What is a treaty based return position and who needs to file one?
All globally mobile expats and entrepreneurs need to understand what is meant by a treaty based tax return position and how it can be of benefit to them! A treaty based return position is filed on IRS form 8833. If an individual taxpayer wishes to claim the benefits of a income tax treaty, including and not limited to residence of another country (even if the individual is a resident by virtue of the substantial presence test) which may result in the reduction of income tax rates or the exemption from US taxation of certain types of income as determined by a treaty, they need to file this form.
If an individual wishes to rely on an Article in a treaty for a reduction in tax rates and omits the form they may lose the benefits of the treaty or be liable for a fine of up to $1,000 per omitted item.
This is also critical evidence in support of a residency or non-residency position. It is difficult to argue that you intended to be treaty as a non-resident by virtue of a tax treaty if this form was not filed.
If you splitting your time between countries and you want to claim closer connection to a country that is not the US or apply some other applicable provision of a income tax treaty you need to file this form.