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IRS Adds To US Territory Residency Rules

by Mike Godfrey, Tax-News.com, Washington

28 August 2015


A notice of proposed rulemaking (REG-109813-11) issued by the US Internal Revenue Service (IRS) on August 26 has proposed amendments to the regulations for determining whether an individual is a bona fide resident of a US territory.

Under the existing regulations, whether an individual is a bona fide resident of a US territory is partly dependent on a presence test, which states that an individual must be present in the US territory for at least 183 days during a tax year.

There are also several alternatives to the 183-day rule. For example, a taxpayer who does not satisfy that rule may nevertheless meet the presence test if he or she is present in the relevant US territory for at least 549 days during the three-year period consisting of the current tax year and the two immediately preceding tax years, provided the individual is present in the US territory for at least 60 days during each tax year of the period.

In addition, the current tax code provides that certain days count as days of presence in the relevant US territory for purposes of the presence test, even if the individual is not physically present in the US territory (constructive presence).

The amendment proposed by the IRS would provide more flexibility in allowing additional days of constructive presence for business or personal travel outside of the relevant US territory. An individual would now be considered to be present in the US territory for up to 30 days during which the individual is outside of both the United States and the territory.

The amendment would not apply, however, if the number of days that the individual is considered to be present in the United States during the tax year equals or exceeds the number of days that the individual is considered to be present in the relevant US territory during the tax year, determined without taking into account any days for which the individual would be treated as present in the US territory under this amendment.

Furthermore, the 30-day constructive presence rule would not apply for the purposes of calculating the minimum 60 days of presence in the US territory that is required for the 549-day test.

The US territories are American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and the US Virgin Islands.

TAGS: individuals | compliance | tax | tax compliance | Northern Mariana Islands | law | Samoa | Virgin Islands | Puerto Rico | United States | regulation | Guam

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