RECOMMENDATION 00975-001
RECOMMENDATION TEXT:
Current Text: You will need the Instructions for Form 1040. Throughout these instructions, you are directed to go to the Instructions for Forms 1040 (also known as the Instructions for Form 1040 (and 1040-SR)) for details on how to complete a line. But, in most instances, you will need to look at whether you must take exceptions into consideration when applying those instructions. The specific exceptions for a line are listed under the instructions for the line. Some of the exceptions noted repeatedly in the line instructions are below. Recommended Text: Recommend having the Form 1040-NR instructions independent of Form 1040 instructions due to the exceptions that a nonresident alien must take into consideration. Include all relevant Form 1040 line instructions in Form 1040-NR. Justification: A nonresident alien is not familiar with the US tax system. Having a nonresident refer to two sets of instructions can be overwhelming and confusing especially when the nonresident alien has to consider exceptions to the Form 1040 line instructions as provided for in the instructions to Form 1040-NR. Currently, it is very easy for the nonresident alien to make mistakes and not pay the proper tax liability. The Taxpayer Bill of Rights includes The Right to Pay no more than the Correct Amount of Tax.
IRS Action: Not adopted
RECOMMENDATION 00975-002
RECOMMENDATION TEXT:
Current Text: The instructions for estates and trusts on the main form may, in certain instances, align more with the Instructions for Form 1041, U.S. Income Tax Return for Estates and Trusts, than with the Instructions for Form 1040, which are for individuals. If you are filing for a nonresident alien estate or trust, you will still need to follow the Instructions for Schedule NEC, later, if the estate or trust has U.S. source income that is not effectively connected with a U.S. trade or business. And there may be tax benefits and income inclusions on Form 1041 not applicable to a nonresident alien trust or estate. Recommended Text: Recommend having the Form 1040-NR instructions independent of Form 1041 instructions due to the exceptions that a nonresident alien must take into consideration. Include all relevant Form 1041 line instructions in Form 1040NR. This recommendation assumes you do not accept our recommendation below to have a foreign trust/estate file a new (Form 1041-F). See Item #11 Justification: A nonresident alien is not familiar with the US tax system. Having a nonresident refer to two sets of instructions can be overwhelming and confusing especially when the nonresident alien has to consider exceptions to the Form 1040 line instructions as provided for in the instructions to Form 1040NR. Currently, it is very easy for the nonresident alien to make mistakes and not pay the proper tax liability. The Taxpayer Bill of Rights includes The Right to Pay No more than the Correct Amount of Tax.
IRS Action: Not adopted
RECOMMENDATION 00975-003
RECOMMENDATION TEXT:
Current Text: addition Recommended Text: To include language that this service is available to individuals and nonresident aliens but does not include foreign trusts and estates. Justification: This should serve to enhance clarity.
IRS Action: Not adopted
RECOMMENDATION 00975-004
RECOMMENDATION TEXT:
Current Text: none Recommended Text: Add this paragraph below the due date paragraph: If you are not an employee or self- employed person who receives wages or non- employee compensation subject to U.S. income tax withholding, or if you do not have an office or place of business in the United States, you must file by the 15th day of the 6th month after your tax year ends. For a person filing using a calendar year this is generally June 15. Justification: The recommendation makes it clear the due date is extended for certain nonresident aliens. The language is consistent with the language on page 11 right column.
IRS Action: Not adopted
RECOMMENDATION 00975-005
RECOMMENDATION TEXT:
Current Text: none Recommended Text: Add: A nonresident alien filing Form 1040-NR cannot have a married filing jointly or a head of household filing status. Justification: Repeating the language under Form 1040-NR Helpful Hints about filing status highlights for the taxpayer that not all filing status are available to a nonresident alien.
IRS Action: Not adopted
RECOMMENDATION 00975-006
RECOMMENDATION TEXT:
Current Text: none Recommended Text: Recommend moving the Due Date of Return from What’s New to a subheading of its own. Justification: The Due Date of the Return is not new. Adding a subheading will be consistent with other form instructions.
