The purpose of Notice Review (NR) is to review Individual Master File (IMF) Computer Paragraph (CP) notices to verify the accuracy of notices selected for review before mailing. This will ensure the information received by taxpayers are completed and accurate. Notice Review employees use the Notice Review Processing System (NRPS) package, Control D, and or Integrated Data Retrieval System (IDRS), Integrated Automation Technologies (IAT) Tool, and Account Management Services (AMS) to ensure the information for each notice is processed correctly. Any changes to the notices are made using the Online Notice Review (OLNR) system.

Under the Taxpayer Bill of Rights (TBOR)Taxpayer Bill of Rights taxpayers have rights that apply throughout their dealings with the IRS. The right to be informed means taxpayers are entitled to clear explanation of laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. Thus, notices should be reviewed to ensure they are written in plain language, provide clear explanations of any IRS decisions about a taxpayer’s account, and provide clear instructions for what a taxpayer needs to do.
The Taxpayer Advocate Service is an independent organization within the Internal Revenue Service (IRS), led by the National Taxpayer Advocate, that helps taxpayers and protects taxpayer rights. TAS offers free help to taxpayers when a tax problem is causing a financial difficulty, when they’ve tried and been unable to resolve their issue with the IRS, or when they believe an IRS system, process, or procedure just isn't working as it should. TAS strives to ensure that every taxpayer is treated fairly and knows and understands their rights under the Taxpayer Bill of Rights. TAS has at least one taxpayer advocate office located in every state, the District of Columbia, and Puerto Rico.

Title 26 of the United States Code (USC) or more commonly known as the Internal Revenue Code (IRC) has been amended and supplemented or extended by acts, public laws, rules and regulations, such as the following:

Publications relating to International issues can be used as technical reference material. The following is a list of the most common Publications used:

The following manuals can provide additional information on International returns:

International IMF related documents are processed exclusively in the Austin Submission Processing Campus (AUSPC), which has the responsibility for reviewing notices and transcripts.

IRS officials and management must communicate security standards contained in the Managers Security Handbook to subordinate employees and establish methods to enforce them.

The Campus Director is responsible for monitoring operational performance for the Submission Processing campus.

The Operation Manager is responsible for monitoring operational performance for their operation.

The Team Manager and Lead are responsible for performance monitoring and ensuring employees have the tools to perform their duties.

The team employees are responsible to follow the instructions contained in this IRM and maintain updated IRM procedures.

Program Goals: Review Computer Paragraph (CP) notices to generate to notify the taxpayer of any change to a specific module from the taxpayer’s original return and to verify the accuracy of the information and ensure the notice received by the taxpayer is complete and correct.

Program Reports: After NRPS completes the selection process, it combines all the selection information into NRPS batches. NRPS produces various reports from the output files.

Program Effectiveness: The program goals are measured by using the following tools:

Annual Review: The processes outlined in this IRM should be reviewed annually to ensure accuracy and promote consistent tax administration.

This table list Acronyms, Abbreviations, and Definitions

For a comprehensive listing of IRS acronyms, please refer to the Acronym Database.

The following resources may assist in performing the work as outlined in this IRM:

Submit IRM deviations in writing following instructions from IRM 1.11.2.2.3, when Procedures Deviate from the IRM, and elevate through proper channels for executive approval.

Alien - Any person who is not a U.S. citizen or U.S. National. For income tax purposes, aliens are classified as Resident or Nonresident.

Abode - A place where one lives: variously defined as one’s home, habitation, residence, domicile or place of dwelling.

Bona Fide Residence - A residence established in a foreign country or countries for an uninterrupted period which includes an entire taxable year and includes part or all of the tax year of the return.

Domicile - A fixed or permanent place of living for an indefinite length of time. A domicile can be different from the taxpayer's residence.

Dual-Status -Refers to aliens who are both resident aliens and nonresident aliens of the U.S. within the same tax year.

Effectively Connected Income - All income, gain, or loss that is derived in connection with the conduct of a trade or business within the United States. This generally includes compensation received for personal services performed in the U.S. by a nonresident alien.

Excludable Income - Any income that can be omitted from taxable income such as, Form 4563 exclusions, exclusions due to applicable tax treaty provisions and other exclusions provided by the Internal Revenue Code.

Foreign Tax Treaties - bilateral treaties entered into by the United States and a foreign country generally with the purpose of avoiding double taxation and preventing tax evasion.

Fulbright Grant - A grant under the Mutual Educational and Cultural Exchange Act of 1961. It can be received for teaching, research duties, and/or exercising talents abroad by U.S. students and foreign students.

Green Card Test - One of the tests for determining whether an alien is a resident alien. A lawful permanent resident of the U.S. (Green Card Holder) at any time during the calendar year, is a resident alien for Federal income tax purposes. A taxpayer is a lawful permanent resident if that individual has been granted the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws. Resident status is deemed to continue unless it is rescinded or administratively or judicially determined to have been abandoned .

Nonresident Alien - An individual who is neither a citizen nor a resident of the United States, including an alien who is temporarily residing in the U.S., a resident alien who has abandoned permanent residence in the U.S. or an alien who has never been in the U.S.

Non-Effectively Connected Income - Income which is not effectively connected with a U.S. trade or business.

Physical Presence Test - A test to determine if a taxpayer qualifies for the foreign earned income exclusion. Generally, the taxpayer must be physically present in a foreign country or countries for a minimum of 330 days during any period of 12 consecutive months. Any period of 12 consecutive months during which the individual was physically present in a foreign country or countries constitutes a qualifying period. Days during the current tax year that fall within one or more qualifying periods are qualifying days.

Principal Residence - Usually the home in which a taxpayer resides for the majority of the tax year.

Resident Alien - An alien individual who is either a lawful permanent resident (i.e., meets the “Green Card Test”) or who meets the substantial presence test for the calendar year, who makes the first-year election under IRC 7701(b)(4).

Schedule NEC , Tax on Income Not Effectively Connected With a U.S. Trade or Business (page 4 of Form 1040-NR for 2019 and prior years).

Schedule OI, Other Information (page 5 of Form 1040-NR or page 2 of Form 1040-NR-EZ, for 2019 and prior years).

IRC 911, Section of the Internal Revenue Code that allows U.S. citizens and resident aliens to claim an exclusion for income earned in a foreign country or countries and certain housing costs. Taxpayers use Form 2555 (or Form 2555-EZ for 2018 and prior years) to claim this exclusion.

IRC 931, Section of the Internal Revenue Code requires bona fide residents of American Samoa to exclude income using Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa.

IRC 932, Section of the Internal Revenue Code that coordinates the U.S. and U.S. Virgin Islands income tax systems

IRC 933, Section of the Internal Revenue Code requires U.S. citizens who are bona fide residents of Puerto Rico to exempt income from sources within Puerto Rico .

Substantial Presence Test - A test applied in determining if an alien is a U.S. resident alien for tax purposes. Generally, an individual meets the substantial presence test if the individual was in the United States for at least 31 days during the current calendar year and was present in the United States for at least 183 days during the current year and the two preceding calendar years, calculated by counting all the days on which the individual was present in the United States during the current year, 1/3 of the days present in the United States during the first preceding year, and 1/6 of the days present in the United States during the second preceding year.

