Form 1040-C: U.S. Departing Alien Income Tax Return (2016)

What Form 1040-C Is For

Form 1040-C is a specialized tax document filed by non-U.S. citizens (aliens) who plan to leave the United States or its possessions. This form serves two primary purposes: reporting all income received or expected to be received for the entire tax year up through the departure date, and paying any expected tax liability on that income. When properly filed and approved, the IRS issues a certificate of compliance—commonly called a "sailing permit" or "departure permit"—which certifies that you have satisfied your U.S. tax obligations according to available information at that time.

Think of Form 1040-C as a pre-departure tax checkpoint rather than your final tax return. The form captures your tax situation at the moment you're leaving the country, ensuring the IRS can collect any taxes owed before you depart. It's important to understand that this form does not replace your regular annual tax return. Whether you're a resident alien (taxed on worldwide income like U.S. citizens) or a nonresident alien (taxed only on U.S.-source income), Form 1040-C acts as an interim settlement, with any tax you pay counting as a credit toward your final return for the year.

The form accommodates three different taxpayer groups: Group I covers resident aliens who report all income; Group II includes nonresident aliens with income effectively connected to a U.S. trade or business (like wages from a U.S. job); and Group III applies to nonresident aliens with U.S.-source income not connected to a trade or business (such as investment income). Understanding which group applies to you is essential for calculating your tax correctly.

When You’d Use Form 1040-C

You must file Form 1040-C before leaving the United States if you don't qualify for one of several specific exceptions. The timing is strict: you need to visit an IRS office at least two weeks before your departure date, but the certificate cannot be issued more than 30 days before you leave. This narrow window means careful planning is essential—you can't wait until the last minute, but you also can't file too early.

If you're departing between January 1 and the regular tax filing deadline (April 18 in 2016), you must also file your prior year's complete return (Form 1040 or Form 1040-NR) and pay any tax due before receiving your certificate. Some IRS offices require appointments, so factor in additional time to schedule your visit.

Several categories of aliens are exempt from filing Form 1040-C. You don't need a sailing permit if you hold a diplomatic passport as a foreign government representative, or if you're a student or exchange visitor with specific visa types (F-1, F-2, H-3, H-4, J-1, J-2, or Q) who received only authorized income like fellowships or authorized employment. Business or pleasure travelers with B-1 or B-2 visas staying less than 90 days, Canadian or Mexican residents who commute to work in the U.S., and those passing through on C-1 visas are also generally exempt. However, if the IRS Area Director believes your departure would hinder tax collection, these exceptions may not apply.

Form 1040-C itself doesn't have "late" or "amended" versions in the traditional sense, because it must be filed before departure. However, if your tax situation changes after filing or you discover errors, you'll address corrections on your final annual return filed after year-end. If you previously departed during the same tax year and need to leave again, your original certificate may still be valid unless the IRS revokes it due to concerns about tax collection.

Key Rules or Details for 2016

The fundamental rule is that Form 1040-C is not your final tax return—you still must file Form 1040, Form 1040-NR, or the appropriate return after your tax year ends. Any tax paid with Form 1040-C serves as a credit toward your final return. If Form 1040-C shows an overpayment, you won't receive a refund when you file it; instead, any refund will come only when your final return for the year confirms an overpayment.

Nonresident aliens cannot file joint returns on Form 1040-C. Resident aliens can file jointly only if both spouses reasonably expect to qualify for joint filing at year-end and their tax years terminate at the same time. If both you and your spouse are aliens leaving together, both must visit the IRS office to obtain certificates.

Your identifying number—either a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)—is required. If you don't have an SSN and aren't eligible for one, you must apply for an ITIN using Form W-7, which typically takes 4-6 weeks to process. Plan accordingly.

The certificate of compliance is not a final determination of your tax liability. The IRS can later assess additional taxes if they discover you owed more than reported. Generally, certificates are issued without requiring immediate tax payment or a bond if you haven't received a termination assessment—a demand for immediate payment of taxes for the current and preceding year. However, if the Area Director believes your departure would jeopardize tax collection, you must either pay the tax due or post a bond before receiving the certificate.

Personal exemption rules vary by group: resident aliens claim exemptions like U.S. citizens; nonresident aliens engaged in U.S. trade or business can claim one exemption (or more if they're nationals or residents of Canada, India, Mexico, or South Korea); nonresident aliens not engaged in U.S. trade or business cannot claim any exemptions.

