Treasury Regulations, Subchapter A, Sec. 1.937-1T
From TaxAlmanac
Sec. 1.937-1T Bona fide residency in a possession (temporary)
(a) Scope—(1) In general. Section 937(a) and this section set forth the rules for determining whether an individual qualifies as a bona fide resident of a particular possession (the relevant possession) for purposes of the Internal Revenue Code, including Subpart D, Part III, Subchapter N, Chapter 1 of the Internal Revenue Code as well as section 865(g)(3), section 876, section 881(b), paragraphs (2) and (3) of section 901(b), section 957(c), section 3401(a)(8)(C), and section 7654(a).
(2) Definitions. For purposes of this section and §§1.937–2 and 1.937–3—
(i) Possession means one of the following United States possessions: American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, or the Virgin Islands. When used in a geographical sense, the term comprises only the territory of each such possession (without application of sections 932(c)(3) and 935(c)(2) (as in effect before the effective date of its repeal)).
(ii) United States, when used in a geographical sense, is defined in section 7701(a)(9), and without application of sections 932(a)(3) and 935(c)(1) (as in effect before the effective date of its repeal).
(b) Bona fide resident—(1) General rule. An individual qualifies as a bona fide resident of the relevant possession if such individual satisfies the requirements of paragraphs (c) through (e) of this section with respect to such possession.
(2) Special rule for members of the Armed Forces. A member of the Armed Forces of the United States who qualified as a bona fide resident of the relevant possession in a prior taxable year shall be deemed to have satisfied the requirements of paragraphs (c) through (e) of this section for a subsequent taxable year if such individual otherwise is unable to satisfy such requirements by reason of being absent from such possession or present in the United States during such year solely in compliance with military orders. Conversely, a member of the Armed Forces of the United States who did not qualify as a bona fide resident of the relevant possession in a prior taxable year shall not be considered to have satisfied the requirements of paragraphs (c) through (e) of this section for a subsequent taxable year by reason of being present in such possession solely in compliance with military orders. Armed Forces of the United States is defined (and members of the Armed Forces are described) in section 7701(a)(15).
(3) Juridical persons. Only natural persons may qualify as bona fide residents of a possession. The rules governing the tax treatment of bona fide residents of a possession do not apply to juridical persons (e.g., corporations, partnerships, trusts, and estates).
(4) Transition rule. For taxable years beginning before October 23, 2004, and ending after October 22, 2004, an individual will be considered to qualify as a bona fide resident of the relevant possession if such individual satisfies the requirements of paragraphs (d) and (e) of this section with respect to such possession for such year.
(c) Presence test—(1) In general. A United States citizen or resident alien (as defined in section 7701(b)(1)(A)) individual satisfies the requirements of this paragraph (c) for a taxable year if during that taxable year such individual—
(i) Was present in the relevant possession for at least 183 days;
(ii) Was present in the United States for no more than 90 days;
(iii) Had no earned income (as defined in §1.911–3(b)) in the United States and was present for more days in the relevant possession than in the United States; or
(iv) Had no permanent connection (see paragraph (c)(4) of this section) to the United States.
(2) Special rule for alien individuals. A nonresident alien individual (as defined in section 7701(b)(1)(B)) satisfies the requirements of this paragraph (c) for a taxable year if during that taxable year such individual satisfies the substantial presence test of §301.7701(b)–1(c) of this chapter (except for the substitution of the name of the relevant possession for the term United States where appropriate).
(3) Days of presence. For purposes of paragraph (c)(1) of this section—
(i) An individual is considered to be present in the relevant possession on any day that he or she is physically present in such possession at any time during the day.
(ii) An individual is considered to be present in the United States on any day that he or she is physically present in the United States at any time during the day. However, the following days shall be excluded and will not count as days of presence in the United States:
(A) Any day that an individual is prevented from leaving the United States because of a medical condition that arose while the individual was present in the United States (as described in §301.7701(b)–3(c) of this chapter);
(B) Any day that an individual is in transit between two points outside the United States (as described in §301.7701(b)–3(d) of this chapter), and is physically present in the United States for fewer than 24 hours;
(C) Any day that an individual is temporarily present in the United States as a professional athlete to compete in a charitable sports event (as described in §301.7701(b)–3(b)(5) of this chapter);
(D) Any day during which the individual is temporarily in the United States as a student (as defined in section 152(f)(2)); and
(E) In the case of an individual who is an elected representative of the relevant possession, or who serves full time as an elected or appointed official or employee of the government of the relevant possession (or any political subdivision thereof), any day spent serving the relevant possession in such role.