Tax Home - A taxpayer's principal place of business, employment, station or post of duty, regardless of where the taxpayer maintains their residence.

Treaty Trader - Alien who has entered the U.S. on an "E-1" visa.

U.S. National - Persons born in American Samoa are considered U.S. Nationals, for tax purposes.

Visa - An endorsement written or stamped on a passport indicating that the holder is allowed to enter, leave, or stay for a specific period of time in a country.

Withholding Agent - Any person (e.g., individual, trust, partnership, estate, corporation, government agency, non-profit organization or private organization), whether foreign or domestic, required to withhold income tax on U.S. source income received by a nonresident alien, foreign partnership corporation, and various other organizations. A withholding agent is responsible for submitting the withholding information on Form 1042 and providing the income recipient information on Form 1042-S.

U.S. citizens living or traveling outside the United States are generally required to file U.S. income tax returns and report worldwide income.

An alien individual is a resident alien if the individual meets the green card test or the substantial presence test for the calendar year, makes the first-year election or makes the election to be taxed as a resident alien under IRC 6013(g) or (h). Resident aliens are generally required to file U.S. income tax returns and pay U.S. tax on worldwide income.

If an alien individual does not meet either of these tests (and does not make an election), the individual is a nonresident alien. A nonresident alien must file Form 1040-NR, U.S. Nonresident Alien Income Tax Return, (or Form 1040-NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents, for 2019 and prior years) to report and pay U.S. tax on certain types of income. An individual who is classified as a resident alien under the green card test or substantial presence test and is also a resident in another country that has an income tax treaty with the United States, may be treated as a nonresident alien under the residency rules of the applicable income tax treaty if such individual timely files a Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years) with a Form 8833, Treaty Based Return Position Disclosure Under Section 6114 or 7701(b), attached claiming to be a resident of the other country.

The United States may tax the income of a nonresident alien individual (who is neither a U.S. citizen nor resident alien) in one or both of the following ways:

Resident aliens can use the same filing status available to U.S. citizens.

For tax years 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) (Pub. L. 115-97) set the exemption amount at zero, changing the number of filing statuses from six to three that a nonresident alien can claim on Form 1040-NR.

For TY 2018 and later, nonresident aliens may use the following Filing Statuses:

For TY 2017 and prior years, nonresident aliens may use the following Filing Statuses as listed by country:

Married Filing Jointly for Nonresident Aliens - A nonresident alien married to a U.S. citizen or resident alien is taxed on worldwide income at the graduated tax rates same as a U.S. citizen or resident alien, if that person makes an election to be treated as a U.S. resident, files married filing jointly and discloses all worldwide income on the return. This includes situations where one spouse begins the year as a nonresident alien and ends the year as a resident alien, and the other spouse ends the year in nonresident status. Both taxpayers must have a valid SSN or ITIN [See IRC 6013(g) or (h)].

Special Provisions- Married residents living in Canada, Mexico, South Korea, and U.S. Nationals who are living apart from their spouses may file as single if they meet certain requirements.

Qualifying Widow(er) for Nonresident Aliens - A nonresident alien can claim this filing status only if they are a U.S. National or a resident of Canada, Mexico, or South Korea and the spouse's date of death was no more than two years prior to the tax year. The taxpayer must also have a dependent child with a valid SSN or ITIN to qualify.

For 2018 through TY 2025, taxpayers filing as a U.S. citizen, resident alien, nonresident alien or U.S. National cannot claim an exemption (the amount is $0) for self, spouse, children or dependents on Form 1040, Form 1040-SR or Form 1040-NR.

For tax year (TY) 2017 and prior years, resident aliens may claim personal exemptions and exemptions for dependents in the same way as U.S. citizens.

Exemptions under Article 4 (7) of the U.S. tax treaty with South Korea allow for a prorated exemption for a taxpayer's spouse and children. The spouse and children claimed must live with the nonresident alien in the United States at some time during the tax year. Exemptions are based on the ratio of U.S. source income effectively connected to total gross income for the entire year. Use the following formula to determine the prorated exemption amount:

For TY 2017 and prior years, nonresident aliens from Canada, nonresident aliens from Mexico and U.S. nationals are allowed to claim their spouse, children and other dependents as exemptions. The spouse must not have gross income for U.S. tax purposes and must not be claimed as a dependent on another U.S. taxpayer's return. Nonresident aliens from Japan may claim exemptions for spouse, children and other dependents for Tax Year 2005 and prior.

For TY 2017 and prior years, nonresident aliens from all other countries may claim only one exemption for self.

Residents of India who entered the U.S. as students or business apprentices and who are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty may be able to claim exemptions for their spouse and dependents.

For more information on exemptions refer to IRM 21.8.1.12.6.3, Nonresident Aliens and Self-Employment Tax.

Resident aliens filing Form 1040 or Form 1040-SR may claim the:

Nonresident aliens filing Form 1040-NR must itemize deductions.

Taxpayers excluding income under IRC 933 (Puerto Rico) or IRC 931 (Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa) may prorate their itemized deductions or standard deduction.

Social Security Number (SSN) - Generally signifies the filer is a U.S. citizen or resident alien and taxed on worldwide income. Compare the SSN on the notice with the SSN on the return.

Individual Taxpayer Identification Number (ITIN) - Beginning on January 1, 1997, taxpayers can apply for an ITIN when they are not eligible to obtain an SSN. As of January 2004, taxpayers must file an income tax return with their ITIN application. For the exceptions to the requirement to file a tax return, see the instructions to Form W-7, Application for IRS Individual Taxpayer Identification Number. An ITIN starts with "9" with fourth and fifth digits in the range of:

Internal Revenue Service Number (IRSN) - An IRSN is used only as an internal identifying number or until the taxpayer is assigned an SSN or ITIN, or until their SSN or ITIN is located.
An IRSN starts with "9" and has a unique fourth and fifth digit as "18" is the unique number for the Austin campus. Example of an IRSN format: 9XX–18–XXXX. See IRM 3.11.3.9.2.1(3), Taxpayer Identification Number (TIN) for a list of other IRSN fourth and fifth digits. An IRSN is always invalid.

An ITIN and Adoption of Foreign Child - A taxpayer who adopts a foreign child can use a valid SSN or an ITIN to claim a credit or exemption. Upon entry into the United States of the foreign child, the adopting taxpayer should apply to the Social Security Administration (SSA) for a valid SSN for the child. If SSA rejects the application, the taxpayer may apply to the IRS for an ITIN for the child using Form W-7.

Adoption Taxpayer Identification Number (ATIN) - May be used to claim a credit or exemption for an adopted child when the child cannot obtain an SSN. The ATIN, which may be applied for using IRS Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions may ONLY be used to claim a credit or exemption for a child who was a U.S. citizen, resident, or national when the adoption process commenced and who was adopted domestically through an authorized adoption agency/agent. An ATIN starts with 9 and the fourth and fifth digit will be 93. Example of an ATIN format: 9XX–93–XXXX.

