Territory form example should address non-bona-fide residents

Plain-English summary

Chief Counsel commented on the personal-property instructions for Forms 8689 and 5074. The existing example described source rules for a bona fide resident of a U.S. territory, but such a resident generally would not file those forms. The advice recommended replacing the example with one addressing a U.S. citizen or resident alien who is not a bona fide territory resident. For that taxpayer, gain from selling or disposing of personal property is generally treated as U.S.-source income.

Ruling snapshot

• Question: How should Forms 8689 and 5074 explain the source of personal-property gain for their likely filers?
• Outcome: Advice given, use an example involving a non-bona-fide territory resident
• Key authorities: IRC § 863

Full text (IRS public release)

 ID:         CCA_2023060112473417                           [Third Party Communication:

 UILC:       863.00-00                                      Date of Communication: Month DD, YYYY]

Number: 202346018
Release Date: 11/17/2023
From: --------------------
Sent: Thursday, June 1, 2023 12:47:34 PM
To: --------------------
Cc: -----------------------------------------------------
Bcc:
Subject: Comments to Forms 8689 and 5074


Hi --------,

One additional comment with regards to Forms 8689 and 5074. In the personal
property section, there is a sentence that reads “For example, if you are a bona fide
resident of [a territory], gain from the sale or disposition of personal property is generally
from sources within [that territory].” Given that a bona fide resident of a territory would
not have to file these forms, it may be more helpful to explain what happens in the case
of a non-bona fide resident. Thus, this sentence could be replaced with language along
the lines of “For example, if you are a United States citizen or resident alien and not a
bona fide resident of [territory], gain from the sale or disposition of personal property is
generally treated as U.S. source.”

Best,
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