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 | Foreign Tax Status | Domestic Tax Status |
| 1 | Described in what form #? | Form #09.081 Form #05.020 Form #12.045 | Form #05.053 |
| 2 | Parties tax imposed on but never made liable. (See Form #08.024 for proof it’s voluntary) | “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 StatesSMJ Residents of the United StatesSMJ |
| 3 | Geographical area where it applies | 1. Worldwide for 26 U.S.C. §871(b) “trade or business” earnings upon GROSS RECEIPTS. 2. Geographical “United StatesG ” upon PROFIT under 26 U.S.C. §871(a). | Worldwide but parties are domiciled on federal territory. “Taxpayer” office and “officer” have two different domiciles. |
| 4 | Status established by | Filing 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)) |
| 5 | Popular among | Private humans | Those practicing law who are worried about losing their license |
| 6 | Amount of education/confrontation with withholding agents | High | Low |
| 7 | Allows for substitute forms in the regulations? | Yes | Yes |
| 8 | Citizenship of those who use it | POLITICAL citizens* | CIVIL/DOMICILED citizens**+D |
| 9 | Complexity | Very complex | Very simple |
| 10 | Requires modification of forms or defining terms to properly use for state domiciled parties? | Yes | Yes |
| 11 | Requires accepting a civil privilege? | No | Yes (CIVIL/DOMICILED “citizen**+D of the United StatesSMJ” and SSN/TIN) |
| 12 | Withholding form to use | Form 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! |
| 13 | 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 “sources within the United StatesSMJ” | 1040 modified or custom form |
| 14 | Subject to information return reporting? (See Form #04.001) | No | No |
| 15 | A “citizen of the United StatesG” under 8 U.S.C. §1401? | Yes | Yes |
| 16 | A “national of the United StatesG” | Yes, in the case of those born and domiciled in a Constitutional state of the Union. | No |
| 17 | A “a person who, though not a citizen of the United StatesP, owes permanent allegiance to the United StatesP” per 8 U.S.C. §1101(a)(22)(B) | Yes, in the case of those born and domiciled in a U.S. possession | No |
| 18 | A STATUTORY “nonresident alien”? | 1. No for those not engaged in a public office. 2. Yes for those lawfully engaged in a public office. | No |
| 19 | A STATUTORY “individual” or “person”? | Not always. 1. See 26 U.S.C. §873(b)(4) in the case of “nationals” taking PRIVILEGED deductions and 2. 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 “qualified individual” |
| 20 | Domiciled on federal territory? | No | Yes |
| 21 | 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) |
| 22 | “gross income” subject to tax | Only earnings from the statutory geographical “United StatesG” in 26 U.S.C. §7701(a)(9) and (a)(10) and 4 U.S.C. §110(d). Collectively called United StatesSMJ 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). |
| 23 | Deductions 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). |
| 24 | Examples of U.S. sourced payments subject to withholding and reporting | 1. Social Security (26 U.S.C. §871(a)(3)) 2. 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] |
| 25 | Income from “employment” within the “United StatesSMJ” not subject to reporting or withholding | None if not connected with a “trade or business” or not “wages” (no W-4). 26 C.F.R. §31.3401(a)(6)-1. | Everything (see 26 U.S.C. §1441(d)(1) and T.D. 8734 in previous item) |
| 26 | Required 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). |
| 27 | Subject to Affordable Care Act?[1] | No | Yes |
| 28 | Subject to FATCA reporting?[2] | No | Yes |
| 29 | Can take deductions on tax return? | Only on earnings “effectively connected with a trade or business” under 26 U.S.C. §162 and entered on 1040-NR return. Schedule NEC can’t take deductions. | Yes (for EVERYTHING on return) |
| 30 | 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 StatesSMJ 26 U.S.C. §862 Income from sources without the United StatesSMJ |
| 31 | Status described/defined in | 26 U.S.C. §7701(b)(1)(B) | 26 U.S.C. §7701(a)(30) |
| 32 | Subject 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.
- 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.
- “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).
- 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:
- 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