Instructions for Form 8898 |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Two questions deleted.
In accordance with Notice 2006-73, 2006-35 I.R.B. 339, we deleted two questions related to the closer connection test
that were on the March 2006
version of Form 8898. Notice 2006-73 is available at
www.irs.gov/irb/2006-35_IRB/index.html.
Change in the presence test.
A new alternative to the 183-day rule of the presence test has been added. See item (2) under Presence Test, on page 2. This change is
effective for 2006 and later tax years (tax years ending after January 31, 2006). If you are using the presence, tax home,
and closer connection tests
to determine bona fide residence for either the 2004 or 2005 tax year as permitted by the effective date of the final regulations
under section 937,
then you may apply this change to those years as well.
Use Form 8898 to notify the IRS that you became or ceased to be a bona fide resident of a U.S. possession in accordance with
section 937(c). See
Bona Fide Residence, on this page. For this purpose, the following are considered U.S. possessions: American Samoa, Guam, the Commonwealth
of the Northern Mariana Islands (CNMI), the Commonwealth of Puerto Rico, and the U.S. Virgin Islands.
Note.
Use this version of Form 8898 to notify the IRS that you became or ceased to be a bona fide resident of a U.S. possession
in 2006 and later tax
years (tax years ending after January 31, 2006). You should also use this version if you are using the presence, tax home,
and closer connection tests
to determine bona fide residence for either the 2004 or 2005 tax year as permitted by the effective date of the final regulations
under section 937
and you are now taking the position that you satisfy the presence test for either of those years under the new alternative
to the 183-day rule.
You must file Form 8898 for the tax year (beginning with tax year 2001) in which you meet both of the following conditions:
-
Your worldwide gross income (defined below) in that tax year is more than $75,000, and
-
You meet one of the following:
-
You take a position for U.S. tax purposes that you became a bona fide resident of a U.S. possession after a tax year for which
you filed a
U.S. income tax return as a citizen or resident of the United States but not as a bona fide resident of the possession.
-
You are a citizen or resident of the United States who takes the position for U.S. tax purposes that you ceased to be a bona
fide resident
of a U.S. possession after a tax year for which you filed an income tax return (with the IRS, the possession tax authorities,
or both) as a bona fide
resident of the possession.
-
You take the position for U.S. 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 U.S. Virgin Islands, Guam, or the CNMI.
When figuring whether your worldwide gross income is more than $75,000, do not include any of your spouse's income. If both
you and your spouse
are required to file Form 8898, file a separate Form 8898 for each of you.
Worldwide gross income.
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 may exclude part or all of it) and before any deductions, credits, or rebates.
Example.
You moved to the CNMI in December 2005 but did not become a bona fide resident of that possession until the 2006 tax year.
You must file Form 8898
for the 2006 tax year if your worldwide gross income for that year is more than $75,000.
File Form 8898 by the due date (including extensions) for filing Form 1040 or Form 1040NR. File the form by itself at the
following address:
Internal Revenue Service Center
P.O. Box 331 Drop Point S-607
Bensalem, PA 19020-8517
Penalty for Not Filing Form 8898
If you are required to file Form 8898 for any tax year, and you fail to file it or do not include all the information required
by the form or the
form includes incorrect information, you may owe a penalty of $1,000, unless it is shown that such failure is due to reasonable
cause and not willful
neglect. This is in addition to any criminal penalty that may be imposed.
You are a bona fide resident of a U.S. possession if you:
-
Do not have a tax home outside the possession,
-
Do not have a closer connection to the United States or to a foreign country than to the possession, and
-
Meet the presence test (defined on pages 2 and 3).
Special rule for members of the U.S. Armed Forces.
If a member of the U.S. Armed Forces qualified as a bona fide resident of the possession in an earlier tax year, his
or her absence from that
possession during the current tax year in compliance with military orders will not affect the individual's status as a bona
fide resident. Likewise,
being in a possession solely in compliance with military orders will not qualify an individual for bona fide residency.
Exception for the Year of the Move
An exception applies to the tax home and the closer connection tests for the tax year you moved to or from the possession.
Under this exception,
you satisfy the tax home and the closer connection tests for the tax year of the move if you meet the requirements explained
next.
Also, a special exception applies to the bona fide residence test for the tax year you moved from Puerto Rico. Under this
exception, you satisfy
the bona fide residence test for the tax year you moved from Puerto Rico if you meet the requirements discussed later under
Year of the move from
Puerto Rico.
Year of the move to the possession.
