On September 28, 2010, the U.S. Department of Homeland Security’s Federal Emergency Management Agency, or FEMA, announced that federal disaster aid was available to supplement the U.S. Virgin Islands’ recovery efforts in areas struck by Hurricane Earl from August 29 to 31, 2010. The islands of St. Croix, St. John, St. Thomas, and Water Island were covered by the declaration. Then, on November 5, 2010, FEMA announced that federal aid is also available to the U.S. Virgin Islands for areas struck by severe storms, flooding, mudslides, and landslides associated with Tropical Storm Otto from October 1 to 8, 2010, again covering the entire territory.
The declaration of two major federal disasters for the U.S. Virgin Islands has another, less publicized consequence. It gives U.S. Virgin Islands residents who were outside the territory during Hurricane Earl or Tropical Storm Otto, or who left the territory around the time of either storm, credit for those days as U.S. Virgin Islands days. Specifically, the Treasury Department has provided, in Treasury Regulation Section 1.937-1(c)(3)(i)(C), that an individual is considered to be present in the U.S. Virgin Islands for any day that he or she is outside the U.S. Virgin islands because the individual leaves or is unable to return to the U.S. Virgin Islands during any 14-day period within which a major disaster occurs in the U.S. Virgin Islands for which a FEMA Notice of a Presidential declaration of a major disaster is issued in the Federal Register. In non-tax talk, this means that if a U.S. Virgin Islands resident left the U.S. Virgin Islands for New York on August 27 of this year, expecting to return on August 31, but did not make it back until September 11, then those 14 days spent wholly within the mainland United States (August 28 through September 10) count as days in the U.S. Virgin Islands and not New York because the U.S. Virgin Islands was declared a major disaster area as a result of the damage caused by Hurricane Earl.
Since the Hurricane Earl declaration covers August 29 to 31, the relevant 14-day period could be August 15 to August 29 or August 31 to September 13 or any 14-day period in between. Since the Tropical Storm Otto declaration covers October 1 to 8, 2010, the relevant 14-day period could be September 17 to October 1 or October 8 to October 22 or any 14-day period in between.
Day-counting is important because once the American Jobs Creation Act of 2004 went into effect on January 1, 2005, many people living in the territory have had to count their days in the territory to qualify as U.S. Virgin Islands residents for tax purposes on a year-by-year basis. If a taxpayer does not have a home in the mainland United States available for his or her full-time use, does not have a spouse or minor children living on the mainland, and is not registered to vote in a U.S. state, then the taxpayer does not have to “count days.” All other U.S. Virgin Islands residents must count their days in the territory and must meet one of four alternative physical presence tests to be considered a bona fide resident for tax payment and filing purposes.
A person can meet the physical presence test for residency by spending all or part of 183 days in the U.S. Virgin Islands or averaging 183 days a year in the U.S. Virgin Islands over a rolling three-year period. A person can also meet the test by spending no more than 90 days in the United States during a taxable year. Finally, an individual can meet the test by spending more days in the U.S. Virgin Islands than in the United States and having no more than $3,000 in earned income from the United States.
However, if a person was outside the U.S. Virgin Islands when Hurricane Earl hit and stayed outside for a 14-day period, then that person would meet the 183-day test by spending 169 days in the U.S. Virgin Islands – plus the 14 days credited as U.S. Virgin Islands days due to the disaster declaration. If the same person was outside the territory when Tropical Storm Otto hit as well, then that period could meet the 183-day test by spending 155 days in the U.S. Virgin Islands – plus the 28 days credited as U.S. Virgin Islands days due to the two disaster declarations.
In “counting days”, taxpayers should keep a copy of the disaster declaration — available at www.fema.gov/news/disasters.fema — in their tax files along with plane tickets, frequent flyer records, or other evidence of the days they were outside the U.S. Virgin Islands during the relevant period. Hurricane Earl is Disaster Declaration No. 1939 for 2010 and Tropical Storm Otto is Disaster Declaration No. 1948.
Other days spent outside the territory can also count as U.S. Virgin Islands days, most notably days spent in a hospital by a taxpayer or the taxpayer’s close family member and medically necessary time before and after the period of hospitalization.
In addition to meeting the physical presence tests, residents must be able to demonstrate a closer connection to the U.S. Virgin Islands than anywhere else through such factors as voting in the U.S. Virgin Islands and having a home in the territory in order to be bona fide residents for tax filing purposes. Finally, taxpayers who work must have a tax home, or principal place of business, in the territory.
Marjorie Roberts is a tax attorney on St. Thomas, U.S. Virgin Islands. She can be reached at jorie@marjorierobertspc.com. This article is intended to provide general tax information but is not intended to be used for the purpose of providing tax advice.
