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(IRS) Sailing Permit - No Life Vest Necessary

(IRS) Sailing Permit - No Life Vest Necessary
Ines Zemelman, EA
15-Sep-17

What is a Sailing Permit & do I need to file one?

Unfortunately this form is not as appealing as the name may indicate. The Sailing permit is a type of the document that exists but rarely obtained. The main reason is that most aliens leaving the US are either unaware of it or find themselves in the same situation - i.e., timing for obtaining this document is narrow and hard to meet. In 2006 only 1000 forms 1040-C were filed throughout the entire U.S.

Low level of compliance

In April 2010, the Government Accountability Office  published a document that referenced the low level of compliance with regard to this Certificate of Tax Compliance: - http://www.gao.gov/assets/310/303328.pdf

“Some nonresidents must file a certificate of compliance, referred to as a sailing permit, before departing the U.S. to ensure that tax obligations have been satisfied. The requirement is difficult to enforce and few nonresidents fulfill it, potentially leading to broader noncompliance if individuals assume the lack of enforcement extends to other tax rules….That few individuals file sailing permits and IRS does not enforce the filing requirement may not represent a significant compliance risk”

The GAO report indicated that officials at the IRS indicated that the “IRS cannot realistically enforce the sailing permit requirement given the volume of foreign foreign individuals who depart the U.S. daily.

Narrow time-frames - difficult to obtain even for those who want to be compliant

The instructions to  Form 1040C, U.S. Departing Alien Income Tax Return  indicate that the sailing permit must be obtained at least 2 weeks, but not more than 30 days before the planned departure date. This small window is problematic for many, and certainly does not lead to higher levels of compliance. If both spouses are aliens and leaving the U.S. - both should go to the IRS office. Don’t forget, that an appointment may take a while to obtain, so you should make an appointment well before those time frames. 

A simplified version of sailing permit request is  Form 2063, U.S. Departing Alien Income Tax Statement and Annual Certificate of Compliance. This form is used to request IRS certification that all U.S. income tax obligations have been satisfied by:

  • a resident alien whose taxable period has not been terminated, or
  • a departing nonresident alien having no taxable income from U.S. sources.

The form is simple but the timing for the form submission is the same as for the form 1040-C.  You cannot apply earlier than 30 days before your planned departure date.

Strategic decision by the IRS

In 1960 176,000 forms 1040-C were filed -- by 2006 only 1000 such forms were filed. Neither the IRS nor the U.S. Customs and Immigration Service see this as a large loss of revenue, and view enforcement as high cost and difficult to enforce. For full enforcement, the IRS would need to check ALL aliens for sailing permits, even though only few would be required to file them. 74% of visitor admissions were for business rather than pleasure in 2007.

Is the form 1040-C in lieu of the final 1040?

No - the final 1040 is still required after your tax year ends. 1040-C is not the same as 1040 or 1040NR (whichever is applicable for you). Importantly - any tax paid with Form 1040 C will count as a credit towards any tax due on your final tax return. Any overpayment will be refunded only when you file your final tax return, and the return shows an overpayment.
 

So - are you recommending we do not file form 1040-C or 2063?

Absolutely not. The form is there, and the rules stipulate you should make efforts to file it. Many people are simply unaware of the requirement, which is why we are writing about it in the first place.

Ines Zemelman, EA
Ines Zemelman, EA
founder of Taxes for Expats
She may be reached at: