US Internal Revenue Service: p570--1999

8/14/2019 US Internal Revenue Service: p570--1999

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ContentsIntroduction ....................................... 1

Possession Exclusion ....................... 2

Filing Tax Returns .............................. 3

Filing Requirements for Individualsin U.S. Possessions .................... 5

Guam .............................................. 5The Commonwealth of the Northern

Mariana Islands ....................... 6American Samoa ............................ 7The Virgin Islands ........................... 7The Commonwealth of Puerto Rico 7

Illustrated Example of Form 4563 .... 9

Illustrated Example of Form 8689 .... 9

How To Get More Information .......... 12

Index .................................................... 13

Important Change for

1999Photographs of missing children. TheInternal Revenue Service is a proud partnerwith the National Center for Missing and Ex-ploited Children. Photographs of missingchildren selected by the Center may appearin this publication on pages that would other-wise be blank. You can help bring thesechildren home by looking at the photographsand calling 1800THELOST (18008435678) if you recognize a child.

Important RemindersIndividual taxpayer identification number(ITIN). The IRS will issue an ITIN to a non-resident or resident alien who does not haveand is not eligible to get a social securitynumber (SSN). To apply for an ITIN, FormW7 must be filed with the IRS. It usuallytakes about 30 days to get an ITIN. The ITINis entered wherever an SSN is requested ona tax return. If you are required to includeanother person's SSN on your return and thatperson does not have and cannot get anSSN, enter that person's ITIN.

An ITIN is for tax use only. It does notentitle you to social security benefits orchange your employment or immigration sta-tus under U.S. law.

Change of address. If you change yourmailing address, be sure to notify the InternalRevenue Service using Form 8822, Changeof Address. Mail it to the Internal RevenueService Center for your old address (ad-dresses for the Service Centers are on theback of the form).

IntroductionThis publication discusses how to treat in-come received in U.S. possessions on yourU.S. tax return.

It also discusses whether you are requiredto file a return with the possession. American

Departmentof theTreasury

InternalRevenueService

Publication 570Cat. No. 15118B

Tax Guide

for Individuals

With Income

From U .S.

Possessions

For use in preparing

1999 Returns


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Samoa, Guam, the Commonwealth of theNorthern Mariana Islands, the Virgin Islands,and Puerto Rico have their own independenttax departments. If you have income fromone of these possessions, you may have tofile a U.S. tax return only, a possession taxreturn only, or both returns. This generallydepends on whether you are considered aresident of one of the possessions. In somecases, you may have to file a U.S. return, butbe able to exclude income earned in a pos-session from U.S. tax.

If you need additional information onU.S. taxation, write to:

Internal Revenue ServiceAssistant Commissioner (International)Attention: OP:IN:D:CS950 L'Enfant Plaza South, S.W.Washington, DC 20024

If you need additional information on yourtax obligations in a U.S. possession, write tothe tax department of that possession. Theiraddresses are provided under the individualheadings for each possession.

Useful ItemsYou may want to see:

Publication

54 Tax Guide for U.S. Citizens andResident Aliens Abroad

514 Foreign Tax Credit for Individuals

Form (and Instructions)

1040SS U.S. Self-Employment TaxReturn

1116 Foreign Tax Credit

4563 Exclusion of Income for Bona FideResidents of American Samoa

5074 Allocation of Individual IncomeTax to Guam or the Common-wealth of the Northern MarianaIslands (CNMI)

8689 Allocation of Individual IncomeTax to the Virgin Islands

See How To Get More Information nearthe end of this publication for informationabout getting these publications and forms.You can get any necessary possession taxforms at the appropriate possession tax of-fice. The office addresses are given later.

Office of Taxpayer Advocate. If you have aproblem with the Internal Revenue Servicethat has not been resolved by your previous

contacts with the Service, the Taxpayer Ad-vocate's Office may be able to help you. Thisoffice has been established to assist taxpay-ers who have problems with the Service thathave not been resolved through normalchannels.

You can reach this office by writingthe Taxpayer Advocate in your IRSDistrict or Service Center. If you are

outside the United States, contact:

Internal Revenue ServiceAssistant Commissioner (International)Attention: IN:N:TA950 L'Enfant Plaza South, S.W.Washington, DC 20024

You can reach this office by callingthe following numbers:

In the U.S., call (202) 8741930.

In Puerto Rico or Virgin Islands,call (877) 7774778.

In all other possessions, call(787) 7594501.

The Taxpayer Advocate's Office will en-sure that your problem receives proper at-tention. Although this office cannot changethe tax law or technical decisions, it can fre-quently clear up misunderstandings that re-sulted from previous contacts.

Possession Exclusion

For 1999, the possession exclusion appliesonly to individuals who are bona fide resi-dents of American Samoa.

Individuals in the following U.S. pos-sessions or territories are noteligible for thepossession exclusion discussed here.

Baker Island Commonwealth of Northern Mariana Is-

lands (CNMI)

Guam

Howland Islands

Jarvis Island

Johnston Island

Kingman Reef

Midway Islands

Palmyra

Puerto Rico

Virgin Islands

Wake IslandSpecial filing requirements apply to individ-uals in the CNMI, Guam, Puerto Rico, and theVirgin Islands. See Filing Requirements forIndividuals in U.S. Possessions, later. Indi-viduals in the other possessions listed aboveshould see If You Do Not Qualify, later.

QualificationsTo qualify for the possession exclusion, youmust be a bona fide resident of AmericanSamoa for the entire tax year. For example,if your tax year is the calendar year, you mustbe a bona fide resident from January 1through December 31. In addition to this timerequirement, the following factors may be

considered in determining bona fide resi-dence.

Your intent to be a resident of AmericanSamoa, as shown by the circumstances.

The establishment of a permanent homefor you and members of your family inAmerican Samoa for an indefinite periodof time.

Your social, cultural, and economic tiesto American Samoa.

Your physical presence for the year.

Other factors that may be considered arethe nature, extent, and reasons for temporary

absences; assumption of economic burdensand payment of taxes to American Samoa;existence of other homes outside of AmericanSamoa; and place of employment.

CAUTION

!If you were not a bona fide residentof American Samoa for all of 1999,you cannot claim the possession ex-

clusion. SeeIf You Do Not Qualify, later.

What Income Can Be

ExcludedIf you qualify as a bona fide resident ofAmerican Samoa for 1999, you can excludeincome from sources in American Samoa,Guam, or the CNMI and income effectivelyconnected with your trade or business inthese possessions.

Possession source income. Excludableincome from sources within the possessionsincludes the following.

1) Wages, salaries, and other kinds of payfor personal services performed in thepossessions. (But see U.S. Governmentwages, later, for an exception.)

2) Dividends received from possession

sources, including those paid by:

a) U.S. corporations that do businessin the possessions and elect thePuerto Rico and possession taxcredit, and

b) Possession and foreign corpo-rations that do business mainly inthe possessions.

3) Interest on deposits paid by banks thatdo business mainly in the possessions,including interest paid on deposits withthe possession branches of:

a) Domestic banks with commercialbanking business in the pos-sessions, and

b) Savings and loan associationschartered under federal or statelaws.

4) Gains from the sale of securities, suchas stock certificates, are from sources inthe possessions if the seller's residenceis in a possession and the sale is notattributable to an office or other fixedplace of business maintained by theseller in the United States.

U.S. Government wages. For purposesof the possession exclusion, possessionsource income does not include wages, sal-aries, etc., paid by the U.S. Government orany of its agencies to individuals who are its

civilian or military employees.

Scholarships and fellowships. The sourceof a payment made as a scholarship or fel-lowship grant is generally the residence of thepayer. The result is the same if payments aremade by an agency acting on behalf of thepayer.

Examples. The following examples illustratethe sources of income. Assume that corpo-rations chartered in American Samoa (Amer-ican Samoan corporations) do business onlyin American Samoa, and that the U.S. andforeign corporations do not carry on businessin the possessions.

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Example 1. Frank Harris, who is single,is an engineer who went to work in AmericanSamoa for a private construction company onAugust 3, 1998, and lived there for all of 1999.He is a bona fide resident of American Samoafor 1999.

During 1999, he received the followingamounts of income.

Frank's possession source income eligiblefor the exclusion is $23,300. Frank's remain-ing income ($1,800) is not possession sourceincome and is not eligible for the exclusion.

Example 2. Oliver Hunter was employedby a private employer in American Samoafrom June 16, 1998, through December 31,1999. He is a bona fide resident of AmericanSamoa for 1999.

During 1999, he received the followingamounts of income.

Oliver's possession source income of$16,500 is eligible for the exclusion. Oliver'sremaining income ($6,000) is not possessionsource income and is not eligible for the ex-clusion.

Deductions and CreditsYou can neither deduct nor claim a credit foritems connected to your possession incomethat you exclude from gross income on your

U.S. income tax return. See Filing Tax Re-turns, later, to find out if you have to file a U.S.income tax return.

Items that do not apply to a particular typeof income must be divided between your ex-cluded income from possession sources andincome from all other sources to find theamount you can deduct on your U.S. tax re-turn. Examples of these items are medicalexpenses, real estate taxes, mortgage inter-est on your home, and charitable contribu-tions.

Figuring the deduction. To figure theamount of an item you can deduct on yourU.S. income tax return, multiply the amountby the following fraction.

