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Chapter 43
Foreign citizens living in the United States

Introduction

Whether a U.S. citizen or not, almost everybody living in the United States is subject to U.S. income tax laws. Foreign nationals working in the United States are either resident aliens or nonresident aliens. Resident aliens, like U.S. citizens, are subject to U.S. tax on their worldwide income. Nonresident aliens are subject to U.S. tax only on certain types of their U.S. source income.

Some foreign citizens living in the United States are not taxed at all—at least not by the U.S. government. A foreign citizen residing in the United States who works for a foreign government doing normal diplomatic work is exempt from U.S. tax laws, provided that U.S. government employees working in that foreign country are exempt from its tax laws. Tax treaties between the United States and some foreign countries contain numerous other exceptions that alter the normal domestic U.S. tax laws.

This chapter tells you how to determine if you are a resident alien or a nonresident alien and how you should calculate your tax.

Determining Your Status

Whether you are a resident alien or a nonresident alien is of critical importance when you compute how much U.S. income tax you will pay. Your residency status will determine your filing status, the tax rate schedule applicable to your income, and the amount of your income that will be subject to U.S. income tax. Under the tax rules, an alien must meet either one of the two following tests in order to be considered a resident of the United States for tax purposes:

The green card test. Have you been lawfully admitted to the United States for permanent residency? In other words, do you have a green card?
The substantial presence test. Have you been present in the United States for a substantial period of time? If you have been present in the United States for at least 31 days in the current year and if the total days you are present in the United States during the current year, plus one-third of the days present in the preceding calendar year, plus one-sixth of the days present in the second preceding calendar year, are equal to at least 183 days, you will meet the substantial presence test and be considered a resident alien in the current year.

Example 1. You were in the United States during 2017 for 75 days. During 2016, you spent 321 days in the U.S., which included 14 days of vacation. In 2015, you were in the United States for 30 days. Applying the three-year test to your travel to the U.S. results in 187 days. The days are counted as follows. One-sixth of the days in 2015 (five days), plus one-third of the days in 2016 (107 days—you may not exclude vacation days), plus the days in 2017 (75 days). You are therefore treated as a U.S. resident for 2017.

Example 2. You were in the United States during 2017 for 25 days. In 2016 you were present in the U.S. for 300 days and during 2015 you were in the United States for 360 days. Counting your days using the three-year test results in 185 days for 2017. However, because you were not in the U.S. during 2017 for at least 31 days, you do not meet the substantial presence test for 2017.

If you are considered a U.S. resident under the substantial presence test (and you were not a U.S. resident in the prior year), your residency period generally begins on the first day you were present in the United States in the current year. However, if you have a brief visit (or visits) to the United States, and the total days you spend in the United States during the visit (or visits) amount to 10 days or less, you may, under certain circumstances, ignore those days for purposes of determining when your residency period begins.

Example. You move to the United States on June 1, 2017, and spend a sufficient number of days in this country in 2017 to meet the substantial presence test. Prior to your actual arrival on June 1, you spent 10 days in the United States from February 2 through February 11 to look for housing and to meet with your U.S. employer while you maintained your tax home in a foreign country. Your U.S. residency period begins on June 1. In the event you had stayed in the United States until February 12 (11 days), your U.S. residency period would have begun on February 2.

A similar rule applies in the year in which your U.S. residency terminates. Your residency period generally ends on the 31st of December. However, if you can show that you have closer connections to a foreign country for the remainder of the year, your U.S. residency generally ends on the last day you are present in the United States. Visits to the United States totaling 10 days or less following your departure may be disregarded in determining the last day of your U.S. residency.

TAXPLANNER

To take advantage of this closer connection rule and terminate your residency on the last day you are present in the United States, you would be required to attach a statement to your U.S. tax return for that year detailing the facts that support your closer connection to a foreign country.

