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2012 Offshore Voluntary Disclosure Program


Update Jan. 24, 2014 — Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, is now obsolete. After June 30, 2013, the FBAR must be filed electronically with FinCEN

The IRS began an open-ended offshore voluntary disclosure program (OVDP) in January 2012 on the heels of strong interest in the 2011 and 2009 programs. The IRS may end the 2012 program at any time in the future. The IRS is offering people with undisclosed income from offshore accounts another opportunity to get current with their tax returns. The 2012 OVDP has a higher penalty rate than the previous program but offers clear benefits to encourage taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution.

2012 OVDP Documents and Forms

Questions and Answers

Documents

Forms

Worksheets

News Releases and Fact Sheets

  • IR-2012-64, IRS Says Offshore Effort tops $5 Billion, Announces New Details on the Voluntary Disclosure Program and Closing of Offshore Loophole
  • IR-2012-64SP, Esfuerzo Extranjero del IRS Supera $5 Mil Millones; Detalles del Programa de Divulgación Voluntaria y Cierre de Laguna Jurídica
  • IR-2012-65, IRS Announces Efforts to Help U.S. Citizens Overseas, Including Dual Citizens and Those with Foreigh Retirement Plans
  • IR-2012-65SP, IRS Anuncia Ayuda a Estadounidenses en el Extranjero, Incluyendo Aquellos con Doble Nacionalidad y Planes de Jubilación Extranjeros
  • IR-2012-5, IRS Offshore Programs Produce $4.4 Billion To Date for Nation’s Taxpayers; Offshore Voluntary Disclosure Program Reopens

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Page Last Reviewed or Updated: 24-Jan-2014