Gross income from sourcesoutside the possessions

Total gross income from allsources (including excluded

possession income)

Standard deduction. The standard de-duction does not apply to a particular type ofincome. It must be divided between your ex-cluded income and income from othersources. This division must be made beforeyou can determine if you must file a U.S. taxreturn, because the minimum income level atwhich you must file a return is based, in part,

on the standard deduction for your filing sta-tus.

Example. Barbara Jones, a U.S. citizen,is single, under 65, and a bona fide residentof American Samoa. During 1999, she re-ceived $20,000 of income from Samoansources and $5,000 of income from sourcesoutside the possessions. She does not item-ize her deductions. Her allowable standarddeduction for 1999 is figured as follows:

$5,000

$25,000

$4,300 (standard deduction) = $860

Foreign tax credit. If you must reportpossession source income on your U.S. taxreturn, you can claim a foreign tax credit, fig-ured on Form 1116 for income taxes paid inthe possessions on that income. You cannotclaim a foreign tax credit for taxes paid onexcluded possession income.

If you have income, such as U.S. Gov-ernment wages, that is not excludable, andyou have income from possession sourcesthat is excludable, you must figure the creditby reducing your foreign taxes paid or ac-crued by the taxes based on the excludedincome. You must make this reduction for

each separate income category. To find theamount of this reduction, use the followingformula for each income category.

Excluded incomefrom possessionsources lessdeductible expensesbased on thatincome

Total income subjectto possession taxless deductibleexpenses based onthat income

Tax paid oraccrued topossessions

=

Reductionin foreigntaxes

For more information on foreign tax credit,get Publication 514.

Personal exemptions. Personal exemptionsare allowed in full. They are not divided.

Moving expenses. If you are claiming ex-penses for a move to a U.S. possession fromthe United States, or from a U.S. possessionto the United States, use Form 3903, MovingExpenses. These are not considered foreignmoves. Get Publication 521, Moving Ex-penses, for more information.

If You Do Not QualifyIf you do not qualify for the possession ex-clusion because you are not a bona fide res-ident of American Samoa (as explained ear-lier), or not a bona fide resident of AmericanSamoa for the entire year, figure your tax li-ability in the usual manner. Report all yourtaxable income, including income from foreignand possession sources, and claim all allow-able exemptions, deductions, and credits,following the instructions for Form 1040.

You can take a credit against your U.S. taxliability if you paid income taxes to a foreigncountry or a possession and reported incomefrom sources outside the United States onyour U.S. tax return. The amount of foreignor possession income taxes paid that you canclaim as a credit is figured on Form 1116,which must be attached to your Form 1040.For more information, see Publication 514.

Filing Tax ReturnsIf you do not qualify for the possession ex-clusion, you must generally file a U.S. incometax return if your gross income was at leastthe amount shown below.

If you were age 65 or over at the end of1999, and you do not qualify for the pos-session exclusion, the minimum income lev-els for filing a return increase. For theseamounts, see the instructions for Form 1040.

Some persons (such as those who canbe claimed as a dependent on another per-son's return) must file a tax return eventhough their gross income is less than theamount shown above for their filing status.For more information, see the instructions forForm 1040.

Bona fide residents of American Samoa.If you qualify for the possession exclusion andall of your income is from sources in AmericanSamoa, Guam, or the CNMI, or is effectivelyconnected with your trade or business inthese possessions, you do not have to file aU.S. income tax return.

If you qualify for the possession exclusionand you have income from sources outsideAmerican Samoa, Guam, or the CNMI, youmust file a U.S. income tax return if yourgross income is at least the amount shownon line 3 of the following worksheet.

Example. Regina Gray, a U.S. citizen,uses a calendar tax year. She was employedin American Samoa from July 2, 1998, toJanuary 1, 2000. Her 1999 income consistedof her salary from her job plus interest of $500on deposits in a U.S. bank.

Regina does not have to file a U.S. incometax return for 1999 because she can claim thepossession exclusion, and her U.S. incomeis below the amount that would require her tofile a U.S. tax return.

Form 4563. If you must file a U.S. incometax return and you qualify for the possessionexclusion, claim the exclusion by attachingForm 4563 to Form 1040. Form 4563 cannotbe filed by itself. There is an example of afilled-in Form 4563 at the end of this publica-tion.

When and Where To FileIf you file on a calendar year basis, the duedate for filing your U.S income tax return isApril 15 following the end of your tax year. Ifyou use a fiscal year (a year ending on thelast day of a month other than December), thedue date is the 15th day of the 4th month after

Filing status: Gross income of at least:Samoan wages .......................................... $23,300Single ........................................................ $ 7,050Nonpossession source income:Married, filing jointly .................................. 12,700Dividends (U.S.) .......................... 400Married, filing separately .......................... 2,750Dividends (foreign) ...................... 100Head of household ................................... 9,100Interest (U.S.) .............................. 1,300 1,800Qualifying widow(er) ................................. 9,950

Total income $25,100

Possession source income:Samoan wages ....................... $16,000Guam interest .......................... 500

$16,500Nonpossession source income:U.S. dividends ......................... 2,000Short-term capital gain fromsale of U.S. stock .................... 4,000 6,000

Total income $22,500

1. Enter the allowable standard deductionyou figured earlier under Deductionsand Credits. ..........................................

2. Personal exemption. (If your filing statusis married filing jointly, enter $5,500.Otherwise, enter $2,750.) ................ .....

3. Add lines 1 and 2. You must file a U.S.income tax return if your gross incomefrom sources outside American Samoa,Guam, and the CNMI is at least thisamount. .................................................

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the end of your fiscal year. If any due datefalls on a Saturday, Sunday, or legal holiday,your tax return is due on the next businessday.

TIP

Federal tax returns mailed by taxpay-ers in foreign countries are filed ontime if they bear an official postmark

dated by midnight of the due date, includingany extensions. The postmark can be foreign.

Extensions of time to file. If you live out-side the United States and Puerto Rico andhave your main place of business or post ofduty outside the United States and PuertoRico on the regular due date of your return,you are automatically granted a 2-month ex-tension to file your return. If you file on a cal-endar year basis, you have until June 15. Thisextension is also available if you are on mili-tary duty outside the United States andPuerto Rico. Your assigned tour of duty out-side the United States and Puerto Rico mustinclude the entire due date of your return.

If you use this automatic 2-month exten-sion, you must attach a statement to your re-turn showing that you qualify for it. You mustpay interest on any unpaid tax from the ori-ginal due date (April 15 if you file a calendar

year return) to the date you pay the tax.Married persons. If you and your spouse

file a joint return, only one of you needs tomeet the qualifications discussed above totake advantage of the automatic extension toJune 15 for filing your tax return.

If you file separate returns instead of a joint return, only the spouse who meets thequalifications can use the automatic exten-sion.

Form 4868, Application for AutomaticExtension of Time To File U.S. Individual In-come Tax Return. You can get an automatic4-month extension of time to file your tax re-turn by filing Form 4868 or by paying the es-timated income tax due using a credit card.This 4-month extension is not in addition to

the automatic 2-month extension explainedearlier. The 4 months and the 2 months bothbegin on April 15. You must file Form 4868by the due date for filing your return. If youqualify for the 2-month automatic extension,you do not have to file Form 4868 until June15. Print Taxpayer Abroad across the topof Form 4868.

In filling out Form 4868, you must estimateyour tax liability for the year and you shouldpay any balance due with the application. Youwill be charged interest on any tax not paidby the regular due date of your return, andyou may be charged a penalty for the latepayment.

Any payment you made with the applica-tion for extension should be entered on line61 of Form 1040.

Note. You cannot ask the Internal Reve-nue Service to figure your tax if you use theextension of time to file.

Form 2688, Application for AdditionalExtension of Time To File U.S. Individual In-come Tax Return. Further extensions of thetime to file are granted only under very unu-sual circumstances. If you need additionaltime to file, apply for the extension either ina letter or by filing Form 2688. Extensionsbeyond the 4-month automatic extension arenot granted as a matter of course. You mustshow reasonable cause.

Except in undue hardship cases, an ap-plication for extension on Form 2688 will notbe accepted until you have taken advantageof the automatic 4-month extension.

Where to file. If you have to file Form 1040with the United States, and you use Form4563 to exclude income from American Sa-moa, Guam, and the CNMI, file your returnwith the Internal Revenue Service Center,Philadelphia, PA 192550215. If you do notqualify for the possession exclusion, mail your

return to the address shown for the pos-session or state in which you reside in theForm 1040 instructions.

Self-Employment TaxA U.S. citizen who is self-employed must payself-employment tax on net self-employmentearnings of $400 or more. This rule applieswhether or not the earnings are excludablefrom gross income (or whether or not a U.S.income tax return must otherwise be filed).

Your payments of self-employment taxcontribute to your coverage under the socialsecurity system. Social security coverageprovides you with old age, survivor, and dis-ability benefits and hospital insurance.

The self-employment tax rate is 15.3%(12.4% social security tax plus 2.9% Medicaretax). The maximum amount of earnings sub-

ject to social security (old age, survivor, anddisability insurance) tax is $72,600 for 1999.All earnings are subject to Medicare (hospitalinsurance) tax.

Self-employment tax form. If you have tofile Form 1040 with the United States, figureyour self-employment tax on Schedule SE(Form 1040) and attach it to Form 1040.

