Title 26, Internal Revenue CodeRelease 119-110
§932 Coordination of United States and Virgin Islands Income Taxes
Title 26 › Subtitle A — Income Taxes › CHAPTER 1 — NORMAL TAXES AND SURTAXES › Subchapter N — Tax Based on Income From Sources Within or Without the United States › PART III — INCOME FROM SOURCES WITHOUT THE UNITED STATES › Subpart D — Possessions of the United States › § 932
Summary
If you are a U.S. citizen or resident (but not a person who lived in the Virgin Islands the whole year) and you get income from the Virgin Islands or run a business there, or if you file a joint return with someone like that, you must file income tax returns with both the United States and the Virgin Islands. You must pay the Virgin Islands a share of your U.S. tax equal to the portion of your adjusted gross income that came from the Virgin Islands. That “applicable percentage” is Virgin Islands adjusted gross income divided by your total adjusted gross income. Money you pay to the Virgin Islands is allowed as a credit against your U.S. tax for that year. If you lived in the Virgin Islands for the whole year (or file jointly with someone who did), you must file your return with the Virgin Islands. For those residents, the Virgin Islands is treated like the United States for tax rules. If a full-year Virgin Islands resident reports all income to the Virgin Islands, shows where each item came from, and pays the Virgin Islands tax required, that income is not included again on the U.S. return and related deductions or credits are not taken on the U.S. return. For joint returns, the rules follow the spouse with the larger adjusted gross income. When figuring Virgin Islands tax owed, these rules stand even if other federal rules treat things differently.
Full Legal Text
Title 26, §932
Internal Revenue Code, Source: USLM XML via OLRC
(a)Treatment of United States residents
(1)Application of subsection (2) Filing requirement
This subsection shall apply to an individual for the taxable year if—
(A)such individual—
(i)is a citizen or resident of the United States (other than a bona fide resident of the Virgin Islands during the entire taxable year), and
(ii)has income derived from sources within the Virgin Islands, or effectively connected with the conduct of a trade or business within such possession, for the taxable year, or
(B)such individual files a joint return for the taxable year with an individual described in subparagraph (A).
(3)Extent of income tax liability
In the case of an individual to whom this subsection applies in a taxable year for purposes of so much of this title (other than this section and section 7654) as relates to the taxes imposed by this chapter, the United States shall be treated as including the Virgin Islands.
(b)Portion of United States tax liability payable to the Virgin Islands
(1)In general
Each individual to whom subsection (a) applies for the taxable year shall pay the applicable percentage of the taxes imposed by this chapter for such taxable year (determined without regard to paragraph (3)) to the Virgin Islands.
(2)Applicable percentage
(A)In general
For purposes of paragraph (1), the term “applicable percentage” means the percentage which Virgin Islands adjusted gross income bears to adjusted gross income.
(B)Virgin Islands adjusted gross income
For purposes of subparagraph (A), the term “Virgin Islands adjusted gross income” means adjusted gross income determined by taking into account only income derived from sources within the Virgin Islands and deductions properly apportioned or allocable thereto.
(3)Amounts paid allowed as credit
There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the taxes required to be paid to the Virgin Islands under paragraph (1) which are so paid.
(c)Treatment of Virgin Islands residents
(1)Application of subsection (2) Filing requirement
This subsection shall apply to an individual for the taxable year if—
(A)such individual is a bona fide resident of the Virgin Islands during the entire taxable year, or
(B)such individual files a joint return for the taxable year with an individual described in subparagraph (A).
(3)Extent of income tax liability
In the case of an individual to whom this subsection applies in a taxable year for purposes of so much of this title (other than this section and section 7654) as relates to the taxes imposed by this chapter, the Virgin Islands shall be treated as including the United States.
(4)Residents of the Virgin Islands
In the case of an individual—
(A)who is a bona fide resident of the Virgin Islands during the entire taxable year,
(B)who, on his return of income tax to the Virgin Islands, reports income from all sources and identifies the source of each item shown on such return, and
(C)who fully pays his tax liability referred to in section 934(a) to the Virgin Islands with respect to such income,
for purposes of calculating income tax liability to the United States, gross income shall not include any amount included in gross income on such return, and allocable deductions and credits shall not be taken into account.
