IRS Federal Register Notices: Forms 2063 & 1098-F

IRS Opens Comment Period on Compliance and Penalty Forms

The IRS is seeking public input on two critical information collections, according to notices published this week. These collections relate to Form 2063, U.S. Departing Alien Income Tax Statement, and Form 1098-F, Fines, Penalties, and Other Amounts. This action constitutes a routine extension request under the Paperwork Reduction Act, with comments due by March 9, 2026. While the changes to Form 2063 are minimal, Form 1098-F includes updated estimates for response times.

• Form 2063: Departing Alien Income Tax Statement. This form plays a role in the "Sailing Permit" requirement under Section 6851(d) of the tax code, which mandates that departing aliens demonstrate compliance with U.S. tax laws before leaving the country. While rarely enforced at departure points, it technically allows the IRS to terminate a tax year and demand immediate payment. Form 2063 is a simplified version, generally used by resident aliens returning to the U.S. or departing aliens with no U.S.-source income.

• Form 1098-F: Fines, Penalties, and Other Amounts. This form is a direct consequence of the 2017 Tax Cuts and Jobs Act (TCJA) amendments to Section 162(f) and the enactment of Section 6050X.

  • Section 162(f) generally disallows deductions for payments to a government entity related to violations of law. The TCJA significantly broadened this disallowance.
  • Section 6050X requires government entities to report these payments to the IRS using Form 1098-F, particularly those exceeding $50,000. This reporting requirement helps ensure compliance with the stricter rules on deducting fines and penalties. The new estimates of response times is an update to the burden of compliance.

Sailing Permits: The Departing Alien Requirements

The IRS also seeks comment on the paperwork burden associated with Form 2063, U.S. Departing Alien Income Tax Statement. This form relates to the requirements under Section 6851(d) of the tax code, which mandates that most aliens departing the United States obtain a certificate of compliance, often called a "Sailing Permit," to demonstrate they have met their U.S. tax obligations.

Form 2063 serves as a simplified certification for both resident and nonresident aliens leaving the U.S. The "Sailing Permit" effectively confirms that these individuals have satisfied their income tax obligations before departure. Specifically, Form 2063 is used by:

• Resident aliens who will be returning to the U.S. and whose tax liabilities are current.
• Departing aliens (resident or nonresident) with no taxable income for the current or preceding year.

The IRS uses the data from Form 2063 to verify that departing aliens have complied with U.S. income tax laws. The current action regarding this form is a routine extension of a currently approved collection, meaning the IRS is seeking to continue its use of the form. According to the IRS, there is no change to the paperwork burden previously approved by the Office of Management and Budget (OMB).

• Old Rule vs. New Rule: The IRS confirms no change to the reporting burden. The requirements of Form 2063 remain consistent.
• Estimated Burden: The IRS estimates 20,540 responses annually, with an estimated time per response of 50 minutes, resulting in a total annual burden of 17,049 hours.

Taxing the Penalties: TCJA and Form 1098-F

Continuing from the discussion on Sailing Permits, the IRS is also seeking comments on Form 1098-F, Fines, Penalties, and Other Amounts. This form’s significance stems from the 2017 Tax Cuts and Jobs Act (TCJA), which brought substantial changes to the deductibility of fines and penalties paid to government entities.

The TCJA amended Internal Revenue Code (IRC) Section 162(f), which concerns the deductibility of fines, penalties, and other amounts. Before the TCJA, Section 162(f) disallowed deductions only for "fines or similar penalties." The amendment broadened this disallowance to include any amount paid "to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law." This means businesses can no longer deduct payments made to settle investigations or inquiries, even if they aren't technically labeled "fines."

The TCJA also added IRC Section 6050X, requiring government officials to report certain fines, penalties, and other amounts. Treasury Regulations Section 1.6050X–1 provides guidance on the information reporting requirements of IRC Section 6050X and designates Form 1098–F as the return to report the information. Government entities use Form 1098-F to report these payments to the IRS and to provide a statement to the payer.

• Winners and Losers:

  • Losers: Businesses that pay fines, penalties, or settlement amounts to government entities, as they can generally no longer deduct these payments as business expenses.
  • Winners (sort of): The government entities themselves, because they are now subject to a reporting requirement when they receive these payments. The reporting requirement helps the IRS enforce the disallowance of deductions under Section 162(f).

• Delta: The IRS acknowledges that there is no change in the reporting burden at this time. However, the agency notes a decrease in the estimated number of responses. According to the notice, the "number of responses has decreased due to better estimates."

• Previous Estimate vs. New Estimate: The current estimate is 41,300 responses annually.

Industry Impact and Action Items

For tax practitioners, these IRS announcements carry several practical implications. Regarding Form 2063, the "U.S. Departing Alien Income Tax Statement," this serves as a reminder for firms with global mobility clients to ensure compliance with departure procedures. While the "Sailing Permit" requirement under Section 6851(d) of the Internal Revenue Code (IRC) is not always strictly enforced, advising clients on this requirement is crucial, especially for those with complex tax situations.

The announcement concerning Form 1098-F highlights the IRS's continued focus on the deductibility of fines and penalties in light of the 2017 Tax Cuts and Jobs Act (TCJA). The TCJA amended Section 162(f) of the IRC, significantly limiting the deductibility of payments to governmental entities for violations of law. Previously, Section 162 allowed deductions for ordinary business expenses, but Section 162(f) now disallows deductions for fines, penalties, and other amounts paid to a government in relation to a violation.

Practitioners should advise clients that to deduct such payments, the agreement with the government must specifically identify the payment as restitution or to come into compliance. Without this clear designation, the deduction will likely be disallowed. Further, Section 6050X of the IRC requires government entities to report payments of $50,000 or more using Form 1098-F.

To ensure consideration, written comments regarding these information collections should be submitted by March 9, 2026, to Andres Garcia, Internal Revenue Service, Room 6526, 1111 Constitution Avenue NW, Washington, DC 20224, or via email to pra.comments@irs.gov. The subject line of the email should include the relevant OMB Control Number: "OMB Control No. 1545–0138" for Form 2063 and "OMB Control No. 1545–2284" for Form 1098-F.