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This bill would change federal tax rules for some people who live in the U.S. Virgin Islands and own shares in corporations organized there. Under the change, certain bona fide Virgin Islands residents would not be treated as U.S. persons for a specific tax test that affects how some income from those companies is counted. In simple terms, the bill aims to give these residents tax treatment that better matches their local status and reduce the chance they are taxed under rules meant for people treated as U.S. persons.
- It applies only to a corporation organized under Virgin Islands law and to an individual who is a bona fide resident of the Virgin Islands.
- The change matters only if a dividend from that corporation would count as Virgin Islands source income under existing tax rules.
- The bill updates the tax code so these residents are not included in the definition used for certain income-inclusion rules tied to foreign corporations.
- The new rule would apply to tax years of foreign corporations beginning after December 31, 2024, and to the related tax years of the individual owners.
Official Summaries
Territorial Tax Parity and Fairness Act
This bill excepts individuals who are bona fide residents of the Virgin Islands from including in gross income for U.S. federal tax purposes subpart F income received from certain corporations if such income may be sourced to the Virgin Islands.
Under current law, a U.S. shareholder of a controlled foreign corporation generally is required to include in gross income their pro rata share of dividends, interest, rent, royalties, and certain other types of income of the controlled foreign corporation (collectively known as subpart F income). A U.S. shareholder is a U.S. person (citizen, resident, domestic partnership or corporation, trust, or estate) that owns a certain percentage of stock in the controlled foreign corporation.
However, under current law, the definition of a U.S. person does not include individuals who are bona fide residents of the U.S. territories of Puerto Rico, Guam, America Samoa, and the Northern Mariana Islands who receive subpart F income from controlled foreign corporations that meets certain requirements for being sourced to the territory or being connected to or derived from a trade or business in the territory.
This bill expands the exceptions from the definition of a U.S. person for purposes of the subpart F income tax rules, to include individuals who are bona fide residents of the Virgin Islands and receive subpart F income from a controlled foreign corporation organized under the laws of the Virgin Islands if the subpart F income may be sourced to the Virgin Islands.
Current Full Text
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 368 Introduced in House (IH)]
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119th CONGRESS
1st Session
H. R. 368
To amend the Internal Revenue Code of 1986 to provide that certain bona
fide residents of the Virgin Islands who are shareholders of
corporations organized under the laws of the Virgin Islands are not
treated as United States persons for purposes of determining certain
inclusions in gross income with respect to such corporations.
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IN THE HOUSE OF REPRESENTATIVES
January 13, 2025
Ms. Plaskett introduced the following bill; which was referred to the
Committee on Ways and Means
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A BILL
To amend the Internal Revenue Code of 1986 to provide that certain bona
fide residents of the Virgin Islands who are shareholders of
corporations organized under the laws of the Virgin Islands are not
treated as United States persons for purposes of determining certain
inclusions in gross income with respect to such corporations.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Territorial Tax Parity and Fairness
Act''.
SEC. 2. CERTAIN BONA FIDE RESIDENTS OF VIRGIN ISLANDS.
(a) In General.--Section 957(c) of the Internal Revenue Code of
1986 is amended by striking ``and'' at the end of paragraph (1), by
redesignating paragraph (2) as paragraph (3), and by inserting after
paragraph (1) the following new paragraph:
``(2) with respect to a corporation organized under the
laws of the Virgin Islands, such term does not include an
individual who is a bona fide resident of the Virgin Islands,
if a dividend received by such individual during the taxable
year from such corporation would, for purposes of section
934(b)(1), be treated as income derived from sources within the
Virgin Islands, and''.
(b) Conforming Amendment.--Section 957(c) of such Code is amended
by striking ``paragraph (2)'' in the last sentence and inserting
``paragraph (3)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2024, and taxable years of individuals within which or with which
such taxable years of foreign corporations end.
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