Step-by-Step (High Level)

Step 1: Determine if you need Form 1040-C. Check whether you qualify for an exception based on your visa type, activities, and income sources. If no exception applies, you must file the form.

Step 2: Schedule your IRS appointment. Contact your local IRS office at least two weeks (but no more than 30 days) before departure. Some offices require appointments, so allow extra time for scheduling.

Step 3: Gather required documents. Collect your passport and visa/alien registration card, copies of your last two years' tax returns, receipts for taxes paid, wage statements from all employers showing income and withholding for the current year, proof of estimated tax payments, documentation of business expenses and deductions, documents showing gains or losses from property sales, scholarship or fellowship grant papers, treaty benefit documentation, proof of departure date (like an airline ticket), and your SSN card or ITIN notice.

Step 4: Complete the form. Fill out Form 1040-C by identifying your status (resident or nonresident alien), determining which group (I, II, or III) applies to your income situation, reporting all income received or expected through your departure date, calculating adjustments and deductions you're entitled to claim, computing your tax using the appropriate rate schedules or flat rates, and calculating total payments including withholding and estimated tax.

Step 5: File at the IRS office. Submit an original and one copy of Form 1040-C at your appointment. Include any additional required returns (like your prior year's return if departing early in the year). Pay any tax shown as due, unless you've arranged for a bond or the IRS determines your departure won't hinder collection.

Step 6: Receive your certificate. Once the IRS approves your filing, an agent of the Field Assistance Area Director will sign the certificate of compliance section. This certificate is your sailing or departure permit.

Step 7: File your final return. After the tax year ends, file your regular annual tax return (Form 1040, Form 1040-NR, or appropriate form). Report all income for the entire year and claim credit for any tax paid with Form 1040-C.

Common Mistakes and How to Avoid Them

Mistake 1: Treating Form 1040-C as your final return.

Many people assume that filing Form 1040-C completes their tax obligations for the year. Remember that this form is only a pre-departure snapshot—you still must file a complete annual return after December 31. Mark your calendar to file the appropriate final return (Form 1040 or 1040-NR) by the deadline.

Mistake 2: Missing the timing window.

Showing up at the IRS office the day before departure leaves no time for processing or resolving issues. Conversely, arriving seven weeks before departure means you're too early. Schedule your appointment carefully within the two-to-thirty-day window, and confirm appointment requirements well in advance.

Mistake 3: Incomplete documentation.

Arriving without critical documents like prior year returns, wage statements showing current-year withholding, or proof of tax payments causes delays and may prevent certificate issuance. Create a checklist from the instructions and gather everything before your appointment. If you're missing documents, contact employers or the IRS for copies early in the process.

Mistake 4: Choosing the wrong form or group.

Filing Form 1040-C when you qualify for the simpler Form 2063 wastes time and effort. Similarly, selecting the wrong group (I, II, or III) leads to incorrect tax calculations. Carefully review the exceptions to see if you even need a certificate, and study the group descriptions to determine which applies to your income sources.

Mistake 5: Incorrectly filing joint returns.

Nonresident aliens cannot file jointly, period. Resident aliens can file jointly only if specific conditions are met. If you're unsure of your residency status, apply the green card test and substantial presence test carefully. Filing an improper joint return will be rejected.

Mistake 6: Claiming improper exemptions.

Nonresident aliens not engaged in U.S. trade or business cannot claim personal exemptions, yet some try to claim them anyway, resulting in incorrect tax calculations. Follow the rules for your specific group, and understand that your country of residence may affect exemption eligibility.

Mistake 7: Forgetting the prior year return requirement.

If you're leaving between January 1 and the regular filing deadline, bring your completed prior year return and payment. Many departing aliens focus only on Form 1040-C and are surprised when the IRS won't issue the certificate without the previous year's filing being current.

Mistake 8: Not applying for an ITIN in time.

If you need an ITIN and don't have one, the 4-6 week processing time can conflict with your departure timeline. Apply for your ITIN as soon as you know you'll need to file Form 1040-C, not when you schedule your appointment.

What Happens After You File

Once you submit Form 1040-C and pay any tax due (or arrange alternative payment), the IRS reviews your submission and verifies you've met all requirements. If everything is in order, an authorized agent signs the certificate of compliance section, creating your sailing or departure permit. You receive a copy of this signed certificate, which you should retain as proof of compliance.