During the selection process, the first selection criterion is named the Primary Selection Key. If a second criterion is selected, it is named the Secondary Selection Key.

After a Secondary Selection Key, the selection process is terminated for any remaining selection criteria both within the category and in remaining categories.

International key codes are valid for Austin Submission Processing Campus (AUSPC) only.

Earned income is payment for personal services performed. It includes salaries, wages, commissions, bonuses, professional fees, tips, etc.

Unearned income includes the following: dividends, interest, capital gains, gambling winnings, alimony, social security benefits, pensions, annuities, etc.

Some types of income fall into more than one category: business profits, royalties, rents, net operating loss (NOL), etc.

Use the prior year tax forms, tax tables and tax rate schedules to verify amounts for the tax computation method most beneficial to the taxpayer.

Returns for December 31, 2017 and prior require manual computation of exemption, standard deduction, itemized deductions and most credits.

Tax treaties can vary year to year. For prior tax years, make sure to check treaty validity using prior year Publications. Refer to IRM 3.38.147.3.12, Tax Treaty - General Information.

There are two types of U.S. visas: immigrant or non-immigrant.

The manner in which the income of an alien individual is taxed depends upon whether the individual is classified as a resident alien or a nonresident alien.

If an individual is determined to be a nonresident alien, the taxpayer is generally taxed on all U.S. source income and on all income that is effectively connected with the conduct of a trade or business in the U.S. Non-effectively connected foreign source income is not taxed. Resident aliens are taxed the same way as U.S. citizens.

The following are descriptions of different categories of visas that the IRS frequently sees. Refer to the IMF Notice Review International Job Aid 2510-001 or the U.S. Citizenship and Immigration Services (USCIS) website for a complete list of visas:

The United States has income tax treaties with a number of countries. Under these treaties, residents of foreign countries are (if eligible) taxed at a reduced rate or are exempt from U.S. income taxes on certain items of income received from sources within the United States. These reduced rates and exempt amounts vary among countries and specific items of income. The term "resident" is generally defined under the relevant treaty to mean a resident for income tax purposes of the applicable foreign country, which may require a physical presence within the foreign country such that citizenship or nationality alone may not establish "residency" for purposes of the treaty.

Tax treaties may reduce the U.S. taxes for residents of foreign countries. With certain exceptions, such as a dual resident (one who is a resident of the U.S. under U.S. domestic law and of the foreign country under the foreign country’s domestic law) who is treated as a resident of the foreign country under the Tiebreaker Rules of the applicable treaty, tax treaties do not reduce the U.S. taxes of U.S. citizens or resident aliens. U.S. citizens and resident aliens are subject to U.S. income tax on their worldwide income under the requirements set forth in the relevant treaty article and possibly under a "saving clause" provision in most treaties. The saving clause preserves the right of the United States to tax its citizens and residents (subject to certain exceptions) on their worldwide income, as provided under U.S. law, as if there were no treaty.

Tax treaties can vary year to year. Make sure to determine that the relevant treaty is still in force using Pub 901, U.S. Tax Treaties, Pub 515, Social Security and Equivalent Railroad Retirement Benefits, Pub 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, and/or the IRS web page.

Paragraph 3 of Article XXV Non-Discrimination of the United States- Canada income tax treaty allows married citizens/residents of Canada to compute the tax on their U.S. wages based upon a hypothetical Form 1040 or Form 1040-SR tax computed using married filing jointly tax rates.

A dual resident (one who is resident of the U.S. under U.S. domestic law and of the foreign country under the foreign country’s domestic law) may claim to be treated solely as a resident of the foreign country pursuant to the treaty Tiebreaker Rules of an applicable treaty by filing a Form 1040-NR with Form 8833 attached. The taxpayer may not claim that income is exempt under treaty solely by claiming “Tiebreaker” under Article IV (or other relevant article determining residence for purpose of a treaty). A resident article generally provides whether a taxpayer is a "resident" of a foreign country for purpose of the treaty, and it does not provide an exemption of income. If Article IV is the only treaty article provided in response to Item L on Schedule OI of Form 1040-NR, and a Form 8833 is not also attached claiming the treaty tiebreaker provision then there is no valid treaty claim to reduce or exempt income under the treaty.

Under certain circumstances, an individual may claim a benefit under an applicable tax treaty between the United States and a foreign country on Form 1040 or Form 1040-SR. For example, an individual who meets the substantial presence test and is therefore a resident alien, and is eligible to claim a benefit under the treaty, may file a Form 1040 or Form 1040-SR and claim that certain U.S. source income is exempt from U.S. tax under an applicable income tax treaty because the income is related to teaching, studying, or training as provided in the applicable treaty article. The taxpayer must identify the foreign country involved, the tax treaty article number (paragraph is not required), the number of months the treaty benefit was claimed in prior tax years, and the amount of exempt income.

Tax treaties can vary year to year. Make sure to determine that the relevant treaty is still in force using Publication 901, U.S. Tax Treaties, Publication 915, Social Security and Equivalent Railroad Retirement Benefits, Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, and/or the IRS web page.

If a taxpayer claims a treaty benefit, the taxpayer must provide, among other things, the name of the country of which they are a resident, the relevant treaty article (paragraph is not required), the number of months the treaty benefit was claimed in prior tax years, and the amount of “exempt” income during the tax year.

Paragraph 3 of Article XXV Non-Discrimination of the United States- Canada income tax treaty allows married citizens/residents of Canada to compute the tax on their U.S. wages based upon a hypothetical Form 1040 or Form 1040-SR tax computed using married filing jointly tax rates. The following are indications that a taxpayer is seeking to invoke the benefits of Article XXV, paragraph 3 of the U.S. - Canada Income Tax Treaty:

A dual resident (one who is resident of the U.S. under U.S. domestic law and of the foreign country under the foreign country’s domestic law) may claim to be treated solely as a resident of the foreign country pursuant to the treaty Tiebreaker Rules of an applicable treaty by filing a Form 1040-NR with Form 8833 attached. The taxpayer may not claim that income is exempt under treaty solely by claiming “Tiebreaker” under Article IV (or other relevant article determining residence for purpose of a treaty). A resident article generally provides whether a taxpayer is a "resident" of a foreign country for purpose of the treaty, and it does not provide an exemption of income. If Article IV is the only treaty article provided in response to Item L on Schedule OI of Form 1040-NR, and a Form 8833 is not also attached claiming the treaty tiebreaker provision then there is no valid treaty claim to reduce or exempt income under the treaty.

Under certain circumstances, an individual may claim a benefit under an applicable tax treaty between the United States and a foreign country on Form 1040 or Form 1040-SR. For example, an individual who meets the substantial presence test and is therefore a resident alien, and is eligible to claim a benefit under the treaty, may file a Form 1040 or Form 1040-SR and claim that certain U.S. source income is exempt from U.S. tax under an applicable income tax treaty because the income is related to teaching, studying, or training as provided in the applicable treaty article. The taxpayer must identify the foreign country involved, the tax treaty article number (paragraph is not required), the number of months the treaty benefit was claimed in prior tax years, and the amount of exempt income.

