Transition strategies to minimize risk when moving from “U.S. person” to “Nonresident Alien”
SOURCE: Path to Freedom, Form #09.015, Section 2.4; https://sedm.org/Forms/09-Procs/PathToFreedom.pdf
0. Introduction
Most of our members start out filing the WRONG tax return, the Form 1040, as a STATUTORY “U.S. person” under 26 U.S.C. §7701(a)(30). This error is documented in:
| Why It’s a Crime for a Private American National to File a 1040 Income Tax Return, Form #08.021 https://sedm.org/Forms/08-PolicyDocs/WhyCrimefileReturn.pdf |
After learning that this mistaken approach is the WORST possible threat to their liberty, they are faced with transitioning to “Nonresident Alien” civil status under 26 U.S.C. §7701(b)(1)(B). The brave will want to make this transition sudden and complete in only one year. The less brave who want to make the transition more slowly because of the risk to the financial health of their family or business may want to do so more slowly, gradually, and methodically so that they don’t trigger an audit or “selective enforcement” response by the IRS. This section documents a more gradual transition over a period of years so that people can test the waters themselves with the least possible risk to the security of themselves, their family, and possibly their family business.
The purpose of a gradual transition plan is to not trigger audits, penalties, or “selective enforcement” by the IRS while at the same time gaining confidence in yourself and in mastering the complexities of operating in a FOREIGN and private capacity that is unfamiliar to most. Keep in mind, however, that the IRS is most inclined to dissuade you from adopting the Nonresident Alien Position early on in your journey, while you are most likely to make mistakes because of incomplete knowledge. Like sharks, they will smell blood in the water and seek an audit by sending you a LTR 2205 if:
- You forget to attach the Schedule OI.
- You fill out the Schedule OI improperly.
- You do not explain why you excluded reported earnings from the return, such as W-2 reporting.
- You do not clarify the definitions of key “words of art” used to entrap you and criminally kidnap you into their jurisdiction. They expect that most people starting out will not understand the very limited nature of geographical terms or “trade or business” and thus will be a deer in the headlights for a sophist attack to EXPLOIT your ignorance to steal from you:
| Identity Theft Affidavit, Form #14.020 https://sedm.org/Forms/14-PropProtection/Identity_Theft_Affidavit-f14039.pdf |
This section will not cover all the details of filing the 1040-NR. That is beyond the scope of this introductory document. If you need further help in this area, then please consult the following:
- How to File Returns, Form #09.074**
https://sedm.org/product/filing-returns-form-09-074/ - Procedure to File Returns, Form #09.075**
https://sedm.org/product/procedure-to-file-tax-returns-form-09-075/ - 1040-NR Attachment, Form #09.077
https://sedm.org/Forms/09-Procs/1040NR-Attachment.pdf
Below is a transition plan documenting a GRADUAL process to transition from STATUTORY “U.S. person” to STATUTORY “Nonresident Alien” over a period of YEARS:
1. Year 1: Switch from 1040 to 1040NR and leave most other things the same
1.1. Change your withholding paperwork from Forms W-9 and W-4 to our W-8SUB, Form #04.231 with all your business associates and financial institutions.
1.2. Change the filing form from 1040 to 1040NR and show the same income and the same deductions as you previously did as much as possible.
1.3. If you are receiving Social Security, this will cause Social Security to be taxed at a 30% flat rate under 26 U.S.C. §871(a)(3) rather than the graduated rate subject to deductions on the 1040 form. This will raise your tax bill for the first year.
1.4. This will not significantly change your tax liability for most people and therefore should not trigger an audit red flag in the IRS computer system. If all your earnings are from Social Security, your tax bill will go up permanently.
1.5. Do not attach anything to the return from SEDM and follow the IRS instructions only for preparing the return.
2. Year 2: Remove earnings from 1040-NR NOT related to labor and not originating from the statutory geographical “United States” under 26 U.S.C. §871(a)
2.1. Unlike the 1040 return, the 1040-NR form records “effectively connected” income. That means it is PRIVATE property consensually donated to a public use, a public purpose, and/or a public office. You don’t have to donate any of these items. See:
| The Truth About “Effectively Connecting”, Form #05.056 https://sedm.org/Forms/05-MemLaw/EffectivelyConnected.pdf |
2.2. The fact that you have to “effectively connect” your earnings and thus donate them as a nonresident alien is why politicians and even the IRS commissioner refer to the income tax as “voluntary”. See for yourself!
| How State Nationals Volunteer to Pay Income Tax, Form #08.024 https://sedm.org/Forms/08-PolicyDocs/HowYouVolForIncomeTax.pdf |
2.3. The ONLY one who can “effectively connect” your otherwise PRIVATE earnings is YOU, the OWNER of those earnings. It would be STEALING from anyone else to do that!
2.4. During this year, you can arbitrarily pull off items from the “Effectively Connected” section, even if they are reported by third parties. Doing so is not FRAUD, but an exercise of your unalienable right to absolutely own private property, the essence of which is the right to EXCLUDE any and all others from using or benefitting from your PRIVATE property. So long as you explain that is what you are doing, no one can accuse you of FRAUD or a conspiracy to defraud anyone. See:
| Laws of Property, Form #14.018 https://sedm.org/Forms/14-PropProtection/LawsOfProperty.pdf |
2.5. Because there is a risk that the IRS will interpret your tax return as FRAUD by not including earnings that have been reported , you will need to attach our 1040-NR Attachment, Form #09.077. Section 5 of this form explains your tactics in this area to prevent misunderstandings. If you don’t do this, you will invite an audit or a penalty because it might look suspicious, even though its perfectly lawful.
