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Free Military Taxes

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Free Military Taxes

Free military taxes 1. Free military taxes   Bona Fide Residence Table of Contents Presence TestDays of Presence in the United States or Relevant Possession Significant Connection Tax HomeExceptions Closer ConnectionException for Year of Move Special Rules in the Year of a MoveYear of Moving to a Possession Year of Moving From a Possession Reporting a Change in Bona Fide ResidenceWho Must File Penalty for Not Filing Form 8898 In order to qualify for certain tax benefits (see chapter 3), you must be a bona fide resident of American Samoa, the CNMI, Guam, Puerto Rico, or the USVI for the entire tax year. Free military taxes Generally, you are a bona fide resident of one of these possessions (the relevant possession) if, during the tax year, you: Meet the presence test, Do not have a tax home outside the relevant possession, and Do not have a closer connection to the United States or to a foreign country than to the relevant possession. Free military taxes Special rule for members of the U. Free military taxes S. Free military taxes Armed Forces. Free military taxes   If you are a member of the U. Free military taxes S. Free military taxes Armed Forces who qualified as a bona fide resident of the relevant possession in an earlier tax year, your absence from that possession during the current tax year in compliance with military orders will not affect your status as a bona fide resident. Free military taxes Likewise, being in a possession solely in compliance with military orders will not qualify you for bona fide residency. Free military taxes Also see the special income source rule for members of the U. Free military taxes S. Free military taxes Armed Forces in chapter 2, under Compensation for Labor or Personal Services . Free military taxes Special rule for civilian spouse of active duty member of the U. Free military taxes S. Free military taxes Armed Forces. Free military taxes   If you are the civilian spouse of an active duty servicemember, under Military Spouses Residency Relief Act (MSRRA) you can choose to keep your prior residence or domicile for tax purposes (tax residence) when accompanying the servicemember spouse, who is relocating under military orders, to a new military duty station in one of the 50 states, the District of Columbia, or a U. Free military taxes S. Free military taxes possession. Free military taxes Before relocating, you and your spouse must have the same tax residence. Free military taxes If you are a civilian spouse and choose to keep your prior tax residence after such relocation, the source of income for services performed (for example, wages, salaries, tips, or self-employment) by you is considered to be (the jurisdiction of) the prior tax residence. Free military taxes As a result, the amount of income tax withholding (from Form(s) W-2, Wage and Tax Statement) that you are able to claim on your federal return, as well as the need to file a state or U. Free military taxes S. Free military taxes possession return, may be affected. Free military taxes For more information, consult with state, local, or U. Free military taxes S. Free military taxes possession tax authorities regarding your tax obligations under MSRRA. Free military taxes Presence Test If you are a U. Free military taxes S. Free military taxes citizen or resident alien, you will satisfy the presence test for the entire tax year if you meet one of the following conditions. Free military taxes You were present in the relevant possession for at least 183 days during the tax year. Free military taxes You were present in the relevant possession for at least 549 days during the 3-year period that includes the current tax year and the 2 immediately preceding tax years. Free military taxes During each year of the 3-year period, you must be present in the relevant possession for at least 60 days. Free military taxes You were present in the United States for no more than 90 days during the tax year. Free military taxes You had earned income in the United States of no more than a total of $3,000 and were present for more days in the relevant possession than in the United States during the tax year. Free military taxes Earned income is pay for personal services performed, such as wages, salaries, or professional fees. Free military taxes You had no significant connection to the United States during the tax year. Free military taxes Special rule for nonresident aliens. Free military taxes   Conditions (1) through (5) above do not apply to nonresident aliens of the United States. Free military taxes Instead, nonresident aliens must meet the substantial presence test discussed in chapter 1 of Publication 519. Free military taxes In that discussion, substitute the name of the possession for “United States” and “U. Free military taxes S. Free military taxes ” wherever they appear. Free military taxes Disregard the discussion in that chapter about a Closer Connection to a Foreign Country. Free military taxes Days of Presence in the United States or Relevant Possession Generally, you are treated as being present in the United States or in the relevant possession on any day that you are physically present in that location at any time during the day. Free military taxes Days of presence in a possession. Free military taxes   You are considered to be present in the relevant possession on any of the following days. Free military taxes Any day you are physically present in that possession at any time during the day. Free military taxes Any day you are outside of the relevant possession in order to receive, or to accompany any of the following family members to receive, qualifying medical treatment (see Qualifying Medical Treatment , later). Free military taxes Your parent. Free military taxes Your spouse. Free military taxes Your child, who is your son, daughter, stepson, or stepdaughter. Free military taxes This includes an adopted