(iii) If, during a single day, an individual is physically present—
(A) In the United States and in the relevant possession, such day shall be considered a day of presence in the relevant possession;
(B) In two possessions, such day shall be considered a day of presence in the possession where the individual's tax home is located (applying the rules of paragraph (d) of this section).
(4) Permanent connection. For purposes of paragraph (c)(1) of this section—
(i) A permanent connection to the United States includes—
(A) A permanent home (as described in §301.7701(b)–2(d)(2) of this chapter) in the United States;
(B) A spouse or dependent (as defined in section 152 and the regulations thereunder) whose principal place of abode is in the United States; or
(C) Current registration to vote in any political subdivision of the United States.
(ii) However, a permanent connection to the United States does not include—
(A) A valid professional license conferred by any political subdivision of the United States; or
(B) Relatives (other than those specified in paragraph (c)(4)(B) of this section) whose principal place of abode is in the United States.
(d) Tax home test—(1) General rule. An individual satisfies the requirements of this paragraph (d) for a taxable year if such individual did not have a tax home outside the relevant possession during any part of the taxable year. For purposes of section 937 and this section, an individual's tax home is determined under the principles of section 911(d)(3) without regard to the second sentence thereof. Thus, under section 937, an individual's tax home is considered to be located at the individual's regular or principal (if more than one regular) place of business. If the individual has no regular or principal place of business because of the nature of the business, or because the individual is not engaged in carrying on any trade or business within the meaning of section 162(a), then the individual's tax home is the individual's regular place of abode in a real and substantial sense.
(2) Special rule for seafarers. For purposes of section 937 and this section, an individual will not be considered to have a tax home outside the relevant possession solely by reason of employment on a ship or other seafaring vessel that is predominantly used in local and international waters. For this purpose, a vessel will be considered to be predominantly used in local and international waters if, during the taxable year, the aggregate amount of time it is used in international water and in the water within three miles of the relevant possession exceeds the aggregate amount of time it is used in the territorial water of the United States or any foreign country.
(3) Special rule for students and government officials. Any days described in paragraphs (c)(3)(ii)(D) and (E) of this section shall be disregarded for purposes of determining whether an individual has a tax home outside the relevant possession under paragraph (d)(1) of this section during any part of the taxable year.
(e) Closer connection test. An individual satisfies the requirements of this paragraph (e) for a taxable year if such individual did not have a closer connection to the United States or a foreign country than to the relevant possession. For purposes of the preceding sentence—
(1) The principles of section 7701(b)(3)(B)(ii) and §301.7701(b)–2(d) of this chapter shall apply; and
(2) Another possession shall not be considered a foreign country.
(f) Examples. The principles of this section are illustrated by the following examples:
Example 1. Presence test. H and W are U.S. citizens who live for part of the taxable year in a condominium, which they own, located in Possession P. H and W also own a house in State N where they live for 120 days a year to be near their grown children and grandchildren. H and W are retired and their income consists solely of pension payments, dividends, interest, and Social Security benefits. In 2005, H and W are only present in Possession P for a total of 175 days because of a 70 day vacation to Europe and Asia. Thus, in 2005, H and W are not present in Possession P for at least 183 days, are present in the United States for more than 90 days, and have a permanent connection to the United States by reason of their permanent home. However, under paragraph (c)(1)(iii) of this section, H and W each still satisfy the presence test in paragraph (c) of this section with respect to Possession P because they have no earned income in the United States and are physically present for more days in Possession P than in the United States.
Example 2. Presence test. T, a U.S. citizen, is a sales representative for a company based in Possession V. T lives with his wife and minor children in their house in Possession V, where he is also registered to vote. T's business travel requires T to spend 120 days in the United States and another 120 days in foreign countries. When traveling on business, T generally stays at hotels but sometimes stays with his brother, who lives in State A. Under paragraphs (c)(1)(iv) and (c)(4) of this section, T satisfies the presence test in paragraph (c) of this section because he has no permanent connection to the United States.