If you are a resident of American Samoa,Guam, the CNMI, Puerto Rico, or the VirginIslands who has net self-employment income,and you do not have to file Form 1040 withthe United States, use Form 1040SS, U.S.

Self-Employment Tax Return, to figure yourself-employment tax.

TIP

If you are a resident of Puerto Rico,you can file Form 1040PR insteadof Form 1040SS. Form 1040PR is

the Spanish-language equivalent of Form1040SS.

These forms must be filed with the InternalRevenue Service Center, Philadelphia, PA19255.

Self-employment tax deduction. You candeduct one-half of your self-employment taxon line 27 of Form 1040 in figuring adjustedgross income. This is an income tax de-duction only; it is not a deduction in figuringnet earnings from self-employment.

If you are a bona fide resident of AmericanSamoa or Puerto Rico, and you exclude yourself-employment income from gross income,you cannot take the deduction on line 27 ofForm 1040 because the deduction is relatedto excluded income.

If part of your self-employment income isexcluded, only the part of the deduction thatis based on the nonexcluded income is al-lowed. This would happen if, for instance, youhave two businesses, and only the incomefrom one of them is excludable.

Figure the tax on the nonexcluded incomeby multiplying your total self-employment tax(from Schedule SE) by the following fraction.

Self-employment income that is not excluded

Total self-employment income(including excluded income)

The result is your self-employment tax onnonexcluded income. You can deduct one-half of this amount on line 27 of Form 1040.

Credit for Excess FICAEmployee Tax WithheldIf you had more than one employer for 1999,and your total wages were over $72,600, youremployers may have withheld too much socialsecurity tax. If so, you can take a credit for theexcess amount on line 62 of Form 1040.

If you do not file Form 1040, you can claima refund of the excess amount withheld byfiling Form 843, Claim for Refund and Re-quest for Abatement. Residents of PuertoRico, the Virgin Islands, American Samoa,Guam, and the CNMI should file Form 843with the Internal Revenue Service Center,Philadelphia, PA 19255.

If any one employer withheld more than$4,501.20 of social security tax, you must askyour employer to refund the excess to you.You cannot claim it on your return.

Double TaxationA mutual agreement procedure exists to settleissues where there is an inconsistency be-tween the tax treatment by the IRS and thetaxing authorities of the following pos-sessions.

American Samoa.

Guam.

Puerto Rico.

The Virgin Islands.

These issues usually involve allocationsof income, deductions, credits, or allowancesbetween related persons, determinations ofresidency, and determinations of the sourceof income and related expenses.

Send your written request for assist-ance under this procedure to:

Internal Revenue ServiceAssistant Commissioner (International)Attn: Tax Treaty DivisionP.O. Box 23598Washington, DC 200263598

Your request must contain a statementthat assistance is requested under the mutualagreement procedure with the possession. Itmust also contain all the facts and circum-stances relating to your particular case. It

must be signed and dated. To avoid unnec-essary delays, make sure you include all ofthe following information.

1) Your name, address, and social securitynumber.

2) The name, address, and social securitynumber of the related person in thepossession (if one is involved).

3) The tax year(s) in question and theInternal Revenue Service Center whereyour return was filed.

4) If income tax is involved, the type of in-come, a description of the transaction,activities, or other pertinent circum-

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stances, and the positions taken by youand the possession tax agency.

5) The amount of the item (income, de-duction, or credit) involved and theamount of tax the possession assessedor proposed to assess.

6) A description of the control and businessrelationships between you and the re-lated person in the possession, if thatapplies.

7) The status of your tax liability for the

year(s) in question and, if it applies, thestatus of the tax liability of the relatedperson in the possession.

8) Whether you or the related person, if oneis involved, is entitled to any possessiontax incentive or subsidy program benefitsfor the year(s) in question.

9) Copies of any correspondence receivedfrom the possession tax agency andcopies of any material you provided tothem.

10) Copy of the possession tax return(s) forthe year(s) in question.

11) Whether a foreign tax credit was claimedon your federal tax return for all or partof the possession tax paid or accruedon the item in question.

12) Whether your federal return or the returnof the related person, if there is one, wasexamined, or is being examined.

13) A separate document signed and datedby you that you consent to the disclosureto the designated possession tax officialof any or all of the items of informationset forth in, or enclosed with, the requestfor assistance under this procedure.

Credit or refund. In addition to the taxassistance request, if you seek a credit orrefund of any overpayment of United Statestax paid on the income in question, you

should file a claim on Form 1040X, AmendedU.S. Individual Income Tax Return. Indicateon the form that a request for assistance un-der the mutual agreement procedure with thepossession has been filed. Attach a copy ofthe request to the form.

You should take whatever steps must betaken under the possession tax code to pre-vent the expiration of the statutory period forfiling a claim for credit or refund of a pos-session tax.

Filing Requirementsfor Individuals inU.S. PossessionsAn individual who has income from Guam, theCNMI, American Samoa, the Virgin Islands,or Puerto Rico will probably have to file a taxreturn with one of the possessions' tax de-partments. It is possible that you may haveto file two annual tax returns: one with thepossession's tax department and the otherwith the U.S. Internal Revenue Service.

You should ask for forms and adviceabout the filing of possession tax returns fromthat possession's tax department and not theInternal Revenue Service. In some situationsyou may have to determine if you are a resi-dent or a nonresident of a certain possession.

Contact the tax department of that possessionfor advice about this point.

The following discussions cover the gen-eral rules for filing returns in Guam, the CNMI,American Samoa, the Virgin Islands, andPuerto Rico.

CAUTION

!A U.S. person who becomes a resi-dent of American Samoa, Guam, orthe CNMI may be subject to U.S. tax

on U.S. source income, including gain fromsales of certain U.S. assets, during the10-year period beginning when the person

becomes a resident. The U.S. person will besubject to U.S. tax on any gain from the dis-position of U.S. property (including appreci-ated stock issued by a U.S. corporation) dur-ing this period.

GuamGuam has its own tax system based on thesame tax laws and tax rates that apply in theUnited States.

Requests for advice about Guamresidency and tax matters should beaddressed to:

Department of Revenue and TaxationGovernment of GuamP.O. Box 23607GMF, GU 96921

Telephone number (671) 4727471Fax number (671) 4722643

If you are a U.S. citizen with income fromsources in Guam and the United States, youmust file your income tax return as explainedbelow with either Guam or the United States,but not both. You are not liable for any incometax to the jurisdiction with which you do nothave to file.

If you are a resident of Guam on the

last day of your tax year, you shouldfile your return with the:

Department of Revenue and TaxationGovernment of GuamP.O. Box 23607GMF, GU 96921

Include income from worldwidesources on the Guam return. Include anybalance of tax due with your tax return.

Example. Gary Barker was a resident ofGuam during the entire year. He receivedwages of $20,000 paid by a private employer

and dividends of $4,000 from U.S. corpo-rations that carry on business mainly in theUnited States.

He must file a 1999 income tax return withthe Government of Guam. He reports his totalincome of $24,000 on the Guam return.

If you are a resident of the UnitedStates on the last day of your taxyear, you should file your return with

the:

Internal Revenue ServicePhiladelphia, PA192550215

Include income from worldwide sourceson the U.S. return. Include any balance of taxdue with your tax return.

If you are neither a resident of Guam nora resident of the United States at the endof your tax year, you should file with Guam ifyou are a citizen of Guam but not otherwisea citizen of the United States (born or natu-ralized in Guam). If you are a U.S. citizen orresident but not otherwise a citizen or residentof Guam, you should file with the United

States.

Example. William Berry, a U.S. citizen,was employed by a private company in Guamfrom June 1 through December 31, 1999. Hereceived a salary of $20,000 during that pe-riod for his work in Guam, $4,000 in dividendsfrom U.S. corporations that carry on businessmainly in the United States, and $1,000 ininterest from deposits in U.S. banks. Williamwas advised by the Guam Department ofRevenue and Taxation that he was not aresident of Guam. He must file a U.S. taxreturn. On his U.S. tax return, he reports the$4,000 of dividends, the $1,000 of interest,and the $20,000 Guam salary in addition toany income he had in 1999 before June 1.

Joint return. If you file a joint return, youshould file it (and pay the tax) with the juris-diction where the spouse who has the greateradjusted gross income would have to file (ifyou were filing separately). If the spouse withthe greater adjusted gross income is a resi-dent of Guam at the end of the tax year, filethe joint return with Guam. If the spouse withthe greater adjusted gross income is a resi-dent of the United States at the end of the taxyear, file the joint return with the UnitedStates. For this purpose, income is deter-mined without regard to community propertylaws.

Example. Bill White, a U.S. citizen, was

a resident of the United States, and his wife,a citizen of Guam, was a resident of Guamat the end of the year. Bill earned $25,000as an engineer in the United States. His wifeearned $15,000 as a teacher in Guam. Mr.and Mrs. White will file a joint return. BecauseBill has the greater adjusted gross income,they must file their return with the UnitedStates and report the entire $40,000 on thatreturn.

U.S. military employees. If you are amember of the U.S. Armed Forces stationedon Guam, you are not considered a residentof Guam and you must file your return withthe United States. However, if you are amember of the military and a citizen of Guam,or if you are a civilian employee of the mili-tary, you are subject to the same rules de-scribed in the previous paragraphs.

