Taxpayers are required to make disclosures by attaching a statement to their tax returns. The information required in the statement includes the taxpayer's employer identification number, the taxpayer's tax identification number, and the facts relied upon by the taxpayer. A taxpayer may be considered to adopt a return position whether or not a return is actually filed. A return position is a treaty-based return position even if the IRC expressly provides that a taxpayer may rely on a treaty provision in order to override a specific IRC provision. In addition, a return position is a treaty-based return position unless the taxpayer's conclusion that no disclosure is required has substantial probability of success if challenged.
Taxpayer is a foreign corporation with a U.S. trade or business.
In the absence of a treaty, taxpayer would be subject to U.S. tax on the income effectively connected with the U.S. trade or business. However, under the terms of the treaty between the U.S. and the country in which taxpayer is resident, if the taxpayer does not maintain a permanent establishment in the U.S., the taxpayer is not subject to U.S. tax on a net basis on the U.S. trade or business income. The taxpayer's reliance on the permanent establishment clause of the treaty is a treaty-based return position that must be disclosed on the taxpayer's return. In general, a treaty-based return position is subject to the disclosure requirements unless it is specifically excluded by the regulations. For example, the regulations exclude from the disclosure requirements a return position for which a treaty provides a reduced rate of withholding tax on certain types of passive income, such as dividends, interests, rents, or royalties.