follows:
301.7701(b)-3 Days of presence in the United States that
are excluded for purposes of section 7701(b).
* * * * *
(b) * * *
(3) Teacher or trainee. A teacher or trainee includes any
individual (and that individual's immediate family), other than a
student, who is admitted temporarily to the United States as a
nonimmigrant under section 101(a)(15)(J) (relating to the
admission of teachers and trainees into the United States) or
section 101(a)(15)(Q) (relating to the admission of participants
in international cultural exchange programs) of the Immigration
and Nationality Act (8 U.S.C. 1101(a)(15)(J), (Q)) and who
substantially complies with the requirements of being admitted.
(4) Student. A student is any individual (and that
individual's immediate family) who is admitted temporarily to the
United States as a nonimmigrant under section 101(a)(15)(F) or
(M) (relating to the admission of students into the United
States) or as a student under section 101(a)(15)(J) (relating to
the admission of teachers and trainees into the United States) or
section 101(a)(15)(Q) (relating to the admission of participants
in international cultural exchange programs) of the Immigration
and Nationality Act (8 U.S.C. 1101(a)(15)(F), (J), (M), (Q)) who
substantially complies with the requirements of being admitted.
For rules concerning taxation of certain nonresident students or
trainees, see section 871 (c) and 1.871-9(a) of this chapter.
* * * * *
Par. 8. Section 301.7701(b)-7 is amended by:
1. Revising paragraph (c)(1).
2. Adding text for paragraph (c)(2).
The revision and addition read as follows:
301.7701(b)-7 Coordination with income tax treaties.
* * * * *
(c) * * * (1) In general--(i) Returns due after December
15, 1997. The statement filed by an individual described in
paragraph (a)(1) of this section, for a return relating to a
taxable year for which the due date (without extensions) is after
December 15, 1997, must be in the form of a fully completed Form
8833 (Treaty-Based Return Position Disclosure Under Section 6114
or 7701(b)) or appropriate successor form. See section 6114 and
301.6114-1 for rules relating to other treaty-based return
positions taken by the same taxpayer.
(ii) Earlier returns. For returns relating to taxable
years for which the due date for filing returns (without
extensions) is on or before December 15, 1997, the statement
filed by the individual described in paragraph (a)(1) of this
section must contain the information in accordance with paragraph
(c)(1) of this section in effect prior to December 15, 1997 (see
301.7701(b)-7(c)(1) as contained in 26 CFR part 301, revised
April 1, 1997).
(2) Controlled foreign corporation shareholders. If the
taxpayer who claims a treaty benefit as a nonresident of the
United States is a United States shareholder in a controlled
foreign corporation (CFC), as defined in section 957 or section
953(c), and there are no other United States shareholders in that
CFC, then for purposes of paragraph (c)(1) of this section, the
approximate amount of subpart F income (as defined in section
952) that would have been included in the taxpayer's income may
be determined based on the audited foreign financial statements
of the CFC.
* * * * *
Par. 9. Section 301.7701(b)-8 is amended by revising
paragraphs (b)(1) and (b)(2) to read as follows:
301.7701(b)-8 Procedural rules.
* * * * *
(b) * * *
(1) Closer connection exception--(i) Returns due after
December 15, 1997. The statement filed by an individual
described in paragraph (a)(1) of this section, for a return
relating to a taxable year for which the due date (without
extensions) is after December 15, 1997, must be in the form of a
fully completed Form 8840 (Closer Connection Exception Statement)
or appropriate successor form.
(ii) Earlier returns. For returns relating to taxable
years for which the due date for filing returns (without
extensions) is on or before December 15, 1997, the statement
filed by the individual described in paragraph (a)(1) of this
section must contain the information in accordance with paragraph
(b)(1) of this section in effect prior to December 15, 1997 (see
301.7701(b)-8(b)(1) as contained in 26 CFR Part 301, revised
April 1, 1997).
(2) Exempt individuals and individuals with a medical
condition--(i) Returns due after December 15, 1997. The
statement filed by an individual described in paragraph (a)(2) of
this section, for a return relating to a taxable year for which
the due date (without extensions) is after December 15, 1997,
must be in the form of a fully completed Form 8843 (Statement for
Exempt Individuals and Individuals with a Medical Condition) or
appropriate successor form.
(ii) Earlier returns. For returns relating to taxable
years for which the due date for filing returns (without
extensions) is on or before December 15, 1997, the statement
filed by the individual described in paragraph (a)(2) of this
section must contain the information in accordance with paragraph
(b)(2) of this section in effect prior to December 15, 1997 (see
301.7701(b)-8(b)(2) as contained in 26 CFR Part 301, revised
April 1, 1997).
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 10. The authority citation for part 602 continues to
read as follows:
Authority: 26 U.S.C. 7805.
Par. 11. In 602.101, paragraph (c) is amended by adding an
entry in numerical order to the table and revising the entry for
301.7701(b)-7 to read as follows:
602.101 OMB Control numbers.
* * * * *
(c) * * *
CFR part or section where Current OMB
identified and described control No.
* * * * *
301.6114-1..............................................1545-1126
* * * * *
301.7701(b)-7...........................................1545-0089
1545-1126
* * * * *
Michael P. Dolan
Acting Commissioner of Internal Revenue
Approved: August 28, 1997
Donald C. Lubick
Acting Assistant Secretary of the Treasury閺� � ! 7 kq @ 0P墨~壹@ 0 择z壹 7 7 TD8733.TXT 0 Td8733.txt 7 7 .TXT i -