child or child lawfully placed with you for legal adoption. Free military taxes This also includes a foster child who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. Free military taxes Any day you are outside the relevant possession because you leave or are unable to return to the relevant possession during any: 14-day period within which a major disaster occurs in the relevant possession for which a Federal Emergency Management Agency (FEMA) notice of a federal declaration of a major disaster is issued in the Federal Register, or Period for which a mandatory evacuation order is in effect for the geographic area in the relevant possession in which your main home is located. Free military taxes   If, during a single day, you are physically present: In the United States and in the relevant possession, that day is considered a day of presence in the relevant possession; or In two possessions, that day is considered a day of presence in the possession where your tax home is located (see Tax Home , later). Free military taxes Days of presence in the United States. Free military taxes   You are considered to be present in the United States on any day that you are physically present in the United States at any time during the day. Free military taxes However, do not count the following days as days of presence in the United States. Free military taxes Any day you are temporarily present in the United States in order to receive, or to accompany a parent, spouse, or child who is receiving, qualifying medical treatment. Free military taxes “Child” is defined under item 2c earlier. Free military taxes “Qualifying medical treatment” is defined later. Free military taxes Any day you are temporarily present in the United States because you leave or are unable to return to the relevant possession during any: 14-day period within which a major disaster occurs in the relevant possession for which a Federal Emergency Management Agency (FEMA) notice of a federal declaration of a major disaster is issued in the Federal Register, or Period for which a mandatory evacuation order is in effect for the geographic area in the relevant possession in which your main home is located. Free military taxes Any day you are in the United States for less than 24 hours when you are traveling between two places outside the United States. Free military taxes Any day you are temporarily present in the United States as a professional athlete to compete in a charitable sports event (defined later). Free military taxes Any day you are temporarily in the United States as a student (defined later). Free military taxes Any day you are in the United States serving as an elected representative of the relevant possession, or serving full time as an elected or appointed official or employee of the government of that possession (or any of its political subdivisions). Free military taxes Qualifying Medical Treatment Such treatment is generally provided by (or under the supervision of) a physician for an illness, injury, impairment, or physical or mental condition. Free military taxes The treatment generally involves: Any period of inpatient care that requires an overnight stay in a hospital or hospice, and any period immediately before or after that inpatient care to the extent it is medically necessary, or Any temporary period of inpatient care in a residential medical care facility for medically necessary rehabilitation services. Free military taxes With respect to each qualifying medical treatment, you must prepare (or obtain) and maintain documentation supporting your claim that such treatment meets the criteria to be considered days of presence in the relevant possession. Free military taxes You must be able to produce this documentation within 30 days if requested by the IRS or tax administrator for the relevant possession. Free military taxes You must keep the following documentation. Free military taxes Records that provide: The patient's name and relationship to you (if the medical treatment is provided to a person you accompany); The name and address of the hospital, hospice, or residential medical care facility where the medical treatment was provided; The name, address, and telephone number of the physician who provided the medical treatment; The date(s) on which the medical treatment was provided; and Receipt(s) of payment for the medical treatment. Free military taxes Signed certification by the providing or supervising physician that the medical treatment met the requirements for being qualified medical treatment, and setting forth: The patient's name, A reasonably detailed description of the medical treatment provided by (or under the supervision of) the physician, The dates on which the medical treatment was provided, and The medical facts that support the physician's certification and determination that the treatment was medically necessary. Free military taxes Charitable Sports Event A charitable sports event is one that meets all of the following conditions. Free military taxes The main purpose is to benefit a qualified charitable organization. Free military taxes The entire net proceeds go to charity. Free military taxes Volunteers perform substantially all the work. Free military taxes In figuring the days of presence in the United States, you can exclude only the days on which you actually competed in the charitable sports event. Free military taxes You cannot exclude the days on which you were in the United States to practice for the event, to perform promotional or other activities related to the event, or to travel between events. Free military taxes Student To qualify as a student, you must be, during some part of each of any 5 calendar months during the calendar year: A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or A student taking a full-time, on-farm training course given by a school described in (1) above or by a state, county, or local government agency. Free military taxes The 5 calendar months do not have to be consecutive. Free military taxes Full-time student. Free military taxes   A full-time student is a person who is enrolled for the number of hours or courses the school considers to be full-time attendance. Free military taxes However, school attendance exclusively at night is not considered full-time attendance. Free military taxes School. Free military taxes   The term “school” includes elementary schools, middle schools, junior and senior high schools, colleges, universities, and technical, trade, and mechanical schools. Free military taxes It does not include on-the-job training courses, correspondence schools, and schools offering courses only through the Internet. Free military taxes Significant Connection One way in which you can meet the presence test is to have no significant connection to the United States during the tax year. Free military taxes This section looks at the factors that determine if a significant connection exists. Free military taxes You are treated as having a significant connection to the United States if you: Have a permanent home in the United States, Are currently registered to vote in any political subdivision of the United States, or Have a spouse or child (see item 2c under Days of presence in a possession , earlier) who is under age 18 whose main home is in the United States, other than: A child who is in the United States because he or she is the child of divorced or legally separated parents and is living with a custodial parent under a custodial decree or multiple support agreement, or A child who is in the United States as a student. Free military taxes For the purpose of determining if you have a significant connection to the United States, the term “spouse” does not include a spouse from whom you are legally separated under a decree of divorce or separate maintenance. Free military taxes Permanent home. Free military taxes   A permanent home generally includes an accommodation such as a house, an apartment, or a furnished room that is either owned or rented by you or your spouse. Free military taxes The dwelling unit must be available at all times, continuously, not only for short stays. Free military taxes Exception for rental property. Free military taxes   If you or your spouse own the dwelling unit and at any time during the tax year it is rented to someone else at fair rental value, it will be considered your permanent home only if you or your spouse use that property for personal purposes for more than the greater of: 14 days, or 10% of the number of days during that tax year that the property is rented to others at a fair rental value. Free military taxes   You are treated as using rental property for personal purposes on any day the property is not being rented to someone else at fair rental value for the entire day. Free military taxes   A day of personal use of a dwelling unit is also any day that the unit is used by any of the following persons. Free military taxes You or any other person who has an interest in it, unless you rent it to another owner as his or her main home under a shared equity financing agreement. Free military taxes A member of your family or a member of the family of any other person who has an interest in it, unless the family member uses the dwelling unit as his or her main home and pays a fair rental price. Free military taxes Family includes only brothers and sisters, half-brothers and half-sisters, spouses, ancestors (parents, grandparents, etc. Free military taxes ), and lineal descendants (children, grandchildren, etc. Free military taxes ). Free military taxes Anyone under an arrangement that lets you use some other dwelling unit. Free military taxes Anyone at less than a fair rental price. Free military taxes   However, any day you spend working substantially full time repairing and maintaining (not improving) your property is not counted as a day of personal use. Free military taxes Whether your property is used mainly for this purpose is determined in light of all the facts and circumstances, such as: The amount of time you devote to repair and maintenance work, How often during the tax year you perform repair and maintenance work on this property, and The presence and activities of companions. Free military taxes   See Publication 527, Residential Rental Property, for more information about personal use of a dwelling unit. Free military taxes Example—significant connection. Free military taxes Ann Green, a U. Free military taxes S. Free military taxes citizen, is a sales representative for a company based in Guam. Free military taxes Ann lives with her spouse and young children in their house in Guam, where she is also registered to vote. Free military taxes Her business travel requires her to spend 120 days in the United States and another 120 days in foreign countries. Free military taxes When traveling on business, Ann generally stays at hotels but sometimes stays with her brother, who lives in the United States. Free military taxes Ann's stays are always of short duration and she asks her brother's permission to stay with him. Free military taxes Her brother's house is not her permanent home, nor does she have any other accommodations in the United States that would be considered her permanent home. Free military taxes Ann satisfies the presence test because she has no significant connection to the United States. Free military taxes Example—presence test. Free military taxes Eric and Wanda Brown live for part of the year in a condominium, which they own, in the CNMI. Free military taxes They also own a house in Maine where they live for 120 days every year to be near their grown children and grandchildren. Free military taxes The Browns are retired and their only income is from pension payments, dividends, interest, and social security benefits. Free military taxes In 2013, they spent only 175 days in the CNMI because of a 70-day vacation to Europe and Asia. Free military taxes Thus, in 2013, the Browns were not present in the CNMI for at least 183 days, were present in the United States for more than 90 days, and