IRS Form 1040-C (2020) Departing Alien Income Tax Return: Compliance Checklist
2020 Form-Specific Context
Form 1040-C differs fundamentally from standard Form 1040 returns in that it serves aliens, both resident and nonresident, who are departing the United States. It requires reporting of all income received or expected to be obtained up to the departure date, with immediate tax payment and issuance of a certificate of compliance. This certificate, commonly called a sailing permit or departure permit, certifies that the departing alien has satisfied U.S. tax obligations or made payment arrangements.
No stimulus reconciliation for Economic Impact Payment 1 or Economic Impact Payment 2 applies to Form 1040-C, as this form is a departure-only return and not an annual final return. Standard deduction and Alternative Minimum Tax exemption amounts were adjusted for 2020, and the Social Security wage base cap for 2020 is $137,700.
Year-Specific Rules Applicable to 2020 Form 1040-C
The 2020 instructions establish that an individual is a resident alien for tax purposes if they meet the substantial presence test by being physically present in the United States for at least 31 days during 2020 and for at least 183 days during the three years, including 2020 and the two prior years, using a weighted calculation. Alternatively, an individual can avoid resident alien status through the closer connection exception if they were present in the United States for fewer than 183 days during 2020, had a tax home in a foreign country for the entire year, and demonstrated a closer connection to one foreign country than to the United States.
The excess business loss limitation, which would have limited noncorporate taxpayers’ business losses to $259,000 ($518,000 for married filing joint returns) for 2020, was retroactively repealed by the CARES Act. Hence, no threshold applies, and excess business losses are not limited to the tax year 2020.
10-Step Compliance Checklist for Form 1040-C (2020)
Step 1: Verify Alien Departure Status and Timeline
Confirm your planned departure date from the United States and file Form 1040-C between 30 days before departure and at least 2 weeks before departure to allow sufficient processing time. If you are a resident alien departing, you must include all income received or reasonably expected to be received during the entire calendar year of departure, not just income received through your departure date.
If you are departing between January 1, 2020, and April 15, 2020, you must also file Form 1040-NR, Form 1040, or Form 1040-SR for tax year 2019 and pay any tax due for that prior year. Filing Form 1040-C does not eliminate your obligation to file an annual return for the complete tax year after the year ends.
Step 2: Gather Required Identification and Tax Documents
Collect your valid passport with an alien registration card (green card) or current visa stamp, copies of all U.S. income tax returns filed for the past two years, or for the period you were in the United States if you have been here less than two years. Gather receipts and proof of payment for income taxes paid on those prior-year returns, including Forms 1040, 1040-NR, or state tax returns.
If you were self-employed during 2020 or prior years, bring a complete statement of income and expenses up to your departure date showing all business receipts and deductible business expenses. Organize all documentation by tax year to facilitate IRS review.
Step 3: Compile Employment and Income Records
Obtain a statement from each employer showing total wages paid and federal income tax withheld for the current year through your departure date. If you have not received your final paycheck, please provide documentation of wages earned up to the date of your departure. Include proof of all estimated tax payments made for the past year and for the current year through your departure date, including copies of Forms 1040-ES payment vouchers or electronic payment confirmations.
Compile documentation for any income not covered by Forms 1099 or W-2, including cash receipts, foreign income, rental income, or other sources that may not generate information returns. Maintain contemporaneous records of all income received or expected.
Step 4: Document Business Activities (if applicable)
If you are self-employed or operate a business as a sole proprietor, prepare a complete statement of income and expenses through your departure date showing gross receipts, cost of goods sold if applicable, and all ordinary and necessary business expenses. If you are claiming business use of your home, use Form 8829 to calculate actual expenses or use the simplified method worksheet to determine deductible home office expenses for the business portion of the year only.
The simplified method allows $5 per square foot for up to 300 square feet of home office space. If you operated multiple businesses during 2020, prepare separate income and expense statements for each business showing the principal business or professional activity code for each.
Step 5: Determine Resident vs. Nonresident Alien Status
Apply the substantial presence test: you are a resident alien for 2020 if you were physically present in the United States at least 31 days during 2020 AND at least 183 days during the three years including 2020, 2019, and 2018 using the weighted calculation (each day in 2020 counts as 1 day, each day in 2019 counts as 1/3 day, and each day in 2018 counts as 1/6 day). Alternatively, you may qualify for the closer connection exception if you were present in the United States fewer than 183 days during 2020, had a tax home in a foreign country throughout the year, and had a closer connection to one foreign country than to the United States.
If you are a resident alien, use Form 1040 or Form 1040-SR instructions to determine which adjustments to income you may take. If you are a nonresident alien with income effectively connected to a U.S. trade or business, use Form 1040-NR instructions and report only effectively connected income and certain U.S.-source income.
Step 6: Report Capital Gains, Sales of Property, and Investment Income
Document any gain or loss from the sale or exchange of personal property, real property, capital assets, and merchandise during 2020 through your departure date. Include certificates of purchase, closing statements, and fair market value determinations for property sold. Compile brokerage statements for all securities transactions showing dates of acquisition and sale, cost basis, and proceeds. Include Form 1099-B or substitute statements if received from brokers.