Income tax withheld. Take into account taxwithheld by both jurisdictions in determiningif there is tax due or an overpayment.

Payment of estimated tax. If you have topay estimated tax, make your payment to the

jurisdiction where you would file your incometax return if your tax year were to end on thedate your estimated tax payment is first due.Generally, you should make your quarterlypayments of estimated tax to the jurisdiction

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where you made your original estimated taxpayment. However, estimated tax paymentsto either jurisdiction will be treated as pay-ments to the jurisdiction with which you filethe tax return.

If you make a joint payment of estimatedtax, make your payment to the jurisdictionwhere the spouse who has the greater esti-mated adjusted gross income would have topay (if a separate payment were made). Forthis purpose, income is determined withoutregard to community property laws.

Example. Bill West is single and files hisreturn on a calendar-year basis. He is a resi-dent of the United States at the time that hemust make his first payment of estimated in-come tax for the year. Since Bill does notexpect to be a resident of Guam at the endof the year, he pays his estimated tax to theUnited States by April 15. Later in the year,however, Bill becomes a resident of Guamand receives income from Guam sources thatcauses him to refigure his estimated tax pay-ments. The quarterly estimated tax paymentsmust be made to the United States becausehe was a U.S. resident when his first paymentof estimated tax was due. Because Bill is aresident of Guam at the end of his tax year,he must file his income tax return with Guam.

On that return, he claims credit for the esti-mated tax payments made to the UnitedStates.

Early payment of estimated tax. If youmake your first payment of estimated taxearly and you do not send it to the jurisdictionto which you would have sent it if you had notmade it early, make all later payments to theother jurisdiction.

Example. Peg Post is single and files herreturn on a calendar year basis. On March1, Peg was a resident of the United Statesand made an early first payment of estimatedincome tax to the United States. Before thedue date of her first payment of estimated tax(April 15), she becomes a resident of Guam

for the rest of the year. Peg must make therest of her payments of estimated tax toGuam because she is a resident of Guam onthe date that her first payment of estimatedtax is otherwise due. At the end of the year,Peg will file her tax return with Guam andclaim credit for all estimated tax payments onthat return.

Estimated tax form. If your estimatedincome tax obligation is to the United States,use the worksheet in the Form 1040ESpackage to figure your estimated tax, includ-ing self-employment tax. You can use thepayment vouchers in the Form 1040ESpackage for your payments, or you can payby credit card.

If your estimated income tax obligation isto Guam, use their forms to figure your esti-mated income tax and make your payments.You will have to separately figure your esti-mated self-employment tax (you can use theForm 1040ES package) and make pay-ments with the payment vouchers to the ad-dress given in the Form 1040ES in-structions.

Information return. If your adjusted grossincome from all sources is at least $50,000,your gross income consists of at least $5,000from sources in Guam, and you file a U.S.income tax return, attach Form 5074 to Form1040. You can get Form 5074 from mostInternal Revenue Service offices.

Note. Guam and the United States haveentered into an implementing agreement. Theeffective date of the agreement, however,has been indefinitely postponed. Under theagreement, Guam may enact its own laws fortaxing residents of Guam as well as for taxingincome sourced in Guam (or income effec-tively connected with a trade or business inGuam) and paid to a nonresident. Individualswho are bona fide residents of Guam andhave income sourced outside Guam, theCNMI, or American Samoa may have to filea U.S. tax return. Individuals who are bonafide residents of Guam and have incomesourced in any of the three possessions maybe able to treat that income as exempt fromU.S. income tax under the possession exclu-sion rules.

Double taxation. A mutual agreement pro-cedure exists to settle cases of double taxa-tion between the United States and Guam.See Double Taxation under Filing Tax Re-turns, earlier.

The Commonwealth of theNorthern Mariana IslandsThe Commonwealth of the Northern Mariana

Islands (CNMI) has its own tax system basedpartly on the same tax laws and tax rates thatapply to the United States and partly on localtaxes imposed by the CNMI government.

Requests for advice about CNMI res-idency and tax matters should be ad-dressed to:

Division of Revenue and TaxationCommonwealth of the NorthernMariana IslandsP. O. Box 5234, CHRBSaipan, MP 96950

If you are a U.S. citizen with income fromthe CNMI and the United States, you must fileyour income tax return with either the CNMIor the United States as explained below. Donot file with both. You are not liable for tax tothe jurisdiction with which you do not have tofile.

If you are a resident of the CNMI on the lastday of your tax year, you should file your re-turn with the Division of Revenue and Taxa-tion at the address above.

Include income from worldwide sourceson the CNMI return. Include any balance oftax due with your tax return.

If you are a resident of the United Stateson the last day of your tax year, you shouldfile your return with the Internal RevenueService Center, Philadelphia, PA 192550215.

Include income from worldwide sourceson the U.S. return. Include any balance of taxdue on your tax return.

If you are neither a resident of the CNMInor a resident of the United States at theend of your tax year, but you are a citizen ofthe CNMI, you should file with the Division ofRevenue and Taxation. File with the InternalRevenue Service Center if you are a citizenof the United States.

Joint return. If you file a joint return, youshould file it (and pay the tax) with the juris-diction where the spouse who has the greater

adjusted gross income would have to file (ifyou were filing separately). If the spouse withthe greater adjusted gross income is a resi-dent of the CNMI at the end of the tax year,file the joint return with the CNMI. If thespouse with the greater adjusted gross in-come is a resident of the United States at theend of the tax year, file the joint return withthe United States. For this purpose, incomeis determined without regard to communityproperty laws.

Income tax withheld. Take into account taxwithheld by both jurisdictions in determiningif there is tax due or an overpayment.

Payment of estimated tax. If you must payestimated tax, make your payment to the ju-risdiction where you would file your incometax return if your tax year were to end on thedate your first payment of estimated tax isdue. Generally, you should make your quar-terly payments of estimated tax to the juris-diction where you made your first paymentof estimated tax. However, estimated taxpayments to either jurisdiction will be treatedas payments to the jurisdiction with which youfile the tax return.

If you make a joint payment of estimatedtax, make the payment to the jurisdictionwhere the spouse who has the greater esti-mated adjusted gross income would have tofile (if a separate declaration were filed). Forthis purpose, income is determined withoutregard to community property laws.

Early payment of estimated tax. If youmake your first payment of estimated taxearly and you do not send it to the jurisdictionto which you should have made it, make alllater payments to the jurisdiction to which thefirst payment should have been made hadyou not made it early.

Estimated tax form. If your estimatedincome tax obligation is to the United States,use the worksheet in the Form 1040ESpackage to figure your estimated tax, includ-ing self-employment tax. You can use the

payment vouchers in the Form 1040ESpackage for your payments, or you can payby credit card.

If your estimated income tax obligation isto the CNMI, use their forms to figure yourestimated income tax and make your pay-ments. You will have to separately figure yourestimated self-employment tax (you can usethe Form 1040ES package) and make pay-ments with the payment vouchers to the ad-dress given in the Form 1040ES in-structions.

Information return. If your adjusted grossincome from all sources is at least $50,000,your gross income consists of at least $5,000from sources in the CNMI, and you file a U.S.

income tax return, attach Form 5074 to Form1040. You can get Form 5074 from mostInternal Revenue Service offices.

Note. When the CNMI and the UnitedStates enter into an implementing agreement,the CNMI may enact its own laws for taxingresidents of the CNMI as well as for taxingincome sourced in the CNMI (or income ef-fectively connected with a trade or businessin the CNMI) and paid to a nonresident. Indi-viduals who are bona fide residents of theCNMI and have income sourced outside theCNMI, Guam, or American Samoa may haveto file a U.S. tax return. Individuals who arebona fide residents of the CNMI and haveincome sourced in any of the three pos-

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sessions may be able to exclude that incomeunder the possession exclusion rules whenan implementing agreement is in effect.

American SamoaAmerican Samoa has its own separate andindependent tax system. Although its tax lawsare modeled on the U.S. Internal RevenueCode, there are certain differences.

Requests for advice about mattersconnected with Samoan taxationshould be sent to:

Tax DivisionGovernment of American SamoaPago Pago, American Samoa 96799

Residents of American Samoa. If youare a U.S. citizen and a resident of AmericanSamoa, you must report your gross incomefrom worldwide sources on your Samoan taxreturn. If you report non-Samoan source in-come on your Samoan tax return, you canclaim a credit against your Samoan tax liabil-ity for income taxes paid on that income to theUnited States, a foreign country, or anotherpossession.

If you are a resident of American Samoafor part of the tax year and you then leaveAmerican Samoa, you must file a tax returnwith American Samoa for the part of the yearyou were present in American Samoa.

Bona fide residents of American Samoainclude military personnel whose official homeof record is American Samoa.

Nonresidents of American Samoa. If youare a nonresident of American Samoa, youshould report only income from Samoansources on your Samoan tax return. U.S.citizens residing in American Samoa areconsidered residents of American Samoa forincome tax purposes.

U.S. Government employees. If you areemployed in American Samoa by either theU.S. Government or any of its agencies, orby the Government of American Samoa, youare subject to tax by American Samoa onyour pay from either government. Whetheryou are subject to tax by American Samoaon your non-Samoan source income dependson your status as a resident or nonresident.

Wages and salaries paid by the Govern-ments of the United States and AmericanSamoa to their employees are also subject toU.S. federal income tax. These payments donot qualify for the possession exclusion, dis-cussed earlier.