The File 2011 Taxes Online Turbotax

File 2011 taxes online turbotax 2. File 2011 taxes online turbotax   Possession Source Income Table of Contents Types of IncomeCompensation for Labor or Personal Services Investment Income Sales or Other Dispositions of Property Scholarships, Fellowships, Grants, Prizes, and Awards Effectively Connected Income In order to determine where to file your return and which form(s) you need to complete, you must determine the source of each item of income you received during the tax year. File 2011 taxes online turbotax Income you received from sources within, or that was effectively connected with the conduct of a trade or business within, the relevant possession must be identified separately from U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax or foreign source income. 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File 2011 taxes online turbotax   This rule states that income is not possession source income if, under the rules of Internal Revenue Code sections 861–865, it is treated as income: From sources within the United States, or Effectively connected with the conduct of a trade or business within the United States. File 2011 taxes online turbotax Table 2-1 shows the general rules for determining whether income is from sources within the United States. File 2011 taxes online turbotax Table 2-1. File 2011 taxes online turbotax General Rules for Determining U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax Source of Income Item of Income Factor Determining Source Salaries, wages, and other compensation for labor or personal services Where labor or services performed Pensions Contributions: Where services were performed that earned the pension Investment earnings: Where pension trust is located Interest Residence of payer Dividends Where corporation created or organized Rents Location of property Royalties:   Natural resources Location of property Patents, copyrights, etc. File 2011 taxes online turbotax Where property is used Sale of business inventory—purchased Where sold Sale of business inventory—produced Allocation if produced and sold in different locations Sale of real property Location of property Sale of personal property Seller's tax home (but see Special Rules for Gains From Dispositions of Certain Property , later, for exceptions) Sale of natural resources Allocation based on fair market value of product at export terminal. File 2011 taxes online turbotax For more information, see Regulations section 1. File 2011 taxes online turbotax 863-1(b). File 2011 taxes online turbotax Types of Income This section looks at the most common types of income received by individuals, and the rules for determining the source of the income. File 2011 taxes online turbotax Generally, the same rules shown in Table 2-1 are used to determine if you have possession source income. File 2011 taxes online turbotax Compensation for Labor or Personal Services Income from labor or personal services includes wages, salaries, commissions, fees, per diem allowances, employee allowances and bonuses, and fringe benefits. File 2011 taxes online turbotax It also includes income earned by sole proprietors and general partners from providing personal services in the course of their trade or business. File 2011 taxes online turbotax Services performed wholly within a relevant possession. File 2011 taxes online turbotax   Generally, all pay you receive for services performed in a relevant possession is considered to be from sources within that possession. File 2011 taxes online turbotax However, there is an exception for income earned as a member of the U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax Armed Forces or a civilian spouse. File 2011 taxes online turbotax U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax Armed Forces. File 2011 taxes online turbotax   If you are a bona fide resident of a relevant possession, your military service pay will be sourced in that possession even if you perform the services in the United States or another possession. File 2011 taxes online turbotax However, if you are not a bona fide resident of a possession, your military service pay will be income from the  United States even if you perform services in a possession. File 2011 taxes online turbotax Civilian spouse of active duty member of the U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax Armed Forces. File 2011 taxes online turbotax   If you are a bona fide resident of a U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax possession and choose to keep that possession as your tax residence under MSRRA when relocating with your servicemember spouse under military orders, the source of income for your labor or personal services is considered to be that possession. File 2011 taxes online turbotax Likewise, if your tax residence is in one of the 50 states or the District of Columbia before relocating and you choose to keep it as your tax residence, the source of income for services performed in any of the U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax possessions is considered to be the United States and, specifically, your state of residence or the District of Columbia. File 2011 taxes online turbotax Services performed partly inside and partly outside a relevant possession. File 2011 taxes online turbotax   If you are an employee and receive compensation for labor or personal services performed both inside and outside the relevant possession, special rules apply in determining the source of the compensation. File 2011 taxes online turbotax Compensation (other than certain fringe benefits) is sourced on a time basis. File 2011 taxes online turbotax Certain fringe benefits (such as housing and education) are sourced on a geographical basis. File 2011 taxes online turbotax   Or, you may be permitted to use an alternative basis to determine the source of compensation. File 2011 taxes online turbotax See Alternative basis , later. File 2011 taxes online turbotax   If you are self-employed, determine the source of your income for labor or personal services from self-employment on the basis that