Form 1040-C: U.S. Departing Alien Income Tax Return (2018)
What Form 1040-C Is For
Form 1040-C is a specialized tax form required when non-U.S. citizens (aliens) plan to leave the United States or its territories. Think of it as an exit tax clearance document. Unlike your regular annual tax return, this form serves two specific purposes: reporting all income you've received or expect to receive for the entire tax year through your departure date, and paying the estimated tax on that income before you leave the country. The form acts as a sort of financial checkpoint, ensuring that departing aliens settle their U.S. tax obligations before leaving American soil.
The IRS uses Form 1040-C to issue what's commonly called a ""sailing permit"" or certificate of compliance—official proof that you've met your tax responsibilities and can depart without tax-related complications. This requirement exists because the IRS wants to collect taxes from people who might be difficult to track down once they've left the country. The form applies whether you're a resident alien (someone with a green card or who meets substantial presence requirements) or a nonresident alien with U.S.-source income.
When You'd Use Form 1040-C (Including Late or Amended Situations)
You must file Form 1040-C before leaving the United States if you're an alien who doesn't qualify for one of the specific exceptions. The timing is strict: you need to visit an IRS office at least two weeks before your planned departure, 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.
There's no provision for filing Form 1040-C late or amending it in the traditional sense, because it's tied to a specific departure event rather than a tax year deadline. If you discover errors after receiving your certificate of compliance but before leaving, you should contact the IRS office that issued it immediately. If you've already left the United States without obtaining a required certificate, you may face penalties and collection actions, and should consult with a tax professional about remedying the situation.
It's important to understand that Form 1040-C is not your final tax return for the year. After the tax year ends, you'll still need to file your regular annual return (Form 1040 if you're a resident alien, or Form 1040-NR if you're a nonresident alien). The tax you pay with Form 1040-C is credited against your total tax liability on that final return.
Key Rules or Details for 2018
Several critical rules govern Form 1040-C filing. First, both spouses must appear at the IRS office if both are aliens and both are leaving the United States together. You cannot file this form by mail—it requires an in-person appointment at a Taxpayer Assistance Center that provides alien clearance services.
The form divides filers into three groups. Group I includes resident aliens who report their worldwide income, similar to U.S. citizens. Group II covers nonresident aliens with income effectively connected to a U.S. trade or business, such as wages from U.S. employment. Group III applies to nonresident aliens with U.S.-source income not connected to a trade or business, like investment income, which is typically taxed at a flat 30% rate (or lower treaty rate if applicable).
Important exceptions exist that may exempt you from filing entirely. Students and exchange visitors on F, J, H-3, or Q visas generally don't need a certificate if their only U.S. income comes from authorized employment, scholarships, or bank interest. Business travelers on B visas staying fewer than 90 days, diplomatic passport holders, Canadian and Mexican commuters whose wages are subject to withholding, and several other categories are also exempt. However, the IRS can revoke these exceptions if they believe your departure would hinder tax collection.
Tax treaty benefits may reduce your tax liability, but you must attach documentation explaining which treaty article applies. For 2018, significant tax law changes affected Form 1040-C, including new tax rates (ranging from 10% to 37%), increased standard deductions, suspension of personal exemptions, and expanded child tax credits.
Step-by-Step (High Level)
The first step is scheduling an appointment with an IRS Taxpayer Assistance Center that provides alien clearance services, remembering the two-week minimum advance notice. Before your appointment, gather extensive documentation: your valid passport with visa or alien registration card, copies of U.S. tax returns for the past two years, receipts for all tax payments, and proof of deductions and expenses. You'll also need current-year wage statements from all employers (or self-employment income records), estimated tax payment receipts, documentation of any property sales, scholarship or fellowship grant details if applicable, proof of your Social Security Number or Individual Taxpayer Identification Number, and documentation showing your departure date such as an airline ticket.
At the IRS office, you'll file Form 1040-C (in original plus one copy) along with any other required tax returns you haven't yet filed. If you're departing between January 1 and April 17, 2018, you must also file your 2017 tax return at this appointment. The form itself requires detailed information about your alien status, visa type, income sources, and whether you qualify as Group I, II, or III for tax purposes.
On the income schedules, you'll report all income received and expected for the year, breaking it down by type and whether it's effectively connected to U.S. business activities. You'll calculate your tax liability using the appropriate method for your group, apply any withholding and estimated payments, and pay any balance due. The IRS will review your filing and, if everything is in order and you've paid what you owe (or posted bond if required), issue your certificate of compliance that same day or shortly thereafter.
Finally, remember to keep copies of everything and file your final annual tax return after the tax year ends, claiming the Form 1040-C payment as a credit against your total liability.
Common Mistakes and How to Avoid Them
One of the most frequent errors is waiting too long to schedule the IRS appointment. Given the two-week minimum notice requirement and the fact that appointments are mandatory, booking just days before departure often results in missed flights or leaving without a certificate—both bad outcomes. Schedule your appointment at least a month in advance to allow for unexpected delays.
Many filers arrive at their appointment without complete documentation, forcing them to reschedule and potentially jeopardizing their travel plans. Use the IRS checklist and gather every required document well before your appointment. If you're missing something, contact prior employers, banks, or other institutions early enough to obtain replacements.
Another common mistake is misunderstanding which income to report. You must report not just income already received, but income you expect to receive for the entire tax year through December 31. This requires projection and estimation, which many people forget to include. Similarly, failing to report foreign income (for resident aliens) or incorrectly categorizing income as effectively or not effectively connected leads to calculation errors.
