8689 Allocation of Individual Income Tax to the U.S. Virgin I

2007 Form 8689, Allocation of Income Tax to the U.S. Virgin
Islands
Purpose: This is the first circulated draft of the 2007 Form 8689 for your review
and comment. See below for a discussion of the major changes.
TPCC Meeting: None, but may be arranged if requested.
Prior Versions: The 2006 Form 8689 is available at: http://www.irs.gov/pub/irspdf/f8689.pdf
Other Products: Circulations of draft tax forms, instructions, notices, and
publications are posted at: http://taxforms.web.irs.gov/draft_products.html
Comments: Please email, fax, call, or mail any comments by June 16, 2007.
Gerald J. Shields
Tax Forms and Publications
SE:W:CAR:MP:T:I:P
Email: [email protected]
Phone: 202-283-2264
Fax: 202-283-4759
Description of Major Changes for 2007 Form 8689
On Part II, line 17, we replaced the Archer MSA deduction with the deduction for
educator expenses, per 2007 WRN for Form 1040.
On Part II, line 27, we replaced the deduction for jury duty pay you gave to your
employer with the tuition and fees deduction, per 2007 WRN for Form 1040.
On Part III, line 31, we added a reference to Form 1040, line 71, for the new
refundable credit for prior year minimum tax, per P.L. 109-432, section 402.
The Archer MSA deduction and jury duty pay deduction will be write-ins on line
28
Instructions
Under Part II─Adjusted Gross Income From the U.S. Virgin Islands, we removed
the caution icon and accompanying text, per P.L. 109-432.
We removed the Line 17 instructions and modified the Line 25 and Line 28
instructions as appropriate.

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I.R.S. SPECIFICATIONS
TO BE REMOVED BEFORE PRINTING
INSTRUCTIONS TO PRINTERS
FORM 8689, PAGE 1 of 2
MARGINS: TOP 13mm (1⁄ 2 ”), CENTER SIDES.
PRINTS: HEAD to HEAD
PAPER: WHITE WRITING, SUB. 20.
INK: BLACK
FLAT SIZE: 216mm (81⁄ 2 ”) x 279mm (11”)
PERFORATE: (NONE)
DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

8689

Name(s) shown on Form 1040

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Revised proofs
requested

OMB No. 1545-0074

2007

Attachment
Sequence No.

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Adjusted Gross Income From the U.S. Virgin Islands

Education expenses
Certain business expenses of reservists, performing artists, and
fee-basis government officials
Health savings account deduction
Moving expenses
One-half of self-employment tax
Self-employed SEP, SIMPLE, and qualified plans
Self-employed health insurance deduction
Penalty on early withdrawal of savings
IRA deduction
Student loan interest deduction
Tuition and fees deduction
Add lines 17 through 27
Subtract line 28 from line 16. This is your adjusted gross income

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Allocation of Tax to the U.S. Virgin Islands

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Enter amount from Form 1040, line 63

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Enter the total of the amounts from Form 1040, lines 58, 59, 62, 66a, 68, and 71. Include any uncollected social security
and Medicare or tier 1 RRTA tax, tax on golden parachute payments, or excise tax on insider stock compensation
reported on line 63. Also include any amount from Form 5329, Parts III, IV, V, VI, VII, or VIII reported on line 60
Subtract line 31 from line 30
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Enter amount from Form 1040, line 38

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Divide line 29 above by line 33. Enter the result as a decimal (rounded to at least 3 places). Do not enter more than 1.000
Multiply line 32 by line 34. This is your tax allocated to the U.S. Virgin Islands

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Part IV

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Your social security number

Income From the U.S. Virgin Islands

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Part III

O.K. to print

Attach to Form 1040.