This certificate confirms that, based on information available at the time, you've satisfied your U.S. tax obligations. However, it's not a final determination—if the IRS later discovers you owed additional taxes, you remain liable for those amounts plus any applicable penalties and interest. Keep thorough records of your income, deductions, and tax payments to support your filing.

The certificate may apply to all departures during the tax year, or only to the specific departure for which it was issued, depending on your circumstances. If you received the certificate without paying full tax (because the IRS determined your departure wouldn't hinder collection), it's valid for multiple departures during the year unless revoked. If you paid tax or posted bond because the Area Director believed collection was at risk, the certificate covers only that one departure.

Any tax you paid with Form 1040-C becomes a credit on your final tax return for the year. When you file that final return—Form 1040 if you're a U.S. citizen or resident alien on December 31, or Form 1040-NR if you're a nonresident alien on that date—report all income for the entire year and include the Form 1040-C payment as part of your total payments. If your final return shows you overpaid, you'll receive a refund. If it shows you still owe tax, you must pay the additional amount.

If you were a resident alien at the beginning of the tax year but a nonresident alien at the end (a "dual-status" tax year, common for departing aliens), special rules apply when preparing your final return. The Form 1040-NR instructions provide detailed guidance for dual-status filers.

Keep in mind that certain tax items not addressed on Form 1040-C must be handled on your final return. For example, resident aliens who received advance premium tax credit payments must reconcile those amounts on their year-end return, even though Form 1040-C doesn't address this issue.

FAQs

Can I file Form 1040-C if I'm a U.S. citizen planning to move abroad?

No. Form 1040-C is specifically for aliens (non-citizens) leaving the United States. U.S. citizens maintain their tax obligations regardless of where they live and file regular Form 1040 returns. If you're a U.S. citizen expatriating (giving up citizenship), different forms and procedures apply, including Form 8854.

What if I don't have time to get a sailing permit before my emergency departure?

You still must comply with the requirement if you don't qualify for an exception. Contact the IRS immediately to explain your situation—they may be able to expedite processing in genuine emergencies. However, leaving without a required certificate when none of the exceptions apply can create serious tax compliance issues and may affect your ability to enter the U.S. in the future.

If I paid more tax than I owe when I filed Form 1040-C, can I get my refund right away?

No. The IRS will not issue refunds when you file Form 1040-C, even if the form shows an overpayment. You'll only receive a refund if and when your final return for the tax year confirms you overpaid. Any overpayment on Form 1040-C simply means you don't owe additional tax at departure.

Do I need to get a new certificate every time I leave the U.S. during the year?

It depends. If the IRS determined your departure wouldn't hinder tax collection and issued a certificate valid for the entire tax year, you can use it for multiple departures during that year. However, if you had to pay tax or post bond because collection was deemed at risk, your certificate applies only to that specific departure, and you'll need a new one for subsequent departures. The IRS can also revoke a multi-departure certificate if circumstances change.

I'm a student with an F-1 visa and only received authorized on-campus employment income plus interest on bank deposits. Do I still need Form 1040-C?

Probably not, if you meet all the exception criteria. Students with F-1 visas who receive only authorized employment income, allowances for study-related expenses, or bank interest not effectively connected with a U.S. trade or business are generally exempt from the sailing permit requirement. However, review the exception requirements carefully and be prepared to prove your exemption with proper documentation.

Can I file Form 1040-C electronically or by mail?

No. You must file Form 1040-C in person at an IRS office. The certificate of compliance requires an authorized IRS agent's signature, and the IRS needs to review your documentation before issuing the certificate. Electronic filing and mail submission are not available for this form.

What happens if I don't get a sailing permit when I'm required to have one?

Failing to obtain a required certificate of compliance can result in serious consequences. You may face difficulties reentering the United States in the future, as immigration officials may question your tax compliance. Additionally, you could be subject to penalties and interest on any unpaid taxes, and the IRS may take collection actions against your U.S. assets or income. If you're uncertain whether you need a certificate, consult with the IRS or a tax professional before departing.

Sources

Source: All information in this summary is derived from official IRS publications available at IRS.gov, including the 2016 Form 1040-C, 2016 Instructions for Form 1040-C, and the IRS webpage on Departing Alien Clearance (Sailing Permit).

You have not enough Humanizer words left. Upgrade your Surfer plan.

‍