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Publication 570
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The Commonwealth of the Northern Mariana IslandsThe Commonwealth of the Northern Mariana Islands (CNMI) has its own tax system based partly on the same tax laws and tax rates that apply to the United States and partly on local taxes imposed by the CNMI government.
If you are a U.S. citizen with income from the CNMI and the United States, you must file your income tax return with either the CNMI or the United States as explained below. Do not file with both. You are not liable for tax to the jurisdiction with which you do not have to file. If you are a resident of the CNMI on the last day of your tax year, you should file your return with the Division of Revenue and Taxation at the address above. Include income from worldwide sources on the CNMI return. Include any balance of tax due with your tax return. If you are a resident of the United States on the last day of your tax year, you should file your return with the Internal Revenue Service Center, Philadelphia, PA 19255-0215. Include income from worldwide sources on the U.S. return. Include any balance of tax due with your tax return. If you are neither a resident of the CNMI nor a resident of the United States at the end of your tax year, but you are a citizen of the CNMI, you should file with the Division of Revenue and Taxation. File with the Internal Revenue Service Center if you are a citizen of the United States. Joint return. If you file a joint return, you should file it (and pay the tax) with the jurisdiction where the spouse who has the greater adjusted gross income would have to file (if you were filing separately). If the spouse with the greater adjusted gross income is a resident of the CNMI at the end of the tax year, file the joint return with the CNMI. If the spouse with the greater adjusted gross income is a resident of the United States at the end of the tax year, file the joint return with the United States. For this purpose, income is determined without regard to community property laws. Income tax withheld. Take into account income tax withheld by both jurisdictions in determining if there is tax due or an overpayment. Payment of estimated tax. If you must pay estimated tax, make your payment to the jurisdiction where you would file your income tax return if your tax year were to end on the date your first payment of estimated tax is due. Generally, you should make your quarterly payments of estimated tax to the jurisdiction where you made your first payment of estimated tax. However, estimated tax payments to either jurisdiction will be treated as payments to the jurisdiction with which you file the tax return. If you make a joint payment of estimated tax, make the payment to the jurisdiction where the spouse who has the greater estimated adjusted gross income would have to pay (if a separate payment were made). For this purpose, income is determined without regard to community property laws. Early payment of estimated tax. If you make your first payment of estimated tax early and you do not send it to the jurisdiction to which you should have made it, make all later payments to the jurisdiction to which the first payment should have been made had you not made it early. Estimated tax form. If your estimated income tax obligation is to the United States, use the worksheet in the Form 1040-ES package to figure your estimated tax, including self-employment tax. If you are paying by check or money order, use the payment vouchers in the Form 1040-ES package. Or, you can make your payments electronically and not have to file any paper forms. See the Form 1040-ES instructions for information on making payments. Information return. If your adjusted gross income from all sources is at least $50,000, your gross income consists of at least $5,000 from sources in the CNMI, and you file a U.S. income tax return, attach Form 5074 to Form 1040. Note. When the CNMI and the United States enter into an
implementing agreement, the following rules may apply. American SamoaAmerican Samoa has its own separate and independent tax system. Although its tax laws are modeled on the U.S. Internal Revenue Code, there are certain differences.