(d)Special rule for joint returns
In the case of a joint return, this section shall be applied on the basis of the residence of the spouse who has the greater adjusted gross income (determined without regard to community property laws) for the taxable year.
(e)Special rule for applying section to tax imposed in Virgin Islands
In applying this section for purposes of determining income tax liability incurred to the Virgin Islands, the provisions of this section shall not be affected by the provisions of Federal law referred to in section 934(a).
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Prior Provisions
A prior section 932, acts Aug. 16, 1954, ch. 736, 68A Stat. 292; Nov. 13, 1966, Pub. L. 89–809, title I, § 103(m), 80 Stat. 1554; Oct. 31, 1972, Pub. L. 92–606, § 1(f)(2), (3), 86 Stat. 1497; Apr. 7, 1986, Pub. L. 99–272, title XII, § 12103(a), 100 Stat. 285, related to income taxation of citizens of possessions of the United States, prior to repeal by Pub. L. 99–514, title XII, § 1272(d)(1), Oct. 22, 1986, 100 Stat. 2594.
Amendments
2004—Subsecs. (a)(1)(A)(i), (c)(1)(A), (4)(A). Pub. L. 108–357 substituted “during the entire taxable year” for “at the close of the taxable year”. 1988—Subsec. (c)(2). Pub. L. 100–647, § 1012(w)(3), substituted “an income tax return” for “his income tax return”. Subsec. (c)(4). Pub. L. 100–647, § 1012(w)(2), amended par. (4) generally. Prior to amendment, par. (4) read as follows: “In the case of an individual who is a bona fide resident of the Virgin Islands at the close of the taxable year and who, on his return of income tax to the Virgin Islands, reports income from all sources and identifies the source of each item shown on such return, for purposes of calculating income tax liability to the United States gross income shall not include any amount included in gross income on such return.” Subsec. (e). Pub. L. 100–647, § 1012(w)(1), substituted current heading for “Section not to apply to tax imposed in Virgin Islands” and amended text generally. Prior to amendment, text read as follows: “This section shall not apply for purposes of determining income tax liability incurred to the Virgin Islands.”
Statutory Notes and Related Subsidiaries
Effective Date
of 2004 AmendmentAmendment by Pub. L. 108–357 applicable to taxable years ending after Oct. 22, 2004, see section 908(d)(1) of Pub. L. 108–357, set out as an
Effective Date
note under section 937 of this title.
Effective Date
of 1988 AmendmentAmendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Effective Date
Enactment of section 932 and repeal of prior section 932 applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 1277 of Pub. L. 99–514, set out as an
Effective Date
of 1986 Amendment note under section 931 of this title.
Regulations
Pub. L. 99–514, title XII, § 1274(c), Oct. 22, 1986, 100 Stat. 2598, as amended by Pub. L. 100–647, title I, § 1012(w)(4), Nov. 10, 1988, 102 Stat. 3530, provided that: “The Secretary of the Treasury or his delegate shall prescribe such
Regulations
as may be necessary or appropriate for applying the Internal Revenue Code of 1986 [this title] for purposes of determining tax liability incurred to the Virgin Islands.” Authority To Impose Nondiscriminatory Local Income Taxes Pub. L. 99–514, title XII, § 1274(b), Oct. 22, 1986, 100 Stat. 2597, provided that: “Nothing in any provision of Federal law shall prevent the Virgin Islands from imposing on any person nondiscriminatory local income taxes. Any taxes so imposed shall be treated in the same manner as State and local income taxes under section 164 of the Internal Revenue Code of 1954 [now 1986] and shall not be treated as taxes to which section 901 of such Code applies.”
Reference
Citations & Metadata
Citation
26 U.S.C. § 932
Title 26, Internal Revenue Code
Last Updated
Sep 22, 2026
Release point: 119-110