The United States has many tax treaties with many nations. A comprehensive list is here. As a general principle the “savings clause” prevents Americans abroad from having the benefit of treaty provisions. That said, there are situations where a U.S. citizen abroad can benefit from the specific provisions of a specific treaty. In some cases the benefits are found ONLY in the Treaty. In some cases the Internal Revenue Code specifically references a possible treaty benefit (example resourcing income to create a “foreign tax credit” under IRC S. 904). A second (and very relevant) example of the Internal Revenue Code referencing the benefits of a treaty in S. 877A(d) of the Internal Revenue Code, where with respect to an “eligible pension”, the taxpayer: “makes an irrevocable waiver of any right to claim any reduction under any treaty with the United States in withholding on such item”.
As always, we begin with the code …
— Citizenship Lawyer (@ExpatriationLaw) July 13, 2016
Subtitle F (Procedure and Administration) is where the requirement to report the treaty position is found …
(a) In general Each taxpayer who, with respect to any tax imposed by this title, takes the position that a treaty of the United States overrules (or otherwise modifies) an internal revenue law of the United States shall disclose (in such manner as the Secretary may prescribe) such position—
on the return of tax for such tax (or any statement attached to such return), or
if no return of tax is required to be filed, in such form as the Secretary may prescribe.
The Secretary may waive the requirements of subsection (a) with respect to classes of cases for which the Secretary determines that the waiver will not impede the assessment and collection of tax.
Note that S. 6114 became law in 1988. Treaties have existed since before 1988. S. 6114 creates a requirement to report a treaty position. In general, the applicability of the treaty based position is NOT dependent on having complied with S. 6114. That said, Internal Revenue Code S. 6712 authorizes a $1000 penalty (subject to reasonable cause) which may be assessed for failure to disclose the position.
Form 8833 – the mechanism to comply with S. 6114
Form 8833 is how the treaty based position is disclosed “(in such manner as the Secretary may prescribe)”. Interestingly, the IRS is using form 8833 for:
It is common for the IRS to use one form to comply with the reporting requirements of multiple sections of the Internal Revenue Code.
Form 8833 and the instructions: