26 U.S.C. § 932 — Coordination of United States and Virgin

Page 2163 TITLE 26—INTERNAL REVENUE CODE § 932 of the Internal Revenue Code of 1986 by reason of the amendment to section 881 of such Code by section 1273(b)(1) of this Act shall apply to taxable years begin- ning after December 31, 1986.’’ EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–369 applicable to taxable years beginning after Dec. 31, 1983, see section 711(c)(2)(A)(v) of Pub. L. 98–369, set out as a note under section 165 of this title. EFFECTIVE DATE OF 1977 AMENDMENT Amendment by Pub. L. 95–30 applicable to taxable years beginning after Dec. 31, 1976, see section 106(a) of Pub. L. 95–30, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Amendment by section 1051(c) of Pub. L. 94–455 appli- cable with respect to taxable years beginning after Dec. 31, 1975, with certain exceptions, see section 1051(i) of Pub. L. 94–455, set out as a note under section 27 of this title. Amendment by section 1901(a)(117) of Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title. EFFECTIVE DATE OF 1972 AMENDMENT Pub. L. 92–606, § 2, Oct. 31, 1972, 86 Stat. 1497, provided in part that: ‘‘The amendments made by section 1 [en- acting sections 935 and 6688 of this title, amending this section, sections 932, 7654, and 7701 of this title, and sec- tion 1421i of Title 48, Territories and Insular Posses- sions, and enacting provisions set out as notes under sections 881 and 1442 of this title] (other than section 1(e)) [amending sections 881 and 1442 of this title] shall apply with respect to taxable years beginning after De- cember 31, 1972.’’ EFFECTIVE DATE OF 1971 AMENDMENT Amendment by Pub. L. 92–178 applicable with respect to taxable years ending after Dec. 31, 1971, except that a corporation may not be a DISC for any taxable year beginning before Jan. 1, 1972, see section 507 of Pub. L. 92–178, set out as an Effective Date note under section 991 of this title. EFFECTIVE DATE OF 1966 AMENDMENT Pub. L. 89–809, title I, § 107(b), Nov. 13, 1966, 80 Stat. 1571, provided that: ‘‘The amendment made by this sec- tion [amending this section] shall apply with respect to taxable years beginning after December 31, 1966.’’ AUTHORITY OF GUAM, AMERICAN SAMOA, AND THE NORTHERN MARIANA ISLANDS TO ENACT REVENUE LAWS Pub. L. 99–514, title XII, § 1271, Oct. 22, 1986, 100 Stat. 2591, provided that: ‘‘(a) IN GENERAL.—Except as provided in subsection (b), nothing in the laws of the United States shall pre- vent Guam, American Samoa, or the Northern Mariana Islands from enacting tax laws (which shall apply in lieu of the mirror system) with respect to income— ‘‘(1) from sources within, or effectively connected with the conduct of a trade or business within, any such possession, or ‘‘(2) received or accrued by any resident of such pos- session. ‘‘(b) AGREEMENTS TO ALLEVIATE CERTAIN PROBLEMS RELATING TO TAX ADMINISTRATION.—Subsection (a) shall apply to Guam, American Samoa, or the Northern Mariana Islands only if (and so long as) an imple- menting agreement is in effect between the United States and such possession with respect to— ‘‘(1) the elimination of double taxation involving taxation by such possession and taxation by the United States, ‘‘(2) the establishment of rules under which the eva- sion or avoidance of United States income tax shall not be permitted or facilitated by such possession, ‘‘(3) the exchange of information between such pos- session and the United States for purposes of tax ad- ministration, and ‘‘(4) the resolution of other problems arising in con- nection with the administration of the tax laws of such possession or the United States. Any such implementing agreement shall be executed on behalf of the United States by the Secretary of the Treasury after consultation with the Secretary of the Interior. ‘‘(c) REVENUES NOT TO DECREASE.—The total amount of the revenue received by any possession referred to in subsection (a) pursuant to its tax laws during the im- plementation year and each of the 4 fiscal years there- after shall not be less than the revenue (adjusted for in- flation) which was received by such possession pursu- ant to tax laws for its last fiscal year before the imple- mentation year. ‘‘(d) NONDISCRIMINATORY TREATMENT REQUIRED.— Nothing in any tax law of a possession referred to in subsection (a) may discriminate against any United States person or any resident (corporate or otherwise) of any other possession. ‘‘(e) ENFORCEMENT.— ‘‘(1) IN GENERAL.—If the Secretary of the Treasury (after consultation with the Secretary of the Inte- rior) determines that any possession has failed to comply with subsection (c) or (d), the Secretary of the Treasury shall so notify the Governor of such pos- session in writing. If such possession does not comply with subsection (c) or (d) (as the case may be) within 90 days of such notification, the Secretary of the Treasury shall notify the Congress of such non- compliance. Unless the Congress by law provides oth- erwise, the mirror system of taxation shall be rein- stated in such possession and shall be in full force and effect for taxable years beginning after such noti- fication to the Congress. ‘‘(2) SPECIAL RULE FOR REVENUE REQUIREMENTS.