Residents of American Samoa. If you are a U.S. citizen and a resident of American Samoa, you must report your gross income from worldwide sources on your Samoan tax return. If you report non-Samoan source income on your Samoan tax return, you can claim a credit against your Samoan tax liability for income taxes paid on that income to the United States, a foreign country, or another possession. If you are a resident of American Samoa for part of the tax year and you then leave American Samoa, you must file a tax return with American Samoa for the part of the year you were present in American Samoa. Bona fide residents of American Samoa include military personnel whose official home of record is American Samoa. Nonresidents of American Samoa. If you are a nonresident of American Samoa, you should report only income from Samoan sources on your Samoan tax return. U.S. citizens residing in American Samoa are considered residents of American Samoa for income tax purposes. U.S. Government employees. If you are employed in American Samoa by either the U.S. Government or any of its agencies, or by the Government of American Samoa, you are subject to tax by American Samoa on your pay from either government. Whether you are subject to tax by American Samoa on your non-Samoan source income depends on your status as a resident or nonresident. Wages and salaries paid by the Governments of the United States and American Samoa to U.S. citizens are also subject to U.S. federal income tax. These payments do not qualify for the possession exclusion, discussed earlier. If you report government wages on both your U.S. and Samoan tax returns, you can take a credit on your U.S. tax return for income taxes paid or accrued to American Samoa. Figure that credit on Form 1116, and attach that form to your U.S. tax return, Form 1040. Show your wages paid for services performed in American Samoa on line 1 of Form 1116 as income from sources in a possession. Estimated tax. Use the worksheet in the Form 1040-ES package to figure your estimated tax, including self-employment tax. If you are paying by check or money order, use the payment vouchers in the Form 1040-ES package. Or, you can make your payments electronically and not have to file any paper forms. See the Form 1040-ES instructions for information on making payments. Double taxation. A mutual agreement procedure exists to settle cases of double taxation between the United States and American Samoa. See Double Taxation under Filing U.S. Tax Returns, earlier. The Virgin IslandsAn important factor in Virgin Islands taxation is whether, on the last day of the tax year, you are a bona fide resident of the Virgin Islands. If you are a temporary worker on the last day of the tax year, you may or may not be a bona fide resident of the Virgin Islands. You should contact the Virgin Islands Bureau of Internal Revenue for more information. Resident of the Virgin Islands. If you are a bona fide resident of the Virgin Islands on the last day of the tax year, you must file your tax return on Form 1040 with the Government of the Virgin Islands and pay the entire tax due to the Virgin Islands. You do not have to file with the IRS for any tax year in which you are a bona fide resident of the Virgin Islands on the last day of the year, provided you report and pay tax on your income from all sources to the Virgin Islands and identify the source(s) of the income on the return. If you have non-Virgin Islands source income, you must also file Virgin Islands Form 1040 INFO, Non-Virgin Islands Source Income of Virgin Islands Residents, with the Virgin Islands Bureau of Internal Revenue.
Example. Mr. and Mrs. Maple left the United States on June 15, 2002, and arrived in the Virgin Islands on the same day. They qualified as bona fide residents of the Virgin Islands on the last day of their tax year, December 31, 2002. Mr. and Mrs. Maple file Form 1040 with the Government of the Virgin Islands and attach a Form 1040 INFO. The Maples report their worldwide income and pay the entire tax for the year to the Virgin Islands. Even though they lived in the United States part of the year, their income tax obligations for that year are completely satisfied by filing their return with, and paying their tax to, the Virgin Islands Bureau of Internal Revenue. Non-Virgin Islands resident with Virgin Islands income. If you are not a bona fide resident of the Virgin Islands on the last day of your tax year, you must file identical tax returns with the United States and the Virgin Islands if you have:
File the original return with the United States and file a copy of the U.S. return (including all attachments, forms, and schedules) with the Virgin Islands Bureau of Internal Revenue by the due date for filing Form 1040. The amount of tax you must pay to the Virgin Islands is figured as follows:
Form 8689. Use Form 8689 to make this computation. You must complete this form and attach it to each copy of your return. You should pay any tax due to the Virgin Islands when you file your return with the Virgin Islands Bureau of Internal Revenue. You receive credit for taxes paid to the Virgin Islands by including the amount on Form 8689, line 39, in the total on Form 1040, line 69. On the dotted line next to line 69, enter Form 8689 and show the amount. See the illustrated example at the end of this publication. Where to file. If you are not a bona fide resident of the Virgin Islands but you have income from the Virgin Islands, you must file Form 1040 and all attachments with the Internal Revenue Service Center, Philadelphia, PA 19255-0215, and with the Virgin Islands Bureau of Internal Revenue.
Contact that office for information about filing your Virgin Islands tax return. Extensions of time to file. You can get an automatic 4-month extension of time to file your tax return. See Extensions of time to file under Filing U.S. Tax Returns, earlier. Bona fide residents of the Virgin Islands must file paper Form 4868 with the Virgin Islands Bureau of Internal Revenue. Non-Virgin Islands residents should file separate extension requests with the IRS and the Virgin Islands Bureau of Internal Revenue and make any payments due to the respective jurisdictions. However, the Virgin Islands Bureau of Internal Revenue will honor an extension request that was timely filed with the IRS. If you need more time after filing Form 4868, file Form 2688. For more information, see the Form 2688 instructions. Double taxation. A mutual agreement procedure exists to settle cases of double taxation between the United States and the Virgin Islands. See Double Taxation under Filing U.S. Tax Returns, earlier. The Commonwealth
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| Gross income subject to U.S. tax Gross income from all sources (including exempt Puerto Rican income) |
Example. You and your spouse are both under 65 and U.S. citizens who are bona fide residents of Puerto Rico for the entire year. You file a joint income tax return. During 2002, you earned $15,000 from Puerto Rican sources and your spouse earned $25,000 from the U.S. Government. You have $16,000 of itemized deductions that do not apply to any specific type of income. These are medical expenses of $4,000, real estate taxes of $5,000, home mortgage interest of $6,000, and charitable contributions of $1,000 (cash contributions). You determine the amount of each deduction that you can claim on your Schedule A (Form 1040), by multiplying the deduction by the following fraction:
| Gross income subject to U.S. tax Gross income from all sources (including exempt Puerto Rican income) |
SCHEDULE A (Form 1040) - Itemized deductions should be modified as shown below:
Medical Expenses
| $25,000 $40,000 | × | $4,000 | = | $2,500 (enter on line 1 of Schedule A) |
Real Estate Taxes
| $25,000 $40,000 | × | $5,000 | = | $3,125 (enter on line 6 of Schedule A) |
Home Mortgage Interest
| $25,000 $40,000 | × | $6,000 | = | $3,750 (enter on line 10 or 11 of Schedule A) |
Charitable Contributions (cash contributions)
| $25,000 $40,000 | × | $1,000 | = | $625 (enter on line 15 of Schedule A) |
Enter on Schedule A (Form 1040) only the allowable portion of each deduction.
Personal exemptions are allowed in full and need not be divided. However, they may be phased out depending upon your adjusted gross income and filing status.
Standard deduction. The standard deduction does not specifically apply to any particular type of income. To find the amount you can claim on line 38 of Form 1040, multiply your standard deduction by the fraction given earlier. In the space above line 38, print Standard deduction modified due to exempt income under section 933.
Make this
computation before you 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. James and Joan Brown, both under 65, are U.S. citizens and bona fide residents of Puerto Rico. They file a joint income tax return. During 2002, they received $15,000 of income from Puerto Rican sources and $8,000 of income from sources outside Puerto Rico. They do not itemize their deductions. Their allowable standard deduction for 2002 is figured as follows:
| $8,000 $23,000 | × | $7,850 (standard deduction) | = | $2,730 |
plus their exemptions ($2,730 + $6,000 = $8,730).
Foreign tax credit. If you are a U.S. citizen and your Puerto Rican income is not exempt, you must report that income on your U.S. tax return along with income from sources outside Puerto Rico. However, you can claim a foreign tax credit, figured on Form 1116, for income taxes paid to Puerto Rico on the Puerto Rican income that is not exempt.
You cannot claim a foreign tax credit for taxes paid on exempt income. If you have income from Puerto Rican sources, such as U.S. Government wages, that is not exempt, and you have income from Puerto Rican sources that is exempt, you must figure the credit by reducing your foreign taxes paid or accrued by the taxes based on the exempt income. You make this reduction for each separate income category. To find the amount of this reduction, use the following formula for each income category.
Formula 14 You enter the amount of the reduction on line 12 of Form 1116.