most correctly reflects the proper source of that income under the facts and circumstances of your particular case. File 2011 taxes online turbotax In many cases, the facts and circumstances will call for an apportionment on a time basis as explained next. File 2011 taxes online turbotax Time basis. File 2011 taxes online turbotax   Use a time basis to figure your compensation for labor or personal services from the relevant possession (other than the fringe benefits discussed later). File 2011 taxes online turbotax Do this by multiplying your total compensation (other than the fringe benefits discussed later) by the following fraction:   Number of days you performed  services in the relevant  possession during the year     Total number of days you  performed services during the year           You can use a unit of time less than a day in the above fraction, if appropriate. File 2011 taxes online turbotax The time period for which the income is made does not have to be a year. File 2011 taxes online turbotax Instead, you can use another distinct, separate, and continuous time period if you can establish to the satisfaction of the IRS that this other period is more appropriate. File 2011 taxes online turbotax Example. File 2011 taxes online turbotax In 2013, you worked in your employer's office in the United States for 60 days and in the Puerto Rico office for 180 days, earning a total of $80,000 for the year. File 2011 taxes online turbotax Your Puerto Rico source income is $60,000, figured as follows. File 2011 taxes online turbotax       180 days 240 days × $80,000 = $60,000                 Multi-year compensation. File 2011 taxes online turbotax   The source of multi-year compensation is generally determined on a time basis over the period to which the compensation is attributable. File 2011 taxes online turbotax Multi-year compensation is compensation that is included in your income in 1 tax year but is attributable to a period that includes 2 or more tax years. File 2011 taxes online turbotax You determine the period to which the income is attributable based on the facts and circumstances of your case. File 2011 taxes online turbotax For more information on multi-year compensation, see Treasury Decision (T. File 2011 taxes online turbotax D. File 2011 taxes online turbotax ) 9212 and Regulations section 1. File 2011 taxes online turbotax 861-4, 2005-35 I. File 2011 taxes online turbotax R. File 2011 taxes online turbotax B. File 2011 taxes online turbotax 429, available at www. File 2011 taxes online turbotax irs. File 2011 taxes online turbotax gov/irb/2005-35_IRB/ar14. File 2011 taxes online turbotax html. File 2011 taxes online turbotax Certain fringe benefits sourced on a geographical basis. File 2011 taxes online turbotax   If you received any of the following fringe benefits as compensation for labor or services performed as an employee partly inside and partly outside a relevant possession, you must source that income on a geographical basis. File 2011 taxes online turbotax Housing. File 2011 taxes online turbotax Education. File 2011 taxes online turbotax Local transportation. File 2011 taxes online turbotax Tax reimbursement. File 2011 taxes online turbotax Hazardous or hardship duty pay. File 2011 taxes online turbotax Moving expense reimbursement. File 2011 taxes online turbotax For information on determining the source of the fringe benefits listed above, see Regulations section 1. File 2011 taxes online turbotax 861-4. File 2011 taxes online turbotax Alternative basis. File 2011 taxes online turbotax   You can determine the source of your compensation under an alternative basis if you establish to the satisfaction of the IRS that, under the facts and circumstances of your case, the alternative basis more properly determines the source of your income than the time or geographical basis. File 2011 taxes online turbotax If you use an alternative basis, you must keep (and have available for inspection) records to document why the alternative basis more properly determines the source of your income. File 2011 taxes online turbotax De minimis exception. File 2011 taxes online turbotax   There is an exception to the rule for determining the source of income earned in a possession. File 2011 taxes online turbotax Generally, you will not have income from a possession if during a tax year you: Are a U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax citizen or resident, Are not a bona fide resident of that possession, Are not employed by or under contract with an individual, partnership, or corporation that is engaged in a trade or business in that possession, Temporarily perform services in that possession for 90 days or less, and Earned $3,000 or less from such services. File 2011 taxes online turbotax This exception began with income earned during your 2008 tax year. File 2011 taxes online turbotax Pensions. File 2011 taxes online turbotax   Generally, pension income has two components: contributions to the pension plan and the earnings accrued from investing those contributions. File 2011 taxes online turbotax The contribution portion is sourced according to where services were performed that earned the pension. File 2011 taxes online turbotax The investment earnings portion is sourced according to the location of the pension trust. File 2011 taxes online turbotax Example. File 2011 taxes online turbotax You are a U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax citizen who worked in Puerto Rico for a U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax company. File 2011 taxes online turbotax All services were performed in Puerto Rico. File 2011 taxes online turbotax Upon retirement you remained in Puerto Rico and began receiving your pension from the U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax pension trust of your employer. File 2011 taxes online turbotax Distributions from the U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax pension trust must be allocated between (1) contributions, which are Puerto Rico source income, and (2) investment earnings, which are U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax source income. File 2011 taxes online turbotax Investment Income This category includes such income as interest, dividends, rents, and royalties. File 2011 taxes online turbotax Interest income. File 2011 taxes online turbotax   The source of interest income is generally determined by the residence of the payer. File 2011 taxes online turbotax Interest paid by corporations created or organized in a relevant possession (possession corporation) or by individuals who are bona fide residents of a relevant possession is considered income from sources within that possession. File 2011 taxes online turbotax   However, there is an exception to this rule if you are a bona fide resident of a relevant possession, receive interest from a corporation created or organized in that possession, and are a shareholder of that corporation who owns, directly or indirectly, at least 10% of the total voting stock of the corporation. File 2011 taxes online turbotax See Regulations section 1. File 2011 taxes online turbotax 937-2(i) for more information. File 2011 taxes online turbotax Dividends. File 2011 taxes online turbotax   Generally, dividends paid by a corporation created or organized in a relevant possession will be considered income from sources within that possession. File 2011 taxes online turbotax There are additional rules for bona fide residents of a relevant possession who receive dividend income from possession corporations, and who own, directly or indirectly, at least 10% of the voting stock of the corporation. File 2011 taxes online turbotax For more information, see Regulations section 1. File 2011 taxes online turbotax 937-2(g). File 2011 taxes online turbotax Rental income. File 2011 taxes online turbotax   Rents from property located in a relevant possession are treated as income from sources within that possession. File 2011 taxes online turbotax Royalties. File 2011 taxes online turbotax   Royalties from natural resources located in a relevant possession are considered income from sources within that possession. File 2011 taxes online turbotax   Also considered possession source income are royalties received for the use of, or for the privilege of using, in a relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and other like property. File 2011 taxes online turbotax Sales or Other Dispositions of Property The source rules for sales or other dispositions of property are varied. File 2011 taxes online turbotax The most common situations are discussed below. File 2011 taxes online turbotax Real property. File 2011 taxes online turbotax   Real property includes land and buildings, and generally anything built on, growing on, or attached to land. File 2011 taxes online turbotax The location of the property generally determines the source of income from the sale. File 2011 taxes online turbotax For example, if you are a bona fide resident of Guam and sell your home that is located in Guam, the gain on the sale is sourced in Guam. File 2011 taxes online turbotax If, however, the home you sold was located in the United States, the gain is U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax source income. File 2011 taxes online turbotax Personal property. File 2011 taxes online turbotax   The term “personal property” refers to property (such as machinery, equipment, or furniture) that is not real property. File 2011 taxes online turbotax Generally, gain (or loss) from the sale or other disposition is sourced according to the seller's tax home. File 2011 taxes online turbotax If personal property is sold by a bona fide resident of a relevant possession, the gain (or loss) from the sale is treated as sourced within that possession. File 2011 taxes online turbotax   This rule does not apply to the sale of inventory, intangible property, depreciable personal property, or property sold through a foreign office or fixed place of business. File 2011 taxes online turbotax The rules applying to sales of inventory are discussed below. File 2011 taxes online turbotax For information on sales of the other types of property mentioned, see Internal Revenue Code section 865. File 2011 taxes online turbotax Inventory. File 2011 taxes online turbotax   Your inventory is personal property that is stock in trade or that is held primarily for sale to customers in the ordinary course of your trade or business. File 2011 taxes online turbotax The source of income from the sale of inventory depends on whether the inventory was purchased or produced. File 2011 taxes online turbotax Purchased. File 2011 taxes online turbotax   Income from the sale of inventory that you purchased is sourced where you sell the property. File 2011 taxes online turbotax Generally, this is where title to the property passes to the buyer. File 2011 taxes online turbotax Produced. File 2011 taxes online turbotax   Income from the sale of inventory that you produced in a relevant possession and sold outside that possession (or vice versa) is sourced based on an allocation. File 2011 taxes online turbotax For information on making the allocation, see Regulations section 1. File 2011 taxes online turbotax 863-3(f). File 2011 taxes online turbotax Special Rules for Gains From Dispositions of Certain Property There are special rules for gains from dispositions of certain investment property (for example, stocks, bonds, debt instruments, diamonds, and gold) owned by a U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax citizen or resident alien prior to becoming a bona fide resident of a possession. File 2011 taxes online turbotax You are subject to these special rules if you meet both of the following conditions. File 2011 taxes online turbotax For the tax year for which the source of the gain must be determined, you are a bona fide resident of the relevant possession. File 2011 taxes online turbotax For any of the 10 years preceding that year, you were a citizen or resident alien of the United States (other than a bona fide resident of the relevant possession). File 2011 taxes online turbotax If you meet these conditions, gains from the disposition of this property