itonewbie
Level 15
If you read Pub 915 carefully, page 5 only explains that the income would be exempt for tax residents of those treaty countries and that no tax would be withheld on US citizens.  It does not deal with how the income may or may not be reported on the return.  The paragraph you quoted from page 6 should also be read in conjunction with the section "How Much Is Taxable?"  As you can see from that section, treaty exemption is not one of those exceptions for not using any of the worksheets to determine taxable portion of the benefits.

Since there is no clear regulations or guidance that explicitly instructs taxpayers to simply report $0 as taxable social security benefits on Line 20(b) F.1040, I would follow the text of the treaty article to the tee if your client is claiming treaty exemption.

If the taxpayer were a nonresident alien, it would have been possible for the individual to certify his/her foreign status and claim for treaty benefits to the SSA, in which case, an SSA-1042S would be issued with the final withholdings, where applicable, and the taxpayer would not otherwise have to file a US return if he/she has no other US-ECI and all the US taxes owed had been properly withheld.

In terms of treaty-position disclosure, I agree that none would be required so long as it is taken care of through income re-sourcing on F.1116, which must be computed separately and is excepted under §§301.6114-1(c).  The reason these exceptions exist is, in part, because there are corresponding information return filing requirements (e.g. F.8233 for dependent personal services, 1042-S for FDAP, etc.).  In the absence of these information returns, there would need to be proper disclosure somehow or it will likely trigger a tax notice from the IRS.

I tend to be in the conservative camp but would be happy to learn from you and others, provided there are solid technical citations for the alternative reporting position.
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Still an AllStar
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