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Signature

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Wages, salaries, tips, etc.
Taxable interest
Ordinary dividends
Taxable refunds, credits, or offsets of local U.S. Virgin Islands income taxes
Alimony received
Business income or (loss)
Capital gain or (loss)
Other gains or (losses)
IRA distributions (taxable amount)
Pensions and annuities (taxable amount)
Rental real estate, royalties, partnerships, S corporations, trusts, etc.
Farm income or (loss)
Unemployment compensation
Social security benefits (taxable amount)
Other income. List type and amount ©
Add lines 1 through 15. This is your total income

Part II

Date

Allocation of Individual Income Tax
to the U.S. Virgin Islands

Department of the Treasury
Internal Revenue Service

Part I

Action

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Payments of Income Tax to the U.S. Virgin Islands
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Income tax withheld by the U.S. Virgin Islands
2007 estimated tax payments and amount applied from 2006 return
Amount paid with Form 4868 (extension request)
Add lines 36 through 38. These are your total payments

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Overpayment to the U.S. Virgin Islands. If line 39 is more than line 35, subtract line 35 from line 39
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Amount of line 41 you want refunded to you
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Amount of line 41 you want applied to your 2008 estimated tax
Amount you owe to the U.S. Virgin Islands. Subtract line 39 from line 35. Enter the amount that you
are paying here and on Form 1040, line 72. Next to line 72, enter “Form 8689” and the amount paid ©

©

Enter the smaller of line 35 or line 39. Also, include this amount in the total on Form 1040, line 72. On
the dotted line next to line 72, enter “Form 8689” and show this amount

For Paperwork Reduction Act Notice, see back of form.

Cat. No. 64603D

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Form

8689

(2007)

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I.R.S. SPECIFICATIONS
TO BE REMOVED BEFORE PRINTING
INSTRUCTIONS TO PRINTERS
FORM 8689, PAGE 2 of 2
MARGINS: TOP 13mm (1⁄ 2 ”), CENTER SIDES.
PRINTS: HEAD to HEAD
PAPER: WHITE WRITING, SUB. 20.
INK: BLACK
FLAT SIZE: 216mm (81⁄ 2 ”) x 279mm (11”)
PERFORATE: (NONE)
DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Form 8689 (2007)

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Section references are to the Internal Revenue Code unless
otherwise noted.

Instructions
Reminders.

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Personal property. The source of income from the sale of
nondepreciable personal property is generally the seller’s tax
home. Income from the sale of inventory is generally sourced
where the title to the property passes. See section 865 for details.

● For tax years ending after January 31, 2006 (or beginning with
tax year 2006 if a calendar year taxpayer), changes have been
made to the rules for determining if you are a bona fide resident of
the U.S. Virgin Islands (USVI). See chapter 1 of Pub. 570, Tax
Guide for Individuals With Income From U.S. Possessions, for
more information.
● If, in tax year 2001 or later, you became or ceased to be a bona
fide resident of a U.S. possession, you may be required to file
Form 8898, Statement for Individuals Who Begin or End Bona
Fide Residence in a U.S. Possession. The penalty for failure to
provide the required information is $1,000. For details, see the
Instructions for Form 8898.

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

Who must file. If you were a U.S. citizen or resident alien (other than
a bona fide resident of the USVI) and had income from sources in
the USVI or income effectively connected with the conduct of a
trade or business in the USVI, you may owe tax to the USVI. Your
USVI tax liability is a percentage of your U.S. tax liability.
Do not use this form if you were a bona fide resident
of the USVI during the entire tax year.
CAUTION

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
for both spouses and subsequent tax treatment is determined by
the spouse with the higher adjusted gross income (AGI)
(disregarding community property laws). File Form 8689 only if the
spouse with the higher AGI is not a bona fide resident of the USVI
for the entire tax year.
Where to file. You must file identical tax returns with the United
States and the USVI. File your original Form 1040 (including Form
8689) with the Internal Revenue Service Center, Austin, TX
73301-0215.
File a copy of your Form 1040 (with all attachments, forms, and
schedules, including Form 8689) with the Virgin Islands Bureau of
Internal Revenue, 9601 Estate Thomas, Charlotte Amalie, St.
Thomas, VI 00802. They will accept a copy of your U.S. return and
process it as an original return.
Additional information. Pub. 570 has more information and an
example of how to complete Form 8689. To get Pub. 570, see
Quick and Easy Access to Tax Help and Forms in the instructions
for Form 1040.

