The IRS has updated its practice unit discussing Form 1040NR Examination Adjustments in RGS. The overview is as follows:
Return Generation Software (RGS) is designed mainly to computes tax for Form 1040, U.S. Individual Income Tax Return, Form 1120, U.S. Corporate Income Tax Return, Form 1120S, U.S. Income Tax Return for an S Corporation, and Form 1065, U.S. Return of Partnership Income. Currently, RGS application does not have a dedicated Form 1040NR module for examiner to use when examining Form 1040-NR and Form 1040-NR-EZ. There is no return setup for Form 1040NR or Form 1040NR-EZ to do a tax computation inRGS. Therefore, the examiner would need to perform workarounds to make examination adjustments, compute the correct tax and generate proper 1040NR examination reports and workpapers.
This Process Unit provides general guidance and procedures for workarounds using RGS for 1040-NR and 1040-NR-EZ. The procedures involve creating Form 1040-NR as Form 1040, changing Form Type in Case Information to Form 1040NR and verifying accuracy of other relevant sections. Also, this Unit will assist examiners to determine whether changes are made correctly, explain problems when a Form 1040NR is not created as Form 1040, and provide steps on how to enter tax on Fixed, Determinable, Annual, or Periodical (FDAP) income, (i.e., the not Effectively Connected income (NEC). Lastly, an example shown in Example of the Process will illustrate how to create an issue to categorize an NEC income adjustment and a tax adjustment on NEC income in RGS.
See the full practice unit by clicking IRS Updates Practice Unit on Form 1040NR Examination Adjustments in RGS (September 20, 2021).
Posted by Jessica Ji, Associate Editor, Wealth Strategies Journal.