Treasury And IRS Issue Final Tax Regulations For US Possessions

by Mike Godfrey, Tax-News.com, Washington

01 February 2006

The US Treasury Department and IRS on Monday issued final regulations to provide guidance regarding taxation in US possessions.

The regulations reflect amendments to the Internal Revenue Code made by the American Jobs Creation Act of 2004 (AJCA). The final regulations provide guidance for determining whether an individual is a bona fide resident of the following US possessions: American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the US Virgin Islands.

The income tax laws of the United States have long contained special provisions for the taxation of individuals residing in US possessions.

AJCA revised certain aspects of these provisions to prevent individuals who live and work in the United States from inappropriately reducing their combined US and possessions tax.

The Treasury Department and IRS issued a comprehensive package of proposed and temporary regulations in April of 2005 relating to US possessions, including the determination of bona fide residency in a possession.

In response to extensive comments on the regulations dealing with the determination of residency, Treasury and the IRS have amended and finalized the regulations dealing with residency.

These final regulations incorporate many of the comments received on the proposed and temporary regulations, including a number of revisions intended to better reflect the realities of life in the US possessions.

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