Form 1040-C: U.S. Departing Alien Income Tax Return
Filed by departing aliens to report income received or expected to be received for the entire tax year, ensuring all U.S. tax obligations are settled before leaving.
Overview
IRS Form 1040-C, the U.S. Departing Alien Income Tax Return, is filed by nonresident and resident aliens who are leaving the United States and need to demonstrate that all U.S. federal income tax obligations have been settled or adequately secured. The form's primary purpose is to obtain a sailing or departure permit from the IRS — a document that, in many cases, must be presented before a departing alien can leave the country. The legal authority for this requirement stems from IRC Section 6851, which grants the IRS broad power to immediately assess and collect taxes when a taxpayer is departing and there is concern that collection would otherwise be jeopardized.
Form 1040-C is not simply a duplicate of a standard annual return. It covers income that has already been received during the tax year up to the departure date, plus income that is reasonably expected to be received through the end of the tax year — a forward-looking component that makes this form unique among individual income tax returns. This means the IRS is essentially asking a departing alien to account for income not yet earned, which can lead to estimated tax calculations and sometimes requires the filer to post a bond or make a prepayment before clearance is granted.
It is important to understand that filing Form 1040-C and obtaining a departure permit does not relieve the alien of the obligation to file a final annual return — either Form 1040-NR (for nonresident aliens) or Form 1040 (for resident aliens) — after the tax year ends. Form 1040-C is an interim measure focused on pre-departure clearance, not a substitute for the year-end return. Most CPA firms advise clients with international mobility to begin the departure permit process several weeks before the planned departure date to avoid delays at the border.
Who Files This Form?
Most aliens — both nonresident and resident — who plan to depart the United States are required to obtain a sailing or departure permit, which generally requires filing Form 1040-C. This obligation applies regardless of whether the alien has a tax liability; the IRS needs to affirmatively confirm that tax matters are in order before issuing the permit.
Certain categories of aliens are exempt from the sailing permit requirement entirely and may instead file the simpler Form 2063 (U.S. Departing Alien Income Tax Statement): aliens who have been in the United States for fewer than a specified period as students, exchange visitors, or diplomats; representatives of foreign governments under certain visa classifications; and aliens whose income is fully exempt from U.S. tax under a treaty or whose U.S.-source income is limited to certain passive categories subject to withholding at source. The IRS instructions for Form 2063 and Publication 519 (U.S. Tax Guide for Aliens) provide the definitive list of exempt categories.
Resident aliens — including lawful permanent residents (green card holders) and individuals who meet the substantial presence test — are generally subject to the same departure permit rules as nonresident aliens, although the income computation on Form 1040-C differs because resident aliens are taxed on worldwide income.
Aliens who are already in compliance with a pre-existing installment agreement, have had tax fully withheld at source on all U.S.-source income, or can demonstrate through documentation that no tax is owed may find the IRS willing to issue a permit quickly. However, if any open tax liability, unfiled prior-year returns, or disputed assessments exist, the IRS may require payment in full or a bond before issuing the clearance. Aliens subject to expatriation rules under IRC Section 877A should be especially careful, as the mark-to-market exit tax adds a separate layer of complexity.
Key Fields
Part I – Alien Status and Filing Information
This section establishes whether the filer is a resident or nonresident alien, the type of visa held, the planned departure date, and the country to which the alien is departing. Accuracy here is critical because alien status drives the income inclusion rules used throughout the rest of the form — resident aliens report worldwide income while nonresident aliens report only U.S.-source income.
Income for Period in the U.S. (Wages and Other Compensation)
Report all wages, salaries, tips, and other compensation received from U.S. sources from January 1 (or the date the alien entered the U.S., if later) through the departure date, plus any amounts expected to be received through year-end. A common gotcha is forgetting deferred compensation or equity awards that will vest or be paid after departure but are attributable to U.S. services.
Business and Self-Employment Income
Aliens engaged in a U.S. trade or business must report net profit or loss from that activity. For nonresident aliens, the effectively-connected income rules under IRC Section 871(b) govern what is includable. Be careful to allocate expenses properly between U.S. and foreign activities, especially if the alien conducted business in multiple countries during the year.
Deductions
Resident aliens may generally claim the same deductions available on Form 1040. Nonresident aliens are more limited — they may claim deductions only to the extent they are connected to effectively connected income, and the standard deduction is generally not available to nonresident aliens (with narrow exceptions, such as residents of India under treaty). Overstating deductions is a frequent audit trigger on this form.
Tax Liability
This line reflects the total U.S. federal income tax computed on the income reported, including both the tax on ordinary income and any applicable alternative minimum tax. For departing aliens with equity compensation or substantial investment income, this number can be significantly higher than expected because of the forward-looking income inclusion.
Tax Already Paid (Withholding and Estimated Payments)
Enter federal income tax withheld from wages (per W-2 or equivalent) and any estimated tax payments made for the year. The difference between tax liability and tax already paid is the amount that must be settled before a departure permit is issued. Filers often underestimate estimated payments made through an employer's payroll system, so cross-referencing paystubs before the IRS appointment is essential.