U.S. citizens and resident aliens who file calendar year returns are required to file a tax return by April 15. However, taxpayers who are overseas on the due date receive an automatic extension of two months (until June 15 for calendar year filers).

If taxpayers are unable to file their return by the due date, they can generally get an automatic six month extension of time to file using a Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. For taxpayers who are overseas on the due date of their return, the two month period mentioned above (until June 15 for calendar year taxpayers) and the six month automatic extension period start at the same time. In other words, for taxpayers who are overseas, if they are unable to file their return within the automatic two month extension period they can generally get an additional 4 months using a Form 4868 (for a total of 6 months).

The extension of time to file only applies to the calculation of penalties. Interest accrues from the due date of the return.

If taxpayers file a Form 2350, Application for Extension of Time to File U.S. Income Tax Return For U.S. Citizens and Resident Aliens Abroad Who Expect to Qualify for Special Tax Treatment, such as the foreign earned income exclusion under IRC 911, they are generally granted an extension to a date thirty days after the date on which the taxpayer expects to meet the criteria. Taxpayers who expect to meet the requirements based on bona fide residence or physical presence in a foreign country can request an extension until they qualify.

Nonresident Aliens with wage income subject to Form W-2, Wage and Tax Statement, withholding have an original due date of April 15.

Nonresident Aliens without wage income subject to Form W-2 withholding have an original due date of June 15.

Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, provides for a six month extension.

The extension provisions apply to fiscal as well as calendar year filers.

Any extension request beyond December 15 for a calendar year filer requires approval.

In addition to the automatic extensions requested using a Form 4868, taxpayers who are overseas may request a discretionary two month additional extension of time to file their returns (to December 15 for calendar year taxpayers). Taxpayers must send the IRS a letter explaining the reasons why the additional 2 months is needed.

Failure to file timely U.S. returns could result in the loss of certain deductions and credits for taxes paid or accrued.

Tax relief is sometimes granted to taxpayers in areas affected by disaster situations. Generally, this relief will be provided systemically in the Master File and will be transparent on IDRS. CC IMFOLT screen will show MMDDYYYY as the ‘DISASTER RDD’ and CC INTST will be updated to reflect the extended due date. For more information on areas affected by disaster relief visit Tax relief in disaster situations

Refer to IRM 3.14.1.6.9.5, for listing of identity theft criteria.

Follow procedures in IRM 3.14.1.6.9.16, IRC 965 Transition Tax, to review IRC 965 taxes.

Follow procedures in IRM 3.14.1.6.9.18, Inflation Reduction Act (IRA) of 2022.

Use Control D, Online Notice Review (OLNR) and Integrated Data Retrieval System (IDRS) tax module data to determine disposition of notice.

Use the IDRS Command Codes Job Aid for assistance (e.g., Command Codes (CC) TXMOD, AMDIS, ENMOD, IMFOL, INOLE, INTST, RTVUE, NAMES) which is available on Servicewide Electronic Research Program (SERP)

Follow guidelines in IRM 3.14.1, IMF Notice Review.

Verify name, address, taxpayer identification number (TIN), tax period, and DLN as shown on the return with information contained in the notice.

Math Error - Review math error explanation for accuracy and verify from the point of error including previous lines and attachments that affect the point of error or other parts of the return.

Estimated Tax (ES) Discrepancy- See IRM 3.14.1.6.13.2, Estimated Tax Discrepancy Notice Disposition, for notice disposition and case resolution.

For 2019 and prior years, TPNC 311 will be assigned by ERS whenever a return is converted, during processing, from a Form 1040-NR-EZ to Form 1040-NR. TPNC 311 notifies the taxpayer that their return was converted and will cause the default TPNC literals to generate during printing. If TPNC 311 is not present on a notice for a converted return, retype the notice and add TPNC 311 as the first TPNC.

Follow guidelines in IRM 3.14.1.7.8., Notice Disposition, for marking notices in OLNR.

When choosing a label as the notice disposition, the label(s) will convert to the taxpayer’s preferred language on the actual notice.

A U.S. citizen, U.S. resident alien, or nonresident alien (filing Dual Status return) living and working in a foreign country, may be exempt from foreign earned income under IRC 911. The taxpayer is entitled to the following exclusions and/or deductions on Form 2555:

Form 2555 must be completed and filed with a Form 1040 or Form 1040-SR.

Foreign earned income shown on line 26 of Form 2555 must be shown as earned income on:

If foreign earned income other than wages is excluded, then a manual computation is necessary to determine the correct exclusion amount. The taxpayer cannot claim any adjustment, deduction or expense on Form 1040 or Form 1040-SR that is definitely-related to the excluded income. The foreign earned income exclusion on Form 2555 must be reduced by the allocable amounts. ERS assigns TPNC 303. See IMF Notice Review International Job Aid 2510-001 for instructions.

For tax years 2020 and 2021 only, a non-itemized charitable contribution can be claimed by taxpayers living overseas.

The foreign earned income exclusion amount and/or housing exclusion amount on line 45 of Form 2555 must be included on Form 1040 or Form 1040-SR:

Indications of a Form 2555 attached to Form 1040 or Form 1040-SR are:

A taxpayer qualifies for foreign earned income exclusion if the taxpayer:

Beginning in 2019, Form 2555-EZ is obsolete for 2019 and later.

For 2018 and prior years, a taxpayer may only use Form 2555-EZ if the taxpayer has foreign earned income and meets all of the following conditions:

A taxpayer may take a deduction for taxes paid or accrued during the year to:

Generally, Taxpayers may not claim both a foreign tax deduction on Schedule A and a credit on Form 1116 for foreign income taxes in the same year. However, a taxpayer claiming credit on Form 1116 for foreign income taxes may still claim a tax deduction for certain foreign income taxes for which a credit is disallowed.

Effectively connected income generally includes:

Effectively Connected Income is generally not subject to withholding if the taxpayer has complied with applicable documentation requirements but is taxed on a net basis at graduated rates.

Effectively Connected Income is reported on page 1 of:

If a taxpayer claims a treaty benefit, the taxpayer must provide, among other things, the name of the country of which they are a resident, the relevant treaty article (paragraph is not required), the number of months the treaty benefit was claimed in prior tax years, and the amount of "exempt" income during the tax year.

All treaty information used to exempt effectively connected income reported on Form 1042-S, Income Codes 16 through 20, should be provided on Item L, Schedule OI of Form 1040-NR (Item J, Schedule OI, page 2 of Form 1040-NR-EZ). Taxpayers should include treaty exempt income amounts on:

When a Form W-2 and Form 1042-S are attached to a Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years), are from the same employer, and the wages are exempt by tax treaty, an employer may report the taxable portion on Form W-2 and the tax-exempt portion on Form 1042-S . If a Form W-2 and a Form 1042-S from the same employer are attached to the return, add the income from both forms together and then subtract the treaty exemption amount to determine if the taxpayer claimed more than the maximum amount allowed by treaty. The remainder is taxable and must be reported on:

Gain or loss on the disposition of a U.S. real property interest is taxed as if the gain or loss were effectively connected with the conduct of a U.S. trade or business. Gains and losses are reported on Schedule D

If a nonresident alien disposes of U.S. real property interests at a gain, the taxpayer must make a special computation on Form 6251, Alternative Minimum Tax. The taxpayer will also enter Return Processing Instruction (RPI) on the dotted line next to line 30.