had a significant connection to the United States because of their permanent home. Free military taxes However, the Browns still satisfied the presence test with respect to the CNMI because they had no earned income in the United States and were physically present for more days in the CNMI than in the United States. Free military taxes Tax Home You will have met the tax home test if you did not have a tax home outside the relevant possession during any part of the tax year. Free military taxes Your tax home is your regular or main place of business, employment, or post of duty regardless of where you maintain your family home. Free military taxes If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. Free military taxes If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever you work. Free military taxes Exceptions There are some special rules regarding tax home that provide exceptions to the general rule stated above. Free military taxes Students and Government Officials Disregard the following days when determining whether you have a tax home outside the relevant possession. Free military taxes Days you were temporarily in the United States as a student (see Student under Days of Presence in the United States or Relevant Possession, earlier). Free military taxes Days you were in the United States serving as an elected representative of the relevant possession, or serving full time as an elected or appointed official or employee of the government of that possession (or any of its political subdivisions). Free military taxes Seafarers You will not be considered to have a tax home outside the relevant possession solely because you are employed on a ship or other seafaring vessel that is predominantly used in local and international waters. Free military taxes For this purpose, a vessel is considered to be predominantly used in local and international waters if, during the tax year, the total amount of time it is used in international waters and in the waters within 3 miles of the relevant possession exceeds the total amount of time it is used in the territorial waters of the United States, another possession, or any foreign country. Free military taxes Example. Free military taxes In 2013, Sean Silverman, a U. Free military taxes S. Free military taxes citizen, was employed by a fishery and spent 250 days at sea on a fishing vessel. Free military taxes When not at sea, Sean lived with his spouse at a house they own in American Samoa. Free military taxes The fishing vessel on which Sean works departs and arrives at various ports in American Samoa, other possessions, and foreign countries, but was in international or American Samoa's local waters for 225 days. Free military taxes For purposes of determining bona fide residency of American Samoa, Sean will not be considered to have a tax home outside that possession solely because of his employment on board the fishing vessel. Free military taxes Year of Move If you are moving to or from a possession during the year, you may still be able to meet the tax home test for that year. Free military taxes See Special Rules in the Year of a Move , later in this chapter. Free military taxes Closer Connection You will have met the closer connection test if, during any part of the tax year, you do not have a closer connection to the United States or a foreign country than to the relevant U. Free military taxes S. Free military taxes possession. Free military taxes You will be considered to have a closer connection to a possession than to the United States or to a foreign country if you have maintained more significant contacts with the possession(s) than with the United States or foreign country. Free military taxes In determining if you have maintained more significant contacts with the relevant possession, the facts and circumstances to be considered include, but are not limited to, the following. Free military taxes The location of your permanent home. Free military taxes The location of your family. Free military taxes The location of personal belongings, such as automobiles, furniture, clothing, and jewelry owned by you and your family. Free military taxes The location of social, political, cultural, professional, or religious organizations with which you have a current relationship. Free military taxes The location where you conduct your routine personal banking activities. Free military taxes The location where you conduct business activities (other than those that go into determining your tax home). Free military taxes The location of the jurisdiction in which you hold a driver's license. Free military taxes The location of the jurisdiction in which you vote. Free military taxes The location of charitable organizations to which you contribute. Free military taxes The country of residence you designate on forms and documents. Free military taxes The types of official forms and documents you file, such as Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), or Form W-9, Request for Taxpayer Identification Number and Certification. Free military taxes Your connections to the relevant possession will be compared to the total of your connections with the United States and foreign countries. Free military taxes Your answers to the questions on Form 8898, Part III, will help establish the jurisdiction to which you have a closer connection. Free military taxes Example—closer connection to the United States. Free military taxes Marcos Reyes, a U. Free military taxes S. Free military taxes citizen, moved to Puerto Rico in 2013 to start an investment consulting and venture capital business. Free military taxes His spouse and two teenage children remained in California to allow the children to complete high school. Free military taxes He traveled back to the United States regularly to see his spouse and children, to engage in business activities, and to take vacations. Free military taxes Marcos had an apartment available for his full-time use in Puerto Rico, but remained a joint owner of the residence in California where his spouse and children lived. Free military taxes Marcos and his family had automobiles and personal belongings such as furniture, clothing, and jewelry located at both residences. Free military taxes Although Marcos was a member of the Puerto Rico Chamber of Commerce, he also belonged to and had current relationships with social, political, cultural, and religious organizations in California. Free military taxes Marcos received mail in California, including bank and brokerage statements and credit card bills. Free military taxes He conducted his personal banking activities in California. Free military taxes He held a California driver's license and was also registered to vote there. Free military taxes Based on all of the particular facts and circumstances pertaining to Marcos, he was not a bona fide resident of Puerto Rico in 2013 because he had a closer connection to the United States than to Puerto Rico. Free military taxes Closer connection to another possession. Free military taxes   Generally, possessions are not treated as foreign countries. Free military taxes Therefore, a closer connection to a possession other than the relevant possession will not be treated as a closer connection to a foreign country. Free military taxes Example—tax home and closer connection to possession. Free military taxes Pearl Blackmon, a U. Free military taxes S. Free military taxes citizen, is a permanent employee of a hotel in Guam, but works only during the tourist season. Free military taxes For the remainder of each year, Pearl lives with her spouse and children in the CNMI, where she has no outside employment. Free military taxes Most of Pearl's personal belongings, including her automobile, are located in the CNMI. Free military taxes She is registered to vote in, and has a driver's license issued by, the CNMI. Free military taxes She does her personal banking in the CNMI and routinely lists her CNMI address as her permanent address on forms and documents. Free military taxes Pearl satisfies the presence test with respect to both Guam and the CNMI. Free military taxes She satisfies the tax home test with respect to Guam, because her regular place of business is in Guam. Free military taxes Pearl satisfies the closer connection test with respect to both Guam and the CNMI, because she does not have a closer connection to the United States or to any foreign country. Free military taxes Pearl is considered a bona fide resident of Guam, the location of her tax home. Free military taxes Exception for Year of Move If you are moving to or from a possession during the year, you may still be able to meet the closer connection test for that year. Free military taxes See Special Rules in the Year of a Move , next. Free military taxes Special Rules in the Year of a Move If you are moving to or from a possession during the year, you may still be able to meet the tax home and closer connection tests for that year. Free military taxes Year of Moving to a Possession You will satisfy the tax home and closer connection tests in the tax year of changing your residence to the relevant possession if you meet all of the following. Free military taxes You have not been a bona fide resident of the relevant possession in any of the 3 tax years immediately preceding your move. Free military taxes In the year of the move, you do not have a tax home outside the relevant possession or a closer connection to the United States or a foreign country than to the relevant possession during any of the last 183 days of the tax year. Free military taxes You are a bona fide resident of the relevant possession for each of the 3 tax years immediately following your move. Free military taxes Example. Free military taxes Dwight Wood, a U. Free military taxes S. Free military taxes citizen, files returns on a calendar year basis. Free military taxes He lived in the United States from January 2007 through May 2013. Free military taxes In June 2013 he moved to the USVI, purchased a house, and accepted a permanent job with a local employer. Free military taxes From July 1 through December 31, 2013 (more than 183 days), Dwight's principal place of business was in the USVI and, during that time, he did not have a closer connection to the United States or a foreign country than to the USVI. Free military taxes If he is a bona fide resident of the USVI during all of 2014 through 2016, he will satisfy the tax home and closer connection tests for 2013. Free military taxes If Dwight also satisfies the presence test in 2013, he will be considered a bona fide resident of the USVI for the entire 2013 tax year. Free military taxes Year of Moving From a Possession In the year you cease to be a bona fide resident of American Samoa, the CNMI, Guam, or the USVI, you will satisfy the tax home and closer connection tests with respect to the relevant possession if you meet all of the following. Free military taxes You have been a bona fide resident of the relevant possession for each of the 3 tax years immediately preceding your change of residence. Free military taxes In the year of the move, you do not have a tax home outside the relevant possession or a closer connection to the United States or a foreign country than to the relevant possession during any of the first 183 days of the tax year. Free military taxes You are not a bona fide resident of the relevant possession for any of the 3 tax years immediately following your move. Free military taxes Example. Free military taxes Jean Aspen, a U. Free military taxes S. Free military taxes citizen, files returns on a calendar year basis. Free military taxes From January 2010 through December 2012, Jean was a bona fide resident of American Samoa. Free military taxes Jean continued to live there until September 6, 2013, when she accepted new employment and moved to Hawaii. Free military taxes Jean's principal place of business from January 1 through September 5, 2013 (more than 183 days), was in American Samoa, and during that period Jean did not have a closer connection