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Alien Tax Clearance

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Tele-Tax Topic 858
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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.
Certain foreign diplomats, employees of foreign governments, students, trainees and exchange visitors do not need a departure permit. To find out whether you belong in one of these excluded categories, refer to Publication 519, U.S. Tax Guide for Aliens.


Non-Resident Aliens


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Nonresident aliens who did not have taxable income for the past year and who do not have taxable income for the tax year up to and including the date of departure, may use Form 2063, U.S. Departing Alien Income Tax Statement, to apply for a departure permit. Nonresident aliens who have any U.S. taxable income must complete Form 1040-C, U.S. Departing Alien Income Tax Return, and pay your U.S. tax liability as shown on the Form 1040-C in order to receive a departure permit. In certain cases, you may furnish a bond guaranteeing payment of tax, but you must pay your tax liability when your final income tax return is due. Any tax you pay counts as a payment on your final return that you must file after the end of your tax year.


Resident Aliens


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If you are a resident alien and you did not have taxable income for the prior year and do not have taxable income for the tax year up to and including the date of departure, or you are a resident alien who is leaving only temporarily, use Form 2063 to apply for a departure permit. Resident aliens who have taxable income may still use Form 2063 to apply for a departure permit if the IRS is satisfied that your departure will not hinder the collection of tax. 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, and pay your tax liability as shown on the Form 1040-C in order to get a departure permit. In certain cases, you may furnish a bond guaranteeing payment of tax, but you must pay your tax liability when your final income tax return is due. Any tax you pay counts as a payment on your final return that you must file after the end of your tax year.


When and How to Apply for a Departure Permit


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You must obtain your departure permit before you leave the United States. You should apply for the departure permit no earlier than 30 days before you plan to leave, but 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:
If you have these documents and pay any tax due you should receive your departure permit immediately. For additional rules and information, refer to Publication 519.


Additional Rules Applicable to Departing Resident Aliens


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Departing resident aliens who have been treated as U.S. resident aliens during at least three consecutive calendar years, who will cease to be treated as U.S. residents for a period of less than three years before being treated as U.S. residents again will be covered by section 7701(b)(10). These individuals will be subject to tax under section 877(b) for the period lasting less than three years during which the individual is not treated as a U.S. resident before the individual resumes being treated as a U.S. resident again.
If you are a departing resident alien and 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, Expatriation Information Statement, and notify the Department of Homeland Security of your termination of residency
Certain expatriates that renounced their U.S. citizenship or terminated their long-term resident status before June 17, 2008, might be subject to alternative tax regime under section 877 for 10 years after expatriation if they met certain statutory requirements. Section 877 no longer applies to those individuals who expatriate after June 16, 2008.
If you are a long-term resident and you expatriate after June 16, 2008, you may be subject to the new mark-to-market regime of section 877A, the new expatriation law. Those expatriates subject to the mark-to-market regime of section 877A will be treated as having sold all of their property for fair market value on the day before they expatriate and will be subject to tax on the unrealized gain above $600.000. This $600,000 exclusion amount will be annually adjusted by a cost of living adjustment factor for calendar years after 2008.
Any gains or losses subsequently realized on actual disposition of the property will be adjusted for gains and losses taken into account as a result of the deemed sale, without regard to the $600,000 exclusion amount. Taxpayers may elect to defer payment of tax attributable to property deemed sold under procedures currently set forth in Form 8854.
The mark-to-market regime 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 statutory exceptions. Deferred compensation items, specified tax deferred accounts, and interests in non-grantor trusts, are excepted from the mark-to-market regime, but are subject to certain special rules that may require current payment of tax and/or impose additional reporting requirements.
The new mark-to-market regime applies to any U.S. citizen who relinquishes citizenship and any long-term resident who terminates U.S. residency, if such individual is a "covered expatriate." A covered expatriate is an expatriate that (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 $145,000 (as adjusted for inflation in 2009); (2) has a net worth of $2 million or more on such date; or (3) fails to certify under penalties of perjury, on Form 8854, that he or she has complied with all U.S. Federal tax obligations for the preceding five tax years.
In addition, the new law will impose a transfer tax on certain gifts or bequests (transfers made at death) made to U.S. persons from individuals treated as covered expatriates.
A modified Form 8854 is available in order for taxpayers to comply with the new law. Covered expatriates that had deferred compensation, a specified tax deferred account, or an interest in a non-grantor trust on the day before they expatriated must file new Form W-8CE, Notice of Expatriation and Waiver of Treaty Benefits, with the payor of such income.