PROCEDURES FOR WITHHOLDING AGENTS TO ENSURE THAT FOREIGN STUDENTS ARE ENTITLED TO EXEMPTION FROM INCOME TAX AND WAGE WITHHOLDING.

Rev. Proc. 87-8

SECTION 1. PURPOSE

Alien students at United States universities and other educational institutions who receive compensation for services performed for a limited time are exempt from United States income tax on such compensation if an applicable tax treaty so provides and if the requirements of the treaty are met. These requirements include a maximum dollar amount per taxable year for which an exemption may be claimed. The purpose of this revenue procedure is to inform withholding agents what information they must obtain in order to rely on an alien's claim for exemption from withholding under an income tax treaty to which the United States is a party.

This revenue procedure is intended to describe the circumstances under which a withholding agent may ensure that he will not be liable for failure to withhold and pay over federal tax on compensation paid to an alien student. It is not intended to prescribe conditions under which an alien is eligible for a treaty exemption. An alien's eligibility for a treaty exemption is a factual question to be determined under the circumstances of each case.

SEC. 2. SCOPE

This revenue procedure applies to student's exemptions claimed under the indicated articles of the tax treaties between the United States and the following countries:

Belgium (Article 21)

In general, if a nonresident alien student supplies to the payor of compensation for services the information prescribed in section 5 of this revenue procedure in the form prescribed in section 4 of this revenue procedure, the payor will not be liable as a withholding agent under either section 1441 or section 3402 of the Internal Revenue Code for failure to withhold and pay over federal income tax on compensation for such services. This rule will not apply if the payor actually knows or reasonably should know that the alien is not eligible for the treaty exemption, as discussed in section 6 of this revenue procedure.

SEC. 4. FORM TO BE SUBMITTED

Sections 1441 and 3402 of the Code require the payor of compensation for personal services to withhold and pay over federal taxes on such payments. Section 894 provides that, to the extent required by any treaty obligation of the United States, income of any kind shall not be included in gross income and shall be exempt from taxation.

Aliens receiving compensation claimed to be exempt under a treaty must inform the payor of the grounds for their claim by submitting Form 8233 (in duplicate if the compensation is wages). The Form 8233 must contain sufficient facts to justify the claim for exemption. A separate Form 8233 must be filed for each taxable year.

To meet the requirements of this revenue procedure, the alien must file Form 8233 completed in accordance with the instructions to that form. The form 8233 must contain the specific representations described in section 5 of this revenue procedure for the country under whose treaty the alien claims exemption.

SEC. 5. STATEMENTS REQUIRED IN FORM 8233

01 IN GENERAL. The subsections of this section list the statements that must be contained in Form 8233 for exemptions claimed under each treaty article listed in section 2. Where more than one country is listed in the heading of a subsection, the requirements of that subsection are identical for each country listed.

For most treaties, the alien must make representations about the date of his arrival in the United States. In many cases, whether the alien meets the residency and time limitations of the treaty is determined with reference to this date. In this revenue procedure, the date of the alien's arrival in the United States means the date of his last arrival in the United States before beginning study at a United States university or other educational institution.

02 BELGIUM, ICELAND, JAPAN, KOREA, NORWAY, POLAND, AND ROMANIA.

1. I was a resident of _______ [insert the name of the country under whose treaty the alien claims exemption] on the date of my arrival in the United States. I am not a United States citizen. I have not been lawfully accorded the privilege of residing permanently in the United States as an immigrant.

2. I am temporarily present in the United States for the primary purpose of studying at ______ [insert the name of the university or other recognized educational institution at which the alien studies].

3. I will receive compensation for personal services performed in the United States. This compensation qualifies for exemption from withholding of federal income tax under the tax treaty between the United States and _______ [insert the name of the country under whose treaty the alien claims exemption] in an amount not in excess of $2000 for any taxable year. I have not previously claimed an income tax exemption under this treaty for income received as a teacher, researcher, or student before the date of my arrival in the United States.