to the United States or a foreign country than to American Samoa. Free military taxes If Jean continues to live and work in Hawaii for the rest of 2013 and throughout years 2014 through 2016, she will satisfy the tax home and closer connection tests for 2013 with respect to American Samoa. Free military taxes If Jean also satisfies the presence test in 2013, she will be considered a bona fide resident for the entire 2013 tax year. Free military taxes Puerto Rico You will be considered a bona fide resident of Puerto Rico for the part of the tax year preceding the date on which you move if you: Are a U. Free military taxes S. Free military taxes citizen, Are a bona fide resident of Puerto Rico for at least 2 tax years immediately preceding the tax year of the move, Cease to be a bona fide resident of Puerto Rico during the tax year, Cease to have a tax home in Puerto Rico during the tax year, and Have a closer connection to Puerto Rico than to the United States or a foreign country throughout the part of the tax year preceding the date on which you cease to have a tax home in Puerto Rico. Free military taxes Example. Free military taxes Randy White, a U. Free military taxes S. Free military taxes citizen, files returns on a calendar year basis. Free military taxes For all of 2011 and 2012, Randy was a bona fide resident of Puerto Rico. Free military taxes From January through April 2013, Randy continued to reside and maintain his principal place of business in and closer connection to Puerto Rico. Free military taxes On May 5, 2013, Randy moved and changed his tax home to Nevada. Free military taxes Later that year he established a closer connection to the United States than to Puerto Rico. Free military taxes Randy did not satisfy the presence test for 2013 with respect to Puerto Rico, nor the tax home or closer connection tests. Free military taxes However, because Randy was a bona fide resident of Puerto Rico for at least 2 tax years before he moved to Nevada in 2013, he was a bona fide resident of Puerto Rico from January 1 through May 4, 2013. Free military taxes Reporting a Change in Bona Fide Residence If you became or ceased to be a bona fide resident of a U. Free military taxes S. Free military taxes possession, you may need to file Form 8898. Free military taxes This applies to the U. Free military taxes S. Free military taxes possessions of American Samoa, the CNMI, Guam, Puerto Rico, and the USVI. Free military taxes Who Must File You must file Form 8898 for the tax year in which you meet both of the following conditions. Free military taxes Your worldwide gross income (defined below) in that tax year is more than $75,000. Free military taxes You meet one of the following. Free military taxes You take a position for U. Free military taxes S. Free military taxes tax purposes that you became a bona fide resident of a U. Free military taxes S. Free military taxes possession after a tax year for which you filed a U. Free military taxes S. Free military taxes income tax return as a citizen or resident alien of the United States but not as a bona fide resident of the possession. Free military taxes You are a citizen or resident alien of the United States who takes the position for U. Free military taxes S. Free military taxes tax purposes that you ceased to be a bona fide resident of a U. Free military taxes S. Free military taxes possession after a tax year for which you filed an income tax return (with the IRS, the possession tax authority, or both) as a bona fide resident of the possession. Free military taxes You take the position for U. Free military taxes S. Free military taxes tax purposes that you became a bona fide resident of Puerto Rico or American Samoa after a tax year for which you were required to file an income tax return as a bona fide resident of the CNMI, Guam, or the USVI. Free military taxes Worldwide gross income. Free military taxes   Worldwide gross income means all income you received in the form of money, goods, property, and services, including any income from sources outside the United States (even if you can exclude part or all of it) and before any deductions, credits, or rebates. Free military taxes Example. Free military taxes You are a U. Free military taxes S. Free military taxes citizen who moved to the CNMI in December 2012, but did not become a bona fide resident of that possession until the 2013 tax year. Free military taxes You must file Form 8898 for the 2013 tax year if your worldwide gross income for that year was more than $75,000. Free military taxes Penalty for Not Filing Form 8898 If you are required to file Form 8898 for any tax year and you fail to file it, you may owe a penalty of $1,000. Free military taxes You may also owe this penalty if you do not include all the information required by the form or the form includes incorrect information. Free military taxes In either case, you will not owe this penalty if you can show that such failure is due to reasonable cause and not willful neglect. Free military taxes This is in addition to any criminal penalty that may be imposed. Free military taxes Prev  Up  Next   Home   More Online Publications
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Taxpayer Advocate Service E-FOIA

The Freedom of Information Act (FOIA), 5 U.S.C. § 552, provides public access to agency records unless protected from disclosure by one of the FOIA’s nine exemptions or three exclusions. The FOIA applies to records created by federal agencies and does not cover records held by Congress, the courts, or state and local government agencies.

 TAS Interim Guidance Memoranda:


In compliance with the E-FOIA requirements, the following TAS documents are available within the Electronic Reading Room on IRS.gov: TAS Interim Guidance Memoranda.
 

 TAS Service Level Agreements and Memorandums of Understanding:


In compliance with the E-FOIA requirements, the following TAS documents are available on IRS.gov: TAS Service Level Agreements (SLAs) and Memorandums of Understanding (MOU).