The following types of income are subject to U.S. withholding at 30 percent (unless reduced by an applicable treaty or other code provision) to the extent the income is (1) U.S. sourced, and (2) NOT effectively connected to a U.S. trade or business:

With certain exceptions, non-effectively connected income is reported on Schedule NEC of Form 1040-NR. It is generally subject to U.S. withholding tax at a flat 30 percent rate (or a lower treaty rate). No deductions are allowed against such income. Form 1042-S with exemption code 00 or a blank entry in box 3a or 4a identifies the income as non-effectively connected.

Income reported on Form 1040-NR is classified as effectively connected or non-effectively connected income.

Effectively connected income is reported on page 1 of Form 1040-NR and taxed at graduated rates with exemption from withholding.

Form 1040-NR effectively connected income generally includes wages, scholarship and fellowship grants, business income, and in limited circumstances, interest, dividends, connected with a U.S. trade or business.

Non-effectively connected income is reported on Schedule NEC of Form 1040-NR and is taxed at a flat rate of 30 percent or a lower treaty rate.

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Form 1040-NR-EZ was obsoleted after tax year 2019.

Income reported on Form 1040-NR-EZ is classified as effectively connected income only.

Gambling winnings (Form 1042-S, Income Code 28) are subject to a 30 percent withholding. Lottery winnings are not exempt. Winnings subject to withholding tax are not reduced by gambling losses. Gambling winnings are non-effectively connected (Form 1040-NR, Schedule NEC ) unless documentation is submitted to prove a nonresident alien is a professional gambler.

Taxpayers who file Form 1040 or Form 1040-SR and include gambling income from Form 1042-S (Income code 28), not reported on a Schedule C, must include the tax on Schedule 2, line 17o with the Form 1040 or Form 1040-SR. If the taxpayer enters gambling income from page 1 of Form 1040 or Form 1040-SR, and it is taxable:

Nonresident aliens with income from gambling winnings are subject to tax at a flat 30 percent rate unless covered by a treaty. This income is also subject to withholding at the source. Based on these treaties, gambling winnings are not subject to United States tax for residents of the following countries:

Federal tax withheld on gambling winnings must be substantiated with Form 1042-S (Income Code 28), Form W-2G, or Form 1099-G.

To adjust the:

Qualified scholarships are tax free. The taxpayer must be a degree candidate to qualify for a tax-free scholarship/fellowship.

A degree candidate is a full or part-time student who is pursuing a degree at a college, university (bachelor's or higher degree), or another accredited educational institution providing training in a recognized occupation.

A qualified scholarship or fellowship grant is any amount used under the terms of the grant for any of the following:

Amount(s) received for incidental expenses do not qualify as a tax-free scholarship. Incidental expenses include expenses for room, board, travel, research, and clerical help. Also included are expenses for equipment and other items that are not required for either enrollment or attendance, or in a course of instruction at the educational organization. Any portion of the grant that represents payment for teaching, research, or other services is taxable.

Scholarship/Fellowship Grants are reported on:

All or part of scholarship/fellowship grant income may be exempt under an applicable tax treaty. Any portion of the grant that represents payment for teaching, research, or other services is generally taxable. Amount should be reported on:

If the scholarship/fellowship grant amount cannot be exempted by a valid tax treaty, the taxpayer may exclude items as allowed by IRC 117 (tuition, fees, books, supplies, and equipment).

The amount excluded from scholarship/fellowship grant income explained above is reported as an adjustment to income on:

To allow or disallow the tax treaty-exempt amount or excluded amount:

See Tax Treatment of Scholarship and Fellowship Payments in the IMF Notice Review International Job Aid 2510-001 for line-by-line references.

Nonresident alien estate and trust tax returns are filed on Form 1040-NR and processed as Non-Master File documents.

If the return was incorrectly processed to Master File, take the following steps:

A qualifying child for purposes of the Child Tax Credit and/or Additional Child Tax Credit is a child who:

The credit decreases based on modified adjusted gross income (MAGI) and threshold amounts. If the taxpayer is filing Form 2555 or Form 2555-EZ, excluding income under IRC 933 (Puerto Rico), or IRC 931 (Form 4563), then:

For TY 2018 and later, use the additional information in the following tables to determine if the taxpayer qualifies for the Child Tax Credit (CTC) or the Credit for Other Dependents (ODC). Follow the instructions in IRM 3.38.147.8.3.4 to determine the qualified dependents for CTC or ODC on Form 1040-NR.

The maximum credit amounts for a qualifying child for CTC.

For tax year 2021, the Child Tax Credit is fully refundable if the taxpayer had a principal place of abode in one of the 50 states or the District of Columbia for more than half the year or was a bona fide resident of Puerto Rico.

For 2018 and later taxpayers can claim the Credit for Other Dependents (ODC) for dependents that have a valid SSN or ITIN but do not meet the qualifications for the Child Tax Credit.

If a child claimed for CTC does not have a valid SSN issued before the due date of the taxpayer’s return (original or extended), but has a valid ITIN, and qualifies as a dependent, the CTC is disallowed and the Credit for Other Dependent (ODC) is allowed. Adjust the account as needed.

The maximum ODC credit amount is $500 per eligible dependent.

See IRM 3.38.147.8.3.4 and IRM 3.38.147.10.1 for more information on Child Tax Credit versus Credit for Other Dependents.

Beginning 2015, if the taxpayer files Form 2555 (or Form 2555-EZ for 2018 and prior years) to claim the foreign earned income exclusion, housing exclusion, or housing deduction, the Additional Child Tax Credit cannot be claimed.

Bona fide residents of Puerto Rico who file Form 1040 (PR) or Form 1040-SS or Form 1040-SS(sp) and prior years can claim the ACTC directly on the tax return by completing Parts I and II using the Worksheet in the Form 1040-SS or Form 1040 (PR) instructions. Schedule 8812, Credits for Qualifying Children and Other Dependents, is not required.

For 2023 and later, a Bona Fide resident of Puerto Rico who files Form 1040-SS (SP) or Form 1040-SS can complete the Part II using the modified set of instructions similar to Schedule 8812 to claim the ACTC.

If a Bona Fide resident of Puerto Rico chooses to file Form 1040, Form 1040-SR , or (Form 1040A for 2017 and prior years) Schedule 8812 must be attached to claim ACTC.

Bona fide residents of U.S. territories other than Puerto Rico may not claim ACTC. See IRM 3.38.147.13.5.3, Additional Child Tax Credit (ACTC) and 2021 Refundable Child Tax Credit - Puerto Rico, for specific information on Puerto Rico.

