Effect of Switching from DOMESTIC to FOREIGN on Past Tax Years and Current IRS Collection Activity
People have lots of questions about how to change their status from DOMESTIC to FOREIGN for previous tax years other than their current one relating to:
- How to zero out prior IRS assessments instituted through a notice of deficiency.
- How to change prior 1040 filings into a 1040-NR or foreign filing and how far back they can go.
- How far back can I go to correct their withholding paperwork with their business associates.
- How far back can I go to correct the reporting done for previous years with their business associates.
- Whether a tax return should be filed for a prior tax year and what the threshold is for doing so.
This article will address these concerns.
0. Introduction
Statutes of limitations on IRS assessment and collection activity is generally governed by the following authorities:
- 26 U.S.C. §6501: Limitations on assessment and collection. Requires IRS to assess the tax owed within 3 years after the return was filed. This is called the ASED: Assessment Statute Expiration Date.
- 26 U.S.C. §6502: Collection after assessment. Requires that collection may not be attempted after 10 years of the assessment of the tax. This is called the CSED: Collection Statue Expiration Date.
- 26 U.S.C. §6503: Suspension of running of period of limitation. Suspends the clock for I.R.C. 6501 assessment and I.R.C. 6502 Collection during a petition to Tax Court.
- 26 U.S.C. §6511: Limitations on credit or refund. Requires that a claim for refund must be filed within 3 years from the time a return was filed or 2 years from the time the tax was paid, whichever of such periods expires later.
- 26 U.S.C. §6512: Limitations in case of petition to Tax Court. Suspends credit or refund claims relating to tax years in which there is a petition to Tax Court.
In order to determine the affect of the above limitations upon your situation, one must access their IRS online transcript at:
After you have downloaded your transcript from the above for all unresolved tax years, you will then be in a position to assess what your course of action should be for each of the following sections.
1. How to zero out prior IRS assessments instituted through a notice of deficiency.
If the IRS instituted a Notice of Deficiency, a subsequent assessment, and is in collection mode of the amount assessed under I.R.C. 6502 in the case where you never actually filed a return, you can always file a return to zero out their assessment using the procedures prescribed on this site.
2. How to change prior 1040 filings into a 1040-NR or foreign filing and how far back they can go.
For prior tax years in which you filed a 1040 U.S. person DOMESTIC return, you can always go back and amend the return by filing a 1040X return, including the original 1040 return, and providing the replacement 1040-NR return to zero out the assessment. Under I.R.C. 6501, this can be done no later than three years after the original return was filed. See:
About Form 1040-X, Amended U.S. Individual Income Tax Return, IRS
https://www.irs.gov/forms-pubs/about-form-1040x
3. How far back can I go to correct their withholding paperwork with their business associates?
The withholding paperwork you file should accurately reflect your current status as either DOMESTIC “U.S. person” or FOREIGN “Foreign person” at ALL TIMES. For users of this website, the W-4 and W-9 are DEFINITELY NOT the right withholding forms and the W-8 is the ONLY correct withholding form.
The proper forms to submit for withholding purposes are exhaustively described in:
- About IRS Form W-8BEN, Form #04.202
https://sedm.org/Forms/04-Tax/2-Withholding/W-8BEN/AboutIRSFormW-8BEN.htm - Income Tax Withholding and Reporting Course, Form #12.004
https://sedm.org/LibertyU/WithngAndRptng.pdf - Federal and State Withholding Options for Private Employers, Form #09.001
https://sedm.org/Forms/09-Procs/FedStateWHOptions.pdf - SEDM Forms/Pubs Page, Section 1.4.2: Withholding Forms
https://sedm.org/Forms/FormIndex-SinglePg.htm#1.4.2__WITHHOLDING_FORMS
Some people, after discovering our website, realize that they have been filing the WRONG withholding forms and wish to determine how far back they should go with their business associates to correct the withholding forms on file. The answer is to go as far back as there are tax years in which:
- No return has been filed or
- IRS is actively collecting for cases where no return was filed after an Notice of Deficiency.
- You are being criminally prosecuted. This will accumulate exculpatory evidence you can use at trial.
Accurate withholding forms reflecting your status as being FOREIGN can put an immediate STOP to tax prosecutions. This is because nonresident aliens are not subject to the civil jurisdiction of the national government for anything other than fraud on the tax return.
4. How far back can I go to correct the reporting done for previous years with their business associates?
An information return is a document filed annually with the IRS against your name by your business associate. It includes such forms as the W-2, 1099, and 1042-S. The amounts entered on these information returns often depend on the withholding paperwork you submit to the filer, such as the:
- Form W-4 Employee Withholding Allowance Certificate.
- Form W-8 in the case of nonresident aliens and foreign persons.