You satisfy the tax home and closer connection tests for the tax year you moved to the possession if you meet all
of the following.
-
You were not a bona fide resident of the possession in any of the 3 tax years immediately preceding the tax year of the move.
-
You did not have a tax home outside the possession during any part of the final 183 days of the tax year of the move.
-
You are a bona fide resident of the possession for the 3 tax years immediately following the tax year of the move.
If you do not meet all of the above conditions, you do not meet the tax home and closer connection tests under this exception.
Instead, you
must meet the requirements explained later under Tax Home Test and Closer Connection Test.
Year of the move from the possession.
You satisfy the tax home and closer connection tests for the tax year you moved from American Samoa, the CNMI, Guam,
or the U.S. Virgin Islands if
you meet all of the following.
-
You were a bona fide resident of the possession for the 3 tax years immediately preceding the tax year of the move.
-
You did not have a tax home outside the possession during any part of the first 183 days of the tax year of the move.
-
You are not a bona fide resident of the possession in any of the 3 tax years immediately following the tax year of the move.
If you do not meet all of the above conditions, you do not meet the tax home and closer connection tests under this exception.
Instead, you
must meet the requirements explained later under Tax Home Test and Closer Connection Test.
Year of the move from Puerto Rico.
You qualify as a bona fide resident of Puerto Rico for the part of the tax year before the date you moved from Puerto
Rico if you meet all of the
following requirements.
-
You are a U.S. citizen.
-
You were a bona fide resident of Puerto Rico for at least 2 tax years immediately before the tax year of the move.
-
In the year of the move, you:
-
Ceased to be a bona fide resident of Puerto Rico, and
-
Ceased to have a tax home in Puerto Rico.
-
You had a closer connection to Puerto Rico than to the United States or a foreign country during the part of the tax year
before the date on
which 3(b) above occurred.
If you do not meet all of the above requirements, you are not a bona fide resident of Puerto Rico in the year of the move
under this exception.
Instead, you must meet the requirements explained next under Tax Home Test, Closer Connection Test, and Presence
Test.
Under the tax home test, you generally cannot have a tax home outside the possession during any part of the tax year. Your
tax home is your regular
or main place of business, employment, or post of duty regardless of where you maintain your family home. If you do not have
a regular or main place
of business because of the nature of your work or because you are not engaged in a trade or business, then your tax home is
the place where you
regularly live. If you do not fit either of these categories, you are considered an itinerant and your tax home is wherever
you work.
Special rules for students and government officials.
Disregard the following days when determining whether you have a tax home outside the possession.
-
Days you were temporarily in the United States as a student (see Student defined on page 3).
-
Days you were in the United States serving as an elected representative of the possession, or serving full time as an elected
or appointed
official or employee of the government of the possession (or any of its political subdivisions).
Special rule for seafarers.
You will not be considered to have a tax home outside the possession solely because you are employed 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 tax year, the total amount of time it is used in international water and in water within
3 miles of the possession
exceeds the total amount of time it is used in the territorial water of the United States, another possession, or any foreign
country.
You meet the closer connection test if you do not have a closer connection to the United States or a foreign country than
to the U.S. possession.
You are 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. Significant contacts that may
be considered include:
-
The location of:
-
Your permanent home,
-
Your family,
-
Your current social, political, cultural, professional, or religious affiliations,
-
Where you conduct your routine personal banking activities,
-
The jurisdiction in which you hold a driver's license, and
-
Charitable organizations to which you contribute.
-
The place of residence you designate on forms and documents.
Your connections to the possession will be compared to the total of your connections with the United States and foreign countries.
Your answers to
the questions on Form 8898, Part III, will help establish the jurisdiction to which you have a closer connection.
You meet the presence test for the tax year if you meet one of the following conditions.
-
You were present in the possession for at least 183 days during the tax year.
-
You were present in the possession for at least 549 days during the 3-year period that includes the current tax year and the
2 immediately
preceding tax years. During each year of the 3-year period, you also must be present in the possession for at least 60 days.
-
You were present in the United States for no more than 90 days during the tax year.
-
You had $3,000 or less of earned income from U.S. sources and were present for more days in the possession than in the United
States during
the tax year. See the instructions for line 8 for the definition of earned income from U.S. sources.
-
You had no significant connection (defined on page 3) to the United States during the tax year.
If you are a nonresident alien, see Special rule for nonresident aliens , later.
Days of presence in the United States or U.S. possession.
