failing to submit the sailing permit, big trouble?

[JHH123]

Hi Guys

I have one urgent question to ask for my friend. Unfortunatedly he was forced to leave his job in Dec last year in the USA (he was RA for 2023) and he had to go back to his own country on Jan 9th because his visa cannot allow him to work in the USA any more and he is looking for the job in the non-US area. 

He didnt know he had to submit the sailing permit. His tax advisor may plan to help him fill in a statement to mention the end date of the USA for his 2023 tax return and said he may need to fill in all of this world income in the USA for 2024 because he failed to fill in sailing permit. Is it true? What tax return does my friend need to fill in for tax year 2024? RA or dual status or NRA + Fbar or NRA only? 

He may want to book a 2 week holiday in 2024 by tourism visa not H1B, but he will make sure that the total days in the USA for 2024 is below 31 days. will anything be changed? Is it necessary for him to go to local irs to get a sailing permit during his holiday?

[DaveF1006]

Yes, this is problematic not getting the sailing permit before departure. My advice is to have your friend file his taxes ASAP and pay any tax due immediately to avoid any further consequences.  Make sure his taxes are paid and up to date on his 2023 return before he visits the US.  It is wise for his tax professional to include a statement saying that your friend forgot to obtain a sailing permit but his taxes are paid and up to date with this return. Make sure this is the case before he returns for a holiday. 

As far as filing a return for 2024, if he earned or received income between Jan 1 -9, he would need to file a return. Rather it is a resident return or non resident return depends on the terms Substantial Presence Test and is determined by the following formula.

1. 31 days during the current year, and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting:
   • All the days you were present in the current year, and
   • 1/3 of the days you were present in the first year before the current year, and
   • 1/6 of the days you were present in the second year before the current year.

If he is a resident under the formula, then it is possible he would need to file a 1040 resident return and declare his worldwide income since he did not apply for the sailing permit. When determining the 31-day period, you would need to to count the 9 days in January plus the duration of his vacation stay.  However if he earned or received  income in Jan and is under the 31 day stipulation, he would file a 1040 NR return. turbo Tax does not prepare 1040 NR returns but our affiliate at Sprint Tax does.

It may be possible for him to get a sailing permit during his vacation stay.  He may wish to visit the IRS to see what steps need to be taken before his departure back to his country. I would suggest he has a copy of his 2023 tax return to prove he has paid all of his taxes.  

 If his tax preparer is an enrolled Agent or CPA, he/she should accompany him to the IRS for representation purposes. If he does this, i would suggest that he visit the IRS immediately on his return to the US. 

If he decides to do this, he needs to have documents and receipts that are included in the instructions for 1040 C.  Look at page 4 in the instructions link below for a list of these requirements.

Here are some references that may prove helpful to you and your friend. 

Instructions for Form 1040 C

Sailing permit

Alien Tax Clearance

[Edited 03/19/22|3:15 pm PST]

[JHH123]

many thanks. David. really appreciate it

1. if he becomes resident, I guess he can still fill it for dual status or he can only fill it as RA?

2. If he cannot go to USA again and he only stayed in the US for 9 days in 2024 or go to USA in 2024 for saying 14 days holiday but difficult to make an appointment with local IRS. Can he just fill it as NRA in 2025 instead?

3. He doesnt have any job between Jan 1 and 9 in the USA. He may have interests earning for the whole year in the USA. Considering he can make sure stay in the USA for less than 31 days. Does he need to manually calculate the interests he would earn (US bank only not the world) and calculate the tax ?

4. How can he pay the tax in 2024 for the 2024 tax?

5. If he may need to have a holiday, does he need to file a statement about his end date of resident by his tax advisor now? 

My friend didnt know the sailing permit at all and he got laid off during Xmas and he even cannot get tax advice during the time (he tried to find tax advisor but on holiday,)

Thanks

J

[DaveF1006]

It depends on a variety of things. 

1. If he decides to come back and become a resident, it would depend on the date he arrives back and if he is falls within the provisions of the Substantial Presence Test to determine if he can file as a Resident Alien.
2. If he can't see the IRS during his stay, this is a reality that one must accept. The visit to the IRS  would only benefit him if he is able to.
3. If he earns interest in the US for 2024, he would need to file a 2024 Non-Resident 1040 return to report the interest earned. Turbo Tax does not prepare these returns but our affiliate at Sprint Tax does. You would not report this on a 2025 Tax return.
4. Yes, he can perhaps calculate projected his interest earned for 2024. Better yet, let the Tax Advisor do this and then he/she can project what the taxes owed on this amount on a 1040 NR return( or 1040).
5. He can prepay taxes for the 2024 year by making estimated tax payments. This is something you can discuss with the tax advisor and how to do it and what amount to prepay. You can also have this directly submitted through the IRS.  Select this link and look under the section titled How to pay estimated taxes.
6. No, he does not need to file a statement with his tax advisor now regarding his ending date. 