4. I will be present in the United States only for such period of time as may be reasonably or customarily required to effectuate the purpose of this visit.

5. I arrived in the United States on _________ [insert the date of the alien's last arrival in the United States before beginning study at the United States educational institution]. The treaty exemption is available only for compensation paid during a period of five taxable years beginning with the taxable year that includes my arrival date.

03 FINLAND, FRANCE, NETHERLANDS, AND TRINIDAD AND TOBAGO.

1. I was a resident of ______ [insert the name of the country under whose treaty the alien claims exemption] on the date of my arrival in the United States. I am not a United States citizen. I have not been lawfully accorded the privilege of residing permanently in the United States as an immigrant.

2. I am temporarily present in the United States for the primary purpose of studying at ______ [insert the name of the university or other accredited educational institution at which the alien studies].

3. I will receive compensation for personal services performed in the United States. This compensation qualifies for exemption from withholding of federal income tax under the tax treaty between the United States and ______ [insert the name of the country under whose treaty the alien claims exemption] in an amount not in excess of $2000 for any taxable year. I have not previously claimed an income tax exemption under this treaty for income received as a teacher, researcher, or student before the date of my arrival in the United States.

4. I will be present in the United States only for such period of time as may be reasonably or customarily required to effectuate the purpose of this visit.

5. I arrived in the United States on _______ [insert the date of the alien's last arrival in the United States before beginning study at the United States educational institution]. The treaty exemption is available only for compensation paid during a period of five years [sic] taxable years.

04 Peoples Republic of China.

1. I was a resident of the Peoples Republic of China on the date of my arrival in the United States. I am not a United States citizen. I have not been lawfully accorded the privilege of residing permanently in the United States as an immigrant.

2. I am present in the United States solely for the purpose of my education or training.

3. I will receive compensation for personal services performed in the United States. This compensation qualifies for exemption from withholding of federal income tax under the tax treaty between the United States and the Peoples Republic of China in an amount not in excess of $5000 for any taxable year.

4. I arrived in the United States on _____ [insert the date of the alien's last arrival in the United States before beginning study or training]. I am claiming this exemption only for such period of time as is reasonably necessary to complete the education or training.

05 Cyprus.

1. I was a resident of Cyprus on the date of my arrival in the United States. I am not a United States citizen. I have not been lawfully accorded the privilege of residing permanently in the United States as an immigrant.

2. I am temporarily present in the United states for the primary purpose of studying at ______ [insert the name of the university or other recognized educational institution at which the alien studies].

3. I will receive compensation for personal services performed in the United States. This compensation qualifies for exemption from withholding of federal income tax under the tax treaty between the United States and Cyprus in an amount not in excess of $5000 for any taxable year. I have not previously claimed an income tax exemption under that treaty for income received as a student before the date of my arrival in the United States.

4. I arrived in the United States on _______ [insert the date of the alien's last arrival in the United States before beginning study at the United States educational institution]. The treaty exemption is available only for compensation paid during a period of five taxable years beginning with the taxable year that includes my arrival date, and for such additional period of time as is necessary to complete, as a full-time student, educational requirements as a candidate for a postgraduate or professional degree from a recognized educational institution.

06 Egypt.

1. I was a resident of Egypt on the date of my arrival in the United States. I am not a United States citizen. I have not been lawfully accorded the privilege of residing permanently in the United States as an immigrant.

2. I am temporarily present in the United States for the primary purpose of studying at _____ [insert the name of the university or other recognized educational institution at which the alien studies].

3. I will receive compensation for personal services performed in the United States. This compensation qualifies for exemption from withholding of federal income tax under the tax treaty between the United States and Egypt in an amount not in excess of $3000 for any taxable year. I have not previously claimed an income tax exemption under that treaty for income received as a teacher, researcher, or student before the date of my arrival in the United States.

4. I will be present in the United States only for such period of time as may be reasonably or customarily required to effectuate the purpose of this visit.