IRS Action: Not adopted
RECOMMENDATION 00975-007
RECOMMENDATION TEXT:
Current Text: You were a nonresident alien engaged in a trade or business in the United States during 2023. Recommended Text: You were a nonresident alien engaged in or considered to be engaged in a trade or business in the United States during 2023. Justification: Modifying the language to be consistent with the IRS webpage on Taxation of Nonresident Aliens item A. Who Must File item #1.
IRS Action: Not adopted
RECOMMENDATION 00975-008
RECOMMENDATION TEXT:
Current Text: None Recommended Text: Add: A representative or agent responsible for filing the return of an individual described in (1) or (2), Justification: Modifying the language to be consistent with the IRS webpage on Taxation of Nonresident Aliens item A. Who Must File item #3.
IRS Action: Not adopted
RECOMMENDATION 00975-009
RECOMMENDATION TEXT:
Current Text: none Recommended Text: Add: You must also file an income tax return if you want to: Claim a refund of over withheld or overpaid tax, or Claim the benefit of any deductions or credits. For example, if you have no U.S. business activities but have income from real property that you choose to treat as effectively connected income, you must timely file a true and accurate return to take any allowable deductions against that income. Justification: Modifying the language to be consistent with the IRS webpage on Taxation of Nonresident Aliens item A. Claiming a Refund or Benefit.
IRS Action: Not adopted
RECOMMENDATION 00975-010
RECOMMENDATION TEXT:
Current Text: Exception 3. If you’re filing Form 1040-NR and considered married for federal tax purposes, you can’t claim the premium tax credit unless you meet the criteria of one of the exceptions under Married taxpayers in the Instructions for Form 8962. Recommended Text: Exception 1—Certain married persons living apart. You may file your return as if you are unmarried and take the PTC if one of the following applies to you. You file a separate return from your spouse on Form 1040 or 1040-SR because you meet the requirements for Married persons who live apart under Head of Household in the Instructions for Form 1040. You file as single on your Form 1040-NR because you meet the requirements for the exception for married persons who live apart under Married Filing Separately in the Instructions for Form 1040-NR. Exception 2—Victim of domestic abuse or spousal abandonment. If you are a victim of domestic abuse or spousal abandonment, you can file a return as married filing separately and take the PTC for 2023 if all of the following apply to you. You are living apart from your spouse at the time you file your 2023 tax return. You are unable to file a joint return because you are a victim of domestic abuse (described next) or spousal abandonment (described below). You check the box on your Form 8962 to certify that you are a victim of domestic abuse or spousal abandonment. You do not meet the 3- year limit for Exception 2, described below. Domestic abuse. Domestic abuse includes physical, psychological, sexual, or emotional abuse, including efforts to control, isolate, humiliate, and intimidate, or to undermine the victim’s ability to reason independently. All the facts and circumstances are considered in determining whether an individual is abused, including the effects of alcohol or drug abuse by the victim’s spouse. Depending on the facts and circumstances, abuse of an individual’s child or other family member living in the household may constitute abuse of the individual. If you have concerns about your safety, please consider contacting the confidential 24-hour National Domestic Violence Hotline at 1-800-799- SAFE (7233), or 1-800- 787-3224 (TTY), or 1- 855-812-1001 (video phone, only for deaf callers). For additional information and resources, see Pub. 3865, Tax Information for Survivors of Domestic Abuse, available at IRS.gov/Pub3865; and Part V of Form 8857, Request for Innocent Spouse Relief, available at IRS.gov/Form8857. Spousal abandonment. A taxpayer is a victim of spousal abandonment for a tax year if, taking into account all facts and circumstances, the taxpayer is unable to locate his or her spouse after reasonable diligence. Three-year limit for Exception 2. You cannot claim the PTC using this exception for more than 3 consecutive years. For example, if you used this exception to claim the PTC on your tax returns for 2020, 2021, and 2022, you cannot use this exception to claim the PTC on your 2023 return. Justification: Including the exceptions within the Form 1040- NR instructions will make it easier for the nonresident alien to complete the return. They will have the information they need to file a complete and accurate return by reading only one set of instructions.