 

 


 

Page Last Reviewed or Updated: 14-Mar-2014

The Free Military Taxes

Free military taxes 2. Free military taxes   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. Free military taxes Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. Free military taxes S. Free military taxes or foreign source income. Free military taxes This chapter discusses the rules for determining if the source of your income is from: American Samoa, The Commonwealth of the Northern Mariana Islands (CNMI), The Commonwealth of Puerto Rico (Puerto Rico), Guam, or The U. Free military taxes S. Free military taxes Virgin Islands (USVI). Free military taxes Generally, the same rules that apply for determining U. Free military taxes S. Free military taxes source income also apply for determining possession source income. Free military taxes However, there are some important exceptions to these rules. Free military taxes Both the general rules and the exceptions are discussed in this chapter. Free military taxes U. Free military taxes S. Free military taxes income rule. Free military taxes   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. Free military taxes Table 2-1 shows the general rules for determining whether income is from sources within the United States. Free military taxes Table 2-1. Free military taxes General Rules for Determining U. Free military taxes S. Free military taxes Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. Free military taxes Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. Free military taxes For more information, see Regulations section 1. Free military taxes 863-1(b). Free military taxes Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. Free military taxes Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. Free military taxes Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. Free military taxes It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. Free military taxes Services performed wholly within a relevant possession. Free military taxes   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. Free military taxes However, there is an exception for income earned as a member of the U. Free military taxes S. Free military taxes Armed Forces or a civilian spouse. Free military taxes U. Free military taxes S. Free military taxes Armed Forces. Free military taxes   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. Free military taxes However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. Free military taxes Civilian spouse of active duty member of the U. Free military taxes S. Free military taxes Armed Forces. Free military taxes   If you are a bona fide resident of a U. Free military taxes S. Free military taxes possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. Free military taxes Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. Free military taxes S. Free military taxes possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. Free military taxes Services performed partly inside and partly outside a relevant possession. Free military taxes   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. Free military taxes Compensation (other than certain fringe benefits) is sourced on a time basis. Free military taxes Certain fringe benefits (such as housing and education) are sourced on a geographical basis. Free military taxes   Or, you may be permitted to use an alternative basis to determine the source of compensation. Free military taxes See Alternative basis , later. Free military taxes   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. Free military taxes In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. Free military taxes Time basis. Free military taxes   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). Free military taxes Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. Free military taxes The time period for which the income is made does not have to be a year. Free military taxes Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. Free military taxes Example. Free military taxes In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. Free military taxes Your Puerto Rico source income is $60,000, figured as follows. Free military taxes       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. Free military taxes   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. Free military taxes Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. Free military taxes You determine the period to which the income is attributable based on the facts and circumstances of your case. Free military taxes For more information on multi-year compensation, see Treasury Decision (T. Free military taxes D. Free military taxes ) 9212 and Regulations section 1. Free military taxes 861-4, 2005-35 I. Free military taxes R. Free military taxes B. Free military taxes 429, available at www. Free military taxes irs. Free military taxes gov/irb/2005-35_IRB/ar14. Free military taxes html. Free military taxes Certain fringe benefits sourced on a geographical basis. Free military taxes   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. Free military taxes Housing. Free military taxes Education. Free military taxes Local transportation. Free military taxes Tax reimbursement. Free military taxes Hazardous or hardship duty pay. Free military taxes Moving expense reimbursement. Free military taxes For information on determining the source of the fringe benefits listed above, see Regulations section 1. Free military taxes 861-4. Free military taxes Alternative basis. Free military taxes   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. Free military taxes If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. Free military taxes De minimis exception. Free military taxes   There is an exception to the rule for determining the source of income earned in a possession. Free military taxes Generally, you will not have income from a possession if during a tax year you: Are a U. Free military taxes S. Free military taxes citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. Free military taxes This exception began with income earned during your 2008 tax year. Free military taxes Pensions. Free military taxes   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. Free military taxes The contribution portion is sourced according to where services were performed that earned the pension. Free military taxes The investment earnings portion is sourced according to the location of the pension trust. Free military taxes Example. Free military taxes You are a U. Free military taxes S. Free military taxes citizen who worked in Puerto Rico for a U. Free military taxes S. Free military taxes company. Free military taxes All services were performed in Puerto Rico. Free military taxes Upon retirement you remained in Puerto Rico and began receiving your pension from the U. Free military taxes S. Free military taxes pension trust of your employer. Free military taxes Distributions from the U. Free military taxes S. Free military taxes pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. Free military taxes S. Free military taxes source income. Free military taxes Investment Income This category includes such income as interest, dividends, rents, and royalties. Free military taxes Interest income. Free military taxes   The source of interest income is generally determined by the residence of the payer. Free military taxes Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. Free military taxes   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. Free military taxes See Regulations section 1. Free military taxes 937-2(i) for more information. Free military taxes Dividends. Free military taxes   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. Free military taxes There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. Free military taxes For more information, see Regulations section 1. Free military taxes 937-2(g). Free military taxes Rental income. Free military taxes   Rents from property located in a relevant possession are treated as income from sources within that possession. Free military taxes Royalties. Free military taxes   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. Free military taxes   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. Free military taxes Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. Free military taxes The most common