5. I arrived in the United States on _______ [insert the date of the alien's last arrival in the United States before beginning study at the United States educational institution]. The treaty exemption is available only for compensation paid during a period of five taxable years beginning with the taxable year that includes my arrival date, and for such period of time as is necessary to complete, as a full-time student, educational requirements as a candidate for a postgraduate or professional degree from a recognized educational institution.

07 Morocco.

1. I was a resident of Morocco on the date of my arrival in the United States. I am not a United States citizen. I have not been lawfully accorded the privilege of residing permanently in the United States as an immigrant.

2. I am temporarily present in the United States for the primary purpose of studying at _______ [insert the name of the university or other recognized educational institution at which the alien studies].

3. I will receive compensation for personal services performed in the United States. This compensation qualifies for exemption from withholding of federal income tax under the tax treaty between the United States and Morocco in an amount not in excess of $2000 for any taxable year. I have not previously claimed an income tax exemption under that treaty for income received as a student before the date of my arrival in the United States.

4. I arrived in the United States on ______ [insert the date of the alien's last arrival in the United States before beginning study at the United States educational institution]. The treaty exemption is available only for compensation paid during a period of five taxable years, beginning with the taxable year that includes my arrival date.

08 Pakistan.

1. I am a resident of Pakistan. I am not a United States citizen. I have not been lawfully accorded the privilege of residing permanently in the United States as an immigrant.

2. I am temporarily present in the United States solely as a student at _____ [insert the name of the recognized university, college or school in the United States at which the alien studies].

3. I will receive compensation for personal services performed in the United States. This compensation qualifies for exemption from withholding of federal income tax under the tax treaty between the United States and Pakistan in an amount not in excess of $5000 for any taxable year.

09 Philippines.

1. I was a resident of the Phillippines on the date of my arrival in the United States. I am not a United States citizen. I have not been lawfully accorded the privilege of residing permanently in the United States as an immigrant.

2. I am temporarily present in the United States for the primary purpose of studying at _____ [insert the name of the university or other recognized educational institution at which the alien studies].

3. I will receive compensation for personal services performed in the United States. This compensation qualifies for exemption from withholding of federal income tax under the tax treaty between the United States and the Phillippines in an amount not in excess of $3000 for any taxable year. I have not previously claimed an income tax exemption under the treaty for income received as a teacher, researcher, or student before the date of my arrival in the United States.

4. I will be present in the United States only for such period of time as may be reasonably or customarily required to effectuate the purpose of this visit.

5. I arrived in the United States on _______ [insert the date of the alien's last arrival in the United States before beginning study at the United States educational institution]. The treaty exemption is available only for compensation paid during a period of five taxable years beginning with the taxable year that includes my arrival date.

SEC. 6. EXCEPTION FOR KNOWLEDGE OF CONTRARY FACTS

In general, a withholding agent may rely on a Form 8233 that is completed in accordance with sections 4 and 5 of this revenue procedure. Such reliance is not reasonable, however, and the protection afforded by section 3 of this revenue procedure will not apply, if the agent actually knows that the alien is not eligible for the treaty exemption or actually knows or reasonably should know that a statement made by the alien on Form 8233 is false for any part of the period during which the alien claims the exemption. For example, if an alien claims an exemption for a period of time, or for an amount, in excess of that prescribed in section 5 for the applicable treaty, reliance on this revenue procedure would be unreasonable.

SEC. 7. PRIVATE RULINGS

This revenue procedure is intended to provide clear rules for aliens and withholding agents on how to ensure that the payor of compensation to an alien student claiming exemption from tax under a treaty will not be liable for failure to withhold and pay over tax on such compensation. Therefore, the Internal Revenue Service will no longer issue rulings on whether compensation paid to an alien student for services performed in the United States is exempt from withholding and from federal income taxes under the terms of one of the treaties listed in section 2 of this revenue procedure, if the alien can truthfully make the representations required by this revenue procedure for the treaty under which he claims exemption.