IRS Action: Not adopted
RECOMMENDATION 00975-011
RECOMMENDATION TEXT:
Current Text: Instructions for Form 1040- NR require foreign trusts and estates to file annual returns using Form 1040-NR U.S. Non-resident Alien Income Tax Return. Recommended Text: We recommend that a new form, 1041-F, be created for foreign trusts and estates. Alternatively, we suggest providing forms within the existing Form 1041 series to enable foreign trusts and estates to provide tax information for beneficiaries in a format that suitable for preparation of their respective income tax returns. Justification: Form 1040-NR U.S. Non-resident Alien Income Tax Return is designed to report tax information for individuals, not fiduciary taxpayers. Fiduciaries with domestic and foreign beneficiaries must prepare tax information using two different form series and if using software, two different software programs. This adds complexity and expense for the taxpayer and increases their compliance burden. In addition, this hybrid format adds complexity to the compliance process and may lead to reporting errors or omission of important tax information which could lead to correspondence and other unnecessary uses of IRS resources. Finally, this hybrid format does not permit electronic filing, which should be the goal for all compliance activities. It should also be noted that some U.S. state and local jurisdictions require the use of fiduciary forms for income tax reporting, further adding to the compliance burden for foreign fiduciaries.
IRS Action: Not adopted
RECOMMENDATION 00975-012
RECOMMENDATION TEXT:
Current Text: Filing for an estate or trust. If you’re filing Form 1040-NR for a nonresident alien estate or trust, change the form to reflect the provisions of subchapter J, chapter 1, of the Internal Revenue Code. You may find it helpful to refer to Form 1041 and its instructions for some purposes when completing the Form 1040-NR rather than looking to these instructions for details. Recommended Text: Create specific instructions for fiduciary taxpayers. Justification: The instructions should be written in plain English language and avoid referring a taxpayer to code, regulations, or other guidance. The other guidance will be highly technical in nature, and the taxpayer may have to seek professional help to complete the tax return accurately. Hiring a professional will increase the amount of time and cost of tax compliance.
IRS Action: Not adopted
RECOMMENDATION 00975-013
RECOMMENDATION TEXT:
Current Text: none Recommended Text: Include a chart of the tax treaty rates. Justification: Including a chart of the tax treaty rates will assist the taxpayer with easily applying the correct rate to the reported income. The Taxpayer Bill of Rights includes The Right to Pay no more than the Correct Amount of Tax. The chart will also reduce the time required to complete the tax return.
IRS Action: Not adopted
RECOMMENDATION 00975-014
RECOMMENDATION TEXT:
Current Text: You must answer all questions. Recommended Text: Change to: You must answer all applicable questions. Justification: In some cases, you may not have to answer all questions. This should serve to enhance clarity and reduce complexity.
IRS Action: Not adopted
RECOMMENDATION 00975-015
RECOMMENDATION TEXT:
Current Text: None Recommended Text: Add the following: Who Must File Form 8833 Generally, a taxpayer who takes a treaty-based return position must disclose that position, unless reporting is specifically waived. See Exceptions from reporting below. A taxpayer takes a treaty- based return position by maintaining that a treaty of the United States overrules or modifies a provision of the Internal Revenue Code and thereby causes (or potentially causes) a reduction of tax on the taxpayer’s tax return. For these purposes, a treaty includes, but is not limited to, an income tax treaty; estate and gift tax treaty; or friendship, commerce, and navigation treaty. Reporting specifically required. Regulations section 301.6114-1(b) specifically requires reporting on a Form 8833 for the following treaty-based return positions. Note that this is not an exhaustive list of all positions that are reportable on a Form 8833 and that some specifically reportable positions are waived in certain circumstances under Regulations section 301.6114-1(c). • That a nondiscrimination provision of the treaty prevents the application of an otherwise applicable Code provision, other than with respect to making an election under section 897(i); • That a treaty reduces or modifies the taxation of gain or loss from the disposition of a U.S. real property interest; • That a treaty reduces or modifies the branch profits tax (section 884(a)) or the tax on excess interest (section 884(f)(1) (B)); • That a treaty exempts from tax or reduces the rate of tax on dividends or interest paid by a foreign corporation that are U.S.