will not be treated as income from sources within the relevant possession for purposes of the Internal Revenue Code. File 2011 taxes online turbotax Accordingly, bona fide residents of American Samoa and Puerto Rico, for example, may not exclude the gain on their U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax tax return. File 2011 taxes online turbotax (See chapter 3 for additional filing information. File 2011 taxes online turbotax ) With respect to the CNMI, Guam, and the USVI, the gain from the disposition of this property will not meet the requirements for certain tax rules that may allow bona fide residents of those possessions to reduce or obtain a rebate of taxes on income from sources within the relevant possessions. File 2011 taxes online turbotax These rules apply to dispositions after April 11, 2005. File 2011 taxes online turbotax For details, see Regulations section 1. File 2011 taxes online turbotax 937-2(f)(1) and Examples 1 and 2 of section 1. File 2011 taxes online turbotax 937-2(k). File 2011 taxes online turbotax Example 1. File 2011 taxes online turbotax In 2007, Cheryl Jones, a U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax citizen, lived in the United States and paid $1,000 for 100 shares of stock in the Rose Corporation, a U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax corporation listed on the New York Stock Exchange. File 2011 taxes online turbotax On March 1, 2010, she moved to Puerto Rico and changed her tax home to Puerto Rico on the same date. File 2011 taxes online turbotax Cheryl satisfied the presence test in 2010 and, under the year-of-move exception, she was considered a bona fide resident of Puerto Rico for the rest of 2010. File 2011 taxes online turbotax On March 1, 2010, the closing value of Cheryl's stock in the Rose Corporation was $2,000. File 2011 taxes online turbotax On January 5, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold all her Rose Corporation stock for $7,000. File 2011 taxes online turbotax Under the earlier rules, none of Cheryl's $6,000 gain will be treated as income from sources within Puerto Rico. File 2011 taxes online turbotax The source rules discussed in the preceding paragraphs supplement, and may apply in conjunction with, an existing special rule. File 2011 taxes online turbotax This existing special rule applies if you are a U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax citizen or resident alien who becomes a bona fide resident of American Samoa, the CNMI, or Guam, and who has gain from the disposition of certain U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax assets during the 10-year period beginning when you became a bona fide resident. File 2011 taxes online turbotax The gain is U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax source income that generally is subject to U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax tax if the property is either (1) located in the United States; (2) stock issued by a U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax corporation or a debt obligation of a U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax person or of the United States, a state (or political subdivision), or the District of Columbia; or (3) property that has a basis in whole or in part by reference to property described in (1) or (2). File 2011 taxes online turbotax See chapter 3 for filing information. File 2011 taxes online turbotax Special election. File 2011 taxes online turbotax   For dispositions after April 11, 2005, you can choose to treat the part of gain (or loss) attributable to the time you held the property while a bona fide resident of the relevant possession (the possession holding period) as gain (or loss) from sources within that possession. File 2011 taxes online turbotax Make the election by reporting the gain attributable to the possession holding period on your income tax return for the year of disposition. File 2011 taxes online turbotax This election overrides both of the special rules discussed earlier. File 2011 taxes online turbotax   There are two methods for figuring the gain for the possession holding period, one for marketable securities and another for other types of investment property. File 2011 taxes online turbotax Marketable securities. File 2011 taxes online turbotax   Marketable securities are those actively traded on an established financial market, such as stock in a publicly held corporation. File 2011 taxes online turbotax Under the special election, allocate the gain (or loss) by figuring the appreciation separately for your possession and U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax holding periods. File 2011 taxes online turbotax   Your possession holding period begins on the first day you do not have a tax home outside the relevant possession. File 2011 taxes online turbotax The gain (or loss) attributable to the possession holding period is the difference in fair market value of the security at the close of the market on the first and last days of this holding period. File 2011 taxes online turbotax This is your gain (or loss) that is treated as being from sources within the relevant possession. File 2011 taxes online turbotax If you were a bona fide resident of the relevant possession for more than one continuous period, combine the gains (or losses) from each possession holding period. File 2011 taxes online turbotax Example 2. File 2011 taxes online turbotax Assume the same facts as in Example 1, except that Cheryl makes the special election to allocate the gain between her U. File 2011 taxes online turbotax S. File 2011 taxes online turbotax and possession holding periods. File 2011 taxes online turbotax Cheryl's possession holding period began March 1, 2010, the date her tax home changed to Puerto Rico. File 2011 taxes online turbotax Therefore, the portion of gain attributable to her possession holding period is $5,000 ($7,000 sale price – $2,000 closing value on first day of the possession holding period). File 2011 taxes online turbotax By reporting $5,000 of her $6,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. File 