Example 3. Alien resident of possession—presence test. F is a citizen of Country G. F's tax home is in Possession C and F has no closer connection to the United States or a foreign country than to Possession C. F is physically present in Possession C for 123 days and in the United States for 110 days every year. Accordingly, F is a nonresident alien with respect to the United States under section 7701(b), and a bona fide resident of Possession C under paragraphs (b), (c)(2), (d), and (e) of this section.
Example 4. Seafarers—tax home. S, a U.S. citizen, is employed by a fishery and spends 250 days at sea on a fishing vessel. When not at sea, S resides with his wife at a house they own in Possession G. The fishing vessel upon which S works departs and arrives at various ports in Possession G, other possessions, and foreign countries, but is in international or local waters (within the meaning of paragraph (d)(2) of this section) for 225 days. Under paragraph (d)(2) of this section, S will not be considered to have a tax home outside Possession G for purposes of section 937 and this section solely by reason of S's employment on board the fishing vessel.
Example 5. Seasonal workers—tax home and closer connection. P, a U.S. citizen, is a permanent employee of a hotel in Possession I, but works only during the tourist season. For the remainder of each year, P lives with her husband and children in Possession Q, where she has no outside employment. Most of P's personal belongings, including her automobile, are located in Possession Q. P is registered to vote in, and has a driver's license issued by, Possession Q. P does her personal banking in Possession Q and P routinely lists her address in Possession Q on forms and documents. P satisfies the presence test of paragraph (c) of this section with respect to both Possession Q and Possession I, because, among other reasons, under paragraph (c)(1)(ii) of this section she does not spend more than 90 days in the United States during the taxable year. P satisfies the tax home test of paragraph (d) of this section only with respect to Possession I, because her regular place of business is in Possession I. P satisfies the closer connection test of paragraph (e) of this section with respect to both Possession Q and Possession I, because she does not have a closer connection to the United States or to any foreign country (and for this purpose, under paragraph (e)(2) of this section, Possession Q is not treated as a foreign country with respect to Possession I). Therefore, P is a bona fide resident of Possession I for purposes of the Internal Revenue Code.
Example 6. Closer connection to United States than to possession. Z, a U.S. citizen, relocates to Possession V in 2003 to start an investment consulting and venture capital business. Z's wife and two teen-aged children remain in State C to allow the children to complete high school. Z travels back to the United States regularly to see his wife and children, to engage in business activities, and to take vacations. He has an apartment available for his full-time use in Possession V, but he remains a joint-owner of the residence in State C where his wife and children reside. Z and his family have automobiles and personal belongings such as furniture, clothing, and jewelry located at both residences. Although Z is a member of the Possession V Chamber of Commerce, Z also belongs to and has current relationships with social, political, cultural, and religious organizations in State C. Z receives mail in State C, including brokerage statements, credit card bills, and bank advices. Z is not a bona fide resident of Possession V because he has a closer connection to the United States than to Possession V and therefore fails to satisfy the requirements of paragraphs (b)(1) and (e) of this section.
(g) Information reporting requirement. The following individuals are required to file notice of their new tax status in such time and manner as the Commissioner may prescribe by notice, form, instructions, or other publication (see §601.601(d)(2) of this chapter):
(1) Individuals who take the position for U.S. tax reporting purposes that they qualify as bona fide residents of a possession for a tax year subsequent to a tax year for which they were required to file Federal income tax returns as citizens or residents of the United States who did not so qualify.
(2) Citizens and residents of the United States who take the position for U.S. tax reporting purposes that they do not qualify as bona fide residents of a possession for a tax year subsequent to a tax year for which they were required to file income tax returns (with the Internal Revenue Service, the tax authorities of a possession, or both) as individuals who did so qualify.
(3) Bona fide residents of Puerto Rico or a section 931 possession (as defined in §1.931–1T(c)(1)) who take a position for U.S. tax reporting purposes that they qualify as bona fide residents of such possession for a tax year subsequent to a tax year for which they were required to file income tax returns as bona fide residents of the United States Virgin Islands or a section 935 possession (as defined in §1.935–1T(a)(3)(i)).
(h) Effective date. Except as provided in this paragraph (h), this section shall apply to taxable years ending after October 22, 2004. Paragraph (g) of this section also applies to the 3 taxable years preceding the first taxable year ending after October 22, 2004.
[T.D. 9194, 70 FR 18940, Apr. 11, 2005]
