Dear experts,
I am:
- A Canadian Citizen
- A Canadian Resident
- An employee of the Federal Government of Canada
- A US Citizen
For my government service, I receive both a salary and payments under the (Canadian) foreign service directives (FSDs), most of which are tax-exempt in Canada. My work in entirely in Canada and in a third country. My salary and FSDs exceed the earned income exclusion.
How do I report this Canadian income on my US return? Do I make a treaty claim under Article XIX using a 8833?
Thank you for your expertise!!
US-Can Tax Treaty: Government Services
Moderator: Mark T Serbinski CA CPA
You exclude all the remuneration made by the Cdn govt to you, by treaty, from your 1040.
Simply mention this in an 8833 as you outlined. You should not then have to use the FEIE (form 2555) at all. don't even put it on your wage line.
Simply mention this in an 8833 as you outlined. You should not then have to use the FEIE (form 2555) at all. don't even put it on your wage line.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
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blitzloper
- Posts: 18
- Joined: Sun Mar 29, 2009 11:21 am
Brilliant. Thank you for the quick reply.
Do you know what I should put in line 2 of the 8833?
"List the Internal Revenue Code provision(s) overruled or modified by the treaty-based return position"
Can I cite:
"PART III—ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME"
TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter B > PART III
?
Many thanks... This seems almost too easy to be true!
Do you know what I should put in line 2 of the 8833?
"List the Internal Revenue Code provision(s) overruled or modified by the treaty-based return position"
Can I cite:
"PART III—ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME"
TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter B > PART III
?
Many thanks... This seems almost too easy to be true!
-
blitzloper
- Posts: 18
- Joined: Sun Mar 29, 2009 11:21 am
Help!
So I sent this question to the IRS using their online question form at the same time as posting it here. Here is the response I got.
I assume a US Citizen living abroad can still make a treaty-based position, but the IRS disagrees.
Is the IRS out to lunch, or am I?
Your Question Was:
Hello, I am both a US citizen and a Canadian citizen. I am a resident of Canada. I work for the Canadian federal government in Canada and receive a salary of $XXX and benefits of $XXX, both exclusively from the Government of Canada. I believe this salary and benefits are taxable only in Canada, under Article XIX (Government Service) of the United State - Canada Tax Convention. When filing my 1040, do I need to make a treaty-based claim on form 8833? If so, what do I put on Line 2 the Internal Revenue Code provision(s) overruled or modified by the treaty-based return position. Thanks!!
The Answer To Your Question Is:
Thank you for your inquiry of March 29, 2009, regarding your claiming a treaty-based position.
We apologize for the delay of our response.
The Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), applies to a foreign person, not United States (U.S.) citizens, you will not need to attach this form to your return.
Assuming you are a United States (U.S.) citizen who has not formally renounced your citizenship you are required to report world wide income based on the requirement to file. Review Publication 54, Tax Guide For U.S. Citizens And Residents Aliens Abroad, “Requirement To Fileâ€.
If you have a filing requirement, several income tax benefits might apply if you meet certain requirements while living abroad.
You may be able to exclude up to $86,700 of your foreign earned income in 2008.
You cannot exclude more than the smaller of:
$86,700, or
Your foreign earned income for the tax year minus your foreign housing exclusion.
To claim these benefits, you must file Form 1040, and attach Form 2555, Foreign Earned Income. If you are claiming the foreign earned income exclusion only, you may be able to use the shorter Form 2555-EZ, Foreign Earned Income Exclusion, rather than Form 2555. To claim the foreign earned income exclusion, you must satisfy all three of the following requirements.
1. Your tax home must be in a foreign country. Your tax home is the general area of your main place of business, employment, or post of duty where you are permanently or indefinitely engaged to work. You are not considered to have a tax home in a foreign country for any period during which your abode is in the United States. However, being temporarily present in the United States, or maintaining a dwelling in the United States, does not necessarily mean that your abode is in the United States. For details, see Publication 54.
2. You must have foreign earned income.
3. You must be either:
a. A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
b. A U.S. citizen who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
For purposes of the foreign earned income exclusion, and the foreign housing exclusion and deduction, foreign earned income does not include any amounts paid by the United States or any of its agencies to its employees.
In addition to the foreign earned income exclusion, you can also claim an exclusion or a deduction from gross income for your housing amount if your tax home is in a foreign country and you qualify under either the bona fide residence test or the physical presence test.
The housing exclusion applies only to amounts considered paid for with employer-provided amounts. The housing deduction applies only to amounts paid for with self-employment earnings.
Your housing amount is the total of your housing expenses for the year minus the base housing amount.
The computation of the base housing amount (line 32 of Form 2555) is tied to the maximum foreign earned income exclusion. The amount is 16% of the exclusion amount (computed on a daily basis), multiplied by the number of days in your qualifying period that fall within your tax year.
For 2008 the maximum foreign earned income exclusion is $87,600 per year; 16% of this amount is $14,016, or $38.30 per day. To figure your base housing amount if you are a calendar-year taxpayer, multiply $38.30 by the number of your qualifying days during 2008. Subtract the result from your total housing expenses (up to the applicable limit) to find your housing amount.
The amount of qualified housing expenses eligible for the housing exclusion and housing deduction is limited. The limit is generally 30% of the maximum foreign earned income exclusion (computed on a daily basis), multiplied by the number of days in your qualifying period that fall within your tax year. For 2008, this is generally $71.80 per day ($26,280 per year). However, the limit will vary depending upon the location of your foreign tax home, and the tax year. Review the instructions to Form 2555, for the 2008, housing exclusion or deductions amount.
If you have foreign sourced income that you cannot exclude, for example, foreign earned income over $87,600, pension, interest, dividends, capital gains etc, in 2008, for which you paid or accrued foreign income taxes, you may be eligible to take either a Foreign Tax Credit or a Foreign Tax Deduction. To take the foreign tax credit, you should complete a Form 1116, Foreign Tax Credit. If you decide not to take the credit and you are able to itemize deductions, you may be eligible to deduct these foreign income taxes on Form 1040 Schedule A, Itemized Deductions. For additional information regarding either the foreign tax credit or the foreign tax deduction, please review Publication 514, Foreign Tax Credit for Individuals.
You must express the amounts you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U.S. dollars. Use the exchange rate prevailing when you receive, pay, or accrue the item. If there is more than one exchange rate, use the one that most properly reflects your income.
You are not required to submit foreign documentation (wage statement) to your U.S. tax return.
Your return should be sent to:
Internal Revenue Service
Austin, TX, 73301-0215
Forms, Publications and Instructions can be found on our website, www.irs.gov.
Thank you for using our electronic tax service. We hope the information was helpful. If you have other questions feel free to contact us again.
IRS forms and publications may be accessed on our web site at the following address: www.irs.gov or ordered through our toll-free forms line at: 800-829-3676
Expect delivery within 10 business days.
Other useful toll-free numbers include:
800-829-1040 IRS Tax Help Line for Individuals
800-829-4933 Business and Specialty Tax Help Line
800-829-1954 Refund Hotline
866-562-5227 Disaster Relief Toll-Free Number, Monday
through Friday, 7 am to 10:00 pm local time
We are interested in your opinion and providing the best possible service to you. Please take a moment to answer our survey at: http://www.irs.gov/help/page/0,,id=13155,00.html
This answer is based on our understanding of the facts you presented in your question. Omission of facts may affect the answer given.
Here's a tip for navigating the IRS web site. Use the "search" button at the right side of the web page. Enter key words or phrases for your topic in the entry box.
For security reasons and to protect taxpayer privacy, the IRS does not address taxpayer account-related issues for which personal, identifying information would be needed through e-mail.
Our basic Electronic Tax Law Assistance service is designed to assist the general public in complying with their Federal tax obligations by helping them with questions they have about the tax law and procedural issues. Our goal is to provide complete and accurate responses to as many taxpayers as possible.
If you have additional questions, you may contact us either by phone at 1-800-829-1040 or by email through our web site www.irs.gov.
So I sent this question to the IRS using their online question form at the same time as posting it here. Here is the response I got.
I assume a US Citizen living abroad can still make a treaty-based position, but the IRS disagrees.
Is the IRS out to lunch, or am I?