—If the failure to comply with subsection (c) is for good cause and does not jeopardize the fiscal integrity of the possession, the Secretary may waive the require- ments of subsection (c) for such period as he deter- mines appropriate. ‘‘(f) DEFINITIONS AND SPECIAL RULES.— ‘‘(1) IMPLEMENTATION YEAR.—For purposes of this section, the term ‘implementation year’ means the 1st fiscal year of the possession in which the tax laws authorized by subsection (a) take effect. ‘‘(2) MIRROR SYSTEM.—For purposes of this section, the mirror system of taxation consists of the provi- sions of law (in effect on the day before the date of the enactment of this Act [Oct. 22, 1986]) which make the provisions of the income tax laws of the United States (as in effect from time to time) in effect in a possession of the United States. ‘‘(3) SPECIAL RULE FOR NORTHERN MARIANA IS- LANDS.—Notwithstanding the provisions of the last clause of section 601(a) of Public Law 94–241 [48 U.S.C. 1801 note], the Commonwealth of the Northern Mar- iana Islands may elect to continue its mirror system of taxation without regard to whether Guam enacts tax laws under the authority provided in subsection (a).’’ § 932. Coordination of United States and Virgin Islands income taxes (a) Treatment of United States residents (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 tax- able year), and (ii) has income derived from sources within the Virgin Islands, or effectively Page 2164 TITLE 26—INTERNAL REVENUE CODE § 932 connected with the conduct of a trade or business within such possession, for the taxable year, or (B) such individual files a joint return for the taxable year with an individual de- scribed in subparagraph (A). (2) Filing requirement Each individual to whom this subsection ap- plies for the taxable year shall file his income tax return for the taxable year with both the United States and the Virgin Islands. (3) Extent of income tax liability In the case of an individual to whom this subsection applies in a taxable year for pur- poses 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 (1) In general Each individual to whom subsection (a) ap- plies for the taxable year shall pay the appli- cable percentage of the taxes imposed by this chapter for such taxable year (determined without regard to paragraph (3)) to the Virgin Islands. (2) Applicable percentage (A) In general For purposes of paragraph (1), the term ‘‘applicable percentage’’ means the percent- age which Virgin Islands adjusted gross in- come bears to adjusted gross income. (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 tax- able year an amount equal to the taxes re- quired to be paid to the Virgin Islands under paragraph (1) which are so paid. (c) Treatment of Virgin Islands residents (1) Application of subsection This subsection shall apply to an individual for the taxable year if— (A) such individual is a bona fide resident of the Virgin Islands during the entire tax- able year, or (B) such individual files a joint return for the taxable year with an individual de- scribed in subparagraph (A). (2) Filing requirement Each individual to whom this subsection ap- plies for the taxable year shall file an income tax return for the taxable year with the Virgin Islands. (3) Extent of income tax liability In the case of an individual to whom this subsection applies in a taxable year for pur- poses of so much of this title (other than this section and section 7654) as relates to the taxes imposed by this chapter, the Virgin Is- lands shall be treated as including the United States. (4) Residents of the Virgin Islands In the case of an individual— (A) who is a bona fide resident of the Vir- gin Islands during the entire 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 liabil- ity to the United States, gross income shall not include any amount included in gross in- come 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 in- come (determined without regard to community property laws) for the taxable year. (e) Special rule for applying section to tax im- posed in Virgin Islands In applying this section for purposes of deter- mining income tax liability incurred to the Vir- gin Islands, the provisions of this section shall not be affected by the provisions of Federal law referred to in section 934(a). (Added Pub. L. 99–514, title XII, § 1274(a), Oct. 22, 1986, 100 Stat. 2596; amended Pub. L. 100–647, title I, § 1012(w)(1)–(3), Nov. 10, 1988, 102 Stat. 3530; Pub. L. 108–357, title VIII, § 908(c)(2), Oct. 22, 2004, 118 Stat. 1656.) Editorial Notes PRIOR PROVISIONS A prior section 932, acts Aug. 16, 1954, ch. 736, 68A Stat. 292; Nov. 13, 1966, Pub. L. 89–809, title I, § 103(m), 80 Stat. 1554; Oct. 31, 1972, Pub. L. 92–606, § 1(f)(2), (3), 86 Stat. 1497; Apr. 7, 1986, Pub. L. 99–272, title XII, § 12103(a), 100 Stat. 285, related to income taxation of citizens of possessions of the United States, prior to re- peal by Pub. L. 99–514, title XII, § 1272(d)(1), Oct. 22, 1986, 100 Stat. 2594. AMENDMENTS 2004—Subsecs. (a)(1)(A)(i), (c)(1)(A), (4)(A). Pub. L. 108–357 substituted ‘‘during the entire taxable year’’ for ‘‘at the close of the taxable year’’. 1988—Subsec. (c)(2). Pub. L. 100–647, § 1012(w)(3), sub- stituted ‘‘an income tax return’’ for ‘‘his income tax re- turn’’. Subsec. (c)(4). 