If you report government wages on bothyour U.S. and Samoan tax returns, you can

take a credit on your U.S. tax return for in-come taxes paid or accrued to American Sa-moa. Figure that credit on Form 1116, andattach that form to your U.S. tax return, Form1040. Show your wages paid for servicesperformed in American Samoa on line 1 ofForm 1116 as income from sources in apossession.

Estimated tax. If your estimated income taxobligation is to the United States, use theworksheet in the Form 1040ES package tofigure your estimated tax, including self-employment tax. You can use the paymentvouchers in the Form 1040ES package foryour payments, or you can pay by credit card.

Double taxation. A mutual agreement pro-cedure exists to settle cases of double taxa-tion between the United States and AmericanSamoa. See Double Taxation, earlier underFiling Tax Returns.

The Virgin IslandsAn important factor in Virgin Islands taxationis whether, on the last day of the tax year, youare a bona fide resident of the Virgin Islands.If you are a temporary worker on the last dayof the tax year, you may or may not be a bonafide resident of the Virgin Islands. You shouldcontact the Virgin Islands Bureau of InternalRevenue for more information.

Resident of the Virgin Islands. If you area bona fide resident of the Virgin Islands onthe last day of the tax year, you must file yourtax return on Form 1040 with the Governmentof the Virgin Islands and pay the entire taxdue to the Virgin Islands. You do not have tofile with the IRS for any tax year in which youare a bona fide resident of the Virgin Islandson the last day of the year, provided you re-port and pay tax on your income from allsources to the Virgin Islands and identify thesource(s) of the income on the return. If youhave non-Virgin Islands source income, you

must also file Virgin Islands Form 1040 INFO,Non-Virgin Islands Source Income of VirginIslands Residents, with the Virgin IslandsBureau of Internal Revenue.

You can get Form 1040 INFO bycontacting:

Virgin Islands Bureau of Internal Revenue9601 Estate ThomasCharlotte AmalieSt. Thomas, U.S. Virgin Islands 00802

Telephone number (340) 7745865Fax number (340) 7149345

Example. Mr. and Mrs. Maple left theUnited States on June 15, 1999, and arrivedin the Virgin Islands on the same day. Theyqualified as bona fide residents of the VirginIslands on the last day of their tax year, De-cember 31, 1999.

Mr. and Mrs. Maple file Form 1040 withthe Government of the Virgin Islands and at-tach a Form 1040 INFO. The Maples reporttheir worldwide income and pay the entire taxfor the year to the Virgin Islands. Even thoughthey lived in the United States part of theyear, their income tax obligations for that yearare completely satisfied by filing their returnwith, and paying their tax to, the Virgin IslandsBureau of Internal Revenue.

Non-Virgin Islands resident with Virgin Is-lands income. If you are not a bona fideresident of the Virgin Islands on the last dayof your tax year, you must file identical taxreturns with the United States and the VirginIslands if you have:

1) Income from sources in the Virgin Is-lands, or,

2) Income effectively connected with theconduct of a trade or business in theVirgin Islands.

File the original return with the United Statesand file a copy of the U.S. return (including

all attachments, forms, and schedules) withthe Virgin Islands Bureau of Internal Revenueby the due date for filing Form 1040.

The amount of tax you must pay to theVirgin Islands is figured as follows:

V.I. AGI

worldwide AGI

Total tax on U.S. return(after certain adjustments)

Form 8689 is used for this computation.You must complete this form and attach it toeach copy of your return. You should pay anytax due to the Virgin Islands when you file

your return with the Virgin Islands Bureau ofInternal Revenue. You receive credit fortaxes paid to the Virgin Islands by includingthe amount on Form 8689, line 32, in the totalon Form 1040, line 64. On the dotted line nextto line 64, write Form 8689 and show theamount.

Do not enter the amount from Form 8689,line 36 on Form 1040.

See the illustrated example at the end ofthis publication.

Where to file. If you are not a bona fideresident of the Virgin Islands but you haveincome from the Virgin Islands, you must fileForm 1040 and all attachments with theInternal Revenue Service Center, Philadel-

phia, PA 192550215, and with the Virgin Is-lands Bureau of Internal Revenue.

If you are a bona fide resident of theVirgin Islands you should file your re-turn with:

Virgin Islands Bureau of Internal Revenue9601 Estate ThomasCharlotte AmalieSt. Thomas, U.S. Virgin Islands 00802

Contact that office for informationabout filing your Virgin Islands tax return.

Extensions of time to file. You can get anautomatic 4-month extension of time to fileyour tax return by filing Form 4868, Applica-

tion for Automatic Extension of Time To FileU.S. Individual Income Tax Return. Bona fideresidents of the Virgin Islands must file thisform with the Virgin Islands Bureau of InternalRevenue. Non-Virgin Islands residents shouldfile separate Forms 4868 with the IRS and theVirgin Islands Bureau of Internal Revenueand make any payments due to the respec-tive jurisdictions. However, the Virgin IslandsBureau of Internal Revenue will honor an ex-tension request that was timely filed with theIRS.

If you need more time after filing Form4868, file Form 2688, Application for Addi-tional Extension of Time To File U.S. Individ-ual Income Tax Return. For more information,see the Form 2688 instructions.

Double taxation. A mutual agreement pro-cedure exists to settle cases of double taxa-tion between the United States and the VirginIslands. See Double Taxation under FilingTax Returns, earlier.

The Commonwealthof Puerto RicoThe Commonwealth of Puerto Rico has itsown separate and independent tax system.Although it is modeled after the U.S. system,there are differences in law and tax rates. Ifyou are a U.S. citizen with income fromPuerto Rico, you may be liable for Puerto

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Rican taxes. You may also be liable for filinga U.S. tax return.

Requests for information about thefiling of Puerto Rican tax returnsshould be addressed to the Bureau

of Income Tax at the following address:

Negociado de AsistenciaContributiva y LegislacionDepartmento de HaciendaP.O. Box 565San Juan, Puerto Rico 009026265

The telephone number is (787)7212020, extension 3611. To obtainPuerto Rican tax forms, contact the

Forms and Publications Division Office at theabove address or call (787) 7212020, ex-tensions 2643, 2645, or 2646.

Residents of Puerto Rico. If you are a U.S.citizen and also a resident of the Common-wealth of Puerto Rico for the entire tax year,you generally must include income fromworldwide sources on your Puerto Rican re-turn. Wages and cost-of-living allowancespaid by the U.S. Government for working inPuerto Rico are subject to Puerto Rican tax.Advice about possible tax benefits under the

Puerto Rican investment incentive programsis available from the Puerto Rican tax au-thorities. If you report U.S. source incomeon your Puerto Rican tax return, you canclaim a credit against your Puerto Rican tax,up to the amount allowable, for income taxespaid to the United States.

Nonresidents of Puerto Rico. If you are aU.S. citizen and are not a resident of PuertoRico, include only your income from PuertoRican sources on your Puerto Rican return.Wages for services performed in Puerto Ricofor the U.S. Government or for private em-ployers is income from Puerto Rican sources.

U.S. taxation. As a U.S. citizen, you must

report gross income from worldwide sources,regardless of where you live. However, aspecial rule applies if you are a bona fideresident of Puerto Rico for an entire tax year,or have been a bona fide resident of PuertoRico for at least 2 years and later change yourresidence from Puerto Rico during a tax year.

Income. Income you receive from PuertoRican sources during your residence inPuerto Rico is exempt from U.S. tax. This in-cludes income for the period of Puerto Ricanresidence in the year you change your resi-dence from Puerto Rico if you resided thereat least 2 years before the change. However,income you receive for services performed inPuerto Rico as an employee of the UnitedStates is not exempt from U.S. income tax.

Deductions and credits. Deductions andcredits that specifically apply to your exemptPuerto Rican income are not allowable onyour U.S. income tax return.

Deductions that do not specifically applyto any particular type of income must be di-vided between your income from PuertoRican sources and income from all othersources to find the part that you can deducton your U.S. tax return. Examples of de-ductions that do not specifically apply to aparticular type of income are alimony pay-ments, the standard deduction, and certainitemized deductions (such as medical ex-penses, charitable contributions, and real es-tate taxes and mortgage interest on yourhome).

To find the part of a deduction that is al-lowable, multiply the deduction by the follow-ing fraction.

Gross income subjectto U.S. tax

Gross income from all sources(including exempt Puerto Rican income)

Example. You and your spouse are bothunder 65 and U.S. citizens who are bona fideresidents of Puerto Rico for the entire year.You file a joint income tax return. During1999, you earned $15,000 from Puerto Ricansources and your spouse earned $25,000from the U.S. Government. You have $16,000of itemized deductions that do not apply toany specific type of income. These are med-ical expenses of $4,000, real estate taxes of$5,000, home mortgage interest of $6,000,and charitable contributions of $1,000 (cashcontributions). You determine the amount ofeach deduction that you can claim on yourSchedule A (Form 1040), by multiplying thededuction by the following fraction:

Gross income subject to U.S. taxGross income from all sources

(including exempt Puerto Rican income)

SCHEDULE A Itemized deductions shouldbe modified as shown below:

Medical Expenses$25,000

$40,000 $4,000 = $2,500 (enter on line 1

of Schedule A)

Real Estate Taxes

$25,000

$40,000 $5,000 = $3,125 (enter on line 6

of Schedule A)

Home Mortgage Interest

$25,000

$40,000 $6,000 = $3,750 (enter on line 10 or

11 of Schedule A)

Charitable Contributions (cash contri-butions)

$25,000

$40,000 $1,000 = $625 (enter on line 15

of Schedule A)

Enter on Schedule A (Form 1040) only theallowable portion of each deduction.

