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Hi,

I am seeking information on how to respond to the IRS following a notice that they sent me indicating that the tax treaty claim that i did for my 2017 tax return is not valid.

2017 is the first year that I had to file the US tax return as a resident alien (although I am a non-resident for immigration purpose, visa j1) and I filled myself the 1040 form and other forms. I claimed exemption of US taxes for my remuneration which is a public remuneration from France using a tax treaty and form 8833.

The tax treaty says: "Remuneration … paid by a Contracting State … shall be taxable only in that State. However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of and a national of that State and not at the same time a national of the first-mentioned State." Therefore, being a French citizen and not a US citizen, I understood that this remuneration is taxable only in France.

The other thing is that since I am paying taxes for this income in France, I could have claimed a foreign tax credit (with form f1116) which I did not since I thought my remuneration was exempt from US taxes according to this tax treaty.

So I am wondering:

1) if the IRS did not accept my tax treaty claim because these tax treaties can be used only by non-resident aliens (in the case of people using the form 1040NR)

But I cannot find this mentioned anywhere and the way I proceeded to claim the tax treaty was following the advices given by TaxAct irelated to this subject "Foreign Income - Tax Treaties Form 8833 Tax Treaty Return".

2) if I misunderstood the text of the treaty

3) if I can send the IRS a revised tax return claiming for the foreign tax credit with form f1116 (instead of the tax treaty with form 8833)

Any advice would be very much appreciated.

Thanks a lot.
 

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That tax treaty stuff gets really complicated and, generally speaking, the tax preparation software programs are not particularly reliable when it comes to treaty issues. (There are simply too many treaties and variations within the treaties to program into a commercial system like that.)

If you are working for a French government agency in the US, you should be able to ask your employer for some help here since presumably you aren't the only French national working for the agency in the US.

The "trick" with the US tax forms is that when they say something isn't taxable in the US, they still make you report the income and then apply the Foreign Tax Credit in order to claim the "non-taxable" benefit in the treaty. (That procedure is buried back toward the end of the US-France treaty.)

Did the notice you received from the IRS include a "bill" for the taxes they claim you owe? And in any event, what did they ask you to do about resolving the error - contact them? If so, contact them according to what the letter says to see what the "proper" procedure is for resolving or contesting the error. It may be necessary to pay what they are asking for and then to file an amended tax form (a 1040X) claiming back the taxes you paid in response to the letter.
Cheers,
Bev
 
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