What is IRS Form 1040-C?
IRS Form 1040-C: A common question we receive about expatriation involves the distinction between a Long-Term Resident (Green Card Holder 8 of the last 15 years), and a Visa Holder who has resided in the U.S. for a “long-Time.” In the former situation, a person may be deemed a covered expatriate and subject to exit tax. In the latter, the person is not a Long-Term Resident, no matter how long they have resided in the U.S.
Because a Long-Term Resident is a Lawful Permanent Resident, and a visa holder is not “Permanent Resident.” By definition, visas are temporary.
Still, the Visa Holder (along with permanent residents) has additional filing requirements as well (also required by Permanent Residents), informally referred to as IRS “sailing permit.”
Who has to File Form 1040-C?
The Form 1040-C is a supplement to Expatriation for permanent residents, and is also required by non-residents (Unlike Form 8854 which is only for LTR and U.S. Citizens)
As provided by the IRS:
“Form 1040-C is used by aliens who intend to leave the United States or any of its possessions to:
- Report income received or expected to be received for the entire tax year, and
- Pay the expected tax liability on that income, if they are required to do so.”
Who is Considered a Resident Alien?
A resident alien subject to U.S. tax on Worldwide Income includes aliens who meet the Substantial Presence Test.
As further provide by the IRS:
“You are considered a resident alien if you meet either the green card test or the substantial presence test. However, even though you otherwise would meet the substantial presence test, you will not be considered a U.S. resident if you qualify for the closer connection to a foreign country exception or you are able to qualify as a nonresident alien by reason of a tax treaty.”
File Form 1040-C Instead of 1040?
No. The IRS Form 1040-C is filed in addition to form 1040 or 1040 NR.
A Form 1040-C is not a final return.
“You must file a final income tax return after your tax year ends.
If you are a U.S. citizen or resident alien on the last day of the year, you should file Form 1040 or 1040-SR reporting your worldwide income.
If you are not a U.S. citizen or resident alien on the last day of the year, you should file Form 1040-NR.”
However, certain individuals who were resident aliens at the beginning of the tax year but nonresident aliens at the end of the tax year must file a “dual-status” return.
Any tax you pay with Form 1040-C counts as a credit against tax on your final return.
Any overpayment shown on Form 1040-C will be refunded only if and to the extent your final return for the tax year shows an overpayment.”
1040-C Certificate of Compliance
Once the form 1040-C is filed, a person will subsequently receive a Certificate of Compliance.
As provided by the IRS:
“The issuance of a certificate of compliance is not a final determination of your tax liability. If it is later determined that you owe more tax, you will have to pay the additional tax due.
If you are an alien, you should not leave the United States or any of its possessions without getting a certificate of compliance from your IRS Field Assistance Area Director on Form 1040-C or Form 2063, U.S. Departing Alien Income Tax -2- Form 1040-C (2020) Statement, unless you meet one of the Exceptions, explained later. You can file the shorter Form 2063 if you have filed all U.S. income tax returns you were required to file, you paid any tax due, and either of the following applies.
• You have no taxable income for the year of departure and for the preceding year (if the time for filing the earlier year’s return has not passed).
• You are a resident alien with taxable income for the preceding year or for the year of departure, but the Area Director has decided that your leaving will not hinder collecting the tax.”
There are some exceptions to having to file the form, which include:
Diplomatic Passport Holder
You are a representative of a foreign government who holds a diplomatic passport, a member of the representative’s household, a servant who accompanies the representative, an employee of an international organization or foreign government whose pay for official services is exempt from U.S. taxes and who has no other U.S. source income, or a member of the employee’s household who has no income from U.S. sources. However, if you signed a waiver of nonimmigrant’s privileges as a condition of holding both your job and your status as an immigrant, this exception does not apply, and you must get a certificate.
Student and Other Visas
You are a student, industrial trainee, or exchange visitor, or the spouse or child of such an individual. To qualify for this exception, you must have an F-1, F-2, H-3, H-4, J-1, J-2, or Q visa.
