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Form 8689 (2007)

Page

Section references are to the Internal Revenue Code unless

Personal property. The source of income from the sale of

otherwise noted.

nondepreciable personal property is generally the seller’s tax

home. Income from the sale of inventory is generally sourced

Instructions

where the title to the property passes. See section 865 for details.

Reminders

Special rules may apply to bona fide residents of U.S.

possessions who have gain from dispositions of certain

For tax years ending after January 31, 2006 (or beginning with

investment property within the 10-year period

tax year 2006 if a calendar year taxpayer), changes have been

CAUTION

beginning when they became a bona fide resident. For

made to the rules for determining if you are a bona fide resident of

details, see chapter 2 of Pub. 570, Temporary Regulations section

the U.S. Virgin Islands (USVI). See chapter 1 of Pub. 570, Tax

1.937-2T(f)(1), and Example 2 of section 1.937-2T(k).

Guide for Individuals With Income From U.S. Possessions, for

more information.

Part II—Adjusted Gross Income From the

If, in tax year 2001 or later, you became or ceased to be a bona

U.S. Virgin Islands

fide resident of a U.S. possession, you may be required to file

Lines 21 through 23. If you had USVI source self-employment

Form 8898, Statement for Individuals Who Begin or End Bona

income, figure the amount to enter on each line by (1) dividing

Fide Residence in a U.S. Possession. The penalty for failure to

your USVI source self-employment income by your total

provide the required information is $1,000. For details, see the

(worldwide) self-employment income, and (2) multiplying the total

Instructions for Form 8898.

amount of each deduction that applies to you by the result in (1).

Purpose of form. Use Form 8689 to figure the amount of U.S. tax

Line 24. Enter the amount of penalty on early withdrawals from

allocable to the USVI.

savings accounts in USVI banks or USVI branches of U.S. banks.

Who must file. If you were a U.S. citizen or resident alien (other than

The Form 1099-INT or Form 1099-OID you received will show the

a bona fide resident of the USVI) and had income from sources in

amount of any penalty you were charged.

the USVI or income effectively connected with the conduct of a

Line 25. Enter the total of your and your spouse’s IRA deductions

trade or business in the USVI, you may owe tax to the USVI. Your

attributable to USVI compensation or earned income. Figure the

USVI tax liability is a percentage of your U.S. tax liability.

amount to report on line 25 by (1) dividing your USVI

Do not use this form if you were a bona fide resident

compensation or earned income by your total (worldwide)

of the USVI during the entire tax year.

compensation or earned income, and (2) multiplying the amount

of your IRA deduction by the result in (1). Figure the amount of

CAUTION

your spouse’s IRA deduction the same way.

Joint returns. If you file jointly and only one spouse is a bona

fide resident of the USVI for the entire tax year, the resident status

Line 28. Include in the total on line 28 the amount of any other

for both spouses and subsequent tax treatment is determined by

deductions included on Form 1040, line 36, that are attributable to

your USVI income. On the dotted line next to line 28, enter the

the spouse with the higher adjusted gross income (AGI)

amount of each deduction attributable to your USVI income and

(disregarding community property laws). File Form 8689 only if the

identify it as you did on Form 1040, line 36. If you or your spouse

spouse with the higher AGI is not a bona fide resident of the USVI

for the entire tax year.

had an Archer MSA deduction on Form 1040, line 36, figure the

amount to report on line 28 the same way you would an IRA

Where to file. You must file identical tax returns with the United

deduction (see Line 25 above).

States and the USVI. File your original Form 1040 (including Form

Part IV—Payments of Income Tax to the

8689) with the Department of the Treasury, Internal Revenue

Service Center, Austin, TX 73301-0215.

U.S. Virgin Islands

File a copy of your Form 1040 (with all attachments, forms, and

Amounts overpaid to the United States generally will not be

schedules, including Form 8689) with the Virgin Islands Bureau of

applied to the amount you owe to the USVI. Similarly, amounts

Internal Revenue, 9601 Estate Thomas, Charlotte Amalie, St.

overpaid to the USVI will not be applied to the amount you owe to

Thomas, VI 00802. They will accept a copy of your U.S. return and

the United States.

process it as an original return.

Credit for U.S. tax paid to the USVI. You can take a credit on your

Additional information. Pub. 570 has more information and an

U.S. return for the U.S. tax allocated to the USVI only if you actually

example of how to complete Form 8689. To get Pub. 570, see

paid the tax to the USVI. To take the credit, you must complete

Quick and Easy Access to Tax Help and Tax Products in the

Form 8689 and attach it to your Form 1040. Add line 40 and line 44

instructions for Form 1040.

of Form 8689 and include the amount in the total on Form 1040,

Part I—Income From the U.S. Virgin Islands

line 72. Next to line 72, enter “Form 8689” and the amount paid.

Source of income. The rules for determining the source of

Penalty for Failure To Furnish Information

income are explained in sections 861 through 865, section 937, in

If you fail to provide the required information, you may have to

Temporary Regulations section 1.937-2T, and in Pub. 570. Some

pay a $1,000 penalty for each failure unless you can show the

general rules are:

failure was due to reasonable cause and not willful neglect. This

The source of wages, salaries, or tips is generally where the

penalty is in addition to any criminal penalty provided by law.

services are performed. If you worked both in and outside the

USVI, include on line 1 only wages, salaries, or tips earned while

Paperwork Reduction Act Notice. We ask for the information on

you were in the USVI.

this form to carry out the Internal Revenue laws of the United

States. You are required to give us the information. We need it to

The source of interest income is generally where the payer is

ensure that you are complying with these laws and to allow us to

located. For example, interest from a certificate of deposit issued

figure and collect the right amount of tax.

by a USVI bank or a USVI branch of a U.S. bank is USVI source

income.

You are not required to provide the information requested on a

form that is subject to the Paperwork Reduction Act unless the

Generally, dividends are sourced where the paying corporation

form displays a valid OMB control number. Books or records

is created or organized.

relating to a form or its instructions must be retained as long as

Taxable refunds, credits, or offsets of local USVI income taxes

their contents may become material in the administration of any

only include nonmirror code income taxes.

Internal Revenue law. Generally, tax returns and return information

are confidential, as required by section 6103.

Alimony received from a person who is a bona fide resident of

the USVI is USVI source income.

The average time and expenses required to complete and file this

form will vary depending on individual circumstances. For the

Except as provided in regulations, income earned after

estimated averages, see the instructions for your income tax return.

December 31, 2004, that is from sources within the United States

or effectively connected with the conduct of a trade or business in

If you have suggestions for making this form simpler, we would be

happy to hear from you. See the instructions for your income tax return.

the United States is not income from the USVI.

Instructions For Form 8689 - Allocation Of Individual Income Tax To The U.s. Virgin Islands - 2007

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