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 tax- able 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 re- turn, 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.’’ Subsec. (e). Pub. L. 100–647, § 1012(w)(1), substituted current heading for ‘‘Section not to apply to tax im- Page 2165 TITLE 26—INTERNAL REVENUE CODE § 934 posed 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.’’ Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 applicable to taxable years ending after Oct. 22, 2004, see section 908(d)(1) of Pub. L. 108–357, set out as an Effective Date note under section 937 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title. EFFECTIVE DATE Enactment of section 932 and repeal of prior section 932 applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 1277 of Pub. L. 99–514, set out as an Effective Date of 1986 Amendment note under section 931 of this title. REGULATIONS Pub. L. 99–514, title XII, § 1274(c), Oct. 22, 1986, 100 Stat. 2598, as amended by Pub. L. 100–647, title I, § 1012(w)(4), Nov. 10, 1988, 102 Stat. 3530, provided that: ‘‘The Secretary of the Treasury or his delegate shall prescribe such regulations as may be necessary or ap- propriate for applying the Internal Revenue Code of 1986 [this title] for purposes of determining tax liability incurred to the Virgin Islands.’’ AUTHORITY TO IMPOSE NONDISCRIMINATORY LOCAL INCOME TAXES Pub. L. 99–514, title XII, § 1274(b), Oct. 22, 1986, 100 Stat. 2597, provided that: ‘‘Nothing in any provision of Federal law shall prevent the Virgin Islands from im- posing on any person nondiscriminatory local income taxes. Any taxes so imposed shall be treated in the same manner as State and local income taxes under section 164 of the Internal Revenue Code of 1954 [now 1986] and shall not be treated as taxes to which section 901 of such Code applies.’’ § 933. Income from sources within Puerto Rico The following items shall not be included in gross income and shall be exempt from taxation under this subtitle: (1) Resident of Puerto Rico for entire taxable year In the case of an individual who is a bona fide resident of Puerto Rico during the entire taxable year, income derived from sources within Puerto Rico (except amounts received for services performed as an employee of the United States or any agency thereof); but such individual shall not be allowed as a deduction from his gross income any deductions (other than the deduction under section 151, relating to personal exemptions), or any credit, prop- erly allocable to or chargeable against amounts excluded from gross income under this paragraph. (2) Taxable year of change of residence from Puerto Rico In the case of an individual citizen of the United States who has been a bona fide resi- dent of Puerto Rico for a period of at least 2 years before the date on which he changes his residence from Puerto Rico, income derived from sources therein (except amounts received for services performed as an employee of the United States or any agency thereof) which is attributable to that part of such period of Puerto Rican residence before such date; but such individual shall not be allowed as a de- duction from his gross income any deductions (other than the deduction for personal exemp- tions under section 151), or any credit, prop- erly allocable to or chargeable against amounts excluded from gross income under this paragraph. (Aug. 16, 1954, ch. 736, 68A Stat. 293; Pub. L. 99–514, title XII, § 1272(d)(3), Oct. 22, 1986, 100 Stat. 2594.) Editorial Notes AMENDMENTS 1986—Pub. L. 99–514 inserted ‘‘, or any credit,’’ in pars. (1) and (2). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, with certain excep- tions and qualifications, see section 1277 of Pub. L. 99–514, set out as a note under section 931 of this title. § 934. Limitation on reduction in income tax li- ability incurred to the Virgin Islands (a) General rule Tax liability incurred to the Virgin Islands pursuant to this subtitle, as made applicable in the Virgin Islands by the Act entitled ‘‘An Act making appropriations for the naval service for the fiscal year ending June 30, 1922, and for other purposes’’, approved July 12, 1921 (48 U.S.C. 1397), or pursuant to section 28(a) of the Revised Organic Act of the Virgin Islands, ap- proved July 22, 1954 (48 U.S.C. 1642), shall not be reduced or remitted in any way, directly or indi- rectly, whether by grant, subsidy, or other simi- lar payment, by any law enacted in the Virgin Islands, except to the extent provided in sub- section (b). (b) Reductions permitted with respect to certain income (1) In general Except as provided in paragraph (2), sub- section (a) shall not apply with respect to so much of the tax liability referred to in sub- section (a) as is attributable to income derived from sources within the Virgin Islands or in- come effectively connected with the conduct of a trade or business within the Virgin Is- lands. (2) Exception for liability paid by citizens or residents of the United States Paragraph (1) shall not apply to any liability payable to the Virgin Islands under section 932(b). (3) Special rule for non-United States income of certain foreign corporations (A) In general In the case of a qualified foreign corpora- tion, subsection (a) shall not apply with re-