IRS MUST FOLLOW NORMAL ASSESSMENT PROCEDURES ON 1040s FILED BY NON- RESIDENT ALIENS.

UIL: 7701.00-00

[3] As a general rule, resident aliens are taxed in the same manner as U.S. citizens. Nonresident aliens are taxed pursuant to § 7701(b) of the Code, which articulates the tax residency rules. Under the tax residency rules of § 7701(b) generally, any alien who is not a resident alien must be a nonresident alien. An alien can become a resident alien in one of three ways: (1) by being lawfully admitted to the United States for permanent residence under the immigration laws (the Green Card test); (2) by meeting the Substantial Presence Test (a numerical formula which measures days of presence in the United States); or (3) by making the "First Year Election" (a numerical formula under which an alien may pass the substantial presence test one year earlier than under normal rules). See, § 7701(b)(1)(A).

[4] Section 7701(b)(1)(A) provides that an alien individual is treated as a resident alien if he (i) is a lawful permanent resident of the United States (green card holder), (ii) meets the substantial presence test of § 7701(b)(3), or (iii) makes the first year election provided in § 7701(b)(4).

[5] Section 7701(b)(1)(B) provides that a individual is a nonresident alien if he is neither a citizen of the United States nor a resident alien under § 7701(b)(1)(A).

[6] Section 6012(a)(1)(A) provides, with certain exceptions, that returns with respect to income taxes under subtitle A must be made by every individual having for the taxable year gross income that equals or exceeds the exemption amount. Section 6012(a) also provides that subject to such conditions, limitations, and exceptions and under such regulations as may be prescribed, nonresident alien individuals subject to the tax imposed by § 871 may be exempted from the requirement of making returns.

[7] Section 1.6012-1(a) of the Income Tax Regulations ("regulations") sets forth rules for income tax returns to be filed by U.S. citizens and resident aliens (including nonresident alien spouses who make an election under § 6013(g) to be treated as a resident).

[8] Section 1.6012-1(b) of the regulations sets forth rules for income tax returns to be filed by nonresident alien individuals. It expressly refers to Form 1040NR.

[9] If an alien individual fails to be classified as a resident alien under one of the three tests specified in § 7701(b)(1)(A), and if he has not made an election under § 6013(g) to be treated as a resident, then he is covered by § 1.6012-1(b), rather than § 1.6012-1(a), and he should file Form 1040NR, not Form 1040.

Issue 2

[10] The impetus for this request for advice is that the requestor would like to extrapolate information from a Form 1040 filed by a taxpayer and use that information to fill out a Form 1040NR for that taxpayer. That is, the Service would not respect the return filed by the taxpayer but instead would extrapolate certain information from it to a Form 1040NR created by the Service and processed as if the taxpayer had signed the Form 1040NR. In essence, the Service Center is basically preparing a substitute for return and assessing without resort to deficiency procedures.

[11] More specifically, when a Form 1040 arrives at the Service Center with an ITIN, it will be checked to see if it meets one of the three resident alien requirements, including the substantial presence test. If the Form 1040 does not meet the requirements, the Service Center will extrapolate applicable information from the Form 1040 and fill out a Form 1040NR for the taxpayer. The Service Center will then assess the amounts shown on the Form 1040NR and not from the Form 1040 actually filed by the taxpayer. It should be noted that various line items such as the earned income tax credit and the child tax credit allowed for a Form 1040 are not available for filers of a Form 1040NR.

[12] The Code has very specific requirements for filing returns, assessing tax on returns and determining deficiencies in tax so that additional assessments may be made. Section 6012 requires that certain individuals having the requisite amount of gross income file federal income tax returns. Section 6201(a)(1) provides that the Service shall assess all taxes determined by the taxpayer on such returns. Sections 6212-6215 impose limitations on the manner in which the Service may assess any deficiency in taxes. Once a "return" within the meaning of § 6201(a)(1) is filed, these provisions do not permit the Service to adjust a taxpayer's account without following those prescribed procedures.

[13] Generally, the Service has the authority to require taxpayers to file their returns on the correct form; however, a document may qualify as a return so long as it meets certain requirements. See Commissioner v. Lane-Wells, 321 U.S. 219 (1944); Germantown Co. v. Commissioner, 309 U.S. 304 (1940); Zellerbach Paper Co. v. Helvering, 293 U.S. 172 (1934). In Beard v. Commissioner, 82 T.C. 766, 777 (1984), aff'd, 793 F.2d 139 (6th Cir. 1986), the court summarized the relevant Supreme Court case law as follows:

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