2.6. Always remember that:
2.6.1. You always want to follow the laws that apply to you and maximize your liberty
2.6.2. You always want to give full warning and reasonable notice whenever you suspect that the IRS might think what you are doing is suspicious. Taking income off of a tax return when your business or employment conditions haven’t significantly changed is a trigger for an audit if you don’t explain yourself fully.
2.6.3. If you didn’t DONATE (“effectively connect”) earnings you received and they didn’t originate from the statutory geographical “United States” in 26 U.S.C. §7701(a)(9) and (a)(10), then they AREN’T taxable and don’t belong ANYWHERE on the 1040-NR return. You will have to learn to CONFIDENTLY assert this in all your dealings with the IRS or your own legal ignorance or timidity will inevitably make you a lifelong victim! Get educated and stick up for yourself, people! If you don’t know what your rights are and don’t stick up for them, then YOU DON’T HAVE ANY no matter WHAT the law says! Learn and enforce the law or get good at BENDING OVER for free. These are the ONLY two choices you have, people! NO ONE ELSE can or even WILL do that for you. Even for a fee. YOU have to do it! The present state of the corrupted tax system ought to be proof of that.
3. Year 3: Move remaining items from the 1040-NR to the Schedule NEC and Stop Donating your Labor to a Public Use
3.1. Attach 1040-NR Attachment, Form #09.077 to the 1040-NR return.
https://sedm.org/Forms/09-Procs/1040NR-Attachment.pdf
3.2. Move pension earnings from the 1040 line 5a to the 1040-NR Schedule NEC line 7.
3.3. Zero W-2 reported earnings off the 1040-NR line 1a and use Form #09.077, Section 5 as justification for doing so. That section is entitled “Blocks 1 to 15: Income Effective connected With U.S. Trade/Business”. Notice that there is NO equivalent block on the Schedule NEC for your LABOR if it is NOT connected to a STATUTORY “trade or business”. This is because INVOLUNTARY taxes on your labor are SLAVERY as proven in:
| Proof that Involuntary Income Taxes on Your Labor are Slavery, Form #05.055 https://sedm.org/Forms/05-MemLaw/ProofIncomeTaxLaborSlavery.pdf |
3.4. Once you remove W-2 FALSELY reported labor earnings from the 1040-NR, there is little need for deductions beyond that point. You need TAXABLE INCOME to take deductions against them.
4. Year 4: Correct the false W-2 reports and Take Some items off the Schedule NEC
4.1. Employers commonly report W-2 earnings annually, whether you even WANT to be a STATUTORY “employee” at all. These reports are usually erroneous, as described in:
| Correcting Erroneous Information Returns, Form #04.001 https://sedm.org/Forms/04-Tax/0-CorrErrInfoRtns/CorrErrInfoRtns.pdf |
4.2. If companies really cared about their workers and contractors, they would allow them to submit a W-8 form to stop withholding and reporting, not use the W-4, and thus allow them to contract in a completely private capacity protected by the constitution and the common law instead of the civil franchise codes.
4.3. Companies are inclined to do whatever they want and do not seek your approval in most cases because that would be looking a gift horse in the mouth. By engaging in a dispute with them, and especially if that dispute is over false reporting of your earnings to the IRS, you risk losing your job.
4.4. If you are feeling especially brave, you can try to correct these false Form W-2 reports with the IRS in the hopes that the erroneous reporting by the company will stop. In the worse case, this could lead the company to be penalized by the IRS. We have never heard of this happening but it is a possibility.
4.5. For this iteration, you can attach the following form to the tax return to correct these usually false reports:
| W-2CC, Form #04.304 https://sedm.org/Forms/04-Tax/3-Reporting/FormW-2CC-Cust/FormW-2CC.pdf |
4.6. Keep in mind that in doing this, the authority for the companies to report using the W-2 is 26 U.S.C. §6041. That means that the FILER of the information return must be lawfully engaged in a “trade or business”, which is defined as “the functions of a public office” in 26 U.S.C. §7701(a)(26). Few if any actually satisfy this criteria. If they don’t, they in effect are DONATING their private labor and PRIVATE property to a PUBLIC USE, a PUBLIC PURPOSE, and a PUBLIC office by doing so. When they report, they are NOT and CANNOT determine whether YOU are lawfully engaged in a “trade or business”. The connection with a “trade or business” in reporting is on the part of the REPORTER, not the TARGET of the report.
4.7 Some people we know NEVER reach this level, at least so far. Maybe that will change as they learn more from our materials and gain confidence to take more risks.
5. Conclusions
Some people we know NEVER graduate beyond step 2 above after DECADES of filing 1040-NR as nonresident aliens. They are content to leave their risk mitigation strategy there because they are very high income earners such as pilots who work for major corporations and file W-4s and don’t want to jeopardize their job position. How far you go is entirely up to you and dependent on your risk tolerance level. Don’t ask us to advise you in this area because we don’t give legal advice and you may not interpret ANYTHING we publish or say as such. Everything documented here represents ONLY what we would do in our OWN circumstances and not what you CAN or MUST or SHOULD do. Sovereignty BEGINS with taking complete, exclusive, and personal responsibility for all your choices and actions and NEVER blaming others or even hiring others to accept part of the blame.
If you are an entrepreneur who runs your own business, receives Form K-1’s annually as a DOMESTIC STATUTORY “U.S. person”, and lists business income on your personal 1040 return, you will similarly need a plan to transition the BUSINESS from DOMESTIC “U.S. person” to FOREIGN “nonresident alien” as well. That transition plan is included in the following resource on our site:
| Creating and Running a Business, Trust, or Estate, Form #09.079, Section 12: Migrating a Partnership from Domestic to Foreign** (Member Subscriptions) https://sedm.org/product/creating-and-running-a-business-form-09-079/ |