Personal exemptions are allowed in fulland need not be divided.

Standard deduction. The standard de-duction does not specifically apply to anyparticular type of income. To find the amountyou can claim on line 36 of Form 1040, mul-tiply your standard deduction by the fractiongiven earlier. In the space above line 36, writeStandard deduction modified due to exemptincome under section 933.

TIPMake this computation before youdetermine if you must file a U.S. taxreturn, because the minimum income

level at which you must file a return is based,in part, on the standard deduction for yourfiling status.

Example. James and Joan Brown, bothunder 65, are U.S. citizens and bona fideresidents of Puerto Rico. They file a joint in-come tax return. During 1999, they received$15,000 of income from Puerto Rican sourcesand $8,000 of income from sources outsidePuerto Rico. They do not itemize their de-ductions. Their allowable standard deductionfor 1999 is figured as follows:

$8,000

$23,000 $7,200 (standard deduction) = $2,504

The Browns do not have to file a U.S. incometax return because their gross income($8,000) is less than their allowable standarddeduction plus their exemptions ($2,504 +$5,500 = $8,004).

Foreign tax credit. If you are a U.S.citizen and your Puerto Rican income is notexempt, you must report that income on yourU.S. tax return along with income from

sources outside Puerto Rico. However, youcan claim a foreign tax credit, figured on Form1116, for income taxes paid to Puerto Ricoon the Puerto Rican income that is not ex-empt.

You cannot claim a foreign tax credit fortaxes paid on exempt income. If you haveincome from Puerto Rican sources, such asU.S. Government wages, that is not exempt,and you have income from Puerto Ricansources that is exempt, you must figure thecredit by reducing your foreign taxes paid oraccrued by the taxes based on the exemptincome. You make this reduction for eachseparate income category. To find the amountof this reduction, use the following formula foreach income category.

Exempt incomefrom P.R. sourcesless deductibleexpenses based onthat income

Total income subjectto Puerto Rican taxless deductibleexpenses based onthat income

Tax paid oraccrued toPuerto Rico

=

Reductionin foreigntaxes

You enter the amount of the reduction on line12 of Form 1116.

Example. John and Mary Reddy are U.S.citizens and were bona fide residents of

Puerto Rico during all of 1999. They file a jointtax return. The following table shows theirexempt and taxable income for U.S. federalincome tax purposes.

John and Mary must file 1999 income taxreturns with both Puerto Rico and the UnitedStates. They have gross income of $26,000for U.S. tax purposes. They paid taxes toPuerto Rico of $4,000. The tax on the wagesis $3,980 and the tax on the dividend from thePuerto Rican corporation is $20. They figuretheir foreign tax credit on two Forms 1116,which they must attach to their U.S return.They fill out one Form 1116 for wages andone Form 1116 for the dividend. John andMary figure the Puerto Rican taxes on exemptincome as follows.

Wages: $15,000 $40,000 $3,980 = $1,493

Dividend: $200 $200 $20 = $20

Taxable ExemptJohn's wages from U.S. Govern-ment ............................................ $25,000Mary's wages from a PuertoRican corp. . . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. $15,000Dividend from Puerto Rican corp.doing business in P.R. ................ 200Dividend from U.S. corp. doingbusiness in U.S.* ......................... 1,000

Totals .......................................... $26,000 $15,200

*Income from sources outside Puerto Rico is taxa-ble.

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They enter $1,493 on line 12 of the Form1116 for wages and $20 on line 12 of theForm 1116 for the dividend.

Earned income credit. Even if youmaintain a household in Puerto Rico that isyour principal home and the home of yourqualifying child, you cannot claim the earnedincome credit on your U.S. tax return. Thiscredit is available only if you maintain thehousehold in the United States or you areserving on extended active duty in the ArmedForces of the United States.

Estimated tax. If your estimated incometax obligation is to the United States, use theworksheet in the Form 1040ES package tofigure your estimated tax, including self-employment tax. You can use the paymentvouchers in the Form 1040ES package foryour payments, or you can pay by credit card.

Double taxation. A mutual agreement pro-cedure exists to settle cases of double taxa-tion between the United States and theCommonwealth of Puerto Rico. See DoubleTaxationunder Filing Tax Returns, earlier.

Illustrated Exampleof Form 4563John Black is a U.S. citizen and was a bonafide resident of American Samoa during allof 1999. He has to file Form 1040 becausehis gross income from sources outside thepossessions ($8,000 of dividends from U.S.corporations) is at least the total of his per-sonal exemption and allowable standard de-duction. (See Filing Tax Returns, earlier.)Because he has to file Form 1040, he fills outForm 4563 to determine the amount of pos-session income he can exclude.

Line 1. John enters the date his bona fideresidence began in American Samoa, June2, 1998. Because he is still a bona fide resi-

dent, he writes not ended in the secondblank space.

Line 2. He checks the box labeled Rentedhouse or apartment to describe his type ofliving quarters in American Samoa.

Lines 3a and 3b. He checks No on line 3abecause no family members lived with him.He leaves line 3b blank.

Lines 4a and 4b. He checks No on line 4abecause he did not maintain a home outsideAmerican Samoa. He leaves line 4b blank.

Line 5. He enters the name and address ofhis employer, Samoa Products Co. It is aprivate Samoan corporation.

Line 6. He enters the dates of his 2-weekvacation to New Zealand from November 11to November 25. That was his only trip out-side American Samoa during the year.

Line 7. He enters the $24,000 in wages hereceived from Samoa Products Co.

Line 9. He received dividends of $100 froma CNMI corporation and $220 from a Samoancorporation. He enters the total of thoseamounts. He does not enter his dividendsfrom U.S. corporations because they do notqualify for the possession exclusion.

Line 15. John totals the amounts on lines 7and 9 to get the amount he can exclude fromhis gross income in 1999.

Illustrated Exampleof Form 8689Bill and Jane Smith live and work in theUnited States. In 1999, they received$14,400 in income from the rental of a con-dominium they own in the Virgin Islands. Therental income was deposited in a bank in theVirgin Islands and they received $500 of in-terest on this income. They were not bonafide residents of the Virgin Islands at the endof the year.

The Smiths complete Form 1040, report-ing their income from all sources. They report

their wages, interest income, and the incomeand expenses from their Virgin Islands rentalproperty (Schedule E, Form 1040).

The Smiths also complete Form 8689, todetermine how much of their U.S. tax shownon line 56 of Form 1040 (with certain adjust-

ments) is due to the Virgin Islands. This is theamount the Smiths must pay to the Virgin Is-lands.

The Smiths file their Form 1040, attachingForm 8689 and all other schedules, with theInternal Revenue Service.

At the same time, they send a copy of theirForm 1040 with all schedules, including Form8689, to the Virgin Islands Bureau of InternalRevenue. This copy will be processed as theiroriginal Virgin Islands return.

Completing Form 8689. Bill and Jane entertheir names, present home address, and so-cial security numbers at the top of the form.

Part I. The Smiths enter their income fromthe Virgin Islands in Part I. The interest in-come is entered on line 2 and the net rentalincome of $6,200 ($14,400 of rental incomeminus $8,200 of rental expenses) is enteredon line 11. The Smiths' total Virgin Islandsincome of $6,700 is entered on line 16.

Part II. The Smiths have no adjustmentsto their Virgin Islands income, so they enterzero (0) on line 25, and $6,700 on line 26.Their Virgin Islands adjusted gross income is$6,700.

Part III. On line 27, the Smiths enter theamount from line 56, Form 1040 ($5,554).The amount on Form 8689, line 27, is beforeany credit for taxes paid to the Virgin Islands.

The Smiths enter their worldwide adjustedgross income, $49,737, (line 34, Form 1040)on line 30. They divide their Virgin Islandsadjusted gross income, $6,700 (from line 26),by line 30. They multiply this decimal, .135,by the amount on line 29 to find the amountof tax due to the Virgin Islands (line 32). TheSmiths include this amount ($750) in the totalon Form 1040, line 64. On the dotted line nextto line 64, they write Form 8689 and showthe amount. The Smiths do not completeForm 1116.

Part IV. Part IV is used to show paymentsof income tax to the Virgin Islands only. TheSmiths had no tax withheld by the Virgin Is-lands, but made estimated tax payments to

the Virgin Islands of $700, which are shownon lines 34 and 36. The income tax theSmiths owe to the Virgin Islands ($50) isshown on line 40. They must pay their VirginIslands tax at the same time they file the copyof their return with the Virgin Islands.

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JOHN BLACK 1 1 1 0 0 1 1 1 1

6 -2-9 8 not ended

X

X

X

Samoa Product s Co , Pago Pago , American Samoa

11-11-99 11-25-99 14 Vacat ion t o New Zealand

24,000

320

24,320

OMB No. 1545-0173Exclusion of Income for Bona Fide Residentsof American Samoa

4563Form

See instructions below and on back.Department of the TreasuryInternal Revenue Service

AttachmentSequence No. 68 Attach to Form 1040.

