New Treaty With Japan Poses Challenges For Taxpayers, Administrators, And The IRS
On March 30, 2004 the United States and Japan entered into a new income tax treaty that replaces the treaty that had been in effect since 1973. The new treaty includes several changes that impact treaty benefits of foreign workers, scholars, and exchange visitors:
These new treaty provisions are effective beginning January 1, 2005.
Individuals who enter the United States in 2005 may only claim benefits under the new treaty. Individuals who were in the United States in 2004 may be eligible to claim benefits under the prior treaty. The new treaty provides two provisions for claiming benefits under the prior treaty: 1) carry-over benefits under the student/trainee and teacher/researcher articles of the prior treaty and 2) a one-year election to continue benefits under the prior treaty.
Carry-over Benefits are available to individuals who were eligible for benefits under the student/trainee or teacher/researcher article of the prior treaty when the new treaty became effective on March 30. These individuals may continue to claim the benefits under the prior treaty until the end of the benefit period. Individuals are not required to have been claiming benefits in order to have been eligible for benefits. For example, a student who was in the United States on March 30 but did not receive taxable compensation or a taxable grant until after that date would still be eligible for the carry-over benefits.
A One-year Election of Benefits under the prior treaty is available to individuals who were present in the United States after March 30 and eligible for benefits under the prior treaty. These individuals may elect to continue these benefits during 2005. Benefits are not limited to student/trainee and teacher/researcher benefits. For example, nonresident alien workers who were eligible to claim additional personal exemptions on their Form 1040NR tax return for 2004 can make an election to claim the additional personal exemptions on their 2005 return.
administrators and the IRS must face include explaining why individuals
who consider themselves similarly situated to other individuals
cannot claim treaty benefits because of the date that they came to the
United States. Administrators and the IRS must also explain why
and researchers receive benefits under Article 19 (the prior treaty)
while other teachers and researchers receive benefits under Article
new treaty) in the same calendar year. Administrators have already designed
a form to accompany Form 8233 claims to clarify these situations.
IRS will also have to design a procedure that allows eligible individuals
to elect to claim additional personal exemptions in 2005 but prevents
ineligible individuals from doing so.
Paula Singer, Esq., CEO of Windstar Technologies, Inc. and partner in the tax law firm, Vacovec, Mayotte & Singer, Newton, MA has over 25 years of experience providing advice and compliance services to employers on cross-border employment matters. For more information, visit www.windstar.com. For additional information, call 1-800-259-6398 or email: firstname.lastname@example.org
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