Tax Topic #858 |
2008 Tax Year |
Topic 858 - Alien Tax Clearance
If you are either a resident or a nonresident alien departing the United
States, you will usually have to show that you have complied with the U.S.
income tax laws before departing from the United States. You do this by obtaining
a tax clearance document, commonly called a "Departure Permit" or "Sailing
Permit" from the IRS.
Some foreign diplomats, employees of foreign governments, students, trainees
and exchange visitors do not need a departure permit. To find out whether
you belong in this category, refer to Publication 519, U.S. Tax Guide
for Aliens.
If you do not have taxable income, or you are a resident alien who is leaving
only temporarily, use Form 2063 (PDF) to apply
for a departure permit. If you are a resident alien leaving the United States
with no definite plans to return for the year, you will have to complete Form 1040-C (PDF), U.S. Departing Alien Income Tax Return,
in order to get a departure permit. If you plan to surrender your green card
and you have been a lawful permanent resident (green card holder) in at least
8 taxable years during the period of 15 taxable years ending with the taxable
year during which you surrender your green card, you must file Form 8854 and
notify the Department of Homeland Security of your termination of residency.
If you renounce your U.S. citizenship or terminated your long-term resident
status after June 3, 2004, you will continue to be treated for federal tax
purposes as a citizen or long-term resident of the United States until you
(a) give notice of your expatriating act or termination of residency (with
the requisite intent to relinquish citizenship or terminate such status) to
the Department of State or the Department of Homeland Security, and (b) provide
an initial expatriation statement (Form 8854) to the IRS. Additionally, if
you are subject to the expatriation tax rules of section 877(a), you are required
to file an annual expatriation information statement (Form 8854) with the
IRS for 10 tax years after the date of your expatriation.
Note that after June 8, 2008, the law affecting taxpayers who expatriate
may be changed as follows. There will be a tax imposed on certain U.S. citizens
who relinquish their U.S. citizenship and certain long-term U.S. residents
who terminate their U.S. residency. If the law is changed, these individuals
are subject to income tax on the net unrealized gain in their property as
if the property had been sold for its fair market value on the day before
the expatriation or residency termination ("mark to market tax"). Gain from
the deemed sale will be taken into account at that time without regard to
other provisions of the Internal Revenue Code. Any loss from the deemed sale
generally will be taken into account to the extent otherwise provided in the
Code. Any net gain on the deemed sale will be recognized to the extent it
exceeds $600,000. The $600,000 amount will be increased by a cost of living
adjustment factor for calendar years after 2008. Any gains or losses subsequently
realized will be adjusted for gains and losses taken into account under the
deemed sale rules, without regard to the $600,000 exemption.
The mark-to-market tax described above will apply to most types of property
interests held by the individual on the date of relinquishment of citizenship
or termination of residency, with certain exceptions. Deferred compensation
items, interests in nongrantor trusts, and specified tax deferred accounts
will be excepted from the mark-to-market tax but are subject to certain special
rules.
In addition, the new law will impose a transfer tax on certain transfers
to U.S. persons from certain U.S. citizens who relinquished their U.S. citizenship
and certain long-term U.S. residents who terminated their U.S. residency,
or from their estates.
The new law, if it becomes law, applies to any U.S. citizen who relinquishes
citizenship and any long-term resident who terminates U.S. residency, if such
individual ("covered expatriate") (1) has an average annual net income tax
liability for the five preceding years ending before the date of the loss
of U.S. citizenship or residency termination that exceeds $124,000 (as adjusted
for inflation after 2004 - $139,000 in 2008); (2) has a net worth of $2 million
or more on such date; or (3) fails to certify under penalties of perjury that
he or she has complied with all U.S. Federal tax obligations for the preceding
five years or fails to submit such evidence of compliance as the Secretary
may require.
The new law provides exceptions to an individual's classification as a
covered expatriate due to (1) or (2) above (but not (3) are provided in two
situations. The first exception applies to an individual who was born with
citizenship both in the United States and in another country; provided that
(1) as of the expatriation date the individual continues to be a citizen of,
and is taxed as a resident of, such other country, and (2) the individual
has been a resident of the United States (under the substantial presence test
of section 7701(b)(1)(A)(ii) for not more than 10 taxable years during the
15-year taxable year period ending with the taxable year of expatriation.
The second exception applies to a U.S. citizen who relinquishes U.S. citizenship
before reaching age 18 1/2, provided that the individual was a resident of
the United States (under the substantial presence test of section 7701(b)(1)(A)(ii)
for no more than 10 taxable years before such relinquishment.
A modified Form 8854 will be made available in order for taxpayers to comply
with the new law.
Nonresident aliens who have any taxable income will also have to complete
Form 1040–C to receive a departure permit. You must pay all tax shown
as due on the Form 1040–C unless you furnish a bond or an employer letter
guaranteeing payment, or the IRS is satisfied that your leaving will not jeopardize
collection of the tax. Any tax you pay counts as a payment on your final return
that you file after the end of your tax year.
Apply for the departure permit no earlier than 30 days before you plan
to leave. You should apply at least two weeks in advance of your departure.
To get your departure permit, visit your nearest Taxpayer Assistance Center
(walk–in IRS office). If you are married to an alien who is leaving
the country with you, both of you must go to the IRS office. For information
on the location of the Taxpayer Assistance Center (walk–in IRS office)
nearest to you, call 800–829–1040, or visit www.irs.gov.
You must bring with you all the following records and information for the
current year that apply to you:
- A valid passport and your alien registration card or visa,
- Copies of the last two years' U.S. Income Tax Returns with proof of payment
of any balances due,
- A statement from each employer showing the wages paid and tax withheld
from January 1st to the date of departure (For this statement you can use
a payroll deduction slip for your last paycheck if it shows this information),
- If you are self–employed, you must bring a profit and loss statement
for the current year to the date of departure,
- Documents showing any gain or loss from the sale of personal property,
including capital assets and merchandise,
- Proof of estimated tax payments for the past year and this year,
- Documents concerning scholarships or fellowship grants,
- Documents indicating that you qualify for any special tax treaty benefits,
- Substantiation of deductions for business expenses and itemized deductions
claimed, and
- Documentation for dependents claimed.
- Document verifying your date of departure from the United States, such
as an airline ticket.
- Document verifying your U.S. taxpayer identification number, such as a
social security card or an IRS issued CP 565 showing your individual taxpayer
identification (ITIN) number.
If you have these documents and pay any tax due you should receive your
departure permit immediately. For more information, refer to Publication 519.
Page Last Reviewed or Updated: December 22, 2008
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