Your Question Was:
Hello, I am both a US citizen and a Canadian citizen. I am a resident of Canada. I work for the Canadian federal government in Canada and receive a salary of $XXX and benefits of $XXX, both exclusively from the Government of Canada. I believe this salary and benefits are taxable only in Canada, under Article XIX (Government Service) of the United State - Canada Tax Convention. When filing my 1040, do I need to make a treaty-based claim on form 8833? If so, what do I put on Line 2 the Internal Revenue Code provision(s) overruled or modified by the treaty-based return position. Thanks!!
The Answer To Your Question Is:
Thank you for your inquiry of March 29, 2009, regarding your claiming a treaty-based position.
We apologize for the delay of our response.
The Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), applies to a foreign person, not United States (U.S.) citizens, you will not need to attach this form to your return.
Assuming you are a United States (U.S.) citizen who has not formally renounced your citizenship you are required to report world wide income based on the requirement to file. Review Publication 54, Tax Guide For U.S. Citizens And Residents Aliens Abroad, “Requirement To Fileâ€.
If you have a filing requirement, several income tax benefits might apply if you meet certain requirements while living abroad.
You may be able to exclude up to $86,700 of your foreign earned income in 2008.
You cannot exclude more than the smaller of:
$86,700, or
Your foreign earned income for the tax year minus your foreign housing exclusion.
To claim these benefits, you must file Form 1040, and attach Form 2555, Foreign Earned Income. If you are claiming the foreign earned income exclusion only, you may be able to use the shorter Form 2555-EZ, Foreign Earned Income Exclusion, rather than Form 2555. To claim the foreign earned income exclusion, you must satisfy all three of the following requirements.
1. Your tax home must be in a foreign country. Your tax home is the general area of your main place of business, employment, or post of duty where you are permanently or indefinitely engaged to work. You are not considered to have a tax home in a foreign country for any period during which your abode is in the United States. However, being temporarily present in the United States, or maintaining a dwelling in the United States, does not necessarily mean that your abode is in the United States. For details, see Publication 54.
2. You must have foreign earned income.
3. You must be either:
a. A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
b. A U.S. citizen who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
For purposes of the foreign earned income exclusion, and the foreign housing exclusion and deduction, foreign earned income does not include any amounts paid by the United States or any of its agencies to its employees.
In addition to the foreign earned income exclusion, you can also claim an exclusion or a deduction from gross income for your housing amount if your tax home is in a foreign country and you qualify under either the bona fide residence test or the physical presence test.
The housing exclusion applies only to amounts considered paid for with employer-provided amounts. The housing deduction applies only to amounts paid for with self-employment earnings.
Your housing amount is the total of your housing expenses for the year minus the base housing amount.
The computation of the base housing amount (line 32 of Form 2555) is tied to the maximum foreign earned income exclusion. The amount is 16% of the exclusion amount (computed on a daily basis), multiplied by the number of days in your qualifying period that fall within your tax year.
For 2008 the maximum foreign earned income exclusion is $87,600 per year; 16% of this amount is $14,016, or $38.30 per day. To figure your base housing amount if you are a calendar-year taxpayer, multiply $38.30 by the number of your qualifying days during 2008. Subtract the result from your total housing expenses (up to the applicable limit) to find your housing amount.
The amount of qualified housing expenses eligible for the housing exclusion and housing deduction is limited. The limit is generally 30% of the maximum foreign earned income exclusion (computed on a daily basis), multiplied by the number of days in your qualifying period that fall within your tax year. For 2008, this is generally $71.80 per day ($26,280 per year). However, the limit will vary depending upon the location of your foreign tax home, and the tax year. Review the instructions to Form 2555, for the 2008, housing exclusion or deductions amount.
If you have foreign sourced income that you cannot exclude, for example, foreign earned income over $87,600, pension, interest, dividends, capital gains etc, in 2008, for which you paid or accrued foreign income taxes, you may be eligible to take either a Foreign Tax Credit or a Foreign Tax Deduction. To take the foreign tax credit, you should complete a Form 1116, Foreign Tax Credit. If you decide not to take the credit and you are able to itemize deductions, you may be eligible to deduct these foreign income taxes on Form 1040 Schedule A, Itemized Deductions. For additional information regarding either the foreign tax credit or the foreign tax deduction, please review Publication 514, Foreign Tax Credit for Individuals.
