Section 937 Covers Five Places, Not Just Puerto Rico: What That Means for Your Residency Test

Do the Puerto Rico residency tests change in the Virgin Islands or Guam?

No. The tests are written once and apply to five named places. A bona fide resident of Puerto Rico is defined by the same statute and regulation that define a bona fide resident of the U.S. Virgin Islands, Guam, American Samoa and the Northern Mariana Islands. You apply the text to Puerto Rico and count your days in Puerto Rico. This guide stays on Puerto Rico and explains why you will see other place names in the sources.

Why does one rule cover five places?

A bona fide resident is a person who meets the presence, tax home and closer connection requirements for a possession. Section 937(a) sets the definition in the statute: present for at least 183 days during the taxable year in the possession, no tax home outside the possession, and a closer connection to the possession than to the United States or a foreign country. The same section names the possessions: Guam, American Samoa, the Northern Mariana Islands, Puerto Rico and the Virgin Islands.

26 CFR 1.937-1 fills in the detail, and it lists the same five places in paragraph (a)(2)(i). The regulation speaks of "the possession" throughout. Read it as a placeholder and substitute the place you claim to live in.

The definition covers natural persons only. Corporations, partnerships, trusts and estates are not bona fide residents under paragraph (b)(3).

IRS Publication 570 is the plain language guide for all five. It uses the word "territory" where the regulation uses "possession." The two terms point at the same list.

What are the three tests?

The presence test is a count of days or a set of alternatives that look at where you were. The tax home test asks where your regular or principal place of business or abode is. The closer connection test compares your ties to the place you claim against your ties to the United States and any foreign country.

You must meet all three. Passing one does not carry the others. Read the overview of the presence, tax home and closer connection tests for the framework.

The three tests are not measured the same way:

• The presence test is measured over the taxable year, by counting days or by meeting one of its other alternatives.
• The tax home test is measured against any part of the year. Under 1.937-1(d)(1), you must not have a tax home outside the possession during any part of the year.
• The closer connection test is also measured against any part of the year. Under 1.937-1(e)(1), you must not have a closer connection to the United States or a foreign country than to the possession during any part of the year.

A year with 200 days on the island can still fail if you kept a tax home elsewhere for a few months. The day count is one test of three.

How does the presence test read when you apply it to Puerto Rico?

For a U.S. citizen or resident alien, the regulation at paragraph (c)(1) offers five alternatives. Meeting any one satisfies the presence test for the year:

1. At least 183 days present in the possession during the year.
2. At least 549 days present over the year and the two preceding years, with at least 60 days in the possession in each of those years.
3. No more than 90 days present in the United States during the year.
4. U.S. earned income that does not exceed the section 861(a)(3)(B) amount, and more days in the possession than in the United States. Publication 570 states this threshold as $3,000.
5. No significant connection to the United States during the year.

A significant connection is defined in paragraph (c)(5). It includes a permanent home in the United States, current registration to vote in a U.S. political subdivision, and a spouse or minor child whose principal abode is in the United States, with exceptions for some custodial children and students. For the first alternative, see the guide on the 183 day rule. For all five, see the five ways to pass the presence test.

How are days counted?

Any day on which you are physically present in the possession at any time during the day counts as a day in the possession. Days outside the possession to accompany a parent, spouse or child receiving qualifying medical treatment count as possession days, as do days outside because of a major disaster or mandatory evacuation. Paragraph (c)(3) sets these rules out.

Do days in another possession count for Puerto Rico?

The test is written against "the possession" you claim. Read plainly, a day in Guam is not a day in Puerto Rico. The sources used for this guide do not address a year split between two possessions, and a split year is exactly where an advisor should read the text with you. Treat it as unsettled here.

Publication 570 also lets up to 30 days of travel outside both the territory and the United States count as territory days, but only if your territory days exceed your U.S. days. That rule does not count toward the 60 day minimum in the second alternative.

Does the year of move rule change?

No. Paragraph (f) of the regulation sets one year of move rule for all five. When you move to a possession, you meet the tax home and closer connection tests for the change year if you were not a bona fide resident in each of the three preceding years, you pass those tests for each of the last 183 days of the change year, and you are a bona fide resident in each of the three following years.

Moving out is the mirror image. You were a resident in each of the three years before, you are not one in any of the three years after, and the tests apply to the first 183 days of the change year.

Paragraph (f)(2)(ii) adds a rule specific to Puerto Rico for a U.S. citizen who was a Puerto Rico resident for at least two preceding years. That is a reason to read the Puerto Rico text itself and not a summary written for another place. For the full mechanics, see the year of move rule for Puerto Rico and moving mid-year.

What does differ from place to place?

The residency tests don't differ. What Publication 570 treats separately is where and how a resident reports. According to the publication, bona fide residents of Guam, the Northern Mariana Islands and the U.S. Virgin Islands generally have no U.S. federal income tax filing obligation and should contact their territory's tax department. Puerto Rico has its own guidance in the same publication.

This guide doesn't cover filing for any place but Puerto Rico, and the publication is long, so check the current text for your own facts. For the Puerto Rico side, read which return a bona fide resident of Puerto Rico files.

Publication 570 also notes that other U.S. insular areas follow the same income rules but do not qualify for the territory exclusions. Being on a U.S. island is not enough. The place has to be one of the five named in the statute.

What should you take from this?

The residency question is one definition applied to one place at a time. For Puerto Rico, that means counting days in Puerto Rico, holding no tax home outside it during any part of the year, and keeping your ties to Puerto Rico closer than your ties anywhere else.

Read the primary text: section 937, 26 CFR 1.937-1 and Publication 570. When a blog, a forum or a relocation guide describes the rule for Guam or the Virgin Islands, you are looking at the same words with a different place name. The proof you keep is still yours to produce, and a day-by-day record made at the time is the easiest to defend. One83 builds that record from your calendar data so it exists before anyone asks for it. For your own facts, talk to a licensed tax professional.

Frequently Asked Questions

Which places does the bona fide resident definition cover?

American Samoa, Guam, the Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands. Section 937 and 26 CFR 1.937-1(a)(2)(i) name them.

Do days in the Virgin Islands count toward a Puerto Rico presence test?

The tests are measured against the one possession you claim. A day in another possession is not read as a day in Puerto Rico. The sources used here do not address a split year, so ask your advisor.

Is the 183 day count different in another territory?

No. Section 937(a) states 183 days for the possession, and the regulation lists the same alternatives for every named possession. This site covers Puerto Rico only.

Where do I read the rule myself?

Section 937 of the Internal Revenue Code, 26 CFR 1.937-1 and IRS Publication 570.

One83 is a tracking tool, not tax advice. Consult a licensed tax professional about your situation.