Treasury and IRS Issue New Regulations

Treasury and IRS Issue New Regulations Relating to U.S Possessions

WASHINGTON, DC – Today the Treasury Department and IRS announced temporary and proposed regulations to provide guidance relating to U.S. 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. The income tax laws of the United States have long contained special provisions for the taxation of individuals residing in U.S. possessions and corporations created or organized in U.S. possessions. The Tax Reform Act of 1986 substantially revised these provisions. 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 U.S. and possessions tax.

The regulations update the existing regulations to conform with the new laws and provide additional guidance on the proper application of the statutory provisions. The regulations provide guidance under section 937(a) for determining whether an individual is a bona fide resident of the following U.S. possessions: American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands. The regulations also provide rules under section 937(b) for determining whether income is derived from sources within the above-mentioned U.S. possessions, and whether income is effectively connected with the conduct of a trade or business within such a U.S. possession. Lastly, the regulations provide updated guidance under various other Code sections to reflect changes made by the Tax Reform Act of 1986 and AJCA. SOURCE: United States Department of the Treasury

REPORTS in PDF format

• Final Possession Fact Sheet 46
• RIN 1545-BC86
• RIN 1545-BE22

April 6, 2005 JS-2361