Instructions for Form 1040-C (2007)

General Instructions

This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

What's New

For details on these and other changes that may affect your 2007 federal income tax, see Pub. 553, Highlights of 2006 Tax Changes.

U.S. real property interests. If you are a nonresident alien and you sell or exchange your interest in a domestically controlled qualified investment entity in a wash sale transaction, you may be treated as having a gain from the sale or exchange of a U. S. real property interest. For more information, see Real Property Gain or Loss in chapter 4 of Pub. 519.

New recordkeeping requirements for contributions of money. For charitable contributions of money, regardless of the amount, you must maintain as a record of the contribution a bank record (such as a cancelled check) or a written record from the charity. The written record must include the name of the charity, date, and amount of the contribution.

Capital gains treatment for certain self-created musical works. Musical compositions and copyrights in musical works are generally not capital assets. However, you can elect to treat these types of property as capital assets if you sell or exchange them in tax years beginning after May 17, 2006, and:

Your personal efforts created the property, or
You acquired the property under circumstances (for example, by gift) entitling you to the basis of the person who created the property or for whom it was prepared or produced.

Educator expenses deduction. The educator expenses deduction, which had expired for tax years beginning after 2005, has been extended through tax year 2007. Claim this deduction on Form 1040-C, line 16.

Tuition and fees deduction. The tuition and fees deduction, which had expired for tax years beginning after 2005, has been extended through tax year 2007. Resident aliens can claim this deduction on Form 1040-C, line 16. Nonresident aliens cannot claim this deduction.

State and local sales tax deduction. The state and local sales tax deduction, which had expired for tax years beginning after 2005, has been extended through tax year 2007. Use Pub. 600 to help you figure this deduction. Resident aliens can claim this deduction on Schedule C (Form 1040-C), line 1. Nonresident aliens cannot claim this deduction.

IRA deduction expanded. If you were covered by a retirement plan, you may be able to take an IRA deduction if your 2007 modified AGI is less than $62,000 ($103,000 if married filing jointly or qualifying widow(er)).

Standard mileage rates. The 2007 rate for business use of your vehicle is 48½ cents a mile. The 2007 rate for use of your vehicle to get medical care or to move is 20 cents a mile.

Reminder

Former U.S. citizens and former U.S. long-term residents. If you renounced 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. For more details, see Pub. 519, U.S. Tax Guide for Aliens.

Purpose of Form

Form 1040-C is used by aliens who intend to leave the United States to:

Report income received or expected to be received for the entire tax year, and
If required, to pay the expected tax liability on that income.

Form 1040-C must be filed before an alien leaves the United States. For more information, see How To Get the Certificate on page 2.

If you are a nonresident alien, use the 2006 Instructions for Form 1040NR, U.S. Nonresident Alien Income Tax Return, to help you complete Form 1040-C.

If you are a resident alien, use the 2006 Instructions for Form 1040, U.S. Individual Income Tax Return, to help you complete Form 1040-C.

You can get tax forms, instructions, and publications from the Internal Revenue Service (IRS). See Additional information below.

Alien status rules. If you are not a citizen of the United States, specific rules apply to determine if you are a resident or nonresident alien. Intent is not important in determining your residency status.

You are considered a resident alien if you meet either the green card test or the substantial presence test. However, even though you may otherwise meet the substantial presence test, you will not be considered a U.S. resident if you qualify for the closer connection to a foreign country exception or you are able to qualify as a nonresident alien by reason of a tax treaty. These tests and the exception are discussed in the instructions for Part I starting on page 3.

Additional information. For more information on taxation of resident and nonresident aliens, residency tests, and other special rules, see the following.

Pub. 519, U.S. Tax Guide for Aliens.
Pub. 901, U.S. Tax Treaties.

In the United States, you can get tax forms, instructions, and publications from the IRS by calling 1-800-829-3676. You can also download them from the IRS website at www.irs.gov.

Treaty Benefits

If you take the position that a treaty of the United States overrides or modifies any provision of the Internal Revenue Code and that position reduces (or potentially reduces) your tax, you may have to file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), with your final U.S. income tax return. See Pub. 519 for more information.

Final Return Required

A Form 1040-C is not a final return. You must file a final income tax return after your tax year ends.

If you are a U.S. citizen or resident alien on the last day of the year, you should file Form 1040 reporting your worldwide income. If you are not a U.S. citizen or resident alien on the last day of the year, you should generally file Form 1040NR or, if eligible, Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents. However, certain individuals who were resident aliens at the beginning of the tax year but nonresident aliens at the end of the tax year must file a “dual-status” return. See Dual-status tax year on page 4.

Any tax you pay with Form 1040-C counts as a credit against tax on your final return. Any overpayment shown on Form 1040-C will be refunded only if and to the extent your final return for the tax year shows an overpayment.

Certificate of Compliance

The issuance of a certificate of compliance is not a final determination of your tax liability. If it is later determined that you owe more tax, you will have to pay the additional tax due.

Form 1040-C or Form 2063. If you are an alien, you should not leave the United States or any of its possessions without getting a certificate of compliance from your IRS Field Assistance Area Director on Form 1040-C or Form 2063, U.S. Departing Alien Income Tax Statement, unless you meet one of the Exceptions on this page.