Part I—Income From the U.S. Virgin Islands
Source of income. The rules for determining the source of
income are explained in sections 861 through 865, section 937, in
Temporary Regulations section 1.937-2T, and in Pub. 570. Some
general rules are:
● The source of wages, salaries, or tips is generally where the
services are performed. If you worked both in and outside the
USVI, include on line 1 only wages, salaries, or tips earned while
you were in the USVI.
● The source of interest income is generally where the payer is
located. For example, interest from a certificate of deposit issued
by a USVI bank or a USVI branch of a U.S. bank is USVI source
income.
● Generally, dividends are sourced where the paying corporation
is created or organized.
● Taxable refunds, credits, or offsets of local USVI income taxes
only include nonmirror code income taxes.
● Alimony received from a person who is a bona fide resident of
the USVI is USVI source income.
● Except as provided in regulations, income earned after
December 31, 2004, that is from sources within the United States
or effectively connected with the conduct of a trade or business in
the United States is not income from the USVI.

Special rules may apply to bona fide residents of U.S.
possessions who have gain from dispositions of certain
investment property within the 10-year period
CAUTION
beginning when they became a bona fide resident. For
details, see chapter 2 of Pub. 570, Temporary Regulations section
1.937-2T(f)(1), and Example 2 of section 1.937-2T(k).

Part II—Adjusted Gross Income From the
U.S. Virgin Islands
Lines 21 through 23. If you had USVI source self-employment
income, figure the amount to enter on each line by (1) dividing
your USVI source self-employment income by your total
(worldwide) self-employment income, and (2) multiplying the total
amount of each deduction that applies to you by the result in (1).
Line 24. Enter the amount of penalty on early withdrawals from
savings accounts in USVI banks or USVI branches of U.S. banks.
The Form 1099-INT or Form 1099-OID you received will show the
amount of any penalty you were charged.
Line 25. Enter the total of your and your spouse’s IRA deductions
attributable to USVI compensation or earned income. Figure the
amount to report on line 25 by (1) dividing your USVI
compensation or earned income by your total (worldwide)
compensation or earned income, and (2) multiplying the amount
of your IRA deduction by the result in (1). Figure the amount of
your spouse’s IRA deduction the same way.
Line 28. Include in the total on line 28 the amount of any other
deductions included on Form 1040, line 36, that are attributable to
your USVI income. On the dotted line next to line 28, enter the
amount of each deduction attributable to your USVI income and
identify it as you did on Form 1040, line 36. If you or your spouse
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
deduction (see Line 25 above).

Part IV—Payments of Income Tax to the
U.S. Virgin Islands
Amounts overpaid to the United States generally will not be
applied to the amount you owe to the USVI. Similarly, amounts
overpaid to the USVI will not be applied to the amount you owe to
the United States.
Credit for U.S. tax paid to the USVI. You can take a credit on your
U.S. return for the U.S. tax allocated to the USVI only if you actually
paid the tax to the USVI. To take the credit, you must complete
Form 8689 and attach it to your Form 1040. Add line 40 and line 44
of Form 8689 and include the amount in the total on Form 1040,
line 72. Next to line 72, enter “Form 8689” and the amount paid.

Penalty for Failure To Furnish Information
If you fail to provide the required information, you may have to
pay a $1,000 penalty for each failure unless you can show the
failure was due to reasonable cause and not willful neglect. This
penalty is in addition to any criminal penalty provided by law.
Paperwork Reduction Act Notice. We ask for the information on
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
ensure that you are complying with these laws and to allow us to
figure and collect the right amount of tax.
You are not required to provide the information requested on a
form that is subject to the Paperwork Reduction Act unless the
form displays a valid OMB control number. Books or records
relating to a form or its instructions must be retained as long as
their contents may become material in the administration of any
Internal Revenue law. Generally, tax returns and return information
are confidential, as required by section 6103.
The average time and expenses required to complete and file this
form will vary depending on individual circumstances. For the
estimated averages, see the instructions for your income tax return.
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.

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