Thank you @pk ! You comments make total sense. I agree making allocation following IRC 879 is the most logical.
I have several additional questions:
1. Part of my mom's income is interest from her saving accounts. These accounts are solely under her name and located in her home country (i.e. foreign to the US). IRC 879 enforces 100% allocation on earned income but leaves investment income (e.g. interest) up to the state law. Does that change your analysis? If my mom has to allocate 50% of the interest income to my dad, it would require my dad to file 1040NR?
2. If my mom allocates 50% to my dad which requires my dad to file 1040NR or 540NR, it would be taxing a NRA on non-US sourced income. That seems to be against basic principles of NRA should only be taxed on US sourced income. Does this analysis make sense to you (you also mentioned this from enforcement perspective)?
3. According to this link, IRC 879 was enacted to prevent US person from avoiding tax by allocating 50% of income to NRA. Hence always allocating 100% to the US person should be a conservative/safe approach?