You must express the amounts you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U.S. dollars. Use the exchange rate prevailing when you receive, pay, or accrue the item. If there is more than one exchange rate, use the one that most properly reflects your income.
You are not required to submit foreign documentation (wage statement) to your U.S. tax return.
Your return should be sent to:
Internal Revenue Service
Austin, TX, 73301-0215
Forms, Publications and Instructions can be found on our website, www.irs.gov.
Thank you for using our electronic tax service. We hope the information was helpful. If you have other questions feel free to contact us again.
IRS forms and publications may be accessed on our web site at the following address: www.irs.gov or ordered through our toll-free forms line at: 800-829-3676
Expect delivery within 10 business days.
Other useful toll-free numbers include:
800-829-1040 IRS Tax Help Line for Individuals
800-829-4933 Business and Specialty Tax Help Line
800-829-1954 Refund Hotline
866-562-5227 Disaster Relief Toll-Free Number, Monday
through Friday, 7 am to 10:00 pm local time
We are interested in your opinion and providing the best possible service to you. Please take a moment to answer our survey at: http://www.irs.gov/help/page/0,,id=13155,00.html
This answer is based on our understanding of the facts you presented in your question. Omission of facts may affect the answer given.
Here's a tip for navigating the IRS web site. Use the "search" button at the right side of the web page. Enter key words or phrases for your topic in the entry box.
For security reasons and to protect taxpayer privacy, the IRS does not address taxpayer account-related issues for which personal, identifying information would be needed through e-mail.
Our basic Electronic Tax Law Assistance service is designed to assist the general public in complying with their Federal tax obligations by helping them with questions they have about the tax law and procedural issues. Our goal is to provide complete and accurate responses to as many taxpayers as possible.
If you have additional questions, you may contact us either by phone at 1-800-829-1040 or by email through our web site www.irs.gov.
Look at the treaty. There is a clause that excludes much of the treaty from use by US citizens (the so-called saving clause). No time to look now, but you can look if the govt service section is mentionned.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Ah, you know why its not exempt? Because it only applies to govt service for YOUR government.
So, if you worked in canada for the US Govt, the income would be exempt in Canada.
If you were a Cdn citizen working in US, your wages would be exempt from US tax.
None of this applies in your case.
Sorry that I did not catch this earlier.
So, if you worked in canada for the US Govt, the income would be exempt in Canada.
If you were a Cdn citizen working in US, your wages would be exempt from US tax.
None of this applies in your case.
Sorry that I did not catch this earlier.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
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blitzloper
- Posts: 18
- Joined: Sun Mar 29, 2009 11:21 am
I'm not sure I understand what you mean by "YOUR" government. I'm a Canadian citizen working for the Canadian government in Canada. I also happen to be an American citizen.
Here is the Article that would apply from the treaty -- it would appear to apply.
What do you think?
Article XIX
Government Service
Remuneration, other than a pension, paid by a Contracting State or a political subdivision or local authority thereof to a citizen of that State in respect of services rendered in the discharge of functions of a governmental nature shall be taxable only in that State. However, the provisions of Article XIV (Independent Personal Services), XV (Dependent Personal Services) or XVI (Artistes and Athletes), as the case may be, shall apply, and the preceding sentence shall not apply, to remuneration paid in respect of services rendered in connection with a trade or business carried on by a Contracting State or a political subdivision or local authority thereof.
Here is the Article that would apply from the treaty -- it would appear to apply.
What do you think?
Article XIX
Government Service
Remuneration, other than a pension, paid by a Contracting State or a political subdivision or local authority thereof to a citizen of that State in respect of services rendered in the discharge of functions of a governmental nature shall be taxable only in that State. However, the provisions of Article XIV (Independent Personal Services), XV (Dependent Personal Services) or XVI (Artistes and Athletes), as the case may be, shall apply, and the preceding sentence shall not apply, to remuneration paid in respect of services rendered in connection with a trade or business carried on by a Contracting State or a political subdivision or local authority thereof.