Your social security numberName(s) shown on Form 1040

1 Date bona fide residence began , and ended

Rented house or apartmentRented room2 Type of living quarters in American Samoa Purchased homeQuarters furnished by employer

NoYes3a Did any of your family live with you in American Samoa during any part of the tax year?

If Yes, who and for what period?

NoYes4a Did you maintain any home(s) outside American Samoa?

If Yes, show address of your home(s), whether it was rented, the name of each occupant, and his or her relationship to

you.

5 Name and address of employer (state if self-employed)

6 Complete columns (a) through (d) below for days absent from American Samoa during the tax year.

(c) Number ofdays absent

(b) Datereturned

(a) Date left (d) Reason for absence

7Wages, salaries, tips, etc.78Taxable interest89Ordinary dividends910Business income1011Capital gain11

12Rental real estate, royalties, etc.12

Farm income13 13

Other income. List type and amount 1414

Add lines 7 through 14. This is the amount you may exclude from your gross income this taxyear

1515

InstructionsSection references are to the Internal Revenue Code.

Purpose of FormIf you qualify, use Form 4563 to figure the amount of incomeyou may exclude from your gross income.

Cat. No. 12909U Form 4563 (Rev. 12-98)

(Rev. December 1998)

Part I

Part II

General Information

b

b

Figure Your Exclusion. Include only income that qualifies for the exclusion. See instructions.

For Paperwork Reduction Act Notice, see back of form.

Bona Fide Residence Test

No specific rule determines if you are a bona fide residentof American Samoa. At the time this form went to print,regulations defining the bona fide residence test undersection 931 had not been published. The following factorsmay be considered:

Intent,

Establishment of a permanent home,

Assimilation into the social, cultural, and economicenvironment, and

To qualify under this test, you must be a bona fide residentof American Samoa for an uninterrupted period that includesa complete tax year (January 1December 31 if you file a

calendar year return).Who QualifiesYou qualify for the exclusion if you were a bona fide residentof American Samoa for the entire tax year. See Bona FideResidence Test on this page.

In future years, bona fide residents of Guam andthe Commonwealth of the Northern MarianaIslands (CNMI) may also qualify for the exclusion.They will not qualify, however, unless

implementation agreements are in effect with the UnitedStates. At the time this form went to print, the CNMI had not

entered into an implementation agreement. Also, the effectivedate of the agreement between the United States and Guamhad not been determined.

Page 10


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Bill Smit h

Jane Smit h

10 40 Elm St . Oldt own, VA 220 0 0

2 2 2 0 0 2 2 2 2

2 2 2 0 0 2 2 2 3

50 0

6,200

6,700

-0 -

5,554

5,554

6,700

750

135

70 0

50

70 0

49,737

OMB No. 1545-1032Allocation of Individual Income Tax tothe Virgin Islands

Form 8689

Department of the TreasuryInternal Revenue Service

Attach to Form 1040.AttachmentSequence No. 85For calendar year 1999, or fiscal year ending , .

Your social security numberLast nameYour first name and initial

Last name Spouses social security numberIf a joint return, spouses first name and initial

Apt. no.Present home address (number and street) City, town or post office, state or territory, and ZIP code

Income From the Virgin Islands

1Wages, salaries, tips, etc.12Taxable interest233 Ordinary dividends44 Taxable refunds, credits, or offsets of local Virgin Islands taxes55 Alimony received66 Business income or (loss)77 Capital gain or (loss)8899

Other gains or (losses)

1010

IRA distributions (taxable amount)

1111

Pensions and annuities (taxable amount)

1212

Rental real estate, royalties, partnerships, S corporations, trusts, etc.

1313

Farm income or (loss)

1414

Unemployment compensation

1515

Social security benefits (taxable amount)

1616Other income. List type and amount.

Add lines 1 through 15. This is your total income

Adjusted Gross Income From the Virgin Islands

17IRA deduction17

19

One-half of self-employment tax

192020

Self-employed health insurance deduction

21

Keogh and self-employed SEP and SIMPLE plans

2122

Penalty on early withdrawal of savings

22

Add lines 17 through 24

23

Subtract line 25 from line 16. This is your adjusted gross income

24 24

Allocation of Tax to the Virgin Islands

Enter amount from Form 1040, line 56

25

26

Enter amount from Form 1040, line 34

28

.Divide line 26 above by line 30. Enter the result as a decimal (rounded to at least 3 places)

29

Multiply line 29 by line 31. This is your tax allocated to the Virgin Islands. Also, include this amount in thetotal on Form 1040, line 64. On the dotted line next to line 64, enter Form 8689 and show the amount

30 30

Payments of Income Tax to the Virgin IslandsIncome tax withheld by the Virgin Islands

31

32

1999 estimated tax payments and amount applied from 1998 return

32

33

Amount paid with Form 4868 (extension request)

33

Add lines 33 through 35. These are your total payments

3435

If line 36 is more than line 32, subtract line 32 from line 36. This is the amount you OVERPAID to the

Virgin Islands

35

36

Amount of line 37 you want REFUNDED TO YOU

36

Amount of line 37 you want APPLIED TO YOUR 2000 ESTIMATED TAX

37

If line 32 is more than line 36, subtract line 36 from line 32. This is the AMOUNT YOU OWE to theVirgin Islands

38

For Paperwork Reduction Act Notice, see back of form. Form 8689 (1999)Cat. No. 64603D

Part IV

Part I

Part II

Part III

Enter the total of the amounts from Form 1040, lines 50, 52, 59a, and 60; any uncollected social

security and Medicare or RRTA tax or tax on golden parachute payments included on line 56; and

any amount from Form 5329, Parts III, IV, V, VI, or VII, included on line 53

25

26

27

Subtract line 28 from line 27

27

Moving expenses

Medical savings account deduction

39

23

29

34

39

37

38

28

31

1818 Student loan interest deduction

4040

1999

Page 11


12/14

How To Get MoreInformationYou can order free publications and forms,ask tax questions, and get more informationfrom the IRS in several ways. By selecting themethod that is best for you, you will havequick and easy access to tax help.

Free tax services. To find out what servicesare available, get Publication 910, Guide toFree Tax Services. It contains a list of free taxpublications and an index of tax topics. It alsodescribes other free tax information services,including tax education and assistance pro-grams and a list of TeleTax topics.

Personal computer. With your per-sonal computer and modem, you canaccess the IRS on the Internet at

www.irs.gov. While visiting our web site, youcan select:

Frequently Asked Tax Questions(locatedunder Taxpayer Help & Ed) to find an-swers to questions you may have.

Forms & Pubsto download forms andpublications or search for forms and

publications by topic or keyword. Fill-in Forms(located under Forms &

Pubs) to enter information while the formis displayed and then print the completedform.

Tax Info For Youto view Internal Reve-nue Bulletins published in the last fewyears.

Tax Regs in Englishto search regulationsand the Internal Revenue Code (underUnited States Code (USC)).

Digital Dispatchand IRS Local News Net(both located under Tax Info For Busi-ness) to receive our electronic newslet-ters on hot tax issues and news.

Small Business Corner(located underTax Info For Business) to get informationon starting and operating a small busi-ness.

You can also reach us with your computerusing File Transfer Protocol at ftp.irs.gov.

TaxFax Service. Using the phoneattached to your fax machine, you canreceive forms and instructions by

calling 7033689694. Follow the directionsfrom the prompts. When you order forms,enter the catalog number for the form youneed. The items you request will be faxed toyou.

Phone. Many services are availableby phone.

Ordering forms, instructions, and publi-cations. Call 18008293676 to ordercurrent and prior year forms, instructions,and publications.

Asking tax questions. Call the IRS withyour tax questions at 18008291040.

TTY/TDD equipment. If you have accessto TTY/TDD equipment, call 18008294059 to ask tax questions or to orderforms and publications.

TeleTax topics. Call 18008294477 tolisten to pre-recorded messages coveringvarious tax topics.

Evaluating the quality of our telephoneservices. To ensure that IRS representativesgive accurate, courteous, and professional

answers, we evaluate the quality of our tele-phone services in several ways.

A second IRS representative sometimesmonitors live telephone calls. That persononly evaluates the IRS assistor and doesnot keep a record of any taxpayer's nameor tax identification number.

We sometimes record telephone calls toevaluate IRS assistors objectively. Wehold these recordings no longer than oneweek and use them only to measure thequality of assistance.

We value our customers' opinions.Throughout this year, we will be survey-ing our customers for their opinions onour service.

Walk-in. You can walk in to manypost offices, libraries, and IRS officesto pick up certain forms, instructions,

and publications. Also, some libraries and IRSoffices have:

An extensive collection of products avail-able to print from a CD-ROM or photo-copy from reproducible proofs.

The Internal Revenue Code, regulations,Internal Revenue Bulletins, and Cumula-tive Bulletins available for research pur-poses.

Mail. You can send your order forforms, instructions, and publicationsto the Distribution Center nearest to

you and receive a response within 10 work-days after your request is received. Find theaddress that applies to your part of thecountry.

Western part of U.S.:Western Area Distribution CenterRancho Cordova, CA 957430001

Central part of U.S.:Central Area Distribution CenterP.O. Box 8903Bloomington, IL 617028903

Eastern part of U.S. and foreign ad-dresses:Eastern Area Distribution CenterP.O. Box 85074Richmond, VA 232615074

CD-ROM. You can order IRS Publi-cation 1796, Federal Tax Products onCD-ROM, and obtain:

Current tax forms, instructions, and pub-lications.

