The American Institute of CPAs, along with the Virgin Islands Society of CPAs and the Guam Society of CPAs, have submitted a letter to Congress asking for clarification on whether the Net Investment Income Tax, which was included as part of the Affordable Care Act, applies to bona fide residents of the U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands.
Under the “mirror code” system of taxation, the substantive provisions of the Tax Code are generally applicable as the income tax laws of the U.S. Virgin Islands, Guam and the Mariana Islands, but CPAs are wondering whether that’s the case with the Net Investment Income Tax. The NIIT is imposed by section 1411 of the Tax Code, which was added by the health care reform law. The NIIT applies at a rate of 3.8 percent to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts of $250,000 for married filing jointly taxpayers. $125,000 for married filing separately taxpayers and $200,000 for singles.
The letter, which was sent Thursday to the representatives in Congress of those U,S. territories, stated, “The wording of proposed and final [IRS] regulations regarding NIIT appears to exempt from the NIIT bona fide residents of the U.S. Territories; however, the VIBIR [Virgin Islands Bureau of Internal Revenue] has issued a statement and the GDRT [Guam Department of Revenue and Taxation] Deputy Tax Commissioner has stated that the NIIT applies to bona fide residents of the U.S. Territories, causing much confusion among taxpayers and practitioners. Clarity on the applicability of the NIIT to bona fide residents of the U.S. Territories is needed. Practitioners and taxpayers need clarity in order to file 2013 tax returns by the extended due date of October 15, 2014.”
“The AICPA, VISCPA and GSCPA believe, as a matter of clarity and fair interpretation and application of Congressional intent, Congress should request that Treasury provide clarification on whether the NIIT applies to bona fide residents of the mirror code U.S. Territories. In addition, if bona fide residents of mirror code U.S. Territories are exempt from the NIIT, the extension of this exemption to mirror code U.S. Territories estates and trusts should be clarified as well,” the organizations wrote.