26 U.S.C. §872(a) (1965)
26 U.S.C. §872 (1965)
(a) General Rule.—In the case of a nonresident alien individual gross income includes only the gross income from sources within the United States.
[26 U.S.C. §872(a) (1965)]
26 U.S.C. §872(a) (1966 Tax Act)
26 U.S.C. §872 (1965)
"(a) GENERAL RULE.—In the case of a nonresident alien individual,
gross income includes only—
"(1) gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and
"(2) gross income which is effectively connected with the conduct of a trade or business within the United States.".
[26 U.S.C. §872(a) (1966 Tax Act);
EDITORIAL: The "effectively connected with a trade or business" started in 1967, the same year they rolled out the 1040NR for the first time (there were separate return forms for NRA's before that, going back to 1938). Before that only income from sources within the United States would be gross income to a nonresident alien. They added "national of the United States" to IRC 873 in 1972: • 1972 (P.L. 92-580)]
26 U.S.C. §873 (Today)
26 U.S.C. §873
SEC. 873. DEDUCTIONS.
"(a) GENERAL RULE.—In the case of a nonresident alien individual, the deductions shall be allowed only for purposes of section 871 (b)
and (except as provided by subsection (b)) only if and to the extent that they are connected with income which is effectively connected with the conduct of a trade or business within the United States; and the proper apportionment and allocation of the deductions for this
purpose shall be determined as provided in regulations prescribed by the Secretary or his delegate.
"(b) EXCEPTIONS.—The following deductions shall be allowed whether or not they are connected with income which is effectively connected with the conduct of a trade or business within the United States:
"(1) Losses.—The deduction, for losses of property not connected with the trade or business if arising from certain casualties
78 Stat. 43. Or theft, allowed by section 165(c) (3), but only if the loss is of property located within the United States.
"(2) CHARITABLE CONTRIBUTIONS.—The deduction for charitable contributions and gifts allowed by section 170.
"(3) PERSONAL EXEMPTION.—The deduction for personal exemptions allowed by section 151, except that in the case of a nonresident alien individual who is not a resident of a contiguous country only one exemption shall be allowed under section 151.
[26 U.S.C. §873]
26 U.S. Code § 864(c) Effectively Connected Income
(c)Effectively connected income, etc.
For purposes of this title—
26 CFR § 1.872-2 - Exclusions from gross income of nonresident alien individuals.
(f) Other exclusions. Income which is from sources without the United States, as determined under the provisions of sections 861 through 863, and the regulations thereunder, is not included in the gross income of a nonresident alien individual unless such income is effectively connected for the taxable year with the conduct of a trade or business in the United States by that individual. To determine specific exclusions in the case of other items which are from sources within the United States, see the applicable sections of the Code. For special rules under a tax convention for determining the sources of income and for excluding, from gross income, income from sources without the United States which is effectively connected with the conduct of a trade or business in the United States, see the applicable tax convention. For determining which income from sources without the United States is effectively connected with the conduct of a trade or business in the United States, see section 864(c)(4) and § 1.864-5.
[26 C.F.R. §1.872-2]
So in the 1966 Tax Act, they added "effectively connected" income to the definition of "gross income" for a NRA. Before that, ONLY income that was ACTUALLY from a source within the United States would be "gross income" to a NRA. We recognize that all Americans are nonresident aliens every year by default (unless they file 1040 for that year). So creating this "effectively connected" nexus allows for a purely CONTRACTUAL liability to be created. Before that it was just mistake of law if a nonresident alien filed as a U.S. person and declared all his income as "gross income". By introducing this "effectively connected" nexus, the liability is created quasi-contractually (even if done by mistake) and therefore it is more solidly legal because there is from that point a basis in the Code for liability to arise that way. As if to further cover their asses, they add "national of the United States" to the Code in 1972 in a provision for nonresident aliens. And then later, in 1986, the "election to be treated as a resident alien" created a quasi-contractual basis for "U.S. person" whereas before that it would just have been purely mistake of law on the part of the nonresident alien filer.
So they knew since 1919 (if not before that) they were relying on deception to DUPE 1040 filers into liability based on the filer's MISTAKES OF LAW. They wanted tax liability to be more legally solid, so they added these provisions to the Code in 1966, 1972 and in 1986 that would transform what had been up to that point a reliance on duping Americans into pure mistakes of law into, instead duping Americans into these quasi-contractual devices for American nonresident aliens to effectively "opt in" to being liable. This gave everyone running the SCAM more plausible deniability than they had before.