Prior-year tax forms, instructions, andpublications.

Popular tax forms which may be filled inelectronically, printed out for submission,and saved for recordkeeping.

Internal Revenue Bulletins.

The CD-ROM can be purchased fromNational Technical Information Service (NTIS)by calling 18772336767 or on the Internetat www.irs.gov/cdorders. The first releaseis available in mid-December and the finalrelease is available in late January.

IRS Publication 3207, Small BusinessResource Guide, is an interactive CD-ROMthat contains information important to smallbusinesses. It is available in mid-February.You can get one free copy by calling18008293676.

Page 12


13/14

Index

AAmerican Samoa ......................... 7

Assistance (SeeMore information)

CChange of address ...................... 1Commonwealth of Puerto Rico ... 7Commonwealth of the Northern

Mariana Islands ...................... 6Credit:

Earned income ....................... 9Excess FICA .......................... 4Foreign tax ......................... 3, 8

DDouble taxation ........................... 4Double taxation:

American Samoa .................... 7Guam ...................................... 6Puerto Rico ............................ 9Virgin Islands .......................... 7

EEstimated tax:

American Samoa .................... 7

CNMI ...................................... 6Guam ...................................... 5

Excess FICA, credit for ............... 4

Extension of time to file:Automatic ............................... 4Form 2688 .............................. 4Form 4868 .............................. 4

FFellowships .................................. 2Filing requirements:

American Samoa .................... 7Commonwealth of the NorthernMariana Islands ................. 6Dependents ............................ 3Guam ...................................... 5Puerto Rico ............................ 7United States .......................... 3Virgin Islands .......................... 7

Filing tax returns ...................... 3, 5Form:

843 ......................................... 41040 (Schedule SE) ............... 4

1040 INFO .............................. 71040X ..................................... 5

1040ES ......................... 6, 7, 91040SS ................................. 4

1116 ............................... 3, 7, 82688 ................................... 4, 73903 ....................................... 34563 ....................................... 3

4868 ................................... 4, 75074 ....................................... 68689 ................................... 7, 9

8822 ....................................... 1W-7 ......................................... 1

Free tax services ....................... 12

GGuam ........................................... 5

HHelp (SeeMore information)

IIndividual taxpayer identification

number (ITIN) ......................... 1

MMore information ....................... 12Moving expenses ........................ 3

PPossession exclusion:Bona fide resident .................. 2Deductions and credits .......... 3Foreign tax credit ................... 3

Personal exemptions .............. 3Sources of income ................. 2

Standard deduction ................ 3

Publications (SeeMore information)Puerto Rico .......................... 7, 8, 9

SScholarships ................................ 2Self-employment tax .................... 4

TTax help (SeeMore information) Taxpayer Advocate ..................... 2

TTY/TDD information ................ 12

VVirgin Islands ............................... 7

WWhen to file ................................. 3Where to file ................................ 3Where to file:

CNMI ...................................... 6Form 1040 .............................. 4Guam ...................................... 5Puerto Rico ............................ 8U.S. ........................................ 5

Virgin Islands .......................... 7

Page 13


14/14

Tax Publications for Individual Taxpayers

General Guides

Your Rights as a TaxpayerYour Federal Income Tax (ForIndividuals)Farmers Tax GuideTax Guide for Small BusinessTax Calendars for 2000Highlights of 1999 Tax Changes

Guide to Free Tax Services

Specialized Publications

Armed Forces Tax GuideFuel Tax Credits and RefundsTravel, Entertainment, Gift, and CarExpensesExemptions, Standard Deduction,and Filing InformationMedical and Dental ExpensesChild and Dependent Care ExpensesDivorced or Separated IndividualsTax Withholding and Estimated TaxTax Benefits for Work-RelatedEducationForeign Tax Credit for IndividualsU.S. Government Civilian EmployeesStationed AbroadSocial Security and OtherInformation for Members of theClergy and Religious WorkersU.S. Tax Guide for AliensScholarships and FellowshipsMoving ExpensesSelling Your HomeCredit for the Elderly or the DisabledTaxable and Nontaxable IncomeCharitable ContributionsResidential Rental Property

Commonly Used Tax Forms

Miscellaneous Deductions

Tax Information for First-TimeHomeownersReporting Tip IncomeSelf-Employment TaxDepreciating Property Placed inService Before 1987Installment SalesPartnershipsSales and Other Dispositions ofAssetsCasualties, Disasters, and Thefts(Business and Nonbusiness)Investment Income and ExpensesBasis of AssetsRecordkeeping for IndividualsOlder Americans Tax GuideCommunity PropertyExamination of Returns, AppealRights, and Claims for RefundSurvivors, Executors, andAdministratorsDetermining the Value of DonatedPropertyMutual Fund DistributionsTax Guide for Individuals WithIncome From U.S. Possessions

Pension and Annuity IncomeCasualty, Disaster, and Theft LossWorkbook (Personal-Use Property)Business Use of Your Home(Including Use by Day-CareProviders)Individual Retirement Arrangements(IRAs) (Including Roth IRAs andEducation IRAs)Tax Highlights for U.S. Citizens andResidents Going AbroadUnderstanding the Collection ProcessEarned Income Credit (EIC)Tax Guide to U.S. Civil ServiceRetirement Benefits

Tax Highlights for Persons withDisabilitiesBankruptcy Tax GuideDirect SellersSocial Security and EquivalentRailroad Retirement BenefitsHow Do I Adjust My Tax Withholding?Passive Activity and At-Risk RulesHousehold Employers Tax GuideTax Rules for Children andDependentsHome Mortgage Interest DeductionHow To Depreciate PropertyPractice Before the IRS and Powerof AttorneyIntroduction to Estate and Gift TaxesIRS Will Figure Your Tax

Per Diem RatesReporting Cash Payments of Over$10,000The Taxpayer Advocate Service of

the IRS

Derechos del ContribuyenteCmo Preparar la Declaracin deImpuesto Federal

Crdito por Ingreso del TrabajoEnglish-Spanish Glossary of Wordsand Phrases Used in PublicationsIssued by the Internal RevenueService

U.S. Tax Treaties

Spanish Language Publications

Tax Highlights for CommercialFishermen

910

595

553509334225

171

3378463

501

502503504505508

514516

517

519520521523524525526527529

530

531533534

537

544

547

550551552554

541

555556

559

561

564570

575584

587

590

593

594596721

901907

908

915

919925926929

946

911

936

950

1542

967

1544

1546

596SP

1SP

850

579SP

Comprendiendo el Proceso de Cobro594SP

947

Tax Benefits for Adoption968

Informe de Pagos en Efectivo enExceso de $10,000 (Recibidos enuna Ocupacin o Negocio)

1544SP

See How To Get More Informationfor a variety of ways to get forms, including by computer,

fax, phone, and mail. For fax orders only, use the catalog numbers when ordering.

U.S. Individual Income Tax ReturnItemized Deductions & Interest andOrdinary Dividends

Profit or Loss From BusinessNet Profit From Business

Capital Gains and Losses

Supplemental Income and LossEarned Income Credit

Profit or Loss From Farming

Credit for the Elderly or the Disabled

Income Tax Return for Single andJoint Filers With No Dependents

Self-Employment TaxU.S. Individual Income Tax ReturnInterest and Ordinary Dividends forForm 1040A FilersChild and Dependent CareExpenses for Form 1040A FilersCredit for the Elderly or theDisabled for Form 1040A Filers

Estimated Tax for IndividualsAmended U.S. Individual Income Tax Return

Unreimbursed Employee BusinessExpenses

Underpayment of Estimated Tax byIndividuals, Estates, and Trusts

Power of Attorney and Declarationof Representative

Child and Dependent Care Expenses

Moving ExpensesDepreciation and AmortizationApplication for Automatic Extension of TimeTo File U.S. Individual Income Tax ReturnInvestment Interest Expense DeductionAdditional Taxes Attributable to IRAs, Other

Qualified Retirement Plans, Annuities,Modified Endowment Contracts, and MSAsAlternative Minimum TaxIndividualsNoncash Charitable Contributions

Change of AddressExpenses for Business Use of Your Home

Nondeductible IRAsPassive Activity Loss Limitations

1040Sch A & B

Sch CSch C-EZSch D

Sch ESch EICSch FSch H Household Employment Taxes

Sch R

Sch SE

1040EZ

1040ASch 1

Sch 2

Sch 3

1040-ES1040X

2106 Employee Business Expenses2106-EZ

2210

24412848

390345624868

49525329

6251828385828606

88228829

Form Number and TitleCatalogNumber

Sch J Farm Income Averaging

Additional Child Tax Credit8812

Education Credits8863

CatalogNumber

1170020604

11744

1186211980

124901290613141

1317713329

1360062299637046396610644120811323225379

11320

Form Number and Title

11330

113341437411338

113441333911346121872551311359

113581132712075

10749

12064

11329

1134011360

See How To Get More Informationfor a variety of ways to get publications,including by computer, phone, and mail.

970 Tax Benefits for Higher Education971 Innocent Spouse Relief

Sch D-1 Continuation Sheet for Schedule D 10424

972 Child Tax Credit

Documents

US Internal Revenue Service: p570--1999