-sourced under section 861(a)(2)(B) or section 884(f)(1)(A); • That a treaty exempts from tax or reduces the rate of tax on fixed or determinable annual or periodical (FDAP) income that a foreign person receives from a U.S. person, but only if: (1) The amount is not properly reported on Form 1042-S and the foreign person is: (a) a controlled foreign corporation (as defined in section 957) in which the U.S. person is a U.S. shareholder (as defined in section 951(b)); (b) a foreign corporation that is controlled by a U.S. person within the meaning of section 6038; (c) a foreign corporation that is a 25-percent shareholder of the U.S. person under section 6038A; or (d) a foreign related party, as defined under section 6038A(c)(2)(B); (2) The foreign person is related to the payor under section 267(b) or section 707(b) and receives income exceeding $500,000, in the aggregate, from the payor and the treaty contains a limitation on benefits article; or (3) The treaty imposes additional conditions for the entitlement of treaty benefits (for example, the treaty requires the foreign corporation claiming a preferential rate on dividends to meet ownership percentage and ownership period requirements); • That income effectively connected with a U.S. trade or business of a taxpayer is not attributable to a permanent establishment or a fixed base in the United States; • That a treaty modifies the amount of business profits of a taxpayer attributable to a permanent establishment or a fixed base in the United States; • That a treaty alters the source of any item of income or deduction (unless the taxpayer is an individual); • That a treaty grants a credit for a foreign tax which is not allowed by the Code; • That the residency of an individual is determined under a treaty and apart from the Code. See Dual- resident taxpayer below. Exceptions from reporting. Regulations section 301.6114-1(c) waives reporting on a Form 8833 for certain treaty-based return positions. In some instances, the waiver narrowly applies to exempt from reporting a treaty position that is specifically reportable, and thus careful review of the regulations is advised. In addition, some waivers do not apply to positions that are specifically required to be reported under these form instructions. See Reporting specifically required by Form 8833 instructions, later. Positions for which reporting is waived include, but are not limited to, the following. See Regulations section 301.6114-1(c) for other waivers from reporting. • That a treaty reduces or modifies the taxation of income derived by an individual from dependent personal services, pensions, annuities, social security, and other public pensions, as well as income derived by artists, athletes, students, trainees, or teachers; • That a Social Security Totalization Agreement or Diplomatic or Consular Agreement reduces or modifies the income of a taxpayer; • That a treaty exempts a taxpayer from the excise tax imposed by section 4371, but only if certain conditions are met (for example, the taxpayer has entered into an insurance excise tax closing agreement with the IRS); • That a treaty exempts from tax or reduces the rate of tax on FDAP income, if the beneficial owner is an individual or governmental entity; • If a partnership, trust, or estate has disclosed a treaty position that the partner or beneficiary would otherwise be required to disclose; • Unless modified by the instructions below, that a treaty exempts from tax or reduces the rate of tax on FDAP income that is properly reported on Form 1042-S and the amount is received by a: a. Related party (within the meaning of section 6038A(c)(2)) from a reporting corporation within the meaning of section 6038A(a) (a domestic corporation that is 25% foreign owned and required to file Form 5472); b. Beneficial owner that is a direct account holder of a U.S. financial institution or qualified intermediary, or a direct partner, beneficiary, or owner of a withholding foreign partnership or trust, from that U.S. financial institution, qualified intermediary, or withholding foreign partnership or withholding foreign trust (whether the Form 1042-S reporting is on a specific payee or pooled basis); or c. Taxpayer that is not an individual or a State, if the amounts are not received through an account with an intermediary or with respect to an interest in a partnership or a simple or grantor trust, and if the amounts do not total more than $500,000 for the tax year. Form 8833 (Rev. 12-2022) Page 4 Reporting specifically required by Form 8833 instructions. The following are amounts for which a treaty-based return disclosure on Form 8833 is specifically required under these instructions. • Amounts described in paragraph a or c, above, that are received by a corporation that is a resident under the domestic law of both the United States and a foreign treaty jurisdiction (a dual resident corporation). • Amounts described in paragraph a or c, above, that are received by a corporation that is a resident of both the jurisdiction whose treaty is invoked and another foreign jurisdiction that has an income tax treaty with that treaty jurisdiction. See Revenue Ruling 2004-76, 2004-31 I.R.B. 