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NewTexas · Mar 24, 2009, 07:53 PM

I) I am and have always been on F-1 status.
ii) I have filed as non-resident alien for 5 years, this year I can file as "Resident alien" for tax purposes.
iii)Previously, I claimed an exemption for $5000 due to article XIII(1) of tax treaty b/w Pakistan and US.

Question is, now that I am filing as Resident alien for tax purposes, can I still claim the $5000 treaty exemption for wages earned for personal service?

It seem to have something to do with a "Saving clause" (See pub 519 page 52). An excerpt is quoted here:

"However, many tax treaties
have an exception to the saving clause,
which may allow you to continue to claim certain
treaty benefits when you become a resident alien."

MukatA · Mar 24, 2009, 08:19 PM

You will not get treaty deduction after 5 years.

NewTexas · Mar 24, 2009, 10:34 PM

A clarification question: Pak-US treaty article XIII(1) clearly states that there is no time limit on the $5000 exemption, so if I cannot claim that exemption anymore, it must be because..

(is there a 'saving clause' somewhere in the treaty? There is an example in Pub 519 on page 52 under the heading "Saving clause" which shows a case where a person is filing as resident alien for tax purposes but still can claim treaty exemption! )

Thanks.

Five Rings · Mar 25, 2009, 11:50 AM

You will notice in the treaty Article 13(1) you cite that the word "temporarily" appears. Six years + can hardly be construed as temporary.

The US/Pakistan treaty is an exceptionally old one, and neither a protocol nor the technical explanation is available on the IRS site. Moreover, I can find no savings clause in the body of the treaty. I hasten to add that this does not mean it does not exist either in the protocol or diplomatic notes.

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, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), and attach it to your return.

You may also address your question to the "Competent Authority" by writing:

Office of the Director (International)
Attn: Tax Treaty Division
Internal Revenue Service
950 L'Enfant Plaza
Washington, D.C. 20024.

NewTexas · Mar 25, 2009, 12:38 PM

Thanks, 'Five Rings", for a well-researched answer. I will do just that... that is write to the Office of Director to find out (I am also paying someone from H&R Block to find me the answer ).

I'll try to look it up myself, but in case you happen to know it... do I need to furnish an 8833 even if I have been given a 1042-S which shows that $5000 of my income was not taxed? (If I can't claim this exemption, I will add this on line 21 of 1040 as other income.)

Five Rings · Mar 25, 2009, 01:13 PM

A 1042-S is for nonresident aliens only.