For nonresident aliens, gains from the disposition of U.S. real property interests are treated as effectively connected income and subject to U.S. tax and withholding under the Foreign Investment in Real Property Tax Act (FIRPTA). Document any FIRPTA withholding on Form 8288-A and include copies with your Form 1040-C.
Step 7: Document Scholarship, Fellowship, and Treaty Benefits
If you are claiming scholarship or fellowship grant income exclusion under qualified tuition and fees provisions, gather verification of the grantor and source of the scholarship, copies of the grant application and approval documents, a statement showing the amount paid and your duties and obligations under the grant, and a list of any previous grants or scholarships received.
Obtain documents indicating your qualification for any special tax treaty benefits claimed, including proof of tax residency in the treaty country, the specific treaty article being claimed, and Form W-9 or Form 8233 if you provided these to payers. If you are a student on an F, J, M, or Q visa, attach Form 8843 (Statement for Exempt Individuals and Individuals With a Medical Condition) to exclude certain days of presence from the substantial presence test calculation.
Step 8: Calculate Total Income and Tax Liability
Total all income received or reasonably expected to be obtained through your departure date and for the remainder of the calendar year if you are a resident alien. Include wages from all employers, business income after deductions for ordinary and necessary business expenses, capital gains or losses from property sales, investment income such as interest and dividends, and any other income from all sources.
On Form 1040-C Part III (Figuring Your Income Tax), determine your tax liability using the applicable filer group: Group I for resident aliens taxed on worldwide income at graduated rates, Group II for nonresident aliens with income effectively connected to a U.S. trade or business taxed at graduated rates, or Group III for other nonresident aliens with fixed, determinable, annual, or periodical (FDAP) income taxed at a flat 30% rate or lower treaty rate if applicable. Calculate taxable income by subtracting allowable deductions and applying the appropriate tax rate schedule or withholding rate.
Step 9: Prepare Form 1040-C with Required Schedules and Attachments
File an original and one copy of Form 1040-C for the tax year in which you plan to leave the United States. Attach copies of your U.S. income tax returns for the past two years if you filed returns for those years. Attach Form 6198 (At-Risk Limitations) if you have a business loss and some of your investment in the business is not at risk, such as nonrecourse loans or amounts protected against loss. Attach Form 8829 (Expenses for Business Use of Your Home) if you are claiming business use of your home actual expenses, or include the simplified method worksheet if you are using that method.
Attach depreciation schedules if you are claiming the Section 179 expense deduction or depreciation on business property placed in service during the year. Attach copies of any Forms 1099 received showing income paid to you. Include all supporting schedules and statements showing how you calculated your income, deductions, and tax liability.
Step 10: Sign, Date, and Obtain Certificate of Compliance
Complete all information requested on Form 1040-C Part I, including your full name as shown on your passport, your Social Security Number or Individual Taxpayer Identification Number, your passport or visa number, and dates of presence in the United States during 2020. Sign and date the return under penalty of perjury, certifying that you have examined the return and accompanying schedules and statements and that, to the best of your knowledge, they are true, correct, and complete. If you are filing a joint return with your spouse (allowed only if you are a resident alien married to a U.S. citizen or resident alien), both spouses must sign.
Pay all tax shown as due on Form 1040-C and all tax due for prior years in full at the time of filing. Submit the original Form 1040-C and one copy to your local IRS office at least two weeks before your planned departure date. The IRS will review your submission and, if approved, will sign the certificate of compliance section serving as your sailing permit or departure permit, authorizing your departure from the United States. Retain a copy of the signed certificate for your records, as you may need to present it to immigration officials when departing.
2020 Form 1040-C Structural Changes from Prior Guidance
The 2020 instructions for Form 1040-C clarified the calculation of the substantial presence test and the requirements for the closer connection exception. While prior instructions referenced resident alien status determination based on physical presence during the tax year and previous years using specific day-counting methodology, the 2020 instructions explicitly require establishing a tax home in a foreign country and demonstrating a closer connection to one foreign country than to the United States for the closer connection exception to apply. The instructions also clarified that an individual may claim a closer connection to two foreign countries in limited circumstances when the tax home changes during the year. This change type is classified as clarified, adding an explicit reference to the closer connection requirement and a two-country exception, specifically for the 2020 departure year.
The excess business loss limitation provisions were significantly affected by the CARES Act for the 202 tax year. While prior instructions referenced business loss limitations with threshold amounts for each tax year, and noncorporate taxpayers would generally be subject to an excess business loss limitation of $259,000 ($518,000 for married filing joint returns) for 2020, the CARES Act retroactively repealed this limitation for tax year 2020.
Therefore, no threshold applies for 2020, and excess business losses are not subject to restrictions. This represents an updated and clarified position specific to the 2020 tax year, distinguishing it from 2019 and 2021 when the limitation did apply.
For professional assistance with your 2020 Form 1040-C departing alien income tax return or any tax filing questions, contact our tax experts at (888) 260-9441.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