Some departing aliens mistakenly believe Form 1040-C is their final tax return for the year and don't file an annual return later. This causes the IRS to classify you as non-compliant and can trigger penalties and collection actions. Mark your calendar to file the regular return after the tax year ends.
Students and others who qualify for exceptions sometimes file Form 1040-C unnecessarily, wasting time and money. Carefully review the exception categories before assuming you need the certificate. Conversely, some people who don't qualify for exceptions depart without a certificate, creating serious tax compliance problems. When in doubt, consult the IRS or a tax professional rather than making assumptions.
Finally, married couples where both spouses are aliens often have just one spouse appear at the IRS office, not realizing both must attend if both are leaving. This requires rescheduling and delays the certificate.
What Happens After You File
Once you submit Form 1040-C and all supporting documentation, the IRS examiner will review your filing for completeness and accuracy. If you've filed all required returns, paid all taxes due, and provided satisfactory documentation, the IRS will issue your certificate of compliance—typically on the same day as your appointment. This certificate authorizes all departures during the current tax year, though the IRS can revoke it on a later departure if they believe your leaving would hinder tax collection.
If you owe income tax and the IRS determines your departure would jeopardize collection, the certificate will only be issued after you pay the full amount or post a bond. The certificate applies specifically to the departure for which it was issued in such cases. This isn't a final determination of your tax liability—if the IRS later determines you owe more, you'll still need to pay the additional amount.
After receiving your certificate, keep it with your travel documents. While you may not need to present it when leaving the United States, having it available prevents complications if questioned by authorities. Some airlines or border officials may request it in certain circumstances.
The most important post-filing requirement is completing your annual tax return after the tax year ends. When you file Form 1040 or 1040-NR for the full year, you'll include all income for the entire year and claim the tax you paid with Form 1040-C as a credit on line 27 (or the appropriate line for other payments). If you paid more than your actual liability, you'll receive a refund when you file the annual return. If you paid less, you'll owe the difference.
Any overpayment shown on Form 1040-C itself is not automatically refunded—you only get that money back if and to the extent your final annual return shows an overpayment. This is why accurate projection of your full-year income is important when preparing Form 1040-C.
FAQs
If I'm a student on an F-1 visa, do I need Form 1040-C before traveling home for summer break?
Most students on F-1 visas don't need a certificate of compliance if their only U.S. income comes from authorized on-campus employment, scholarships covering educational expenses, or bank interest not connected to a business. However, if you've had income from sources beyond these exceptions—such as unauthorized work, business income, or substantial investment earnings—you may need the certificate. The exception doesn't apply if the IRS believes you owe taxes and your departure would hinder collection.
Can someone file Form 1040-C for me if I'm already outside the United States?
Form 1040-C requires your personal appearance at an IRS office, so you cannot file it after leaving the country. If you're physically unable to appear due to serious illness or disability, you may authorize an agent to prepare and sign the form on your behalf, but you need IRS approval by filing a written statement explaining why you cannot sign. If you've already left without filing and believe you should have, consult a tax professional about your options, which may include paying any owed taxes, filing delinquent returns, and addressing potential penalties.
What's the difference between Form 1040-C and Form 2063?
Form 2063 is a shorter alternative to Form 1040-C for departing aliens who meet specific conditions: you've filed all required U.S. tax returns, paid all taxes due, and either had no taxable income in both the departure year and preceding year, or you're a resident alien whose departure won't hinder tax collection (as determined by the IRS). Form 2063 is simpler and faster to process. If you don't meet these requirements, you must use Form 1040-C.
Do I need a certificate of compliance for every trip outside the United States?
Generally, no. If you're on a brief pleasure or business trip and plan to return to the United States, and you meet one of the listed exceptions (such as being on a B-2 tourist visa or a B-1 business visa staying fewer than 90 days), you don't need a certificate. The requirement applies primarily to aliens who are departing with the intention of leaving for an extended period or permanently, or who have substantial U.S. tax obligations that might not be collected if they leave.
I have a green card but I'm moving back to my home country permanently. Do I need Form 1040-C?
Yes. Green card holders are resident aliens for tax purposes and generally need a certificate of compliance when departing. However, you might qualify for Form 2063 (the shorter version) if you've filed all required returns and paid all taxes. Additionally, when you abandon your permanent resident status, you may have additional filing requirements, including Form 8854 if you're considered a long-term resident for tax purposes. This situation can trigger complex expatriation tax rules, so professional tax advice is strongly recommended.
The IRS says I owe tax before they'll issue my certificate, but I disagree with their calculation. What can I do?
You can discuss the calculation with the IRS examiner at your appointment, providing documentation to support your position. If the issue isn't resolved and you need to depart, you have two options: pay the disputed amount (which you can seek to recover when filing your annual return) or post a bond for the disputed amount. If you depart without the certificate despite being required to have one, you may face penalties and collection actions. In complex disputes, consider consulting a tax attorney before your scheduled departure.
Will not having a certificate of compliance affect my ability to return to the United States?
While the sailing permit requirement is primarily about tax compliance rather than immigration status, failing to obtain a required certificate can have consequences. The IRS can pursue collection actions, including liens against U.S. property, levies against U.S. bank accounts, and referral to collection agencies. If you apply for future visas or green cards, immigration authorities may consider your tax compliance history. Additionally, unresolved tax debts can create complications if you return to the U.S. and file subsequent tax returns.
Sources
Source: IRS Form 1040-C Instructions (2018)
Source: IRS About Form 1040-C
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