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

#CharacteristicNonresident Alien PositionU.S. Person Position
1Parties made liable“nonresident aliens” engaged in a “trade or business”.  “Foreign estate” if no “trade or business” earnings per 26 U.S.C. §7701(a)(31)Citizens of the United States** (federal zone) Residents of the United States** (federal zone)
2Geographical area where it appliesStates of the UnionFederal territory
3Status established byFiling 1040NR (changes status of SSN to “foreign person” per 26 C.F.R. §301.6109-1(g)(1)(i))Filing 1040 (changes status of SSN to “U.S. person” per 26 C.F.R. §301.6109-1(g)(1)(i))
4Popular amongPrivate humansThose practicing law who are worried about losing their license
5Amount of education/confrontation with withholding agentsHighLow
6Allows for substitute forms in the regulations?YesYes
7Citizenship of those who use itPOLITICAL citizens*CIVIL/DOMICILED citizens**+D
8ComplexityVery complexVery simple
9Requires modification of forms or defining terms to properly use for state domiciled parties?YesYes
10Requires accepting a civil privilege?NoYes (CIVIL/DOMICILED “citizen**+D of the United States” and SSN/TIN)
11Withholding form to useForm W-8 (modified because not a statutory “individual” or “alien”)Modified W-9 (modified to define “U.S.” to exclude that in 26 U.S.C. §7701(a)(9) and (a)(10)).  DO NOT use W-4!
12Tax Return Form1. Form 1040NR modified or with attachment. 
2.  No tax return required if not engaged in a public office and no income from “sources within the United States**” (federal zone)		1040 modified or custom form
13Subject to information return reporting?  (See Form #04.001)NoNo
14A STATUTORY “citizen of the United States” under 8 U.S.C. §1401?NoYes
15A “national of the United States***”Yes, in the case of those born and domiciled in a Constitutional state of the Union.No
16A “a person who, though not a citizen of the United States, owes permanent allegiance to the United States” per 8 U.S.C. §1101(a)(22)(B)Yes, in the case of those born and domiciled in a U.S. possessionNo
17A STATUTORY “nonresident alien”?1. No for those not engaged in a public office.
2. Yes for those lawfully engaged in a public office.		No
18A STATUTORY “individual” or “person”?Yes.  See 26 U.S.C. §873(b)(4) in the case of “nationals” and 26 C.F.R. §1.1441-1(c)(3) in the case of aliensYes, but only when abroad per 26 U.S.C. §911(d)(1) as a “qualified individual”
19Domiciled on federal territory?NoYes
20Required 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“gross income” subject to taxOnly earnings from the statutory geographical “United States” in 26 U.S.C. §7701(a)(9) and (a)(10) and 4 U.S.C. §110(d).  Collectively called “the federal zone” or connected to a “trade or business” 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).
22Deductions and exemptions on “gross income”Only in the case of “effectively connected income” 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 “trade or business” 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).
23Examples of U.S. sourced payments subject to withholding and reporting1.  Social Security (26 U.S.C. §861(a)(8) )
2.  Federal employee/office earnings.
3.  Federal Pensions.
4.  Earnings from federal corporations including “U.S. Inc” (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: “To 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]
24Income from “employment” within the “United States” not subject to reporting or withholdingNone if:
1.  Not connected with a “trade or business” or not “wages” (no W-4). 26 C.F.R. §31.3401(a)(6)-1
2.  Working for a foreign employer not engaged in a “trade or business”.  26 U.S.C. §864(b)(1).		Everything (see 26 U.S.C. §1441(d)(1) and T.D. 8734 in previous item)
25Required to use a Social Security Number?Only if engaged in a “trade or business”, 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).
26Subject to Affordable Care Act?[1]NoYes
27Subject to FATCA reporting?[2]NoYes
28Can take deductions on tax return?Only on earnings “effectively connected with a trade or business” under 26 U.S.C. §162.Yes (for EVERYTHING on return)
29Tax imposed by26 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
30Status defined in26 U.S.C. §7701(b)(1)(B)26 U.S.C. §7701(a)(30)
31Subject to backup withholding?Only in the case of “reportable payments” under 26 U.S.C. §3406(b) connected to the “trade or business” 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. “U.S. Person” 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- 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 Products (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