- Form W-9 in the case of U.S. persons, citizens, and residents.
It is a requirement of SEDM that all members, in order to remain Compliant, must annually and regularly make diligent efforts to educate, correct, and inform their business associates about errors in information returns they file against your name.
Most of the time, these information returns are in error because they are inconsistent with the withholding paperwork you submitted or wanted to submit but were coerced NOT to submit. Your efforts to correct these false information returns should accompany any tax return filings you have to demonstrate your due diligence in ensuring your business associates comply with the law so as to avoid creating needless extra work for the IRS in processing your return. Procedures for correcting erroneous information returns are found at:
- Correcting Erroneous Information Returns, Form #04.001
https://sedm.org/Forms/04-Tax/0-CorrErrInfoRtns/CorrErrInfoRtns.pdf - Correcting Erroneous IRS Form 1042s, Form #04.003
https://sedm.org/Forms/04-Tax/0-CorrErrInfoRtns/Form1042/CorrectingIRSForm1042.htm - Correcting Erroneous IRS Form 1098s, Form #04.004
https://sedm.org/Forms/04-Tax/0-CorrErrInfoRtns/Form1098/CorrectingIRSForm1098.htm - Correcting Erroneous IRS Form 1099s, Form #04.005
https://sedm.org/Forms/04-Tax/0-CorrErrInfoRtns/Form1099/CorrectingIRSForm1099.htm - Correcting Erroneous IRS Form W-2s, Form #04.006
https://sedm.org/Forms/04-Tax/0-CorrErrInfoRtns/FormW2/CorrectingIRSFormW2.htm
If you have not been following SEDM guidance to annually correct information returns filed against your name, it is not too late to go back and retroactively correct these false information returns.
But HOW FAR should one go in doing this? The answer is as far back as there is reported income that has not been reconciled with the filing of either a return by you or an assessment by the IRS. You cannot know how far back that is without looking at your IRS online transcript.
Some of your business associates, employers, and financial institutions may resist your efforts to correct false information returns they filed against you. You cannot control what they file other than to either litigate against them for damages caused by unlawful IRS collection activity that resulted from them.
5. Whether a tax return should be filed for a prior tax year and what the threshold is for doing so.
Our members are all Foreign and Nonresident aliens. As such, there may be scenarios where there is a duty to file a return even without any taxable income. The duty of a Nonresident Alien to file a tax return is documented in:
Nonresident aliens individuals must generally file returns if:
- They have gross income that equals or exceeds the exemption amount. 26 U.S.C. §6012(a)(1)(A). Since this amount is currently zero, then any amount of gross income triggers a filing requirement.
- They are engaged in the “trade or business”/public office excise taxable franchise regardless of income. 26 C.F.R. §1.6012(b).
Note that:
- 26 U.S.C. §873(b)(3) controls deductions for nonresident aliens.
- As of 2024, the exemption amount is zero. The Tax Cuts and Jobs Act of 2017 controls exemptions and deductions for nonresident aliens. When the Tax Cuts and Jobs Act of 2017 expires in 2025:
2.1. The exemption amount may be changed.
2.2. Nonresident aliens also may be able to take standard deduction, which may be changed as well. - Almost all earnings of most American Nationals are not from a “source within the United States”, by which we mean the GOVERNMENT and is therefore EXCLUDED under 26 U.S.C. §872. Thus, exemptions or deductions are NOT typically needed.
- A “nonresident alien” must CHOOSE and CONSENT to be engaged in a “trade or business”. This is done by:
3.1. “effectively connecting” any of their earnings by entering them on the 1040-NR form. This is VOLUNTARY. You don’t HAVE to do this and if you DO, you’re an IDIOT!
3.2. Taking deductions on the 1040-NR form, which triggers 26 U.S.C. §162. - Nonresident aliens NOT engaged in a “trade or business” and having no earnings from the “United States” (government) are identified in 26 U.S.C. §7701(a)(31) as a “foreign estate” and are not even included as persons “liable TO” income tax in 26 C.F.R. §1.1-1(a). The only thing the IRS can therefore go after is their property and not them.
Generally, the phrase “trade or business” is provided as a method essentially for you to DONATE your otherwise PRIVATE property or your own status to a public use, a public purpose, and a public office so that it can be taxed and regulated. “Effectively connecting” is a code word for “DONATE”. For more detailed background on what a “trade or business” is and the SCAM that it is, see:
- USPI thru Changing the Status of Your PROPERTY to Domestic, FTSIG
https://ftsig.org/how-you-volunteer/uspi-thru-domestic-source/ - The “Trade or Business” Scam, Form #05.001
https://sedm.org/Forms/05-MemLaw/TradeOrBusScam.pdf