Example. In 2017, you lived in the United States continuously from January 1 through October 31, when you moved to a foreign country and established a closer connection to it. Generally, you are considered to be a resident of the United States through December 31. Your U.S. residency would be considered to terminate on October 31 if you established your closer connection to the foreign country by attaching a statement to your U.S. tax return. If you return to the United States on business trips or on vacation during November and December and spend 10 days or less in total in the United States, your residency period terminates on October 31. If you spend more than 10 days in total in the United States in November and December, your U.S. residency period will be extended beyond October 31. The actual termination date will depend on the specific dates of your visits. You would also want to take into consideration any tax treaty benefits that might be available to you.

TAXPLANNER

Closer connection exception to substantial presence test. If you meet the substantial presence test described above, but you are present in the United States less than 183 days during the year, you should examine your ties to another country. You might qualify for an exception to the substantial presence test if you can demonstrate that your ties to another country are stronger than your ties to the United States. You must file a statement (Form 8840, Closer Connection Exception Statement for Aliens) with your tax return supporting your claim, or, if no return is required, a statement alone must be filed with the IRS.

If your ties are weak and you want to try to strengthen them, consider:

Maintaining a home in that country
Obtaining a driver’s license issued by that country
Joining a religious, political, or cultural organization in that country
Maintaining or establishing a membership in a social organization in that country
Having a bank account in that country
Having personal property in that country such as cars, clothing, or jewelry
Continuing to vote in that country

Example. Refer back to Example 1 in the section describing the substantial presence test. In the example, you meet the substantial presence test for 2017 because the total number of days in the three-year test is 187 (remember, if you have 183 days or more you are treated as a U.S. resident). However, because you were in the U.S. for fewer than 183 days during 2017, you may be able to be treated as a U.S. nonresident if you can establish a closer connection to another country than to the U.S. for all of 2017. For instance, if you and your family had moved back to your home country at the end of 2016 and, for all of 2017, your main employment was in your home country, your children attended school there, and you participated in social, religious, or cultural activities in your home country, etc., you may be able to demonstrate a closer connection to your home country than to the United States during 2017 even though you continued to come to the U.S. for a short time (75 days in the example) for business trips or vacations. If you can demonstrate the closer connection to your home country, you will be treated as a nonresident of the United States for 2017. Bear in mind that you will need to pay U.S. tax for 2017 following the rules of taxation for nonresidents (discussed later) and you will need to file Form 8840, listing all your facts and circumstances to show the IRS that you have a closer connection to your home country than to the United States.

If you spend a significant amount of time in the United States each year, you should carefully monitor the days to keep them below the 183-day threshold during the 3-year period considered under the substantial presence test to eliminate the requirement to file a statement of claiming a closer connection to another country. This generally means that you may be present in the United States for up to 121 days each year without triggering U.S. residence under the substantial presence test.

Election To Be Treated as a Resident

The tax law contains a rule that allows an alien to elect to be treated as a resident of the United States for tax purposes (a “first-year election”), even though he or she does not meet the green card or substantial presence test. The first-year election allows an alien with significant U.S. presence toward the end of year 1 and who meets the substantial presence test in year 2 to elect to be treated as a U.S. resident alien in year 1. The alien can only make this first-year election after he or she has met the substantial presence test in year 2. This may require filing an extension for the year 1 tax return. This election will be advantageous to some aliens, such as those who incur significant expenses when they first arrive in the United States (such as mortgage interest, deductible mortgage points, and real estate taxes related to a purchased home in the United States), which would only be deductible for a resident. In addition, this election could also benefit married aliens who would otherwise be required to file using the married filing separate rates that apply to nonresidents. As U.S. residents under this election, they would be permitted to make a further election to be treated as residents for the entire year, thus permitting the filing of a joint return and the use of the more favorable joint return rates. An alien who meets the following criteria may make the election (see the following example):

Doesn’t meet the green card or substantial presence tests for the current year,
Was not a resident alien in the prior year,
Meets the substantial presence test in the following year,
Is present in the United States for at least 31 consecutive days in the current year, and
Spends at least 75% of the days between the first of the 31 consecutive days and year-end in the United States. (Note: Up to 5 non-U.S. days will be counted as U.S. days for the purposes of this test.)

An alien who makes the election to be treated as a resident may also make a similar election on his or her tax return on behalf of dependent children if the children are not required to file tax returns on their own, assuming, of course, that the children also meet the requirements of the election. The filing of the election will enable an alien to take dependent exemptions for the children.

Example. Assume that an alien is present in the United States for the following periods:

7/4—8/15	43 days
9/16—11/25	71 days
12/16—12/31	16 days

During the testing period of July 4 through December 31, the individual is in the United States 130 days out of 181 days total. Including the 5 additional non-U.S. days that can be counted as U.S. days, the individual is present in the United States on less than 75% of the days and cannot make the election for this period.

However, since, during the testing period of September 16 through December 31, the individual was in the United States 87 days out of 107, which exceeds 75%, the individual could elect to be treated as a resident for the period of September 16 through December 31 (assuming that the other tests regarding the prior and subsequent years are also met).

TAXPLANNER

If you have or are planning to obtain a green card, you should be aware that you will generally be considered a resident alien from the date you receive the green card (or earlier depending on the substantial presence test) and that you will be subject to tax on all of your worldwide income. If you have substantial U.S. or foreign investment income, you may want to transfer the income-producing assets to somebody else, for example, a spouse or other close relative who is still living abroad, prior to receipt of the green card. Before making any transfers, however, you should consult with a tax advisor to consider possible gift tax and foreign tax implications. Also, if you think you will become a U.S. resident under the substantial presence test, you may want to consider making pre-residence transfers, as discussed earlier.

EXPLANATION

Income tax treaties. Income tax treaties may have the effect of overriding the provisions of U.S. law. Consult a tax advisor for details.

Generally, tax treaties are consulted when an individual is a dual resident, that is, a resident of both the United States and a foreign country under each country’s tax rules. When a treaty is used to claim that an individual is a nonresident of the United States, the individual must file Form 1040-NR, U.S. Nonresident Alien Income Tax Return, and attach Form 8833, Treaty-Based Return Position Disclosure, to the return, presenting facts to support his or her claim of not being a U.S. resident.

An election to be treated as a nonresident of the United States under a treaty will apply for all purposes in computing the individual’s income tax liability for the dual residency period. However, the requirements for U.S. residents to report foreign bank and financial accounts and ownership of foreign entities may still apply.

EXPLANATION

Report of Foreign Bank and Financial Accounts. If you become a resident of the United States, you should become familiar with the filing requirements of FinCEN Form 114, Report of Foreign Bank and Financial Accounts, which is a form that is used to provide information concerning foreign bank and financial accounts if their aggregate value exceeds $10,000. Significant penalties apply for noncompliance.

Form 8938, Statement of Specified Foreign Financial Assets. You should also become familiar with the requirements of Form 8938. This form mandates reporting the highest fair market value of each foreign financial asset during the year for U.S. tax residents if the aggregate value of these assets exceeds a minimum threshold. Examples of foreign financial assets include foreign bank and brokerage accounts, ownership interest in foreign companies/partnerships, bonds issued by a non-U.S. resident, ownership interest in a foreign trust/estate/pension, or a derivative instrument with respect to the above assets. Minimum thresholds for reporting vary based on the taxpayer’s filing status and residence abroad. Significant penalties apply for noncompliance. Although some reportable information will be identical to Form 114 (described above), Form 8938 represents a separate additional reporting obligation to the U.S. taxpayer. Further information can be found on the IRS website, www.irs.gov.

Rules for Individuals Giving Up U.S. Citizenship or U.S. Residency

U.S. citizens who give up their citizenship and long-term residents (defined below) who give up their green cards face special tax filing requirements and may be subject to expatriation taxes on deemed income, bequests, and gifts. These rules are very complex. You should consult your tax advisor prior to taking any steps to give up your U.S. citizenship or green card.