Generally, you are treated as being present in the United States or in the possession on any day that you are physically
present in that location
at any time during the day. If, during a single day, you were physically present in the United States and a possession, that
day is counted as a day
of presence in the possession. If, during a single day, you were physically present in two possessions, that day is counted
as a day of presence in
the possession in which you have your tax home.
Count the following days as days of presence in the possession for purposes of the presence test. Do not count them
as days of presence in the
United States.
-
Days you were outside the possession to receive (or to accompany on a full-time basis a parent, spouse, or child who is receiving)
qualified
medical treatment (defined later). For this purpose, the child must be your son, daughter, stepchild, foster child, adopted
child, or a child lawfully
placed with you for legal adoption.
-
Days you were outside the possession because you left or were unable to return to the possession during any 14-day period
within which a
major disaster occurred in the possession that was declared a disaster area by the President.
-
Days you were outside the possession because you left or were unable to return to the possession during any period for which
a mandatory
evacuation order was in effect for the area in the possession where you resided.
Do not count the following days as days of presence in the United States for purposes of the presence test.
-
Days you were in the United States for less than 24 hours when you were traveling between two places outside the United States.
-
Days you were temporarily present in the United States as a professional athlete to compete in a charitable sports event (defined
later).
-
Days you were temporarily in the United States as a student (defined later).
-
Days you were in the United States serving as an elected representative of a possession, or serving full time as an elected
or appointed
official or employee of the government of the possession (or any of its political subdivisions).
Qualified medical treatment.
This is medical treatment provided by (or under the supervision of) a physician for an illness, injury, impairment,
or physical or mental
condition. The treatment must involve:
-
A period of inpatient care (requiring 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
-
A temporary period of inpatient care (requiring an overnight stay) in a residential medical care facility for medically necessary
rehabilitation services.
You must keep records of your qualified medical treatment. For details on the records you must keep, see Pub. 570,
Tax Guide for Individuals With
Income From U.S. Possessions.
Charitable sports event.
A charitable sports event is one that meets the following conditions.
-
The main purpose is to benefit a qualified charitable organization.
-
The entire net proceeds go to charity.
-
Volunteers perform substantially all the work.
In figuring the days of presence in the United States, you can exclude only the days on which you actually competed in a
sports event. 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.
See Pub. 78 for a listing of most qualified organizations. You can access Pub. 78 on the IRS website at
www.irs.gov under Charities and Non-Profits .
Student defined.
To qualify as a student, you must be, during some part of each of 5 calendar months during the calendar year (not
necessarily consecutive):
-
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 a state, county, or local
government.
Full-time student defined.
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.
School defined.
The term “ school” includes elementary schools, junior and senior high schools, colleges, universities, and technical, trade, and mechanical
schools. It does not include on-the-job training courses, correspondence schools, and schools offering courses only through
the Internet.
Significant connection.
You have a significant connection to the United States if:
-
You have a permanent home (defined later) in the United States,
-
You are registered to vote in any political subdivision of the United States, or
-
You have a spouse or child under 18 whose principal home is in the United States. For this purpose—
-
A spouse does not include a spouse from whom you are legally separated under a decree of divorce or separate maintenance.
-
The child must be your son, daughter, stepchild, foster child, adopted child, or a child lawfully placed with you for legal
adoption. But a
child does not include:
-
A child who lives in the United States with a custodial parent under a custodial decree or multiple support agreement, or
-
A child who is in the United States as a student (defined earlier).
Permanent home.
A permanent home generally includes accommodations such as a house, an apartment, or a furnished room that is available
at all times, continuously
and not solely for short stays. However, if you or your spouse owns the dwelling unit and rents it to someone else during
the tax year, the dwelling
unit is not your permanent home unless, during that tax year, you use some part of it for personal purposes for more than
the greater of:
Generally, the rental property is considered used for personal purposes on any day it is not being rented to someone else
at fair rental value
for the entire day or is used by you, a family member, or anyone else who has an interest in the property. The rental property
is not considered used
for personal purposes on any day on which the principal purpose for using the property is to do repair or maintenance work.
For more information on
determining whether the rental property was used for personal purposes, see Pub. 570.
Special rule for nonresident aliens.
The presence test does not apply to nonresident aliens. Instead, nonresident aliens must meet the substantial presence
test discussed in chapter 1
of Pub. 519, U.S. Tax Guide for Aliens. In that discussion, substitute the name of the possession for “ United States” and “ U.S.” wherever
they appear. Also disregard the discussion in that chapter about a Closer Connection to a Foreign Country.
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