RESIDENCE AND SOURCE RULES RELATING TO UNITED STATES POSSESSIONS.

SEC. 908. RESIDENCE AND SOURCE RULES RELATING TO UNITED STATES POSSESSIONS. (a) Residence and Source Rules.—Subpart D of part III of subchapter N of chapter 1 (relating to possessions of the United States) is amended by adding at the end the following new section: “SEC. 937. RESIDENCE AND SOURCE RULES INVOLVING POSSESSIONS. “(a) Bona Fide Resident.—For purposes of this subpart, section 865(g)(3), section 876, section 881(b), paragraphs (2) and (3) of section 901(b), section 957(c), section 3401(a)(8)(C), and section 7654(a), except as provided in regulations, the term ‘bona fide resident’ means a person—“(1) who is present for at least 183 days during the taxable year in Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, or the Virgin Islands, as the case may be, and“(2) who does not have a tax home (determined under the principles of section 911(d)(3) without regard to the second sentence thereof) outside such specified possession during the taxable year and does not have a closer connection (determined under the principles of section 7701(b)(3)(B)(ii)) to the United States or a foreign country than to such specified possession. For purposes of paragraph (1), the determination as to whether a person is present for any day shall be made under the principles of section 7701(b).“(b) Source Rules.—Except as provided in regulations, for purposes of this title—“(1) except as provided in paragraph (2), rules similar to the rules for determining whether income is income from sources within the United States or is effectively connected with the conduct of a trade or business within the United States shall apply for purposes of determining whether income is from sources within a possession specified in subsection (a)(1) or effectively connected with the conduct of a trade or business within any such possession, and“(2) any income treated as income from sources within the United States or as effectively connected with the conduct 118 STAT. 1656 of a trade or business within the United States shall not be treated as income from sources within any such possession or as effectively connected with the conduct of a trade or business within any such possession.“(c) Reporting Requirement.—“(1) In general.—If, for any taxable year, an individual takes the position for United States income tax reporting purposes that the individual became, or ceases to be, a bona fide resident of a possession specified in subsection (a)(1), such individual shall file with the Secretary, at such time and in such manner as the Secretary may prescribe, notice of such position.“(2) Transition rule.—If, for any of an individual’s 3 taxable years ending before the individual’s first taxable year ending after the date of the enactment of this subsection, the individual took a position described in paragraph (1), the individual shall file with the Secretary, at such time and in such manner as the Secretary may prescribe, notice of such position.”.(b) Penalty.—Section 6688 is amended—(1) by inserting “under section 937(c) or” before “by regulations”, and(2) by striking “$100” and inserting “$1,000”.(c) Conforming and Clerical Amendments.—(1) Section 931(d) is amended to read as follows:“(d) Employees of the United States.—Amounts paid for services performed as an employee of the United States (or any agency thereof) shall be treated as not described in paragraph (1) or (2) of subsection (a).”.(2) Section 932 is amended by striking “at the close of the taxable year” and inserting “during the entire taxable year” each place it appears.(3) Section 934(b)(4) is amended by striking “the Virgin Islands or” each place it appears.(4) Section 935, as in effect before the effective date of its repeal, is amended—(A) by striking “for the taxable year who” in subsection (a) and inserting “who, during the entire taxable year”, (B) by inserting “bona fide” before “resident” in subsection (a)(1),(C) in subsection (b)(1)—(i) by inserting “(other a bona fide resident of Guam during the entire taxable year)” after “United States” in subparagraph (A), and (ii) by inserting “bona fide” before “resident” in subparagraph (B), and(D) in subsection (b)(2) by striking “residence and”.(5) Section 957(c) is amended—(A) in paragraph (2)(B) by striking “conduct of an active” and inserting “active conduct of a”, and(B) in the last sentence by striking “derived from sources within a possession, was effectively connected with the conduct of a trade or business within a possession, or”.118 STAT. 1657(6) The table of sections of subpart D of part III of subchapter N of chapter 1 is amended by adding at the end the following new item: “Sec. 937. Residence and source rules involving possessions.”. (d) Effective Date.—(1) In general.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.(2) 183-day rule.—Section 937(a)(1) of the Internal Revenue Code of 1986 (as added by this section) shall apply to taxable years beginning after the date of the enactment of this Act.(3) Sourcing.—Section 937(b)(2) of such Code (as so added) shall apply to income earned after the date of the enactment of this Act.