Publication 901 |
2001 Tax Year |
Application of Treaties
The United States has income tax treaties with a number of foreign
countries. Under these treaties, residents (not necessarily
citizens) of foreign countries are taxed at a reduced rate, or are
exempt from U.S. income taxes on certain items of income they receive
from sources within the United States. These reduced rates and
exemptions vary among countries and specific items of income.
If the treaty does not cover a particular kind of income, or if
there is no treaty between your country and the United States, you
must pay tax on the income in the same way and at the same rates shown
in the instructions for Form 1040NR. Also see Publication 519.
Many of the individual states of the United States tax the income
of their residents. Therefore, you should consult the tax authorities
of the state in which you live to find out if that state taxes the
income of individuals and, if so, whether the tax applies to any of
your income.
Tax treaties reduce the U.S. taxes of residents of foreign
countries. With certain exceptions, they do not reduce the
U.S. taxes of U.S. citizens or residents. U.S. citizens and residents
are subject to U.S. income tax on their worldwide income.
Treaty provisions generally are reciprocal (apply to both treaty
countries); therefore, a U.S. citizen or resident who receives income
from a treaty country may refer to the tables in this publication to
see if a tax treaty might affect the tax to be paid to that foreign
country. Foreign taxing authorities sometimes require certification
from the U.S. Government that an applicant filed an income tax return
as a U.S. citizen or resident, as part of the proof of entitlement to
the treaty benefits. For information on this, see Publication 686.
Disclosure of a treaty-based position that reduces your tax.
If you take the position that any U.S. tax is overruled or
otherwise reduced by a U.S. treaty (a treaty-based position), you
generally must disclose that position on Form 8833 and attach it to
your return. If you are not required to file a return because of your
treaty-based position, you must file a return anyway to report your
position. The filing of Form 8833 does not apply to a reduced rate of
withholding tax on noneffectively connected income, such as dividends,
interest, rents or royalties, or to a reduced rate of tax on pay
received for services performed as an employee, including pensions,
annuities, and social security. For more information, get Publication 519.
If you fail to file Form 8833, you may have to pay a $1,000
penalty. Corporations are subject to a $10,000 penalty for each
failure.
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