Evolution of 1040->1040NR
Below is a tabular comparison of the Nonresident Alien Position (1040NR) to the U.S. Person Position (1040):
Table 1: Nonresident Alien Position v. U.S. Person Position
# | Characteristic | Nonresident Alien Position | U.S. Person Position |
1 | Parties made liable | ānonresident aliensā engaged in a ātrade or businessā. āForeign estateā if no ātrade or businessā earnings per 26 U.S.C. §7701(a)(31) | Citizens of the United States** (federal zone) Residents of the United States** (federal zone) |
2 | Geographical area where it applies | States of the Union | Federal territory |
3 | Status established by | Filing 1040NR (changes status of SSN to āforeign personā per 26 C.F.R. §301.6109-1(g)(1)(i)) | Filing 1040 (changes status of SSN to āU.S. personā per 26 C.F.R. §301.6109-1(g)(1)(i)) |
4 | Popular among | Private humans | Those practicing law who are worried about losing their license |
5 | Amount of education/confrontation with withholding agents | High | Low |
6 | Allows for substitute forms in the regulations? | Yes | Yes |
7 | Citizenship of those who use it | POLITICAL citizens* | CIVIL/DOMICILED citizens**+D |
8 | Complexity | Very complex | Very simple |
9 | Requires modification of forms or defining terms to properly use for state domiciled parties? | Yes | Yes |
10 | Requires accepting a civil privilege? | No | Yes (CIVIL/DOMICILED ācitizen**+D of the United Statesā and SSN/TIN) |
11 | Withholding form to use | Form W-8 (modified because not a statutory āindividualā or āalienā) | Modified W-9 (modified to define āU.S.ā to exclude that in 26 U.S.C. §7701(a)(9) and (a)(10)). DO NOT use W-4! |
12 | Tax Return Form | 1. Form 1040NR modified or with attachment. 2. No tax return required if not engaged in a public office and no income from āsources within the United States**ā (federal zone) |
1040 modified or custom form |
13 | Subject to information return reporting? (See Form #04.001) | No | No |
14 | A STATUTORY ācitizen of the United Statesā under 8 U.S.C. §1401? | No | Yes |
15 | A ānational of the United States***ā | Yes, in the case of those born and domiciled in a Constitutional state of the Union. | No |
16 | A āa person who, though not a citizen of the United States, owes permanent allegiance to the United Statesā per 8 U.S.C. §1101(a)(22)(B) | Yes, in the case of those born and domiciled in a U.S. possession | No |
17 | A STATUTORY ānonresident alienā? | 1. No for those not engaged in a public office. 2. Yes for those lawfully engaged in a public office. |
No |
18 | A STATUTORY āindividualā or āpersonā? | Yes. See 26 U.S.C. §873(b)(4) in the case of ānationalsā and 26 C.F.R. §1.1441-1(c)(3) in the case of aliens | Yes, but only when abroad per 26 U.S.C. §911(d)(1) as a āqualified individualā |
19 | Domiciled on federal territory? | No | Yes |
20 | Required to Use SSN or TIN on withholding documents? | No. 31 C.F.R. §306.10, Note 2, 31 C.F.R. §1020.410(b)(3)(x), 26 C.F.R. §301.6109-1(b)(2) | Yes. 26 C.F.R. §1.1441-1, 26 C.F.R. §301.6109-1(b)(1) |
21 | āgross incomeā subject to tax | Only earnings from the statutory geographical āUnited Statesā in 26 U.S.C. §7701(a)(9) and (a)(10) and 4 U.S.C. §110(d). Collectively called āthe federal zoneā or connected to a ātrade or businessā worldwide. See 26 U.S.C. §871. | Worldwide earnings. See: 1. Cook v. Tait, 265 U.S. 47 (1924). 2. 26 C.F.R. §1.1-1(b). |
22 | Deductions and exemptions on āgross incomeā | Only in the case of āeffectively connected incomeā pursuant to 26 U.S.C. §871(b), 26 U.S.C. §873, and 26 U.S.C. §162. | 1. All earnings subject to deductions (because EVERYTHING earned is ātrade or businessā pursuant to 26 C.F.R. §1.1-1(b)) 2. Foreign earned income exclusion if abroad under 26 U.S.C. §911(b)(2). |
23 | Examples of U.S. sourced payments subject to withholding and reporting | 1. Social Security (26 U.S.C. §861(a)(8) ) 2. Federal employee/office earnings. 3. Federal Pensions. 4. Earnings from federal corporations including āU.S. Incā (see Brushaber v. Union Pacific Railroad, 240 U.S. 1 (1916) |