Additionally, you must not have received any income from sources in the United States other than:
a. Allowances covering expenses incident to your study or training in the United States (including expenses for travel, maintenance, and tuition);
b. The value of any services or accommodations furnished incident to such study or training;
c. Income from employment authorized under U.S. immigration laws; or
d. Interest on deposits, but only if that interest is not effectively connected with a U.S. trade or business.
You are a student, or the spouse or child of a student, with an M-1 or M-2 visa. To qualify, you must not have received any income from sources in the United States other than: a. Income from employment authorized under U.S. immigration laws, or b. Interest on deposits, but only if that interest is not effectively connected with a U.S. trade or business.
Any of the following applies.
a. You are on a pleasure trip and have a B-2 visa.
b. You are on a business trip, have a B-1 visa or a combined B-1/B-2 visa, and do not stay in the United States or any of its possessions for more than 90 days during the tax year.
c. You are passing through the United States or any of its possessions, including travel on a C-1 visa or under a contract, such as a bond agreement, between a transportation line and the U.S. Attorney General.
d. You are admitted on a border-crossing identification card.
e. You do not need to carry passports, visas, or border-crossing identification cards because you are
(i) visiting for pleasure or
(ii) visiting for business and do not stay in the United States or any of its possessions for more than 90 days during the tax year.
f. You are a resident of Canada or Mexico who commutes frequently to the United States to work and your wages are subject to income tax withholding.
g. You are a military trainee admitted for instruction under the Department of Defense and you will leave the United States on official military travel orders.
However, exception 4 does not apply if the Area Director believes you had taxable income during the current tax year through your departure date or the preceding tax year and your leaving the United States would hinder collecting the tax.
How to Get a Certificate
The IRS Provides specific instructions on how to obtain a 1040-C.
“To get a certificate of compliance, you must go to an IRS office at least two weeks before you leave the United States and file either Form 2063 or Form 1040-C and any other required tax returns that have not been filed. The certificate may not be issued more than 30 days before you leave. If both you and your spouse are aliens and both of you are leaving the United States, both of you must go to the IRS office. To find an IRS office, click on Contact Your Local IRS Office and enter your zip code to find the nearest office.
Please note that all Taxpayer Assistance Centers (TACs) operate by appointment. Services are limited and not all services are available at every TAC office. Call 844-545-5640 to schedule an appointment.
Remember that you must visit an IRS office at least two weeks (but no more than 30 days) before you leave the United States, so make sure you call for an appointment well before those time frames. Please be prepared to furnish your anticipated date of departure and bring the following records with you if they apply. 1. A valid passport with your alien registration card or visa.
2. Copies of your U.S. income tax returns filed for the past 2 years. If you were in the United States for less than 2 years, bring copies of the income tax returns you filed for that period.
3. Receipts for income taxes paid on these returns.
4. Receipts, bank records, canceled checks, and other documents that prove your deductions, business expenses, and dependents claimed on the returns.
5. A statement from each employer you worked for this year showing wages paid and tax withheld. If you are self-employed, you must bring a statement of income and expenses up to the date you plan to leave.
6. Proof of any payments of estimated tax for the past year and the current year.
7. Documents showing any gain or loss from the sale of personal and/or real property, including capital assets and merchandise.
8. Documents concerning scholarship or fellowship grants, such as:
(a) verification of the grantor, source, and purpose of the grant;
(b) copies of the application for, and approval of, the grant;
(c) a statement of the amount paid, and your duties and obligations under the grant; and
(d) a list of any previous grants.
9. Documents indicating qualification for special tax treaty benefits.
10. Document verifying your date of departure from the United States, such as an airline ticket. 11. Document verifying your U.S. taxpayer identification number (TIN), such as a social security card or an IRS-issued Notice CP 565 showing your ITIN.”
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Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
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Generally, experienced attorneys in this field will have the following credentials/experience:
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