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Return rejected by Taxing Authority due to Treaty Article

Yushan
Level 2

I tried to efile 1040NR with tax treaty 20(c), but the return was rejected by taxing authority. The reason is the following. 

This return could not be processed for e-filing due to incorrect or missing information. Review the information that appears on Form 1040NR Schedule OI, Section L. The treaty article must match exactly what the IRS requires. 

My treaty article is 20(c). I also tried many times for efiling, but all failed.  What should I do to solve this problem?    

 Thanks.

  

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12 Replies 12
itonewbie
Level 15

Did you check the diagnostic?

Are you trying to claim exemption for students and trainees?  If so, is the income in excess of the limit?

Posting a redacted screenshot of Line L may help us pinpoint the problem.

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Still an AllStar
Yushan
Level 2

Hi Itonewbie, 

Yes.  I'm trying to claim exemption for F-1 visa students. I think there is no any income limitation for students coming from China. Is it correct? In addition, 2019 is the first year for applying treaty. 

Thanks for your help! 

 
 
 

1.jpg

itonewbie
Level 15

Assuming the student had certified his eligibility for treaty exemption with the school, a 1042-S would have been issued with code 20 in place of a W-2 and the income should not be reportable on Line 8 but just needs to be disclosed on Line 22 (in conjunction with Item L).  This would mean the last column for Item L should be left blank.

You would only offset Line 8 if the employer reported the income on a W-2 (likely because the student failed or was late to submit the required certification), in which case, the student will need to offset that income and ascertain the eligibility now.

The US-China DTA does impose a limit of $5,000 on the exemption under Article 20(c).

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Still an AllStar
BobKamman
Level 14

Try just Article 20.   The "c" is not a separate section or paragraph, it's just one of a laundry list in the same sentence.

I was going to suggest Article XX, because many of these tax treaties use Roman numerals, but apparently the Chinese are more comfortable with Arabs than Italians.  

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itonewbie
Level 15

Article 20(c) of the US-China DTA is not just a paragraph.  It is a special clause for a particular type of income that is subject to its specific conditions.  For other provisions, I would agree with you but not for this.

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Still an AllStar
BobKamman
Level 14

Judge for yourself

ARTICLE 20
(Students and Trainees)
A student, business apprentice or trainee who is, or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first- mentioned Contracting State solely for the purpose of his education, training or obtaining special technical experience shall be exempt from tax in that Contracting State with respect to:
(a) payments received from abroad for the purpose of his maintenance, education, study, research
or training;
(b) grants or awards from a government, scientific, educational or other tax-exempt organization;
and
(c) income from personal services performed in that Contracting State in an amount not in excess
of 5,000 United States dollars or its equivalent in Chinese yuan for any taxable year.
The benefits provided under this Article shall extend only for such period of time as is reasonably
necessary to complete the education or training.

https://www.irs.gov/pub/irs-trty/china.pdf

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itonewbie
Level 15

Exactly as I said... nothing new.

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Still an AllStar
itonewbie
Level 15

PS does not provide for a dropdown but many tax products do, so they do expect you to pick the specific clauses where special conditions apply, like in the case of Article 20(c) for China - there would not even be an option for Article 20.  This is also consistent with how Pub 4011 describes the various articles that include specific conditions.

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Still an AllStar
brian_hoboken
Level 1

@Yushan Did you ever figure out the solution to this problem?  I have the same issue.  It is even more obvious as it is Article 18.

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LYFandTAXES
Level 1

Not sure why it is so hard for someone to give a straight answer here, but I hope this helps:

  1. Open the Form 1040NR (the return must be open before proceeding to step 2)
  2. In the "Ask Proseries or Search Help" search window, type in "tax treaty articles by country" and click search.
  3. This search should return a link to a document titled: TAX TREATY ARTICLES BY COUNTRY
  4. In this document, you will find the exact data (article number) that you need to enter.
  5. I suggest that you also print this document for future reference.
brianalanlang
Level 2

This is ACTUALLY helpful unlike most of the other posts by people with way too much spare time.  Thank you for this.

LYFandTAXES
Level 1

I know what you mean. Ha Ha!  ...people just going off on tangents. 

But anyway, so glad this helped you 😀

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