SECTION 2. BACKGROUND

.01 In general. Code sections 1441 and 3402 require the payor of compensation for personal services to withhold federal taxes on that income. Withholding is not required if the income is exempt under a U.S. income tax treaty.

.02 Many U.S. income tax treaties provide that a nonresident alien student, teacher, or researcher at a university or other educational institution in the United States who receives income for personal services is exempt from income tax if certain requirements are met. These requirements typically limit the number of years in which the nonresident alien can claim the exemption, and provide a maximum dollar amount for the exemption in a taxable year.

.03 To claim the exemption, a nonresident alien individual must submit Form 8233, Exemption From Withholding on Compensation for Independent (and Cer- tain Dependent) Personal Services of a Nonresident Alien Individual, to his withholding agent certifying that the income is exempt from tax under a U.S. treaty provision. Form 8233 must also set forth the conditions necessary for the exemption and representations that they have been met. A separate Form 8233 must be filed for each taxable year.

.04 Upon receipt of Form 8233, the withholding agent will not be liable for a failure to withhold unless it knows or has reason to know that the nonresident alien is not eligible for the treaty exemption. In general, a withholding agent may rely on a

July 18, 2005 110 2005–29 I.R.B.