The maximum credit amount for a qualifying child for ACTC :

If a dependent qualifies for only the Other Dependent Credit, then the Additional Child Tax Credit cannot be claimed.

Education tax credits are refundable and nonrefundable credits for qualified expenses paid to an eligible educational institution.

The education credit:

Form 1040-NR filers, dual-status filers, and married filing separate filers do not qualify for the education tax credit.

Taxpayer may not be eligible for education credits if taxpayer (or spouse) is a nonresident alien for any part of the tax year and did not elect to be treated as a resident alien.

If the taxpayer is filing Form 2555 (or Form 2555-EZ for 2018 and prior years), or excluding income under IRC 933 (Puerto Rico), or IRC 931 (Form 4563), the taxpayer must use worksheets 2-1 and/or 3-1 in Publication 970, Tax Benefits for Education.

The Adoption credit is a nonrefundable credit for qualified expenses paid to adopt an eligible child. (The credit was a refundable credit for TY 2010 and 2011.)

Taxpayer must file Form 8839, Qualified Adoption Expenses to claim the adoption credit.

The maximum allowable credit for qualifying expenses paid to adopt a child with special needs or an eligible child for:

A married nonresident alien can only claim the credit if filing:

Credit is subject to phaseout based on income limits.

For tax year 2021, the American Rescue Plan Act of 2021 (ARPA), made the Child and Dependent Care Credit refundable. Taxpayers are eligible for Child and Dependent Care Credit if the taxpayer, or spouse if married filing jointly, had a principal place of abode in one of the 50 states or the District of Columbia for more than half the year. The taxpayer will verify residency by checking a check box on Form 2441, line B. If the box is not checked, the credit is nonrefundable.

Since foreign childcare providers do not have U.S. filing requirements, they are not required to have a TIN. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

If the taxpayer resides outside the U.S., they are generally not entitled to EITC. See (6) and (7) below for exceptions.

Any taxpayer who claims a foreign earned income exclusion on Form 2555 (or Form 2555-EZ for 2018 and prior years) is not entitled to EITC.

Any taxpayer who exempts income under IRC 933 (Puerto Rico) or IRC 931 (Form 4563) is not entitled to EITC.

Taxpayers who file Form 1040-NR and Form 1040-NR-EZ are not entitled to EITC.

Taxpayers who live in U.S. territories are not entitled to EITC from the IRS.

If the taxpayer claims EITC and resides outside the U.S. for part of the tax year, and it can be determined that the taxpayer moved from one of the 50 states or the District of Columbia (D.C.), allow EITC if the address on the Form W-2(s) or the Schedule C is one of the 50 states or D.C.

Allow EITC for U.S. territories if the taxpayer claims the credit and is in the U.S. Military stationed overseas in a U.S. territory. Search signature area, Form W-2(s) and/or attachments for any of the following indications:

The following taxpayers are not eligible for the 2020 or 2021 Recovery Rebate Credit (RRC) if the taxpayer is:

Starting in 2014, individuals and families can claim a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Marketplace. Taxpayers use Form 8962, Premium Tax Credit, to compute and claim the premium tax credit on their tax return. If the taxpayers have received the benefit of advanced payments of the premium tax credit (APTC), the taxpayers must reconcile the credit with the amount of their APTC to either claim any additional credit allowed on their tax return or repay the excess benefit received from APTC paid to the insurer. See IRM 3.14.1.6.9.13 for more information.

Follow procedures in IRM 3.14.1.6.12.6.10, Economic Income Payments (EIP), to review the CARES Act recovery rebate credit (referred to as Economic Impact Payments (EIP).

The following individuals are ineligible to receive EIP:

Form 1040 (Form 1040-SR) Dual-Status (D/S) is required when a taxpayer is a resident of the United States on the last day of the year.

Form 1040 (Form 1040-SR) covers the part of the year in which the taxpayer was a resident and includes worldwide income from all sources.

Dual-Status taxpayers must attach Form 1040-NR, (or Form 1040-NR-EZ for 2019 and prior years or substitute statement) reflecting U.S. source income earned during the period of non-residency.

Resident aliens are taxed on worldwide income. Income is reported on Form 1040 or Form 1040-SR.

Generally, income earned as a nonresident alien is not taxable in the U.S. unless it is effectively connected with a U.S. trade or business or is U.S. source income. Annuities, dividends, interest, capital gains, rents, and royalties; that are not connected with a U.S. source trade or business are taxed at 30 percent or applicable treaty rate.

The tax on both returns is combined on the Form 1040 D/S return.

If the taxpayer computes tax on non-effectively connected income on Schedule NEC , the amount is carried over to:

The combination of incomes and withholding amounts shown on both Form 1040 (Form 1040-SR) and Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years) is totaled on Form 1040 (Form 1040-SR).

If the amounts on the Form 1040 (Form 1040-SR) and Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years) are the same, do not combine with the Form 1040 (Form 1040-SR) amounts.

If the amounts on the Form 1040 (Form 1040-SR) and Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years) are not the same, combine the amounts from the Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years) with Form 1040.

Only filing status codes 1, 3, or 5 are allowed.

A Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years) Dual-Status (D/S) return is required when taxpayer is a nonresident alien of the United States on the last day of the year.

Generally, Form 1040-NR or Form 1040-NR-EZ D/S returns show a foreign address. If return shows domestic address, review to ensure dual status.

Dual-Status returns are taxed according to two separate tax periods under provisions applicable to nonresident aliens and resident aliens.

If the taxpayer computes tax on non-effectively connected income on Schedule NEC , the amount is carried over to:

Non-effectively connected income received during non-residency is taxed at 30 percent or applicable treaty rate.

A Form 1040 (Form 1040-SR) dual-status return is attached as a statement to Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years) to show U.S. source income earned during nonresidency.

When nonresident aliens give up U.S. residency and file Form 1040-NR, they are required to attach Form 1040 or Form 1040-SR as a statement to show tax on income received during residency.

The combination of incomes and withholding amounts shown on both Form 1040 (Form 1040-SR) and Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years) is totaled on Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years).

If the amounts on the Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years) and Form 1040 (Form 1040-SR) are the same, do not combine amounts to the Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years).

If the amounts on the Form 1040 and Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years) are not the same, combine the amounts from the Form 1040 to Form 1040-NR (or Form 1040-NR-EZ for 2019 and prior years).

For TY 2017 and prior years, during the period of residency, all exemptions can be claimed just like Form 1040 filing but cannot exceed taxpayer's taxable income (computed without regard for personal exemptions).

Only filing status codes 1, or 3 are allowed.

Earned Income Tax Credit (Schedule EIC), Education Credits (Form 8863),Recovery Rebate Credits for tax years 2020 and 2021, and Credit for the Elderly or Disabled (Schedule R) cannot be claimed by a taxpayer who is filing as a nonresident alien.

Self-employment tax is paid only on income earned during residency.

Commuters from Canada and Mexico file Form 1040-NR and are not liable for self-employment tax.

