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Form 8833 / Error code 409D

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Level 1

My client (German citizen / US permanent resident) receives German rental income. Since 2014 I claim an exemption with Form 8833 which always went through, even when paper filed and amended. This year it got rejected with the error code 409D. The info on the form is the same as every year. Does anybody have any insight what happened this year? Did I miss any changes to the double tax treaty? Thank you!

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Level 15

We're not implying.  We're saying you just can't in this particular case.

DTA helps alleviate double taxation but the mechanisms differ depending on the residency of the taxpayer, the type of income it is, and you need to refer to the specific article for the details.

A DTA usually confers to a treaty partner the primary right to tax an income.  For certain types of income, a treaty partner may be assigned the exclusive right.  In spite of these, the Saving Clause allows the US to tax US residents, citizens, and certain former citizens without regard to the DTA unless surgically excepted.  Under some DTAs, such as the one with Germany, certain income would need to be re-sourced for foreign tax credit purposes and this gets complicated.  While DTAs usually override the Code, it is not always the case; when there are conflicts, the last in time principle would generally apply.

As you can see, DTA is a very technical subject matter.  If you are not familiar with the international provisions or do not deal with this type of returns often, you may consider referring these to an experienced expat tax specialist instead.

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Still an AllStar

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6 Replies 6
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Level 15

Where in the US-German DTA did you find an exemption for German rental income?  That's not how the article is read, which means the returns you prepared in the past were, prima facie, incorrect.  You may like to re-read the article.

As for the code, I didn't realize it would actually show up as a rejection code because it is actually an error code for notices, which means "We can’t allow your tax treaty exemption. The treaty you claimed is not a valid tax treaty."

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Still an AllStar
Highlighted
Level 11

ARTICLE 6 of the US/German Tax Treaty
Income from Immovable (Real) Property
1. Income derived by a resident of a Contracting State [in your case, United States] from immovable (real) property (including income from agriculture or forestry) situated in the other Contracting State [in your case, Germany] may be taxed in that other State [Germany].

So your client should be paying tax to Germany on the rental income, then claiming a foreign tax credit on the U.S. return.  

Perhaps with all its furloughed employees, IRS assigned more of them to look at Forms 8833 this year.  It's like driving at Autobahn speeds on an American highway.  Not everyone gets caught, all the time. 

Your reference to a "double tax treaty" leaves us wondering what a "single tax treaty" would look like.  

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Level 15

@BobKamman wrote:
...It's like driving at Autobahn speeds on an American highway.  Not everyone gets caught, all the time...

Lol, the autobahn actually has speed limits imposed in lots of places these days and even got speed cameras, especially in and around cities.  Traffic tickets don't come cheap - preparers drivers beware.

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Still an AllStar
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Level 1

Well... I guess my mother tongue came through lol... It´s called a double tax treaty (Doppelbesteuerungsabkommen) in Germany because it is supposed to stop a double taxation of the same income.

So, are you implying I cannot use a Form 8833 for this scenario at all? Sorry if that´s a dumb question but that´s what I was taught to do for rental income and some types of US retirement income that also gets taxed in Germany (taxpayer would be a US citizen / German resident in that case).

Thanks for your help!

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Level 11

Yes, allowing you to do that was a Steuereintreiberfehler.  That provision of the treaty is not there for your benefit. It's Germany reserving the right to tax rental income, even when there might be an exception for other income earned by nonresidents.  The United States did not give up any right to tax the same income, but the Internal Revenue Code still allows the foreign tax credit, to avoid Doppelbesteuerung.  

You have been paying German taxes, nicht wahr?

Highlighted
Level 15

We're not implying.  We're saying you just can't in this particular case.

DTA helps alleviate double taxation but the mechanisms differ depending on the residency of the taxpayer, the type of income it is, and you need to refer to the specific article for the details.

A DTA usually confers to a treaty partner the primary right to tax an income.  For certain types of income, a treaty partner may be assigned the exclusive right.  In spite of these, the Saving Clause allows the US to tax US residents, citizens, and certain former citizens without regard to the DTA unless surgically excepted.  Under some DTAs, such as the one with Germany, certain income would need to be re-sourced for foreign tax credit purposes and this gets complicated.  While DTAs usually override the Code, it is not always the case; when there are conflicts, the last in time principle would generally apply.

As you can see, DTA is a very technical subject matter.  If you are not familiar with the international provisions or do not deal with this type of returns often, you may consider referring these to an experienced expat tax specialist instead.

---------------------------------------------------------------------------------
Still an AllStar

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