111, available at www.irs.gov/pub/irs- irbs/irb04-31.pdf. • Amounts described in paragraph a or c, above, that are received by a foreign collective investment vehicle that is a contractual arrangement and not a person under foreign law. See Example 7 of Regulations section 1.894-1(d)(5). • Amounts described in paragraph a or c, above, that are received by a foreign “interest holder” in a “domestic reverse hybrid entity,” as those terms are used in Regulations section 1.894-1(d)(2). Dual-resident taxpayer. An alien individual is a dual-resident taxpayer if that individual is considered to be a resident of both the United States and another country under each country’s tax laws. If the income tax treaty between the United States and the other country contains a provision for resolution of conflicting claims of residence by the United States and its treaty partner, and the individual determines that under those provisions he or she is a resident of the foreign country for treaty purposes, the individual may claim treaty benefits as a resident of that foreign country, provided that he or she complies with the instructions below. If you are an individual who is a dual-resident taxpayer and you choose to claim treaty benefits as a resident of the foreign country, you are treated as a nonresident alien in figuring your U.S. income tax liability for the part of the tax year you are considered a dual-resident taxpayer. If you are eligible to be treated as a resident of the foreign country pursuant to the applicable income tax treaty and you choose to claim benefits as a resident of such foreign country, you must file Form 1040-NR, U.S. Nonresident Alien Income Tax Return, with Form 8833 attached. A dual resident taxpayer may also be eligible for U.S. competent authority assistance. See Rev. Proc. 2015-40, 2015-35 I.R.B. 236, or its successor. If you choose to be treated as a resident of a foreign country under an income tax treaty, you are still treated as a U.S. resident for purposes other than figuring your U.S. income tax liability (see Regulations section 301.7701(b)-7(a)(3)). Justification: Including the filing requirements will assist the taxpayer in filing a complete and accurate return by only reviewing one set of instructions. It will reduce the time required to complete the return.
IRS Action: Not adopted
RECOMMENDATION 00975-016
RECOMMENDATION TEXT:
Current Text: If you’re claiming an exemption from tax under chapter 4, you must qualify for a reduced rate of, or exemption from, tax for chapter 3 purposes unless the payment isn’t an amount subject to chapter 3 withholding. Recommended Text: Add: Chapter 3 withholding under sections 1441-1443 generally applies a 30% statutory rate of withholding to payments of Fixed, Determinable, Annual and Periodic (FDAP) income or gains from U.S. sources but only if the payments are not effectively connected with a U.S. trade or business and are paid to a payee that is a foreign person. It does not apply to payments made to U.S. persons, except in certain cases in which the U.S. person acts as an agent for a foreign person. Usually, the payee’s classification and status as a U.S. or foreign person is determined based on the documentation that the payee provides to the withholding agent. See the Documentation section in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. However, if the withholding agent receives no documentation or cannot reliably associate all or a part of a payment with valid documentation, then the withholding agent must apply certain presumption rules to make these determinations. Chapter 3 withholding under sections 1441-1443 generally applies a 30% statutory rate of withholding to payments of FDAP income or gains from U.S. sources but only if the payments are not effectively connected with a U.S. trade or business and are paid to a payee that is a foreign person. It does not apply to payments made to U.S. persons, except in certain cases in which the U.S. person acts as an agent for a foreign person. Usually, the payee’s classification and status as a U.S. or foreign person is determined based on the documentation that the payee provides to the withholding agent. See the Documentation section in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. However, if the withholding agent receives no documentation or cannot reliably associate all or a part of a payment with valid documentation, then the withholding agent must apply certain presumption rules to make these determinations. Justification: This language is consistent with the IRS webpage Tax withholding types. Adding the language clarifies for the taxpayer what Chapter 3 and Chapter 4 refer to. This will reduce the amount of time required to file the form.
IRS Action: Not adopted
RECOMMENDATION 00975-017
RECOMMENDATION TEXT:
Current Text: none Recommended Text: Recommend moving these items to the section labeled Reminders, that begins on Page 5. Justification: This information is significant and should be imparted as early as possible in the instructions.