You are a long-term resident if you have held a green card for any part of 8 of the 15 tax years ending with the year in which you give up your green card. A year during which a green card holder was living outside the United States and filed a U.S. income tax return as a U.S. nonresident based upon an income tax treaty does not count toward the 8-year requirement.
You continue to be treated as a U.S. citizen or long-term resident for U.S. tax purposes until you give notice of an expatriating act or termination of your residency to the U.S. Secretary of State or the U.S. Secretary of Homeland Security, along with a statement containing information about your status. The statement provided has to comply with certain legal requirements, so you should consult an immigration attorney if you have decided to give up your U.S. citizenship or your U.S. green card.
As a U.S. citizen or long-term resident, you will be considered a “covered expatriate” subject to the expatriation tax rules unless you have an average annual U.S. federal income tax liability over the preceding five years of $162,000 (for 2017) or less, and a net worth of less than $2 million. Limited exceptions apply. In addition, you must certify that you have complied with all U.S. federal tax obligations for the preceding 5 years, and substantiate with documentation if requested by the IRS.

Covered expatriates are subject to a special exit tax. The tax is calculated as if you sold all of your worldwide property for fair market value on the day before you gave up your citizenship or surrendered your green card. A gain of up to $600,000 (indexed annually for inflation; in 2017, this amount is $699,000) is excluded from tax. Furthermore, you are allowed to increase your basis in your property to its fair market value at the time you became a U.S. resident for purposes of calculating your gain or loss on property.

Special tax rules also apply to deferred compensation, specified tax deferred accounts, and interests in nongrantor trusts. Depending on the situation, deferred compensation may either be taxed under the normal income tax rules (although subject to a 30% withholding tax), or the present value of the accrued benefit or the value of the property may be taxed on the day prior to expatriation. The balance in specified tax-deferred accounts (e.g., traditional IRAs, 529 plans, and health savings accounts) is taxed as if received on the day prior to expatriation. Note that Roth IRAs are not considered tax-deferred accounts and are subject to the general mark-to-market exit tax rules described above. Distributions of property from nongrantor trusts to covered expatriates are subject to withholding tax. Furthermore, any distribution of appreciated property subjects the nongrantor trust to tax on the appreciation.

A covered expatriate is required to give Form W-8CE, Notice of Expatriation and Waiver of Treaty Benefits, to the payer of any of the items mentioned above. In addition, a covered expatriate must file Form 8854, Initial and Annual Expatriation Statement, with the Internal Revenue Service with the income tax return for the year of departure and any following year in the event of a taxable distribution from one of the special income categories noted above.

Gifts and bequests from covered expatriates to U.S. citizens or residents are subject to tax at the highest gift tax rate (40% for 2017). Gifts below the annual exclusion amount ($14,000 for 2017) and certain other gifts are excluded from this tax. The tax is paid by the recipient of the gift or bequest.

Dual-Status Aliens

A dual-status alien is a person who is considered a resident alien and a nonresident alien during the same tax year.

You are most likely to have dual status in the year of your arrival in or departure from the United States. You could, for example, be a resident alien until your departure from the United States. Thereafter, you would be a nonresident alien.

For purposes of computing your tax liability, different rules apply to the time when you are a resident alien and the time when you are a nonresident alien. However, it is necessary to fill out only one tax return. You are taxed on your worldwide income for the part of the year in which you are a resident alien. For the part of the year in which you are a nonresident alien, only certain types of your U.S. source income are taxed. Dual-status aliens who are married may not file a joint return or claim the standard deduction.