My suggestion is to have your friend and yourself to enter an agreement to appoint you as his personal representative for tax matters. This is possible by having him sign a Form 2848 an submit to the IRS. With a 2848, you can also work closely with a tax advisor on his behalf to straighten out this issue. Please read the link I have provided for you below for more information regarding a Power of Attorney.

Topic no. 311, Power of attorney information

[JHH123]

many thanks, David

It is a good idea. I checked with my friend. He plans to come back for a short 14 days holiday in July (with tourism visa only). He doesnt want to become a resident to report world wide income.

1. Since 9+ 14 =23 < 31, I assume he will only need to report US sourced income? 

2. The best thing to do is for my friend to summarize all of the US soureced interests (not world income) in 2024 and make the estimate payment with his tax advisor or sprintax. Then, he goes to the local office to get the sailing permit in July. If he cannot achieve it, he still makes the estimate tax with spintax or his tax advisor. Is my understanding correct? I think he just does one tax estimate not every quarter, right?

3. After finsihing 2, (no matter meeting IRS officer or not), I think it is done for him or he need to resubmit 2024 tax again in 2025 and then all done?

4. If within super bad luck, his stay is over 31 days and then leave the country in July 31th, for example, I think he can still do dual status, from Jan 1 - July 31 world income report and from Aug 1 to Dec 31 report US income rather than world income from Jan 1 to Dec 31, right? But the best is to keep himself below 31 days  to make the life easier? 

Thanks,

J

[DaveF1006]

Yes, he would only report US-Sourced income since he would be in the US for less than 31 days in 2024. He should make estimates for all 4 quarters to avoid an estimated tax penalty.  As ridiculous as it may sound, the IRS has been known to charge an estimated tax penalty for not making an estimated payment in each quarter.

As long as he receives US-Based income, he would need to file a non-resident return unless there is a provision in the tax-treaty between the US and his own country that says otherwise. Yes, he can file as a dual-status citizen if his stay is 31 days or longer. 

[JHH123]

many thanks. I will have a discussion and try to solve the problem asap. 

1. Based on our discussion, it seems that getting the sailing permit is the best, but it has no impact on the tax filling or penalty. The most important thing is to fill the tax estimation to avoid the penalty. Is it correct?

Since he has no job in the US and he will stay in the US for less than 31 days, he only has interests income in the US. I think it is very easy to be completed.

2. I assume it is also ok for my friend to estimate the tax of the whole year and make one-off payment for the whole year as early as possible, right?

3. After completing the tax estimate or getting the sailling permit, is everything done or does he need to complete the final tax filling in 2025 for the 2024 tax return?

Sorry for lots of questions.

J

[JHH123]

@DaveF1006@   Can you help have a quick look when you have time? thanks

J

[DaveF1006]

Yes, definitely taking steps to avoid the penalty is of paramount importance. As i mentioned, it would be best if he made 4 equal payments in all four quarters. The IRS has been known to assess the penalty when the payments were not made equally for each quarter. 

Yes, he should file the return a 2024 return in year 2025. He would file a 1040 NR with Sprint tax. 

[JHH123]

many thanks

J

[JHH123]

Hey David, @DaveF1006 

My friend does really appreciate your help. 

1. My friend will try his best to do the sailling permit. If just in case,  he fails it, I assume he will have no penalty if he pays the esimate tax and fill in the final tax in 2025 for his 2024 tax. Is it correct?

2. Do you personally help do the tax filling, especailly for the 2024 tax? It seems that his tax advisor is not very familar with sailing permit, 31 days rule as NRA etc. As mentioend before, his advisor firstly thought he needs to report the world income for the whole 2024 even he doesnt stay in the USA for 31 days (not even mention dual status).  

[DaveF1006]

Yes, he should have no penalty if the files his estimated taxes. We are not allowed to accept business on this forum because we are to stay anonymous to safeguard our privacy as well as yours. Your friend does not need report his worldwide income since he isn't a resident in 2024.

From what I understand, the rumor on the street is that the IRS hasn't rigorously enforced this policy in the past but may in the near future. I have suggested these steps just show your friend has shown good faith in complying with the US tax laws.

@JHH123 

[JHH123]

ok, many thanks, David.  really appreciate your help.

J

[JHH123]

@DaveF1006  Hey David, sorry for one more quick question. If the year after, my friend as an NRA has some savings in the US bank but doesnt have any income from the USA, then he will not need to report any more to the IRS, right?

Thanks,

J

[DaveF1006]

Yes, that is correct.