New regs. on certain filing requirements of foreign individuals.

• Author: Cooper, Mike
• Position: IRS regulations

On Oct. 6, 1997, the Treasury issued final regulations adopting a number of changes that affect the filing of U.S. tax and information returns for foreign individuals.

First, Sec. 6114 requires that, if a treaty provision reduces a person's tax liability otherwise imposed under the Code, the person must report that position on a tax return. The existing regulations do not require a foreign individual who otherwise qualifies as a U.S. resident under the Code to report a treaty-based return position, if he elects to be a nonresident under the treaty. However, new Regs. Sec. 1.6114-1(c) requires that this individual file a treaty-based return position if a treaty election to be a nonresident is made and either (1) a treaty reduces U.S. tax on more than $10,000 of the individual's U.S.-source income or income effectively connected with a U.S. business or (2) a treaty reduces U.S. tax on more than $100,000 of that individual's other worldwide income (such as foreign source or subpart F income). Second, when any treaty-based disclosure is necessary under either Sec. 6114 or 7701(b) (relating to residency under the Code) the foreign individual must now file Form 8833, Treaty-Based Position Disclosure Under Section 6114 or 7701 (b), with his tax return instead of providing the information statement previously required; see old Regs. Secs. 301.7701(b)-7(c) and 301.6114-1 (d). Third, individuals claiming that they are nonresidents under the Code definition of residency, due to a closer connection to a foreign country than to the U.S., must now report this claim by filing Form 8840, Closer Connection Exception Statement for Aliens; see Regs. Sec. 301.7701 (b)-8.

Fourth, foreign individuals who would be treated as U.S. residents due to the length of their physical presence in the U.S. for medical reasons must now file a Form 8443, Statement for Exempt Individuals and Individuals With a Medical Condition, to avoid residency status.

Fifth, a foreign individual who is a U.S. resident under the Code, who is a U.S. shareholder of a...