situations are discussed below. Free military taxes Real property. Free military taxes   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. Free military taxes The location of the property generally determines the source of income from the sale. Free military taxes For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. Free military taxes If, however, the home you sold was located in the United States, the gain is U. Free military taxes S. Free military taxes source income. Free military taxes Personal property. Free military taxes   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. Free military taxes Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. Free military taxes If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. Free military taxes   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. Free military taxes The rules applying to sales of inventory are discussed below. Free military taxes For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. Free military taxes Inventory. Free military taxes   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. Free military taxes The source of income from the sale of inventory depends on whether the inventory was purchased or produced. Free military taxes Purchased. Free military taxes   Income from the sale of inventory that you purchased is sourced where you sell the property. Free military taxes Generally, this is where title to the property passes to the buyer. Free military taxes Produced. Free military taxes   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. Free military taxes For information on making the allocation, see Regulations section 1. Free military taxes 863-3(f). Free military taxes Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. Free military taxes S. Free military taxes citizen or resident alien prior to becoming a bona fide resident of a possession. Free military taxes You are subject to these special rules if you meet both of the following conditions. Free military taxes For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. Free military taxes For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). Free military taxes If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. Free military taxes Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. Free military taxes S. Free military taxes tax return. Free military taxes (See chapter 3 for additional filing information. Free military taxes ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. Free military taxes These rules apply to dispositions after April 11, 2005. Free military taxes For details, see Regulations section 1. Free military taxes 937-2(f)(1) and Examples 1 and 2 of section 1. Free military taxes 937-2(k). Free military taxes Example 1. Free military taxes In 2007, Cheryl Jones, a U. Free military taxes S. Free military taxes citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. Free military taxes S. Free military taxes corporation listed on the New York Stock Exchange. Free military taxes On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. Free military taxes Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. Free military taxes On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. Free military taxes On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. Free military taxes Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. Free military taxes The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. Free military taxes This existing special rule applies if you are a U. Free military taxes S. Free military taxes citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. Free military taxes S. Free military taxes assets during the 10-year period beginning when you became a bona fide resident. Free military taxes The gain is U. Free military taxes S. Free military taxes source income that generally is subject to U. Free military taxes S. Free military taxes tax if the property is either (1) located in the United States; (2) stock issued by a U. Free military taxes S. Free military taxes corporation or a debt obligation of a U. Free military taxes S. Free military taxes person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). Free military taxes See chapter 3 for filing information. Free military taxes Special election. Free military taxes   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. Free military taxes Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. Free military taxes This election overrides both of the special rules discussed earlier. Free military taxes   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. Free military taxes Marketable securities. Free military taxes   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. Free military taxes Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. Free military taxes S. Free military taxes holding periods. Free military taxes   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. Free military taxes The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. Free military taxes This is your gain (or loss) that is treated as being from sources within the relevant possession. Free military taxes If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. Free military taxes Example 2. Free military taxes Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. Free military taxes S. Free military taxes and possession holding periods. Free military taxes Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. Free military taxes Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). Free military taxes By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Free military taxes Other personal property. Free military taxes   For personal property other than marketable securities, use a time-based allocation. Free military taxes Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. Free military taxes      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. Free military taxes Example 3. Free military taxes In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. Free military taxes On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. Free military taxes On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. Free military taxes She had owned the interest for a total of 1,720 days. Free military taxes Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. Free military taxes The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). Free military taxes By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. Free military taxes Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. Free military taxes Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. Free military taxes These rules do not apply to amounts paid as salary or other compensation for services. Free military taxes See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. Free military taxes Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. Free military taxes These circumstances are listed below. Free military taxes You have an office or other fixed place of business in the relevant possession to which the income can be attributed. Free military taxes That office or place of business is a material factor in producing the income. Free military taxes The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. Free military taxes An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. Free military taxes The three kinds of income from sources outside the relevant possession to which these rules apply are the following. Free military taxes Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. Free military taxes Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. Free military taxes Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. Free military taxes Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. Free military taxes Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. Free military taxes Example. Free military taxes Marcy Jackson is a bona fide resident of American Samoa. Free military taxes Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. Free military taxes A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. Free military taxes Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. Free military taxes The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. Free military taxes However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. Free military taxes Prev  Up  Next   Home   More Online Publications