2011 taxes online turbotax Other personal property. File 2011 taxes online turbotax   For personal property other than marketable securities, use a time-based allocation. File 2011 taxes online turbotax Figure the gain (or loss) attributable to the possession holding period by multiplying your total gain (or loss) by the following fraction. File 2011 taxes online turbotax      Number of days in the  possession holding period     Total number of days  in your holding period         The result is your gain (or loss) that is treated as being from sources within the relevant possession. File 2011 taxes online turbotax Example 3. File 2011 taxes online turbotax In addition to the stock in Rose Corporation, Cheryl acquired a 5% interest in the Alder Partnership on January 1, 2009. File 2011 taxes online turbotax On March 1, 2010, when she established bona fide residency in Puerto Rico, her partnership interest was not considered a marketable security. File 2011 taxes online turbotax On September 16, 2013, while still a bona fide resident of Puerto Rico, Cheryl sold her interest in Alder Partnership for a $100,000 gain. File 2011 taxes online turbotax She had owned the interest for a total of 1,720 days. File 2011 taxes online turbotax Cheryl's possession holding period (from March 1, 2010, through September 16, 2013) is 1,296 days. File 2011 taxes online turbotax The portion of her gain attributable to Puerto Rico is $75,349 ($100,000 x (1,296 Puerto Rico days ÷ 1,720 total days)). File 2011 taxes online turbotax By reporting $75,349 of her $100,000 gain as Puerto Rico source income on her 2013 Puerto Rico tax return (and the remainder as non-Puerto Rico source income), Cheryl elects to treat that amount as Puerto Rico source income. File 2011 taxes online turbotax Scholarships, Fellowships, Grants, Prizes, and Awards The source of these types of income is generally the residence of the payer, regardless of who actually disburses the funds. File 2011 taxes online turbotax Therefore, in order to be possession source income, the payer must be a resident of the relevant possession, such as an individual who is a bona fide resident or a corporation created or organized in that possession. File 2011 taxes online turbotax These rules do not apply to amounts paid as salary or other compensation for services. File 2011 taxes online turbotax See Compensation for Labor or Personal Services, earlier in this chapter, for the source rules that apply. File 2011 taxes online turbotax Effectively Connected Income In limited circumstances, some kinds of income from sources outside the relevant possession must be treated as effectively connected with a trade or business in that possession. File 2011 taxes online turbotax These circumstances are listed below. File 2011 taxes online turbotax You have an office or other fixed place of business in the relevant possession to which the income can be attributed. File 2011 taxes online turbotax That office or place of business is a material factor in producing the income. File 2011 taxes online turbotax The income is produced in the ordinary course of the trade or business carried on through that office or other fixed place of business. File 2011 taxes online turbotax An office or other fixed place of business is a material factor if it significantly contributes to, and is an essential economic element in, the earning of the income. File 2011 taxes online turbotax The three kinds of income from sources outside the relevant possession to which these rules apply are the following. File 2011 taxes online turbotax Rents and royalties for the use of, or for the privilege of using, intangible personal property located outside the relevant possession or from any interest in such property. File 2011 taxes online turbotax Included are rents or royalties for the use of, or for the privilege of using, outside the relevant possession, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade brands, franchises, and similar properties if the rents or royalties are from the active conduct of a trade or business in the relevant possession. File 2011 taxes online turbotax Dividends or interest from the active conduct of a banking, financing, or similar business in the relevant possession. File 2011 taxes online turbotax Income, gain, or loss from the sale or exchange outside the relevant possession, through the office or other fixed place of business in the relevant possession, of: Stock in trade, Property that would be included in inventory if on hand at the end of the tax year, or Property held primarily for sale to customers in the ordinary course of business. File 2011 taxes online turbotax Item (3) will not apply if you sold the property for use, consumption, or disposition outside the relevant possession and an office or other fixed place of business in a foreign country was a material factor in the sale. File 2011 taxes online turbotax Example. File 2011 taxes online turbotax Marcy Jackson is a bona fide resident of American Samoa. File 2011 taxes online turbotax Her business, which she conducts from an office in American Samoa, is developing and selling specialized computer software. File 2011 taxes online turbotax A software purchaser will frequently pay Marcy an additional amount to install the software on the purchaser's operating system and to ensure that the software is functioning properly. File 2011 taxes online turbotax Marcy installs the software at the purchaser's place of business, which may be in American Samoa, in the United States, or in another country. File 2011 taxes online turbotax The income from selling the software is effectively connected with the conduct of Marcy's business in American Samoa, even though the product's destination may be outside the possession. File 2011 taxes online turbotax However, the compensation she receives for installing the software (personal services) outside of American Samoa is not effectively connected with the conduct of her business in the possession—the income is sourced where she performs the services. File 2011 taxes online turbotax Prev  Up  Next   Home   More Online Publications