Exceptions. You may make a special election that may decrease your taxes for some years in which you have dual status. Dual-status aliens who are married have two other alternatives in the year in which they arrive in the United States:

The Section 6013(h) election. This election is available only in cases in which a U.S. citizen or resident alien is married to an individual who is a resident alien at the close of the tax year. An alien choosing this alternative is treated as a resident of the United States for the entire tax year. The most significant consequences of making this choice are:
- All income, whether from a U.S. or a foreign source, is subject to tax, including any income you had during the period in which you were not a resident of the United States. This income would have been exempt from U.S. taxes, or possibly taxed at a reduced rate, if you had not made the Section 6013(h) election.
- You may claim itemized deductions for the period in which you were not a resident of the United States, if such items would otherwise qualify for deduction. Some examples are foreign real property taxes, mortgage interest, and medical expenses.
- You may deduct, or elect to claim as a credit, foreign income taxes attributable to the period during which you were not a U.S. resident, which may substantially reduce or even eliminate U.S. income tax. Other benefits, however, like being able to file a joint return and thus be taxed at accordingly lower rates, are left intact. The result is that your net U.S. tax liability may be reduced.

The Section 6013(g) election. Under the Section 6013(g) election, a married couple may file a joint return as full-year residents of the United States if, at the end of the tax year, one spouse is a nonresident alien and the other is a citizen or resident alien of the United States.

The effects of making this election are the same as choosing the Section 6013(h) election, with one very significant distinction. The Section 6013(g) election is valid for all subsequent years in which you and your spouse qualify, including the year in which the resident alien leaves the United States. Once made, the Section 6013(g) election can be revoked. However, if you revoke the election, you cannot make another such election in the future. On the other hand, the Section 6013(h) election relates to only the year of the election and not later years. The election cannot be made if either spouse made the election in a prior year.

Example. You and your spouse became U.S. residents on April 1, 2017. Prior to your arrival in the United States, you earned $5,000 in wages and your spouse earned $1,000 in wages. Both of you also had $500 in joint interest income for the first 3 months of the year. Once in the United States, you earned $75,000 from April through December. Your spouse did not work in the United States. You had an additional $700 in joint interest income. Your itemized deductions equal the standard deduction. Your tax liabilities are computed as follows:

Alternative 1: Dual-status return, married filing separately (for period while a U.S. resident)

Salary	$75,000
Interest	350
Itemized deductions	(6,350)
Exemptions	(4,050)
Taxable income	$64,950
Tax	$11,976

You would not be taxed on your non-U.S. source income.

Alternative 2: Full-year election, joint return

Salary	$81,000
Interest	1,200
Standard deduction	(12,700)
Exemptions	(8,100)
Taxable income	$61,400
Tax	$8,278

By electing to be treated as a resident alien for the entire tax year, you save $3,698 in federal income taxes. Note that your spouse could not be claimed as a dependent under Alternative 1, since your spouse had income during the U.S. residency period. Your spouse does not need to file a return under Alternative 1, since your spouse’s income did not exceed the amount that requires you to file. (See chapter 1, Filing information.)

The $6,500 in income that you and your spouse had in your home country would probably be subject to tax there. If so, you would be eligible for the foreign tax credit if you filed under Alternative 2. The tax credit would further lower your taxes. See chapter 38, Other credits including the earned income credit, for a discussion of the foreign tax credit.

How Nonresident Aliens Are Taxed

A nonresident alien is taxed as follows:

Compensation for services rendered in the United States or other income that is effectively connected with a U.S. trade or business is generally taxed at graduated rates, using the appropriate tax rate schedules. A nonresident alien may deduct certain expenses incurred in producing that income, such as business-related expenses and state and local income taxes. In addition, he or she may deduct casualty losses and qualifying charitable contributions. However, a nonresident alien may not claim the standard deduction.

Income that is effectively connected with a U.S. trade or business at the time it is earned will be considered “effectively connected” at the time it is received, even if receipt occurs in a different tax year. For example, if you earn a bonus related to services you performed as an employee in the U.S. during 2017, but you do not receive the bonus until 2018 when you are no longer working in the U.S., the bonus will be treated as “effectively connected” with a U.S. trade or business and will be taxed in the U.S. even though you are not working in the U.S. when you receive the bonus.

