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 ā€œnonresident aliensā€ engaged in a ā€œtrade or businessā€.  ā€œForeign estateā€ if no ā€œtrade 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 ā€œforeign personā€ per 26 C.F.R. §301.6109-1(g)(1)(i)) Filing 1040 (changes status of SSN to ā€œU.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 ā€œcitizen**+D of the United Statesā€ and SSN/TIN)
11 Withholding form to use Form W-8 (modified because not a statutory ā€œindividualā€ or ā€œalienā€) Modified W-9 (modified to define ā€œU.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 ā€œsources 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 ā€œcitizen of the United Statesā€ under 8 U.S.C. §1401? No Yes
15 A ā€œnational of the United States***ā€ Yes, in the case of those born and domiciled in a Constitutional state of the Union. No
16 A ā€œa 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 ā€œnonresident 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 ā€œindividualā€ or ā€œpersonā€? Yes.  See 26 U.S.C. §873(b)(4) in the case of ā€œnationalsā€ 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 ā€œqualified 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 ā€œgross incomeā€ subject to tax Only earnings from the statutory geographical ā€œUnited Statesā€ in 26 U.S.C. §7701(a)(9) and (a)(10) and 4 U.S.C. §110(d).  Collectively called ā€œthe federal zoneā€ or connected to a ā€œtrade 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 ā€œgross incomeā€ Only in the case of ā€œeffectively 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 ā€œtrade 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 ā€œU.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: ā€œTo 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 ā€œemploymentā€ within the ā€œUnited Statesā€ not subject to reporting or withholding None if:
1.  Not connected with a ā€œtrade or businessā€ or not ā€œwagesā€ (no W-4). 26 C.F.R. §31.3401(a)(6)-1
2.  Working for a foreign employer not engaged in a ā€œtrade 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 ā€œtrade 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 ā€œeffectively 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 ā€œreportable paymentsā€ under 26 U.S.C. §3406(b) connected to the ā€œtrade 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.

  1. Up until 1920, the only tax return form available for individuals to file was the 1040.
  2. 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.
  3. 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.
  4. ā€œU.S. Personā€ was first added to the Internal Revenue Code in in 1965 through Public Law 87-834, 76 Stat. 988, Section 7(h).
  5. 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:

  1. Nonresident Alien Position Course, Form #12.045
    https://sedm.org/LibertyU/NRA.pdf
  2. “U.S. Person Position”, Form #05.053 (OFFSITE LINK)
    https://sedm.org/Forms/05-MemLaw/USPersonPosition.pdf