Balance Due or Refund
If tax already paid exceeds the computed liability, the IRS will issue a refund — but typically after the year-end return is filed, not at the time of the departure permit appointment. If a balance is due, it must generally be paid in full (or secured by bond) before the IRS will sign off on the departure permit.
Departure Date
The specific date the alien plans to leave the United States. This date anchors the income computation period and must be accurate. If travel plans change and the alien stays longer, the departure permit may need to be updated and a supplemental filing may be required.
Certification and Signature
The alien (and a paid preparer, if applicable) must sign under penalty of perjury. If a power of attorney is in place, ensure Form 2848 is current and on file with the IRS before the appointment, as the IRS agent processing the departure permit will verify authorization.
Filing Deadlines
Before departing the United States
Aliens may be denied departure clearance if tax obligations are not settled.
Step-by-Step Instructions
- 1
Determine alien status and applicable exemptions: Confirm whether the client is a resident or nonresident alien and whether they qualify for the simplified Form 2063 procedure. Review Publication 519 and the client's visa classification, days of presence, and income sources to make this determination before investing time in Form 1040-C.
- 2
Schedule the IRS appointment early: The departure permit must be obtained from the IRS in person (at a local IRS Taxpayer Assistance Center or, in some cases, by mail for certain categories). Schedule the appointment as far in advance as possible — aim for at least two to four weeks before the planned departure date to allow time for any issues to be resolved.
- 3
Gather all income documentation: Collect year-to-date pay stubs, brokerage statements, K-1s, rental income records, and any other income documentation covering January 1 through the planned departure date. Also identify any income expected to be received through December 31 that has not yet been paid — this forward-looking component is what makes Form 1040-C preparation more complex than a standard return.
- 4
Compute income and tax liability: Complete the income and deduction sections of Form 1040-C using the gathered documentation. For resident aliens, include worldwide income; for nonresident aliens, include only U.S.-source and effectively connected income. Apply the correct tax rates and compute the liability, including self-employment tax if applicable.
- 5
Reconcile payments and determine balance due: Subtract all withholding and estimated tax payments made to date from the computed liability. If a balance is due, arrange for the client to pay it before or at the IRS appointment. If the client cannot pay in full, discuss whether a bond or other security arrangement is feasible — though most IRS offices prefer full payment.
- 6
Prepare supporting documentation for the appointment: Bring the completed Form 1040-C, proof of all tax payments (cancelled checks, IRS account transcripts), copies of prior-year filed returns (the IRS agent will verify compliance), passport and visa documentation, and evidence of the planned departure (airline ticket or itinerary).
- 7
Attend the IRS appointment and obtain the departure permit: The IRS agent will review the form, verify identity and travel plans, and confirm that tax obligations are satisfied. Upon approval, the IRS will sign and stamp Form 1040-C (or issue a separate certificate of compliance), which constitutes the sailing or departure permit.
- 8
File the year-end annual return: Remind the client that Form 1040-C does not replace the obligation to file Form 1040-NR or Form 1040 for the full tax year. Credits for tax paid with Form 1040-C are carried to the year-end return, and any overpayment can be claimed as a refund at that time.
Common Mistakes to Avoid
Waiting until the day before departure to initiate the process.
Begin the Form 1040-C preparation and IRS appointment scheduling at least three to four weeks before the planned departure date. Last-minute appointments are often unavailable, and an unresolved tax issue can delay or prevent departure.
Treating Form 1040-C as the final return and not filing a year-end return afterward.
Clearly communicate to the client that Form 1040-C is a pre-departure clearance document only. The client must still file Form 1040-NR or Form 1040 (as applicable) after the tax year closes, and the CPA should schedule that engagement before the client departs.
Omitting income expected to be received after departure but before December 31.
Form 1040-C requires inclusion of income reasonably expected to be received through the end of the tax year, not just income earned through the departure date. Carefully review deferred compensation agreements, pending equity vesting schedules, and any other post-departure income streams.
Incorrectly claiming the standard deduction for a nonresident alien.
Nonresident aliens generally cannot claim the standard deduction and must itemize or take no deductions at all, subject to limited treaty exceptions. Verify the client's treaty position before including a standard deduction on the nonresident version of Form 1040-C.
Failing to account for the expatriation exit tax for long-term residents or covered expatriates.
If the client is a lawful permanent resident who has held a green card for a specified number of years, or meets the net worth or average annual net tax liability thresholds under IRC Section 877A, the exit tax rules apply and require separate analysis beyond Form 1040-C. Engage an international tax specialist if expatriation is involved.
Not bringing prior-year return copies to the IRS appointment.
IRS agents processing departure permits routinely check prior-year filing compliance. Bring copies (or IRS transcript printouts) of the most recent two to three years of returns to the appointment to avoid delays.
Frequently Asked Questions
Form 1040-C is the full departure return required for most aliens leaving the United States; it requires computing income, deductions, and tax liability for the current year through departure. Form 2063 is a simplified statement available to aliens who have been in the U.S. for limited periods, have no tax liability, or meet other qualifying criteria. If you're unsure which applies, consult Publication 519 or a tax professional before your scheduled departure.
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