IRS Action: Not adopted
RECOMMENDATION 00975-018
RECOMMENDATION TEXT:
Current Text: none Recommended Text: Move the When and Where Should you File section to the beginning of the document. Add: When filing by mail, we recommend that you send your filing by certified mail, return receipt requested (or the foreign equivalent), and keep a copy
IRS Action: Not adopted
RECOMMENDATION 00975-019
RECOMMENDATION TEXT:
Current Text: none Recommended Text: Add: Tip: Even though the due date of the return is June 17th, any tax due is required to be paid by April 15th. Justification: To remind taxpayers that even though the tax return is due June 17th, the tax is due April 15th to avoid late payment penalties.
IRS Action: Not adopted
RECOMMENDATION 00975-020
RECOMMENDATION TEXT:
Current Text: What if you can’t file on time? See What if You Can’t File on Time? in the Instructions for Form 1040. Recommended Text: Add: To When and Where you should file section. Extension of time to file If you cannot file your return by the due date, you should file Form 4868 to request an automatic extension of time to file. You must file Form 4868 by the regular due date of the return. Justification: The recommended language informs the taxpayer of the ability to file an extension of time to file. The language is also consistent with the language on the IRS webpage Taxation of Nonresident Aliens. The taxpayer does not need to refer to the Instructions for Form 1040. This will reduce the taxpayer burden and reduce the amount of time required to file the return.
IRS Action: Not adopted
RECOMMENDATION 00975-021
RECOMMENDATION TEXT:
Current Text: Private Delivery Services See Private Delivery Services in the Instructions for Form 1040 for details on private delivery services. Recommended Text: Replace the language with the following: Private Delivery Services If you choose to mail your return, you can use certain private delivery services designated by the IRS to meet the “timely mailing treated as timely filing/ paying” rule for tax returns and payments. These private delivery services include only the following. • FedEx First Overnight, FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day, FedEx International Next Flight Out, FedEx International Priority, FedEx International First, and FedEx International Economy. •DHL Express 9:00, DHL Express 10:30, DHL Express 12:00, DHL Express Worldwide, DHL Express Envelope, DHL Import Express 10:30, DHL Import Express 12:00, and DHL Import Express Worldwide. •UPS Next Day Air Early A.M., UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express. To check for any updates to the list of designated private delivery services, go to IRS.gov/PDS. For the IRS mailing address to use if you’re using a private delivery service, go to IRS.gov/ PDSStreetAddresses. The private delivery service can tell you how to get written proof of the mailing date. Justification: Including the 1040 language regarding the Private Delivery Services will reduce the time the taxpayer has to complete the form and reduce taxpayer burden of reviewing multiple sets of instructions to file the Form 1040-NR.
IRS Action: Not adopted
RECOMMENDATION 00975-022
RECOMMENDATION TEXT:
Current Text: In this heading it says: “Answer all questions”. Recommended Text: Remove “Answer all questions” and replace with “See instructions for Form 1040-NR”, before completing this form. Justification: Instructions for the completion of Schedule OI are on page 43 and 44 of the instructions for Form 1040-NR. Taxpayers should be directed to instructions so they may determine which questions are applicable to their situation, prior to completing this schedule. In fact, not all questions are required to be completed. This should serve to enhance clarity and reduce complexity.
IRS Action: Not adopted
RECOMMENDATION 00975-023
RECOMMENDATION TEXT:
Current Text: Who Must File… If you are any of the following, you must file a return: 1. A nonresident alien individual engaged or considered to be engaged in a trade or business in the United States during the year. 2. A nonresident alien individual who is not engaged in a trade or business in the United States and has U.S. income on which the tax liability was not satisfied by the withholding of tax at the source. 3. A representative or agent responsible for filing the return of an individual described in (1) or (2), 4. A fiduciary for a nonresident alien estate or trust, or 5. A resident or domestic fiduciary, or other person, charged with the care of the person or property of a nonresident individual may be required to file an income tax return for that individual and pay the tax (Refer to Treas. Reg. 1.6012-3(b)). Recommended Text: See Attachment 1 with suggested language. Justification: Modifying the language to be consistent with the IRS Form 1040-NR, Taxation Nonresident Aliens instructions.