IRS Form 8898 Instructions: Who Must File and How

IRS Form 8898, Statement for Individuals Who Begin or End Bona Fide Residence in a U.S. Territory, is a required information return for notifying the Internal Revenue Service (IRS) about a change in your tax residency status. Its purpose is to create a formal record when a person either establishes or terminates their status as a bona fide resident of a U.S. territory, as mandated by Internal Revenue Code section 937.

Determining Your Filing Requirement

A filing obligation for Form 8898 is triggered for the tax year you change your residency status relative to a U.S. territory and have a worldwide gross income exceeding $75,000. The U.S. territories are American Samoa, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), the Commonwealth of Puerto Rico, and the U.S. Virgin Islands. If you and your spouse both meet the filing requirements, you must each file a separate Form 8898.

The requirement applies to U.S. citizens or residents who are either becoming a bona fide resident of a territory or ceasing to be one. To be considered a bona fide resident, an individual must satisfy three tests for the tax year: the presence test, the tax home test, and the closer connection test.

The presence test is met by satisfying one of several conditions, including:

• Physical presence in the territory for at least 183 days during the tax year.
• Presence in the territory for at least 549 days over the last three years, with at least 60 days each year.
• No more than 90 days present in the U.S. during the tax year.
• No significant connection to the U.S. during the tax year.
• U.S. earned income of $3,000 or less and more days present in the territory than in the U.S.

The tax home test requires that your main place of business, employment, or post of duty is located within that territory. The closer connection test requires you to demonstrate more significant personal, economic, and social ties to the territory than to the U.S. or any other foreign country.

Information and Documentation for Form 8898

Before completing Form 8898, you must gather specific personal and financial information. Part I of the form collects identifying information, including your name, Social Security Number, and current address. You must also specify the U.S. territory and provide the date your bona fide residence either began or ended.

Part II is for individuals who began bona fide residence in a U.S. territory. It asks questions to confirm your status, such as whether you filed a U.S. income tax return for the prior three years as a U.S. citizen or resident. You will also need to report your worldwide income for the year of the move.

Part III must be completed by individuals who ended their bona fide residence. This section requires information about your tax filing history as a bona fide resident of the territory, including whether you filed an income tax return with the territory’s tax authorities and details about your income sources.

Filing Procedures and Deadlines

Form 8898 must be filed by the due date of your U.S. income tax return, which is typically April 15. If you file for an extension for your Form 1040, that extension also applies to Form 8898.

The IRS provides a version of Form 8898 that can be submitted online. If you file by mail, the form must be sent separately from your income tax return to the following address:

Internal Revenue Service
3651 S. IH 35
MS 4301 AUSC
Austin, TX 78741

Because the form is sent independently, consider using a mailing service that provides tracking. You should retain a complete copy of the submitted form for your records.

Consequences of Non-Compliance

Failing to file Form 8898 on time or failing to provide all required information can lead to a $1,000 penalty for each failure. If the failure to file continues over multiple years, a separate penalty can be applied for each year the form is not submitted.

The IRS may waive the penalty if you can demonstrate that the failure was due to reasonable cause and not willful neglect. This requires providing a credible explanation that you exercised ordinary business care and prudence but were still unable to file on time.