Treaty Tie-Breaker Relief

If a taxpayer becomes a US Resident Alien for tax purposes because he holds a green card or has remained in the United States in excess of 182 days in any one year, then he ordinarily becomes subject to US taxation on his worldwide income.

If the taxpayer is a resident of a nation that has an income tax treaty between such nation and the United States, (for example: Germany), then this taxpayer can, given the right circumstances, make use of tie-breaker rules generally found in Article 4 of the income tax treaty to avoid being classified as a US resident for income tax purposes.

To make use of the tie-breaker rules, a taxpayer must take affirmative steps to informing the Internal Revenue Service that he is relying on an income tax treaty and thus should not be considered a US Resident for tax calculation purposes. This is done via a non-resident income tax return, Form 1040NR, with an attached Form 8833, Treaty Based Disclosure.

It is important to remember that this treaty based relief results in tax being calculated as if this taxpayer was a non-resident of the United States. It does not, however,  relieve the taxpayer of other filing obligations such as various information returns and the filing of foreign bank account reporting forms. 

Another important aspect is that claiming Tie-Breaker benefits, while holding a green card may jeopardize the green card because taking a position that one is a tax non-resident may be inconsistent with the requirements of continued green card ownership. Thus, it is imperative to consult competent immigration counsel to coordinate the filing of any non-resident returns in this case.

Disclaimer: This Article is for general information purposes only and is not intended as legal advice. All situations are unique. Thus before taking any action, you should consult with legal counsel on the applicability of the above to your circumstances.