By: Tom Andrews, CPA
While many crewmembers are familiar with living as a bona fide resident in a foreign country not all crew members are familiar with the rules of living in U. S. Territories or Possessions.
The IRS has issued a fact sheet to help taxpayers who move to or from a U.S. territory or possession determine whether they are considered bona fide residents of the U.S. territory or possession. The fact sheet also includes guidance on the filing requirements that may be triggered as a result. Pursuant to those requirements, individual taxpayers with world wide income of more than $75,000 in the year of a move to or from a U.S. territory or possession must file Form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Possession. If married, the $75,000 threshold applies to each spouse separately, and a separate form must be filed for each spouse.
Failure to file Form 8898 when required or to complete the form properly may result in penalties, including fines and possible criminal penalties.
U.S. territories and possessions include American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands. In general, a person is a bona-fide resident of the possession or territory if he or she meets a presence test, has no tax home outside the U.S. territory during the tax year, and has no closer connection to the U.S. or a foreign country than to the U.S. territory that year. This determination is heavily fact-intensive.
If you find yourself living in a U.S. Territory or Possession and are not clear on the instructions with Form 8898 (which can be found on the IRS website at irs.gov) please contact your Certified Public Accountant for clarification. Also please be sure not to confuse living in a U.S. territory or possession with living inside a foreign country. Living inside a foreign country may entitle you to benefits under Section 911 of the Internal Revenue Code, these rules can be further clarified at the IRS website under the instructions for form 2555.
ON A SIDE NOTE, DON’T FORGET THE YEAR IS MORE THAN HALF OVER, IF YOU HAVE NOT BEEN MAKING ESTIMATED PAYMENTS TO THE IRS, MAKE SURE YOU START PUTTING MONEY ASIDE FOR THE ANTICIPATION OF PAYING TAXES.