You can file the shorter Form 2063 if you have filed all U.S. income tax returns you were required to file, you paid any tax due, and either of the following applies.

You have no taxable income for the year of departure and for the preceding year (if the time for filing the earlier year's return has not passed).
You are a resident alien with taxable income for the preceding year or for the year of departure, but the Area Director has decided that your leaving will not hinder collecting the tax.

Exceptions. You do not need a certificate of compliance if:

You are a representative of a foreign government who holds a diplomatic passport, a member of the representative's household, a servant who accompanies the representative, an employee of an international organization or foreign government whose pay for official services is exempt from U.S. taxes and who has no other U.S. source income, or a member of the employee's household who was not paid by U.S. sources. However, if you signed a waiver of nonimmigrants' privileges as a condition of holding both your job and your status as an immigrant, this exception does not apply, and you must get a certificate.
You are a student, industrial trainee, or exchange visitor, or the spouse or child of such an individual. To qualify for this exception, you must have an F-1, F-2, H-3, H-4, J-1, J-2, or Q visa. Additionally, you must not have received any income from sources in the United States other than:
1. Allowances covering expenses incident to your study or training in the United States (including expenses for travel, maintenance, and tuition),
2. The value of any services or accommodations furnished incident to such study or training,
3. Income from employment authorized under U.S. immigration laws, or
4. Interest on deposits, but only if that interest is not effectively connected with a U.S. trade or business.
You are a student, or the spouse or child of a student, with an M-1 or M-2 visa. To qualify, you must not have received any income from sources in the United States other than:
1. Income from employment authorized under U.S. immigration laws, or
2. Interest on deposits, but only if that interest is not effectively connected with a U.S. trade or business.
Any of the following apply.
1. You are on a pleasure trip and have a B-2 visa.
2. You are on a business trip, have a B-1 visa or a combined B-1/B-2 visa, and do not stay in the United States or any of its possessions for more than 90 days during the tax year.
3. You are passing through the United States or any of its possessions, including travel on a C-1 visa or under a contract, such as a bond agreement, between a transportation line and the U.S. Attorney General.
4. You are admitted on a border-crossing identification card.
5. You do not need to carry passports, visas, or border-crossing identification cards because you are (i) visiting for pleasure or (ii) visiting for business and do not stay in the United States or any of its possessions for more than 90 days during the tax year.
6. You are a resident of Canada or Mexico who commutes frequently to the United States to work and your wages are subject to income tax withholding.
7. You are a military trainee admitted for instruction under the Department of Defense and you will leave the United States on official military travel orders.
However, exception 4 does not apply if the Area Director believes you had taxable income during the tax year, up through your departure date, or during the preceding tax year and that your leaving the United States would hinder collecting the tax.

How To Get the Certificate

To get a certificate of compliance, go to your local IRS office at least 2 weeks before you leave the United States and file either Form 2063 or Form 1040-C and any other required tax returns that have not been filed. The certificate may not be issued more than 30 days before you leave. If both you and your spouse are aliens and both of you are leaving the United States, both of you must go to the IRS office.

Please be prepared to furnish your anticipated date of departure and bring the following records with you if they apply.

A valid passport with your alien registration card or visa.
Copies of your U.S. income tax returns filed for the past 2 years. If you were in the United States for less than 2 years, bring copies of the income tax returns you filed for that period.
Receipts for income taxes paid on these returns.
Receipts, bank records, canceled checks, and other documents that prove your deductions, business expenses, and dependents claimed on the returns.
A statement from each employer you worked for this year showing wages paid and tax withheld. If you are self-employed, you must bring a statement of income and expenses up to the date you plan to leave.
Proof of any payments of estimated tax for the past year and the current year.
Documents showing any gain or loss from the sale of personal and/or real property, including capital assets and merchandise.
Documents concerning scholarship or fellowship grants, such as: (a) verification of the grantor, source, and purpose of the grant; (b) copies of the application for, and approval of, the grant; (c) a statement of the amount paid, and your duties and obligations under the grant; and (d) a list of any previous grants.
Documents indicating qualification for special tax treaty benefits.
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 number (ITIN).

If you are married and reside in a community property state, also bring the above-listed documents for your spouse. This applies whether or not your spouse requires a certificate .

If you are filing Form 1040-C, file an original and one copy for the tax year in which you plan to leave. If the Area Director has made a termination assessment against you, include on your Form 1040-C any income you expect to receive through the departure date during the tax year. If you received a termination assessment and then received additional income during the current tax year, the Area Director may make additional assessments. If the Area Director has not made a termination assessment against you, include on your Form 1040-C any income you have received and expect to receive during the entire tax year of departure.

Generally, a certificate of compliance on Form 1040-C will be issued without your paying tax or posting bond if you have not received a termination assessment. This certificate applies to all of your departures during the current tax year, subject to revocation on any later departure if the Area Director believes your leaving would hinder collecting the tax.

If you owe income tax and the Area Director determines that your departure will jeopardize the collection of the tax, a certificate of compliance on Form 1040-C will be issued only when you pay the tax due or post bond, and the certificate will apply only to the departure for which it is issued.