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Highlights

What GAO Found

Why GAO Did This Study

Every year, the U.S. receives millions of legal visits by foreign individuals. Nonresident aliens--who are neither U.S. citizens nor residents--may be required to file a federal tax return if they earn U.S.- source income, and their noncompliance can contribute to the tax gap. As with U.S. citizens and residents, the Internal Revenue Service (IRS) is responsible for ensuring that nonresident aliens fulfill their tax obligations. GAO was asked to (1) identify what data are available on nonresident alien tax filing and compliance, (2) provide information on guidance IRS provides to nonresident aliens and third parties on tax requirements and any challenges associated with filing, and (3) assess actions IRS takes to enforce nonresident alien tax compliance. To meet its objectives, GAO examined IRS and other federal agency documentation, reviewed tax filing and other data, and interviewed IRS officials and other third parties.

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Recommendations

GAO suggests that Congress consider raising the exemption threshold for income paid by a foreign employer and eliminating the certificate of compliance, or sailing permit, requirement. GAO also recommends that IRS determine if creating an automated program to identify improper filing of Form 1040 by nonresident aliens would be a cost-effective means of improving compliance. In commenting on a draft of this report, IRS agreed with our recommendation.

Matter for Congressional Consideration

Matter Status Comments
Given the increasing extent of business travel to the U.S. and the eroding effect of inflation, Congress may wish to consider raising the amount of U.S. income paid by a foreign employer that is exempt from tax for nonresidents who meet the other conditions of the exemption.
Open
As of October 2020, Congress has not raised the amount of U.S. income paid by a foreign employer that is exempt from tax for nonresidents who meet the other conditions of the exemption.
Given the difficulty of enforcing the requirement for aliens to obtain certificates of compliance--sailing permits--before departing the country and the existence of withholding requirements and tax treaties, Congress may wish to consider eliminating the sailing permit requirement.
Open
As of October 2020, Congress has not eliminated the sailing permit requirement.

Recommendations for Executive Action

Agency Affected Recommendation Status
Internal Revenue Service 1. The Commissioner of Internal Revenue should determine if creating an automated program to identify nonresident aliens who may have improperly filed Form 1040 instead of Form 1040NR by using ITIN information would be a cost-effective means to improve compliance.
Closed - Implemented
IRS performed a study to determine the effectiveness and feasibility of establishing an automated program to identify improper filing of Form 1040 by nonresident aliens. IRS concluded that establishing an automated program to identify such improper filings is not cost-effective at this time because of the limited information available to systematically make such determinations, and the low potential for increased tax results.

Full Report