There are certain times when an overpayment cannot be refunded through normal procedures. Follow procedures in IRM 3.14.1.6.6, Manual Refunds.

A manual refund is required for the issuance of an overpayment in the following situations:

The IRS occasionally issues a refund to a taxpayer who is not entitled to the money. When this occurs, the refund is known as an erroneous refund. The reason for the erroneous refund may be an error by the IRS or an error or intentional misstatement by the taxpayer. Follow instructions in IRM 3.14.1.6.7, Erroneous Refunds.

Definition of Erroneous Refund - Any receipt of money from the IRS to which the recipient is not entitled. This definition is intended to be very broad and includes all erroneous payments even if the:

A taxpayer who receives an erroneous refund has a legal obligation to repay the money to the IRS.

For all categories of erroneous refunds follow procedures in IRM 3.14.1.6.7, Erroneous Refunds. The work lead will route the erroneous refund package to the appropriate area.

The Centralized Authorization File (CAF) contains information regarding authorizations that taxpayers have given third parties (Representatives) for various tax matters within their accounts. Occasionally the computer will identify a CAF Mismatch on accounts where there is a missing address for the Representative. This appears on the marking screen of Online Notice Review (OLNR) as a CM. To obtain this information for the International Account, use CC CFINK, in the following format beginning on CC TXMOD.

Use the MFT and year of the return. Then do CFINK XXXX-XXXXXR for the Representative number authorized to receive notices. This will be the Representative designated by the taxpayer.

A U.S citizen, resident alien or nonresident alien who is a bona fide resident of the U.S. Virgin Islands (USVI) for the tax year is required to file a tax return with the USVI.

U.S. citizens and resident aliens with income from sources within the U.S. Virgin Islands (USVI) or with income effectively connected with a trade or business in the U.S. Virgin Islands, who are not bona fide residents of the U.S. Virgin Islands are required to:

A nonresident alien of the U.S. who is not bona fide residents of the USVI for the entire tax year must file:

If the taxpayer files a joint tax return, the taxpayer files the return with the jurisdiction where the spouse who has the greater Adjusted Gross Income (AGI) would have to file if that person was to file separately. If the spouse with the greater AGI:

Allow only withholding taxes paid to the U.S. Government on an attached Form W-2. Do not allow withholding paid on a Form W-2VI. The taxpayer may be able to claim a foreign tax credit for any income tax paid to the USVI on the same income reported on a U.S. income tax return. Assign TPNC 438.

A U.S. citizen, resident alien, or nonresident alien who is a bona fide resident of American Samoa (AS) for entire tax year must file:

A U.S. citizen or resident alien who is not a bona fide resident of American Samoa for entire year must file:

A nonresident alien must file:

U.S. Nationals who are living apart from their spouses may file as single if they meet certain requirements. This provision is sometimes referred to as the “abandoned spouse” provision. This provision may be applicable to American Samoa married residents.

U.S. Government employees living in American Samoa, whether bona fide residents or non bona fide residents, can claim a credit against tax on their U.S. tax return for income taxes paid or accrued to American Samoa. To claim the credit, the taxpayer must figure the credit on Form 1116, Foreign Tax Credit, and attach it to the U.S. tax return.

Bona fide residents of American Samoa with earned income from American Samoa must claim the IRC 931 exclusion using Form 4563.

Allow only withholding taxes paid to the U.S. Government on an attached Form W-2. Do not allow withholding paid on a Form W-2AS. For American Samoa withholding taxes paid on a Form W-2AS, the taxpayer may be able to claim a foreign tax credit for those taxes on the same income reported on a U.S. income tax return. Adjust the account if necessary and assign TPNC 438.

U.S. citizens and resident aliens who are bona fide residents of American Samoa with effectively connected income of more than $400 from the conduct of a trade or business and no U.S. filing requirement are required to file Form 1040-SS, U.S. Self-Employment Tax Return, with the Internal Revenue Service to report net earnings from self-employment and, if necessary, pay self-employment tax.

A U.S. citizen, resident alien, or nonresident alien who is a bona fide resident of Guam (GU) for the entire tax year files with the Guam government (Under IRC 935).

A U.S. citizen or resident alien who is not a bona fide resident of Guam for the entire tax year files a tax return (Form 1040 or Form 1040-SR) with the United States.

If the taxpayer files a joint tax return, the taxpayer files the return with the jurisdiction where the spouse who has the greater AGI would have to file if that person was to file separately. If the spouse with the greater AGI:

A nonresident alien of the U.S. who is not a bona fide resident of Guam for the entire year must file:

If copy (c) of a Form W-2GU is attached to the return, route a copy of the return to the following address using Form 3499, Informational Transmittal. Annotate “Guam W-2, Copy (c), Adjustment needed” on a Form 3465, Adjustment Request, included with the copy of the return.

U.S. citizens and resident aliens who are bona fide residents of Guam with effectively connected income of more than $400 from the conduct of a trade or business and no U.S. filing requirement are required to file Form 1040-SS, U.S. Self-Employment Tax Return, with the IRS to report income and, if necessary, pay self-employment tax.

A U.S. citizen, resident alien, or nonresident alien who is a bona fide resident of the Commonwealth of the Northern Mariana Islands (CNMI) for the entire tax year files with the CNMI government:

A U.S. citizen or resident alien who is not a bona fide resident of CNMI for the entire tax year and files a tax return (Form 1040 or Form 1040-SR) with the United States.

If the taxpayer files a joint tax return, the taxpayer files the return with the jurisdiction where the spouse who has the greater AGI would have to file if that person was to file separately.

A nonresident alien of the U.S. who is not a bona fide resident of CNMI for the entire tax year must file:

U.S. citizens who are living apart from their spouses may file as single if they meet certain requirements. This provision is sometimes referred to as the “abandoned spouse” provision. This provision may be applicable to CNMI married residents.

U.S. citizens and resident aliens who are bona fide residents of the Commonwealth of Northern Mariana Islands with effectively connected income of more than $400 from the conduct of a trade or business and no U.S. filing requirement are required to file Form 1040-SS, U.S. Self-Employment Tax Return, with the IRS to report income and, if necessary, pay self-employment tax.

A U.S. citizen, resident alien, or nonresident alien who is a bona fide resident of Puerto Rico (PR) for the entire tax year files an income tax return with Puerto Rico. If all the taxpayer's income is from Puerto Rico sources, a U.S. tax return is NOT required. A U.S. income tax return is required if the taxpayer has income from non-Puerto Rico sources.

Taxpayers who have effectively connected net business income of more than $400 from a trade or business in PR and no U.S. filing requirement must file a Form 1040-SS or Form 1040-SS (sp) (or Form 1040 (PR), for tax year 2022 and prior years), with the IRS to report net earnings from self-employment and, if necessary, pay self-employment tax. For tax years 2023 and later, taxpayers may choose to file Form 1040-SS (sp) (Spanish version), to pay self-employment tax.

For 2023 and later, taxpayers who are bona fide residents of Puerto Rico must file Form 1040-SS (English version) or Form 1040-SS (sp) (Spanish version) to pay self-employment taxes. Part II of the Form 1040-SS (sp), contains a modified Schedule 8812, Additional Child Tax Credit, used to compute the credit.

