REVENUE PROCEDURE ON VIRGIN ISLANDS 'INHABITANT RULE' IS OBSOLETE.

Rev. Proc. 92-96

SECTION 1. PURPOSE

The purpose of this revenue procedure is to declare that Rev. Proc. 81-20, 1981-1 C.B. 690, is obsolete. Rev. Proc. 81-20 sets forth a procedure to eliminate withholding on payments to Virgin Island residents who were exempt from United States tax under the so- called "inhabitant rule," repealed in 1986.

SEC. 2. BACKGROUND

01 Section 28(a) of the Revised Organic Act of the Virgin Islands, 48 U.S.C. section 1642, provided that inhabitants of the Virgin Islands may satisfy their United States income tax obligations by paying tax on income derived from all sources, both within and outside the Virgin Islands, into the Treasury of the Virgin Islands. The term "inhabitants of the Virgin Islands" included all persons (including United States citizens) whose permanent residence was in the Virgin Islands.

02 Rev. Proc. 81-20 applies to United States citizens who are permanent inhabitants of the Virgin Islands. It provides a procedure for them to notify United States payers of income not to withhold pursuant to section 1441 of the Internal Revenue Code.

03 The Tax Reform Act of 1986 enacted section 7651(5)(B) of the Internal Revenue Code. The Act repealed the inhabitant rule and added section 932(a)(3), which states that the term "United States" shall include the Virgin Islands. United States citizens whose permanent residence is in the Virgin Islands must now pay their income taxes to the United States Treasury, and are not subject to section 1441.

SEC. 3. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 81-20 is obsolete.

SEC. 4. DRAFTING INFORMATION

The principal author of this Revenue Procedure is Robert J. Misey Jr. of the Office of the Associate Chief Counsel (International). For further information regarding this ruling, call Mr. Misey at (202) 874-1490 (not a toll-free call), or write to Associate Chief Counsel (International), Branch 1, Room 3319, 950 L'Enfant Plaza South, S.W., Washington, D.C. 20024.