Question

With respect to tax treaties, which of the following statements is false?

1) The United States may sign a tax treaty with foreign countries.
2) Treaties may override a Code Section when in conflict.
3) Tax treaties are sometimes called tax conventions.
4) The taxpayer must disclose on the tax return any position where a treaty overrides a tax law.
5) The Code overrides the treaty when in conflict.

Answer 1

The false statement is 'The Code overrides the treaty when in conflict.' In reality, tax treaties, or tax conventions, take precedence over the Internal Revenue Code when there is a conflict between the two.

Step-by-step explanation:

Regarding tax treaties, the false statement among the ones provided is that 'The Code overrides the treaty when in conflict'. In actuality, the Supremacy Clause of the United States Constitution provides that federal treaties constitute the supreme law of the land, and they take precedence over conflicting state laws or even federal laws contained within the Internal Revenue Code (IRC). Therefore, if there is a direct conflict between a provision of a tax treaty and a provision of the IRC, the treaty provision would generally prevail.

Taxpayers are indeed required by law to disclose on their tax returns any positions taken that are based on treaty benefits when those benefits would override the IRC. Internationally, tax treaties can also be referred to as tax conventions, and they serve to prevent double taxation and fiscal evasion, and promote cooperation between two countries in tax matters.