RMD's paid in U.S. but taxed in foreign country (Italy) - taxpayer resident of Italy

[AthK104]

Does anyone know how to show distributions from IRA's exempt from U.S. tax - I do not see any box to check for non-taxability other than putting 0 as taxable.  That however will contradict with the form 1099R and I suppose I will have to add a statement explaining.

[Terry53029]

I believe the tax treaty with Italy says the pension is exempt from tax in Italy, but not exempt from US tax. I assume your client is a US citizen, and received a 1099R from his past employer in the US. Here is a link to the treaty.  chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.irs.gov/pub/irs-trty/italy.pdf

[AthK104]

Thank you for your answer and that was my initial thought, however, if you read item 1. and 2. of Article 18, it says that the pension is taxable in the contracting state that the individual is a resident in.  She is a resident of Italy now and so I believe that the pension is taxed in Italy and not taxed in the U.S.

1. Subject to the provisions of paragraph 2 of Article 19 (Government Service), pensions and other
similar remuneration beneficially derived by a resident of a Contracting State in consideration of past
employment shall be taxable only in that State.

2. Annuities beneficially derived by a resident of a Contracting State shall be taxable only in that
State. The term "annuities" as used in this paragraph means a stated sum paid periodically at stated times during life or during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (in money or money's worth).

[qbteachmt]

"will contradict with the form 1099R"

That's got nothing to do with anything.

The 1099-R is issued by the brokerage for money Out.

They don't know if your client rolled it, converted it, and they don't know your client's tax reporting details. They only know one thing: A distribution occurred.

[qbteachmt]

An IRA is neither a pension nor an annuity. It's a tax-favored savings arrangement. Does this help:

https://www.bogleheads.org/forum/viewtopic.php?t=420702

[Terry53029]

I had not actually read the treaty, but if you are reading it correctly it seems to be taxable only in Italy. I would fill out the 1099R as received, then back it out on schedule 1 with a negative amount, and type "Italy treaty". I would also fill out form 8833 (you will have to attach it as a pdf). But be sure an IRA qualifies, as @qbteachmt said an IRA is not a pension

[Terry53029]

found this that may help. link: https://www.expatforum.com/threads/living-in-italy-please-help-with-us-ira-account-question.1538097/

 In a landmark ruling issued in January 2023, the Italian Supreme Court (Corte di Cassazione) held that US Individual Retirement Accounts (IRAs) are exempt from Italian taxation on any gains. This is a significant victory for US citizens who are residents of Italy, as it will help to avoid double taxation on their IRAs.

The ruling was based on a 1999 US-Italy tax treaty, which provides that US citizens who are residents of Italy are not subject to Italian taxation on income from US sources, including income from IRAs. The Italian tax authorities had argued that this exemption did not apply to IRAs, but the Supreme Court disagreed.
The Supreme Court's ruling is a positive development for US citizens who are residents of Italy. It will help to reduce the burden of double taxation, and it will make it more attractive for US citizens to live and work in Italy.
Here are some of the key takeaways from the Supreme Court's ruling:

• US citizens who are residents of Italy are not subject to Italian taxation on any gains in their US IRAs.
• This exemption applies to both traditional and Roth IRAs.
• The exemption is based on the 1999 US-Italy tax treaty.
• The Italian tax authorities cannot override the provisions of the tax treaty.

If you are a US citizen who is a resident of Italy, you should consult with a tax professional to discuss how the Supreme Court's ruling affects you."

[Terry53029]

Your client may also be interested in this. 

https://accountingbolla.com/blog/income-tax/italy-7-flat-tax-for-pensioners/#:~:text=In%20order%20to....