None. See: 1. 26 U.S.C. §1441(d)(1). 2. Treasury Decision (T.D.) 8734: āTo the extent withholding is required under chapter 3 of the Code, or is excused based on documentation that must be provided, none of the information reporting provisions under chapter 61 of the Code apply, nor do the provisions under section 3406.” [Treasury Decision 8734, 62 F.R. 53391, (October 14, 1997); SEDM Exhibit #09.038] |
24 | Income from āemploymentā within the āUnited Statesā not subject to reporting or withholding | None if: 1. Not connected with a ātrade or businessā or not āwagesā (no W-4). 26 C.F.R. §31.3401(a)(6)-1 2. Working for a foreign employer not engaged in a ātrade or businessā. 26 U.S.C. §864(b)(1). |
Everything (see 26 U.S.C. §1441(d)(1) and T.D. 8734 in previous item) |
25 | Required to use a Social Security Number? | Only if engaged in a ātrade or businessā, or filing as a resident alien. See 26 C.F.R. §301.6109-1(b)(2). | Always. 26 C.F.R. §301.6109-1(b)(1). |
26 | Subject to Affordable Care Act?[1] | No | Yes |
27 | Subject to FATCA reporting?[2] | No | Yes |
28 | Can take deductions on tax return? | Only on earnings āeffectively connected with a trade or businessā under 26 U.S.C. §162. | Yes (for EVERYTHING on return) |
29 | Tax imposed by |
26 U.S.C. §871 Tax on Nonresident alien individuals 26 U.S.C. §872 Gross Income 26 U.S.C. §873 Deductions |
26 U.S.C. §1 Tax imposed 26 U.S.C. §61 Gross income defined 26 U.S.C. §861 Income from sources within the United States 26 U.S.C. §862 Income from sources without the United States |
30 | Status defined in | 26 U.S.C. §7701(b)(1)(B) | 26 U.S.C. §7701(a)(30) |
31 | Subject to backup withholding? | Only in the case of āreportable paymentsā under 26 U.S.C. §3406(b) connected to the ātrade or businessā franchise. | No |
FOOTNOTES:
[1] See: Patient Protection and Affordable Care Act, Wikipedia; https://en.wikipedia.org/wiki/Patient_Protection_and_Affordable_Care_Act
[2] See: Foreign Account Tax Compliance Act (FATCA), IRS; https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca.
“U.S. person” status under 26 U.S.C. §7701(a)(30) is a DOMESTIC status. “nonresident alien” is a FOREIGN status. Below is the shortest possible description of the evolution of the 1040 and 1040NR forms.
- Up until 1920, the only tax return form available for individuals to file was the 1040.
- In 1921, the IRS added a block to the 1040 return that asked “Are you a citizen or resident of the United States”? This allowed the form to also be filed by nonresident aliens, who simply did not check the box.
- In 1967 the first 1040NR return was published. This caused the 1040 return to only be used by “U.S. persons”. The question on the 1040 return “Are you a citizen or resident of the United States” was also removed that year.
- āU.S. Personā was first added to the Internal Revenue Code in in 1965 through Public Law 87-834, 76 Stat. 988, Section 7(h).
- Today:
5.1. “U.S. person” is defined at I.R.C. 7701(a)(30). This is the DOMESTIC tax status.
5.2. “Nonresident Alien” is described but not defined at I.R.C. 7701(b)(1)(B). This is the FOREIGN tax status.
The evolution of the foreign tax status described on this site through the filing of the 1040NR return is described in the following article:
Tax Return History: Citizenship, Family Guardian Fellowship-Ā complete history about how American Nationals in the states were deceived into filing the WRONG tax form: the 1040. The correct form is the 1040NR.
https://famguardian.org/Subjects/Taxes/Citizenship/TaxReturnHistory-Citizenship/TaxReturnHistory-Citizenship.htm
You can find more information on the history of the 1040NR form by looking at older versions at:
Prior Year ProductsĀ (OFFSITE LINK) -Internal Revenue Service. You can look at all the old tax returns here and document their evolution over time.
https://apps.irs.gov/app/picklist/list/priorFormPublication.html
For further details of the two major statuses documented here, see:
-
Nonresident Alien Position Course, Form #12.045
https://sedm.org/LibertyU/NRA.pdf -
“U.S. Person Position”, Form #05.053 (OFFSITE LINK)
https://sedm.org/Forms/05-MemLaw/USPersonPosition.pdf