# US tax treaty- Who does it benefit?



## boat (May 17, 2014)

I am a US citizen and New Zealand resident and tax resident. I work on a boat on an international rout. When trying to figure my tax burden I see the reference to my counties tax treaty to the US. 

So I look in the IRS Pub 901 tax treaty under the NZ tax and they say-


"Pay received by a New Zealand resident as an employee and member of the regular complement of a ship or aircraft operated in international traffic is exempt from U.S. tax."

That describes me and my job perfectly. BUT my US CPA tells me because of the "Savings Clause" the US still taxes its citizens as if this treaty never existed. 

Now I am scratching my head on this one. What is the tax treaty for? Who does it help? Why do I keep getting told to refer to the tax treaty if nobody abides by it?

Thanks again for the good info on this forum. 

Scott


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## Bevdeforges (Nov 16, 2007)

US law, and tax law in particular, is full of "interpretations." Not sure what the CPA is referring to with that "savings clause" thing, but you could easily file your taxes asserting your NZ residence and simply taking the FEIE and see what happens.

Back when I was working for one of the big public accounting companies in the US, we called this "taking an aggressive tax stance." But if it flies, go for it. 

You do have to file US taxes, even if 100% of your income is exempt. But frankly, it's the bottom line that counts.
Cheers,
Bev


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## Clinton F. Bateman (May 21, 2014)

Your CPA is likely correct. US Citizens generally will not be able to reduce their US tax based on treaty provisions due to the savings clause. However, the treaty can possibly aid you in the tax paid in New Zealand. I have heard some argue that the language of the treaties is such that the "US reserves the right" to tax as if the treaty were not in place. As such, if you take a treaty position and disclose it properly on 8833, you have notified the IRS of your position, it is up to them to invoke that right to tax it differently. Good luck!


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## boat (May 17, 2014)

*Oh my goodness*

Oh my, I never would have guessed the tax law would go on and on like this. Its almost like a game of pong. 

While I am very impressed after reading form 8833 I think for me, trying to enter the streamline I had better stick with the FEIE and think about the 8833 test for future years. 

One thought when I read the 8833. Is that a way to claim long term exemption from the IRS by claiming that one is no longer a US tax resident?

Thanks again for the great information. 

Boat


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## Nononymous (Jul 12, 2011)

boat said:


> One thought when I read the 8833. Is that a way to claim long term exemption from the IRS by claiming that one is no longer a US tax resident?


Yes - renouncing your US citizenship. Otherwise it's the gift that never stops giving.


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## Nononymous (Jul 12, 2011)

Grammar was all wrong there - misread the question...


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## BBCWatcher (Dec 28, 2012)

Yes, I think the phrase "U.S. tax resident" is hard to parse. Let's put it this way. If you are a U.S. citizen, U.S. national, or U.S. permanent resident you are subject to the U.S. income tax system and related reporting. The amount of tax you pay then varies (and could well be zero or negative, i.e. you receive money) depending on your income and circumstances, including whether you are resident in the U.S. or not.

OK, so I think the question is whether you can claim long-term foreign residency, and I think the intention behind the question was whether it's possible to avoid the annual ritual(s). I don't think so. It's possible not to have any filing requirements in a particular year, but you still have to make that determination annually depending on that tax year's income and circumstances. I don't think there's any "that treaty lets you check out for 5 years" option, for example.


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## Bevdeforges (Nov 16, 2007)

Unfortunately (or not), in the case of a US citizen, the notion of "tax residence" has little or no significance. The US is just about the only country in the world that insists on maintaining taxing authority over all its citizens anywhere they may live in the world. Not being resident in the US only means that you may qualify for the FEIE (though be careful, because the courts have ruled that if you're resident in Antarctica, you can't even claim that - something about there being no organized government over the continent).

And taxes aren't the only US laws you're expected to continue to abide by, even when outside the US. 
Cheers,
Bev


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