Publication 570 |
2000 Tax Year |
Possession Exclusion
For 2000, the possession exclusion applies only to individuals who
are bona fide residents of American Samoa.
Individuals in the following U.S. possessions or territories are
not eligible for the possession exclusion discussed here.
- Baker Island
- Commonwealth of Northern Mariana Islands (CNMI)
- Guam
- Howland Islands
- Jarvis Island
- Johnston Island
- Kingman Reef
- Midway Islands
- Palmyra
- Puerto Rico
- Virgin Islands
- Wake Island
Special filing requirements apply to individuals in the CNMI,
Guam, Puerto Rico, and the Virgin Islands. See Filing
Requirements for Individuals in U.S. Possessions, later.
Individuals in the other possessions listed above should see If
You Do Not Qualify, later.
Qualifications
To qualify for the possession exclusion, you must be a bona
fide resident of American Samoa for the entire tax year. For
example, if your tax year is the calendar year, you must be a bona
fide resident from January 1 through December 31. In addition to this
time requirement, the following factors may be considered in
determining bona fide residence.
- Your intent to be a resident of American Samoa, as shown by
the circumstances.
- The establishment of a permanent home for you and members of
your family in American Samoa for an indefinite period of time.
- Your social, cultural, and economic ties to American
Samoa.
- Your physical presence for the year.
Other factors that may be considered are the nature, extent, and
reasons for temporary absences; assumption of economic burdens and
payment of taxes to American Samoa; existence of other homes outside
of American Samoa; and place of employment.
If you were not a bona fide resident of American Samoa for all of
2000, you cannot claim the possession exclusion. See If You Do
Not Qualify, later.
What Income Can Be Excluded
If you qualify as a bona fide resident of American Samoa for 2000,
you can exclude income from sources in American Samoa, Guam, or the
CNMI and income effectively connected with your trade or business in
these possessions.
Possession source income.
Excludable income from sources within the possessions includes the
following.
- Wages, salaries, and other kinds of pay for personal
services performed in the possessions. (But see U.S. Government
wages, later, for an exception.)
- Dividends received from possession sources, including those
paid by:
- U.S. corporations that do business in the possessions and
elect the Puerto Rico and possession tax credit, and
- Possession and foreign corporations that do business mainly
in the possessions.
- Interest on deposits paid by banks that do business mainly
in the possessions, including interest paid on deposits with the
possession branches of:
- Domestic banks with commercial banking business in the
possessions, and
- Savings and loan associations chartered under federal or
state laws.
- Gains from the sale of securities, such as stock
certificates, are from sources in the possessions if the seller's
residence is in a possession and the sale is not attributable to an
office or other fixed place of business maintained by the seller in
the United States.
U.S. Government wages.
For purposes of the possession exclusion, possession source income
does not include wages, salaries, etc., paid by the U.S.
Government or any of its agencies to individuals who are its civilian
or military employees.
Scholarships and fellowships.
The source of a payment made as a scholarship or fellowship grant
is generally the residence of the payer. The result is the same if
payments are made by an agency acting on behalf of the payer.
Examples.
The following examples illustrate the sources of income. Assume
that corporations chartered in American Samoa (American Samoan
corporations) do business only in American Samoa, and that the U.S.
and foreign corporations do not carry on business in the possessions.
Example 1.
Frank Harris, who is single, is an engineer who went to work in
American Samoa for a private construction company on August 3, 1999,
and lived there for all of 2000. He is a bona fide resident of
American Samoa for 2000.
During 2000, he received the following amounts of income.
Samoan wages |
$23,300 |
Nonpossession source income: |
Dividends (U.S.) |
400 |
Dividends (foreign) |
100 |
Interest (U.S.) |
1,300 |
1,800 |
Total income |
| $25,100 |
Frank's possession source income eligible for the exclusion is
$23,300. Frank's remaining income ($1,800) is not possession source
income and is not eligible for the exclusion.
Example 2.
Oliver Hunter was employed by a private employer in American Samoa
from June 16, 1999, through December 31, 2000. He is a bona fide
resident of American Samoa for 2000.
During 2000, he received the following amounts of income.
Possession source income: |
Samoan wages |
$16,000 |
Guam interest |
500 |
| | $16,500 |
Nonpossession source income: |
U.S. dividends |
2,000 |
Short-term capital gain from sale of
U.S. stock |
4,000 |
6,000 |
Total income |
| $22,500 |
Oliver's possession source income of $16,500 is eligible for the
exclusion. Oliver's remaining income ($6,000) is not possession source
income and is not eligible for the exclusion.
Deductions and Credits
You can neither deduct nor claim a credit for items connected to
your possession income that you exclude from gross income on your U.S.
income tax return. See Filing Tax Returns, later, to find
out if you have to file a U.S. income tax return.
Items that do not apply to a particular type of income must be
divided between your excluded income from possession sources and
income from all other sources to find the amount you can deduct on
your U.S. tax return. Examples of these items are medical expenses,
real estate taxes, mortgage interest on your home, and charitable
contributions.
Figuring the deduction.
To figure the amount of an item you can deduct on your U.S. income
tax return, multiply the amount by the following fraction.
Standard deduction.
The standard deduction does not apply to a particular type of
income. It must be divided between your excluded income and income
from other sources. This division must be made before you can
determine if you must file a U.S. tax return, because the minimum
income level at which you must file a return is based, in part, on the
standard deduction for your filing status.
Example.
Barbara Jones, a U.S. citizen, is single, under 65, and a bona fide
resident of American Samoa. During 2000, she received $20,000 of
income from Samoan sources and $5,000 of income from sources outside
the possessions. She does not itemize her deductions. Her allowable
standard deduction for 2000 is figured as follows:
Foreign tax credit.
If you must report possession source income on your U.S. tax
return, you can claim a foreign tax credit for income taxes paid in
the possessions on that income. You cannot claim a foreign tax credit
for taxes paid on excluded possession income. The foreign tax credit
is generally figured on Form 1116.
If you have income, such as U.S. Government wages, that is not
excludable, and you have income from possession sources that is
excludable, you must figure the credit by reducing your foreign taxes
paid or accrued by the taxes based on the excluded income. You must
make this reduction for each separate income category. To find the
amount of this reduction, use the following formula for each income
category.
For more information on foreign tax credit, get Publication 514.
Personal exemptions.
Personal exemptions are allowed in full. They are not divided.
However, they may be phased out depending upon your adjusted gross
income and filing status.
Moving expenses.
If you are claiming expenses for a move to a U.S. possession from
the United States, or from a U.S. possession to the United States, use
Form 3903, Moving Expenses. These are not considered
foreign moves. Get Publication 521,
Moving Expenses, for
more information.
If You Do Not Qualify
If you do not qualify for the possession exclusion because you are
not a bona fide resident of American Samoa (as explained earlier), or
not a bona fide resident of American Samoa for the entire year, figure
your tax liability in the usual manner. Report all your taxable
income, including income from foreign and possession sources, and
claim all allowable exemptions, deductions, and credits, following the
instructions for Form 1040.
You can take a credit against your U.S. tax liability if you paid
income taxes to a foreign country or a possession and reported income
from sources outside the United States on your U.S. tax return. Get
Form 1116 to determine your credit and whether you must attach Form
1116 to your Form 1040. For more information, see Publication 514.
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