A nonresident alien is generally able to claim a personal exemption only for himself or herself. However, a nonresident alien who is a resident of Mexico or Canada, or a national of the United States (such as certain American Samoans or Northern Mariana Islanders), is also entitled to claim personal exemptions for

A spouse, if the spouse had no gross income for U.S. tax purposes and was not the dependent of another taxpayer.
Other dependents, if they meet the same requirements as a U.S. citizen.

In addition, certain tax treaties allow for personal exemptions for a spouse and dependents in specific cases.

A married nonresident alien is taxed under the “married filing separately” Tax Rate Schedule, which is the highest Tax Rate Schedule applicable to individuals.

You may not claim head of household status if you are a nonresident alien. A nonresident alien who is single would use the “unmarried” Tax Rate Schedule.

Dividends, interest, royalties, pensions, annuities, and other types of U.S. source income that are not effectively connected with a U.S. trade or business are usually subject to a flat 30% tax rate unless a tax treaty allows for a lower rate of tax. No deductions or exemptions are allowed against this income. Interest earned on U.S. bank accounts, as well as certain other investments (known as “portfolio” debt instruments), is exempt from U.S. taxes.

Gains and losses from the sale of capital assets, other than real property situated in the U.S., may be taxed in either of two ways. If the gains and losses are not connected with a trade or business in the United States, any U.S.-source gain (after deducting losses) is taxed at a 30% rate if the nonresident alien is in the United States for 183 days or more during the tax year. If a gain is derived from the sale of capital assets effectively connected with a trade or a business in the United States, it is taxed in the same manner as it would be for a U.S. citizen. Capital gains from the sale of real property located in the United States are considered to be connected with a U.S. trade or business and are subject to special U.S. tax laws. (For a more detailed discussion of the tax treatment of gains and losses, see Publication 519, U.S. Tax Guide for Aliens.)

Foreign students. Foreign students who enter the U.S. under an “F,” “M,” or “Q” visa (academic or language student) or a “J” visa (educational and cultural exchange visitor) are generally nonresidents for U.S. income tax purposes, as long as they substantially comply with the terms of their visa. Their days of presence in the U.S. are not counted for the substantial presence test discussed earlier. There are some time limits for nonresident status. You can find more information in Publication 519, U.S. Tax Guide for Aliens.

TAXPLANNER

Foreign nationals who become U.S. residents. Foreign nationals who become U.S. residents are taxed on their worldwide income from the day on which they become residents. You may, however, take several steps before you become a U.S. resident in order to limit your U.S. tax liability. As you consider these steps, make sure you also consider whether there will be a foreign tax or other costs related to your actions. Consider the following:

If you anticipate receiving a payment of compensation for past services, such as a bonus, arrange to receive this payment before becoming a resident of the United States. If this payment is received after you become a U.S. resident alien, it will be taxable in full by the United States, even though the related services were rendered prior to coming to the United States. Review tax treaty and foreign tax credit rules for possible relief if the payment is received after becoming a U.S. tax resident.
If you anticipate incurring expenses that will be deductible for U.S. income tax purposes, such as mortgage points, interest, or certain charitable contributions, consider deferring these payments until after you are a resident of the United States.
If you sell shares in a foreign corporation for a gain prior to your arrival in the United States, the entire gain is not subject to U.S. tax. However, if you sell shares at a profit after you become a U.S. resident, the entire gain is subject to U.S. tax, even if the entire appreciation of the shares occurred before you became a U.S. resident. You should consider selling shares and other investments in which you have a profit before you become a U.S. resident. By the same token, if you hold an investment that has a loss and the entire loss was generated before you became a U.S. resident, but you did not realize the loss until after you took up residency, you may deduct the loss on your U.S. tax return, subject to the normal rules (see chapter 16, Reporting gains and losses, for more information).
If you receive a distribution from a government or private retirement plan after you have become a U.S. resident, the entire amount may be subject to U.S. tax. If at all possible, arrange to receive the payment before you become a U.S. resident, when it is not subject to U.S. tax. Review tax treaty and foreign tax credit rules for possible relief if a payment is received after becoming a U.S. tax resident. In addition, if you continue to participate in your home country retirement plans (employer plans or personal pension plans) while you are in the U.S., you may be taxed in the U.S. on contributions into the plans and amounts earned in the plans. An income tax treaty between the U.S. and your home country may provide some relief from this taxation. The rules are complex, so you should consult with a tax advisor.
If you sell your principal residence before becoming a U.S. resident, the proceeds are not normally subject to any U.S. tax. However, if you become a U.S. resident and elect to be taxed as a resident alien for the entire year to take advantage of lower joint filing rates (see Exceptions, earlier), you may end up paying tax on the sale of your principal residence, as well as tax on any exchange gain associated with the payoff of the mortgage. Be sure to consider this fact before you elect to be taxed as a resident alien for the entire year.

