US Treasury Issues New Tax Guidelines For US Dependencies

by Mike Godfrey, Tax-News.com, Washington

08 April 2005

The US Treasury Department on Wednesday unveiled temporary and proposed regulations to provide guidance relating to US possessions under section 937 and other Code sections, to reflect amendments made by the American Jobs Creation Act of 2004 (AJCA) and the Tax Reform Act of 1986.

According to the Treasury, the income tax laws of the United States have long contained special provisions for the taxation of individuals residing in US possessions and corporations created or organized in US possessions, which the Tax Reform Act of 1986 substantially revised.

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

The newly released regulations update the existing guidelines to conform with the new laws and provide additional guidance on the proper application of the statutory provisions.

The 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 regulations also provide rules for determining whether income is derived from sources within the above-mentioned US possessions, and whether income is effectively connected with the conduct of a trade or business within such a US possession.

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