Proposed regulations: 30-day constructive presence, individuals in US territory

30-day constructive presence in US territory

The Treasury Department and IRS today released for publication in the Federal Register a notice of proposed rulemaking that would amend existing regulations used in determining whether an individual is a bona fide resident of a U.S. territory. A U.S. territory for these purposes means Guam, American Samoa, the Northern Mariana Island, Puerto Rico, and the U.S. Virgin Islands. Today’s proposed regulations would allow up to 30 additional days of constructive presence in a U.S. territory.

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Under the proposed regulations [PDF 222 KB], an individual would be considered to be present in a U.S. territory for up to 30 days during which the individual is outside of both the United States and the relevant U.S. territory. 

Summary

Individuals who satisfy a presence test, a tax home test, and a closer connection test qualify as a bona fide resident of a U.S. territory.

  • The presence test requires at least 183 days of presence in the U.S. territory.
  • Existing regulations provide four alternatives to the 183-day rule, whereby individuals who do not satisfy the 183-day rule are nevertheless treated as meeting the presence test. These alternatives include one providing that the presence test is met if the individual is present in the U.S. territory for at least 549 days during a three-year period (the current tax year and the two preceding tax years), provided that the individual is present for at least 60 days during each tax year of the period.



The preamble to today’s regulations explains that the purpose of the proposed amendment is to allow additional days of constructive presence in the relevant U.S. territory. Thus, the proposed amendment would allow an individual to be considered as present in the relevant U.S. territory for purposes of the presence test if during those days the individual is outside both the United States and the relevant U.S. territory. However, the additional 30-day constructive presence rule would not apply if the number of days that the individual is considered to be present in the United States during the tax year equals or exceeds the number of days that the individual is considered to be present in the U.S. territory during the tax year—determined without taking into account any days for which the individual would be treated as present in the U.S. territory under today’s proposed regulations. 

The preamble to today’s proposed regulations further explains that the 30-day constructive presence rule would not apply for purposes of calculating the minimum 60 days of presence in the U.S. territory that is required for the 549-day test under Reg. section 1.937-1(c)(1)(ii)—that is, an individual invoking the 549-day test must otherwise be considered to have been present at least 60 days in the U.S. territory in each of the three years to benefit from the 30-day constructive presence rule.

As proposed, these changes would be effective for tax years beginning after the date of publication in the Federal Register of the regulations finalizing these rules. Until the final regulations are published, taxpayers can rely on today’s proposed regulations for tax years beginning on or after August 27, 2015 (the date when the proposed regulations will be published in the Federal Register).

 

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