Final rules 3
(a) Treatment of United States residents
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(1) Application of subsection This subsection shall apply to an individual for the taxable year if—
(A) such individual—
(i) is a citizen or resident of the United States (other than a bona fide resident of the Virgin Islands during the entire taxable year), and
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357 substituted “during the entire taxable year” for “at the close of the taxable year”.
(ii) has income derived from sources within the Virgin Islands, or effectively connected with the conduct of a trade or business within such possession, for the taxable year, or
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(B) such individual files a joint return for the taxable year with an individual described in subparagraph (A).
(2) Filing requirement Each individual to whom this subsection applies for the taxable year shall file his income tax return for the taxable year with both the United States and the Virgin Islands.
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(3) Extent of income tax liability In the case of an individual to whom this subsection applies in a taxable year for purposes of so much of this title (other than this section and section 7654) as relates to the taxes imposed by this chapter, the United States shall be treated as including the Virgin Islands.
(b) Portion of United States tax liability payable to the Virgin Islands
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(1) In general Each individual to whom subsection (a) applies for the taxable year shall pay the applicable percentage of the taxes imposed by this chapter for such taxable year (determined without regard to paragraph (3)) to the Virgin Islands.
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(2) Applicable percentage
(A) In general For purposes of paragraph (1), the term “applicable percentage” means the percentage which Virgin Islands adjusted gross income bears to adjusted gross income.
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(B) Virgin Islands adjusted gross income For purposes of subparagraph (A), the term “Virgin Islands adjusted gross income” means adjusted gross income determined by taking into account only income derived from sources within the Virgin Islands and deductions properly apportioned or allocable thereto.
(3) Amounts paid allowed as credit There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the taxes required to be paid to the Virgin Islands under paragraph (1) which are so paid.
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(c) Treatment of Virgin Islands residents
Cases: Vento v. Director of Virgin Islands Bureau of Internal Revenue, 715 F.3d 455 (3rd Cir. 2013)
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(1) Application of subsection This subsection shall apply to an individual for the taxable year if—
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(A) such individual is a bona fide resident of the Virgin Islands during the entire taxable year, or
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357 substituted “during the entire taxable year” for “at the close of the taxable year”.
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(B) such individual files a joint return for the taxable year with an individual described in subparagraph (A).
(2) Filing requirement Each individual to whom this subsection applies for the taxable year shall file an income tax return for the taxable year with the Virgin Islands.
Amended 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1012(w)(3), substituted “an income tax return” for “his income tax return”.
(3) Extent of income tax liability In the case of an individual to whom this subsection applies in a taxable year for purposes of so much of this title (other than this section and section 7654) as relates to the taxes imposed by this chapter, the Virgin Islands shall be treated as including the United States.
(4) Residents of the Virgin Islands In the case of an individual—
Amended 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1012(w)(2), amended par. (4) generally. Prior to amendment, par. (4) read as follows: “In the case of an individual who is a bona fide resident of the Virgin Islands at the close of the taxable year and who, on his return of income tax to the Virgin Islands, reports income from all sources and identifies the source of each item shown on such return, for purposes of calculating income tax liability to the United States gross income shall not include any amount included in gross income on such return.”
Cases: Huff v. Commissioner, 135 T.C. 222 (2010)
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(A) who is a bona fide resident of the Virgin Islands during the entire taxable year,
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357 substituted “during the entire taxable year” for “at the close of the taxable year”.
(B) who, on his return of income tax to the Virgin Islands, reports income from all sources and identifies the source of each item shown on such return, and
(C) who fully pays his tax liability referred to in section 934(a) to the Virgin Islands with respect to such income,
for purposes of calculating income tax liability to the United States, gross income shall not include any amount included in gross income on such return, and allocable deductions and credits shall not be taken into account.
(d) Special rule for joint returns In the case of a joint return, this section shall be applied on the basis of the residence of the spouse who has the greater adjusted gross income (determined without regard to community property laws) for the taxable year.
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(e) Special rule for applying section to tax imposed in Virgin Islands In applying this section for purposes of determining income tax liability incurred to the Virgin Islands, the provisions of this section shall not be affected by the provisions of Federal law referred to in section 934(a).
Amended 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647, § 1012(w)(1), substituted current heading for “Section not to apply to tax imposed in Virgin Islands” and amended text generally. Prior to amendment, text read as follows: “This section shall not apply for purposes of determining income tax liability incurred to the Virgin Islands.”