Example. John and Mary Reddy are U.S. citizens and were bona fide residents of Puerto Rico during all of 2002. They file a joint tax return. The following table shows their exempt and taxable income for U.S. federal income tax purposes.
| Taxable | Exempt | |
| John's wages from U.S. Government | $25,000 | |
| Mary's wages from a Puerto Rican corp. | $15,000 | |
| Dividend from Puerto Rican corp. doing business in Puerto Rico | 200 | |
| Dividend from U.S. corp. doing business in U.S.* | 1,000 | |
| Totals | $26,000 | $15,200 |
| *Income from sources outside Puerto Rico is taxable. | ||
John and Mary must file 2002 income tax returns with both Puerto Rico and the United States. They have gross income of $26,000 for U.S. tax purposes. They paid taxes to Puerto Rico of $4,000. The tax on the wages is $3,980 and the tax on the dividend from the Puerto Rican corporation is $20. They figure their foreign tax credit on two Forms 1116, which they must attach to their U.S. return. They fill out one Form 1116 for wages and one Form 1116 for the dividend. John and Mary figure the Puerto Rican taxes on exempt income as follows.
They enter $1,493 on line 12 of the Form 1116 for wages and $20 on line 12 of the Form 1116 for the dividend.
Earned income credit. Even if you maintain a household in Puerto Rico that is your principal home and the home of your qualifying child, you cannot claim the earned income credit on your U.S. tax return. This credit is available only if you maintain the household in the United States or you are serving on extended active duty in the Armed Forces of the United States.
Estimated tax. If your estimated income tax obligation is to the United States, use the worksheet in the Form 1040-ES package to figure your estimated tax, including self-employment tax. If you are paying by check or money order, use the payment vouchers in the Form 1040-ES package. Or, you can make your payments electronically and not have to file any paper forms. See the Form 1040-ES instructions for information on making payments.
Double taxation. A mutual agreement procedure exists to settle cases of double taxation between the United States and the Commonwealth of Puerto Rico. See Double Taxation under Filing U.S. Tax Returns, earlier.
John Black is a U.S. citizen and was a bona fide resident of American Samoa during all of 2002. He has to file Form 1040 because his gross income from sources outside the possessions ($8,000 of dividends from U.S. corporations) is at least the total of his personal exemption and allowable standard deduction for single filers. (See Filing U.S.Tax Returns, earlier.) Because he has to file Form 1040, he fills out Form 4563 to determine the amount of possession income he can exclude.
Line 1. John enters the date his bona fide residence began in American Samoa, June 2, 2001. Because he is still a bona fide resident, he prints not ended in the second blank space.
Line 2. He checks the box labeled Rented house or apartment to describe his type of living quarters in American Samoa.
Lines 3a and 3b. He checks No on line 3a because no family members lived with him. He leaves line 3b blank.
Lines 4a and 4b. He checks No on line 4a because he did not maintain a home outside American Samoa. He leaves line 4b blank.
Line 5. He enters the name and address of his employer, Samoa Products Co. It is a private Samoan corporation.
Line 6. He enters the dates of his 2-week vacation to New Zealand from November 10 to November 24. That was his only trip outside American Samoa during the year.
Line 7. He enters the $24,000 in wages he received from Samoa Products Co.
Line 9. He received dividends of $100 from a CNMI corporation and $220 from a Samoan corporation. He enters the total of those amounts. He does not enter his dividends from U.S. corporations because they do not qualify for the possession exclusion.
Line 15. John totals the amounts on lines 7 and 9 to get the amount he can exclude from his gross income in 2002.
Bill and Jane Smith live and work in the United States. In 2002, they received $14,400 in income from the rental of a condominium they own in the Virgin Islands. The rental income was deposited in a bank in the Virgin Islands and they received $500 of interest on this income. They were not bona fide residents of the Virgin Islands at the end of the year.
The Smiths complete Form 1040, reporting their income from all sources. They report their wages, interest income, and the income and expenses from their Virgin Islands rental property (Schedule E, Form 1040).
The Smiths also complete Form 8689 to determine how much of their U.S. tax shown on line 61 of Form 1040 (with certain adjustments) is due to the Virgin Islands. This is the amount the Smiths must pay to the Virgin Islands.
The Smiths file their Form 1040, attaching Form 8689 and all other schedules, with the Internal Revenue Service.
