Filing accurate 1120F/8833 with IRS for Canadian corproation

Tax Topics
1

Hi Everyone,

I’d appreciate if you could share your experience: how do you prepare the treaty based returns 1120F and 8833 for your Canadian corporation clients?

This is my first time preparing 1120/8833 to my direct client, so I want to avoid IRS penalties/interest for inaccurate completion.

I have seen other accounting firms, just updating the corporation information and the yes/no questions (tick boxes) in pages 2/3. and leaving all other sections that require numbers to be updated as is (blank).
For example Section I and Section II, Schedule C and Schedule J and Section III, Schedule L (balance sheet) are completely ignored.

When I asked, the answer was they never received a letter for IRS and their point is that there is no tax owing under the tax treaty position taken.

How about you? do you translate your client P&L and balance sheet from CAD to USD and update them in the relevant sections in 1120F?

2

May advise is if you don’t know what you are doing, you should stay away from US tax work. What you don’t know can get you real trouble. Make sure your professional liability insurance will cover you.

Nevertheless, the instructions for Form 1120-F say:

Treaty or Code exemption. If the corporation does not have any gross income for the tax year because it is claiming a treaty or Code exemption, it must still file Form 1120-F to show that the income was exempted by treaty or Code. In this case, the corporation should only complete the identifying information (including items A through G) at the top of page 1 of Form 1120-F and a statement that indicates the nature and amount of the exclusions claimed. In the case of a treaty exemption, the corporation may complete item W(1) on page 2 of Form 1120-F, which includes completing and attaching Form 8833, if required in lieu of attaching a statement. In the case of a Code exemption under section 883, the corporation must attach Schedule S (Form 1120-F) in lieu of attaching a statement.

1 Like
3

Great advice. If you don’t have an expertise dealing with any given situation, you could always refer the client to another firm that has more expertise. There isn’t any shame to it, heck, you’ll be saving time and money. I mean, why are you willing to spend countless time on research on something that you haven’t even dipped your toes in.

2 Likes
4

Thank you very much Andrew for the advice and the caution.

1 Like