Tax Compliance Rules for Non-Citizens Leaving America
In a number of blogs and articles, we’ve discussed the tax implications for U.S. citizens renouncing their U.S. citizenship. The tax rules that apply to expatriation, including the exit tax, are designed mainly to prevent citizens from using their renunciation rights to escape the U.S. tax net without paying tax that would otherwise be due.
In the case of non-citizens residing in America, the departure process also comes with certain tax compliance obligations. It may be that few people know about or comply with these rules, but they are important to note because, at least in theory, non-compliance leaves the door open to a severe IRS audit or even the possible prohibition by the State Department from departing the country.
Leaving America and the “Sailing Permit”
As a technical matter, the Internal Revenue Code, Sections 6013(h) and 6851 state, when read together, that no non-citizen shall depart from the U.S. unless they first procure from the IRS a certificate that they have complied with all the obligations imposed by the U.S. income tax laws.
As such, before a non-citizen (whether a resident alien or nonresident alien) leaves the U.S. or for an extended period of time, he or she must demonstrate to the IRS that they have met all federal tax payment and reporting requirements. After doing so, the taxpayer is given a tax clearance document, commonly called a “sailing permit,” from the IRS.
Certain classes of non-citizens are exempt from obtaining a sailing permit in order to leave the United States. These include foreign diplomats, employees of foreign governments, students, trainees and exchange visitors, and others who generally have special exemptions with respect to U.S. federal income tax.
Tax Filing Requirements
In order to procure the sailing permit, a non-citizen must file Form 2063 or Form 1040-C with the IRS. Form 2063 is a short form that asks for certain basic information but does not include a tax computation. The following individuals can get their sailing permits by filing Form 2063:
- Aliens, whether resident or nonresident, who have had no taxable income for the tax year up to and including the date of departure and for the preceding year, if the period for filing the income tax return for that year has not expired
- Resident aliens who have received taxable income during the tax year or preceding year and whose departure will not hinder the collection of any tax.
Individuals who do not qualify to use Form 2063 are required to use the longer IRS Form 1040-C. Both forms call for payment of taxes due in the year of departure. It is important to note that the forms do not exempt individuals from filing regular returns or other forms that are otherwise due.
For more information on departing the United States as a non-citizen, you can refer to the “Departing Aliens and the Sailing or Departure Permit” information in IRS Publication 519, U.S. Tax Guide for Aliens.
By Ephraim Moss, Esq. & Joshua Ashman, CPA