At the same time, they send a copy of their Form 1040 with all schedules, including Form 8689, to the Virgin Islands Bureau of Internal Revenue. This copy will be processed as their original Virgin Islands return.
Completing Form 8689. Bill and Jane enter their names and Bill's social security number at the top of the form.
Part I. The Smiths enter their income from the Virgin Islands in Part I. The interest income is entered on line 2 and the net rental income of $6,200 ($14,400 of rental income minus $8,200 of rental expenses) is entered on line 11. The Smiths' total Virgin Islands income of $6,700 is entered on line 16.
Part II. The Smiths have no adjustments to their Virgin Islands income, so they enter zero (-0-) on line 27, and $6,700 on line 28. Their Virgin Islands adjusted gross income is $6,700.
Part III. On line 29, the Smiths enter the amount from line 61, Form 1040 ($5,561). They leave line 30 blank and put this same amount on line 31.
The Smiths enter their worldwide adjusted gross income, $54,901, (line 36, Form 1040) on line 32. They divide their Virgin Islands adjusted gross income, $6,700 (from line 28), by line 32. They multiply this decimal, .122, by the amount on line 31 to find the amount of tax allocated to the Virgin Islands (line 34).
Part IV. Part IV is used to show payments of income tax to the Virgin Islands only. The Smiths had no tax withheld by the Virgin Islands, but made estimated tax payments to the Virgin Islands of $600, which are shown on lines 36 and 38. The Smiths include this amount ($600) in the total on Form 1040, line 69. On the dotted line next to line 69, they print Form 8689 and show the amount. The Smiths do not complete Form 1116. The income tax the Smiths owe to the Virgin Islands ($78) is shown on line 43. They must pay their Virgin Islands tax at the same time they file the copy of their return with the Virgin Islands.
Form 4563, page 1 for John Black
Form 8689, page 1 for Bill and Jane Smith
You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.
Contacting your Taxpayer Advocate. If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate.
The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.
To contact your Taxpayer Advocate:
For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS.
Free tax services. To find out what services are available, get Publication 910, Guide to Free Tax Services. It contains a list of free tax publications and an index of tax topics. It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics.
Personal
computer. With your personal computer and modem, you can access the IRS on the
Internet at www.irs.gov. While visiting our web site, you can:
You can also reach us with your computer using File Transfer Protocol at ftp.irs.gov.
TaxFax Service. Using
the phone attached to your fax machine, you can receive forms and instructions by calling 703-368-9694.
Follow the directions from the prompts. When you order forms, enter the catalog number
for the form you need. The items you request will be faxed to you.
For help with transmission problems, call the FedWorld Help Desk at 703-487-4608.
Phone. Many
services are available by phone.
Evaluating the quality of our telephone services. To ensure that IRS
representatives give accurate, courteous, and professional answers, we use several methods
to evaluate the quality of our telephone services. One method is for a second IRS
representative to sometimes listen in on or record telephone calls. Another is to ask some
callers to complete a short survey at the end of the call.
Walk-in. Many
products and services are available on a walk-in basis.
Mail. You
can send your order for forms, instructions, and publications to the Distribution Center
nearest to you and receive a response within 10 workdays after your request is received.
Find the address that applies to your part of the country.
CD-ROM for tax
products. You can order IRS Publication 1796, Federal Tax Products on CD-ROM, and
obtain:
The CD-ROM can be purchased from National Technical Information Service (NTIS) by calling 1-877-233-6767 or on the Internet at http://www.irs.gov/cdorders. The first release is available in early January and the final release is available in late February.
CD-ROM for
small businesses. IRS Publication 3207, Small Business Resource Guide, is a
must for every small business owner or any taxpayer about to start a business. This handy,
interactive CD contains all the business tax forms, instructions and publications needed
to successfully manage a business. In addition, the CD provides an abundance of other
helpful information, such as how to prepare a business plan, finding financing for your
business, and much more. The design of the CD makes finding information easy and quick and
incorporates file formats and browsers that can be run on virtually any desktop or laptop
computer.
It is available in March. You can get a free copy by calling 1-800-829-3676 or by visiting the website at www.irs.gov/smallbiz.