For 2021 only, taxpayers who are bona fide residents of Puerto Rico may file Form 1040 or Form 1040-SR instead of Form 1040 (PR) or Form 1040-SS to pay self-employment tax and claim 2021 refundable Child Tax Credit.

For 2020 and prior years, taxpayers who are bona fide residents of Puerto Rico must file Form 1040 (PR) or Form 1040-SS, to pay self-employment tax and to claim Additional Child Tax Credit.

All tax returns are due by the fifteenth day of the fourth month following the end of the tax year.

Taxpayers residing in other territories file Form 1040-SS to pay self-employment tax. For 2023 and later, taxpayers may choose to file Form 1040-SS (sp) (Spanish version), to pay self-employment tax .

Returns are due by the fifteenth day of the fourth month following the end of the tax period.

Taxpayers residing in a U.S. territory (except Puerto Rico) have an automatic extension of time to file their returns until June 15th.

Nonresident aliens can claim community property if domiciled in a community property country.

Income earned by either spouse through wages, business, or partnership is treated as income of the spouse who earned it regardless of community property laws.

Per IRC 879, income and withholding cannot be split between nonresident alien spouses.

A person is not a self-employed person unless they have income from a trade or business including a partnership.

If any of the income from a business is community income under state community property laws, all the gross income and related deductions are generally treated as gross income and deductions of the spouse who earned it.

If the other spouse exercises substantially all management and control over the business, all the gross income and related deductions are treated as income and deductions of that spouse.

If a taxpayer with a nonresident alien spouse elects to treat the spouse as a U.S. resident for tax purposes, the taxpayer will use the community property rules where they reside. See Pub 519, U.S. Tax guide for Aliens, for more information.

Community Property States, Countries and Territories:

Based on attachments such as name and TIN on Form W-2, Form 1099-MISC, etc., determine the true recipient of the income.

Based on combined income and withholding for each recipient, adjust amount to each separate return. If Form 1099 is not attached, adjust all interest, dividend, and capital gain income on the spouses' return who has all or most of the income. Determine the true recipient of the income based on name and TIN on attached Form W-2, Form 1099-MISC., etc.

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If supporting documents for withholding are not attached, verify the withholding≡ ≡ ≡ ≡ ≡ ≡ ≡ claimed by the taxpayer using CC IRPTR and allow only the withholding displayed on CC IRPTR, not to exceed the amount claimed by the taxpayer. Send appropriate TPNC.

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Withholding from Form 1042-S should be reported on Form 1040-NR:
• Line 25g for 2020 and later
• Line 62d for 2019 and prior years or
• Line 18b of Form 1040-NR-EZ for 2019 and prior years.
If the withholding is present on Form 1042-S, but was not claimed on the tax return, follow taxpayer intent and adjust the account to allow the withholding.

Social security payments on international tax returns fall into three categories depending on if the taxpayer is a U.S. citizen residing abroad, a nonresident alien, or a lawful permanent resident alien of the U.S.

Social security benefits (Form SSA-1042S) paid to nonresident aliens who are not residents of treaty exempt countries are subject to 30 percent tax rate on 85 percent of their benefits. This income is considered non-effectively connected and is reported on Form 1040-NR, Schedule NEC , line 8.

U.S. citizens residing abroad and nonresident aliens who are residents of the following countries are exempt from U.S. tax on their benefits. Disallow if claimed by the taxpayer on Form 1040 or Form 1040-SR:

The SSA will not withhold U.S. tax from a taxpayer’s benefits if they are a U.S. citizen and reside in one of these countries.

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If the taxpayer excludes income using Form 2555, exempts income under IRC 933 (Puerto Rico) or IRC 931 (Form 4563), then accept taxpayer’s amount of taxable social security.

Under income tax treaties with Canada and Germany, social security benefits paid by those countries to U.S. residents are treated for U.S. income tax purposes as if they were paid under the social security legislation of the United States. If the taxpayer receives social security benefits from Canada or Germany, they should include them on line 1 of the Social Security Benefits Worksheet.

The RRB will withhold U.S. tax from a taxpayer’s benefits unless they file Form RRB-1001, Nonresident Questionnaire, with the RRB to provide citizenship and residency information. If they do not file Form RRB-1001, the RRB will consider them a nonresident alien and withhold tax from their railroad retirement benefits at a 30 percent rate on Form RRB-1042S.

For U.S. income tax purposes, lawful permanent residents (green card holders) are considered resident aliens until that status under the immigration laws is either taken away or is administratively or judicially determined to have been abandoned. Social security benefits paid to a green card holder are not subject to 30 percent withholding. If a green card holder’s tax on social security benefits was withheld in error because they have a foreign address, the withholding tax is refundable by the Social Security Administration (SSA) or the IRS. To receive a refund of the tax withheld in error, the taxpayer must file either Form 1040 or Form 1040A with the following attached:

Taxpayers are sending in series 1040 returns using their firm address, which usually is in the United States or a U.S. territory. Processing will correspond for the three (3) items listed above and when the taxpayer is unable to provide the required information, the claim is disallowed. Notice Review will generally see this condition generate a CP 13 with TPNC 442.

Disability pensions shown on Form 1042-S with Income Code 15 will be reported on Form 1040-NR, line 1a for 2020 and later (or line 8 for 2019 and prior years), if the taxpayer has not reached the minimum retirement age set by the employer. Disability pensions received after the minimum retirement age has been reached will be reported on Form 1040-NR, lines 5a/5b for 2020 and later or lines 17a/b for 2019 and prior years.

Nonresident aliens with pension income supported by Form 1042-S with Income Code 15 without an Exemption code or Exemption Code 00 must report such income as non-effectively connected income on Schedule NEC , line 7, and tax on 23a of Form 1040-NR. If pension income from Form 1042-S is reported on Form 1040 or Form 1040-SR, the amount should be removed from line 5b and included on Schedule 2, line 17o at the tax treaty tax rate and included in total tax of Form 1040 or Form 1040-SR, line 24 for 2020 and later, line 15/16 for 2018 or 2019 or line 63 for 2017 and prior.

A member of the U.S. military reaching retirement age may elect to receive, during their lifetime, a reduced U.S. military pension in order that the taxpayer’s surviving spouse may continue to draw a U.S. military pension after their death. After the death of the U.S. military retiree, the pension which is paid to the retiree's surviving spouse is called a "Survivor Benefit Annuity" (SBA) or a "Survivor Benefit Plan" (SBP).

SBAs/SBPs paid to nonresident aliens who reside in the following countries are not subject to U.S. tax under current treaties, provided they are citizens(*) and/or a national of the country in which they reside.

SBAs/SBPs paid to residents and citizens of the following countries are taxable in the U.S. at the following tax rates under current tax treaties (or in the absence of a treaty):

An Exemption Code identifies which type of exemption from withholding the recipient claimed.

The most common Chapter 3 or 4 Exemption Codes are identified below: