With all of the other red tape that Americans abroad have to deal with, it’s no surprise that sailing permits are an often-overlooked requirement that can easily be a source of tax confusion. Though a sailing permit may sound like a seafaring necessity before boarding a ship, the reality is much less exciting. The IRS grants these sailing permits – also called Certificates of Compliance or departure permits – which are required for most aliens who want to depart the US legally. Find out what Americans abroad need to know about sailing permits, so you don’t run afoul of these mandates.
What Is a Sailing Permit – and What Does It Have to Do With the IRS?
The sailing permit is yet another document required of Americans abroad who are planning to leave the country. The form serves as evidence that you are tax compliant when you leave. Studies have shown that the compliance of using this document has been low – most likely due to a low level of awareness that both the document and the requirement exist. It’s also difficult to enforce because aliens leave the US in huge numbers, daily. There’s not much direction from the IRS on whether these permits can be filed retroactively, either. However, the penalties for not filing this could be harsh if you are found to be in noncompliance. The reality is that the permit would be difficult and expensive to enforce, though recent tax news has led most to believe that the IRS is leaning towards cracking down on all noncompliant taxpayers.
Who Must Submit Sailing Permits, and Who Is Exempt From Them?
All aliens must file sailing permits unless they fit into one of the following categories:
- Representative of a foreign government who holds a diplomatic passport – or an employee of one without any US-sourced income
- A student, industrial trainee, or foreign exchange visitor, or the spouse or child of someone who is (only those with F-1, F-2, H-3, H-4, J-1, J-2, Q-1, Q-2, or Q-3 visas are applicable for this exemption)
- A student or member of the household of a student with an M-1 or M-2 visa, and you don’t have any US-sourced income
- Those who are embarking on a pleasure trip with a B-2 visa
- Those embarking on a business trip with a B-1 visa
- Someone passing through the US on a C-1 visa or under a contract between the department of transportation and the US Attorney General
- You are a frequent commuter from Canada or Mexico into the US, and your income is subject to tax withholding
- You are a military trainee admitted under the Department of Defense and leaving due to military orders
So, unless you fit one of the particular scenarios above, if you are an alien, you are technically on the hook for a sailing permit.
How Do Americans Abroad Obtain a Sailing Permit?
You must file tax forms before you sail, either Form 1040-C (US Departing Alien Income Tax Return) or Form 2063 (US Departing Alien Income Tax Return), both of which are forms that serve as certification of your compliant tax status. Sometimes this must be done up to a month in advance, so make sure that you allow enough time to plan ahead. The IRS advises that you get your permit two weeks in advance so that delays do not cause you to miss your departure.
Which Forms Must You File?
Form 2063 is the shorter and simpler form, and it does not include a tax calculation. This form works only for resident or non-resident aliens who have no taxable income or in the current year up to and including the date of departure. Alternatively, if you are an alien whose tax collection will not be hindered by your departure, you may also use Form 2063. But if the IRS has an inkling that you are leaving in order to avoid paying taxes, you may be forced to use Form 1040-C.
All aliens who are not exempt from the sailing permit requirement and who do not qualify for Form 2063 must use Form 1040-C. The 1040-C is similar to a regular Federal Tax Return and signifies that you have paid all tax due. In certain instances, the IRS will allow you to provide a bond guaranteeing payment rather than being up to date before you sail. Keep in mind that, in general, spouses cannot file jointly together. But if only one spouse is a resident alien, and the spouses expect to file jointly for the current tax year, those spouses may file a joint 1040-C. Lastly, submitting the Form 1040-C does not take the place of the annual Federal Tax Return obligation – Form 1040-C is an additional requirement.
How Does This Affect Americans Abroad?
Though it seems the IRS does not frequently exercise its ability to enforce the sailing permit regulation, it could at any moment. And, as Americans abroad may already know, those who are found to be noncompliant can have their passports revoked if they meet certain penalty thresholds. So, the most risk-averse advice is to fill out these forms to ensure that you stay compliant, keep your passport, and don’t rack up any penalties.
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