There is a $250,000 exclusion for single taxpayers ($500,000 for married taxpayers filing jointly) on the gain from the sale of a home if you have owned the home and lived in the home as your principal residence for 2 of the last 5 years. The use of the exclusion by foreign nationals who have ceased to be residents of the United States is permitted if the expatriation rules do not apply (see Rules for Individuals Giving Up U.S. Citizenship or U.S. Residency, earlier in this chapter). Given the fact that this area of law is complex, you should seek tax advice prior to disposing of your primary residence.
You may be able to take advantage of a “window between tax residencies,” a situation in which certain income is never taxed. This requires analyzing the tax laws of your home country and the United States. A window may be created, for example, if you come from a country that does not tax income of its nonresident citizens.

Example. Humphrey Benson is a citizen of a country that does not tax its nonresident citizens, and he decides to move permanently to the United States. He owns securities that have appreciated by $10,000. On his move to the United States, Humphrey ceases being a resident of his home country and goes to a third country for 2 weeks. The tax rules in this third country are such that he is not subject to tax on sales of securities. While there, he sells all his securities. The result is that he does not have to pay any tax in his home country, in the United States, or in the third country.

Departing from the United States

Before you depart from the United States, you must obtain a certificate of compliance, indicating that you have satisfied your federal tax liability. This certificate, frequently referred to as a “sailing permit” or a “departure permit,” is obtained by filing Form 1040-C, U.S. Departing Alien Income Tax Return, or Form 2063, U.S. Departing Alien Income Tax Statement. To get the permit, you must either pay all of the U.S. income tax due prior to departure or demonstrate that your departure from the United States will not impair the collection of the tax. The forms may be found on the IRS website (www.irs.gov). An exit permit is valid for only 30 days. If you postpone your departure, you probably have to apply for a new exit permit. See Publication 519, U.S. Tax Guide for Aliens, for more details and for certain categories of individuals who are exempt from the “sailing permit” requirements.

TAXORGANIZER

Records you should keep:

A calendar of travel days in and out of the United States as well as workdays in and out of the United States. Also retain copies of travel tickets, stamped passports, and other documentation to substantiate the dates. In some cases, you may need calendars for the current calendar year plus the two previous years.
If you will be taxed as a resident of the United States and you have income/deductions from sources outside the United States, you will need to include those items on your U.S. return. Therefore, evidence of those items should be maintained. Note that the United States may tax certain items of income differently than other countries; you should consult a tax advisor to confirm proper U.S. tax treatment.
A copy of your visa and permanent residence card (i.e., green card), if applicable.
A copy of your foreign tax returns and receipts for foreign taxes paid or accrued during the tax year, depending on the method used for the foreign tax credit.
A copy of your social security card or individual taxpayer identification number (ITIN) card(s) for yourself, your spouse, and your dependents.

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Table of Contents for Chapter 43: Foreign citizens living in the United States

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Table of Contents for
Chapter 43: Foreign citizens living in the United States