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blitzloper
- Posts: 18
- Joined: Sun Mar 29, 2009 11:21 am
And regarding the so-called 'saving clause', Government Service is still covered by the Treaty:
Saving Clause:
2. [color=red]Except as provided in paragraph 3, nothing in the Convention shall be construed as preventing a Contracting State from taxing its residents (as determined under Article IV (Residence)) and, in the case of the United States, its citizens[/color] (including a former citizen whose loss of citizenship had as one of its principal purposes the avoidance of tax, but only for a period of ten years following such loss) and companies electing to be treated as domestic corporations, as if there were no convention between the United States and Canada with respect to taxes on income and on capital.
3. [color=red]The provisions of paragraph 2 shall not affect the obligations undertaken by a Contracting State:[/color]
(a) under paragraphs 3 and 4 of Article IX (Related Persons), paragraphs 6 and 7 of Article XIII (Gains), paragraphs 1, 3, 4, 5, 6(b) and 7 of Article XVIII (Pensions and Annuities), paragraph 5 of Article XXIX (Miscellaneous Rules), paragraphs 1, 5 and 6 of Article XXIX B (Taxes Imposed by Reason of Death), paragraphs 2, 3, 4 and 7 of Article XXIX B (Taxes Imposed by Reason of Death) as applied to the estates of persons other than former citizens referred to in paragraph 2 of this Article, paragraphs 3 and 5 of Article XXX (Entry into Force), [color=red]and Articles XIX (Government Service)[/color], XXI (Exempt Organizations), XXIV (Elimination of Double Taxation), XXV (Non-Discrimination) and XXVI (Mutual Agreement Procedure);
Saving Clause:
2. [color=red]Except as provided in paragraph 3, nothing in the Convention shall be construed as preventing a Contracting State from taxing its residents (as determined under Article IV (Residence)) and, in the case of the United States, its citizens[/color] (including a former citizen whose loss of citizenship had as one of its principal purposes the avoidance of tax, but only for a period of ten years following such loss) and companies electing to be treated as domestic corporations, as if there were no convention between the United States and Canada with respect to taxes on income and on capital.
3. [color=red]The provisions of paragraph 2 shall not affect the obligations undertaken by a Contracting State:[/color]
(a) under paragraphs 3 and 4 of Article IX (Related Persons), paragraphs 6 and 7 of Article XIII (Gains), paragraphs 1, 3, 4, 5, 6(b) and 7 of Article XVIII (Pensions and Annuities), paragraph 5 of Article XXIX (Miscellaneous Rules), paragraphs 1, 5 and 6 of Article XXIX B (Taxes Imposed by Reason of Death), paragraphs 2, 3, 4 and 7 of Article XXIX B (Taxes Imposed by Reason of Death) as applied to the estates of persons other than former citizens referred to in paragraph 2 of this Article, paragraphs 3 and 5 of Article XXX (Entry into Force), [color=red]and Articles XIX (Government Service)[/color], XXI (Exempt Organizations), XXIV (Elimination of Double Taxation), XXV (Non-Discrimination) and XXVI (Mutual Agreement Procedure);
I agree with you. I missed that you were Cdn. As I also suspected the treaty does apply to Govt service.
Why did you bother asking the IRS. I've reminded this sie so often that their responses are always wrong.
I gave you my correct answer earlier.
Stick with me.
Why did you bother asking the IRS. I've reminded this sie so often that their responses are always wrong.
I gave you my correct answer earlier.
Stick with me.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
When submitting your 8833 you should also mention the exclusion from the saving clause XXIX.3(a) for govt services.
And the IRS comment that 8833 was for non-citizens only is so wrong as to be almost criminally fraudulent.
And the IRS comment that 8833 was for non-citizens only is so wrong as to be almost criminally fraudulent.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
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blitzloper
- Posts: 18
- Joined: Sun Mar 29, 2009 11:21 am
Criminally fraudulent indeed! There is actually a $1000 fine for NOT filing a 8833...
Thank you very much for your responses Nelsona; you did indeed provide the right answer the first time, and I won't bother with the 'Ask a Bureaucrat' feature of the IRS website again.
I had a moment of panic after the IRS email, but I think I'm comfortable filing now...
Thank you very much for your responses Nelsona; you did indeed provide the right answer the first time, and I won't bother with the 'Ask a Bureaucrat' feature of the IRS website again.
I had a moment of panic after the IRS email, but I think I'm comfortable filing now...