Glossary

The Employer’s Quarterly Federal Tax Return used by employers in American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands to report and remit Social Security taxes, Medicare taxes, and Additional Medicare Tax withheld from employees. Guam and CNMI employers use this form in lieu of the standard Form 941 filed by employers in the 50 states.

The reduction or elimination of a tax penalty or interest charge assessed by the IRS or a territorial tax authority. Taxpayers may request abatement by demonstrating reasonable cause, first-time penalty relief eligibility, or administrative error. In Guam and CNMI, abatement requests follow procedures mirroring IRS rules under their respective mirror-code tax systems.

A foundational principle of tax policy holding that taxpayers with greater income or wealth should bear a proportionally larger tax burden. This principle underlies the progressive rate structure of both the U.S. federal income tax and the mirror-code income taxes administered by Guam and CNMI.

Gross income reduced by specific above-the-line deductions permitted under the Internal Revenue Code, including deductions for self-employment tax, retirement contributions, student loan interest, and alimony (for pre-2019 agreements). AGI is the starting point for calculating taxable income and determines eligibility for many credits and deductions. AGI is calculated on U.S. Form 1040, as well as on equivalent territory income tax returns filed with the Guam Department of Revenue and Taxation or the CNMI Division of Revenue and Taxation.

A corrected tax return filed after the original return to report changes in income, deductions, or credits. For federal purposes, individuals use Form 1040-X. Guam and CNMI filers amend returns through their respective local tax authorities. There is generally a three-year statute of limitations from the original filing date to claim a refund on an amended return.

A formal request for review of an IRS decision, proposed adjustment, or collection action. Taxpayers may appeal through the IRS Independent Office of Appeals before pursuing litigation in U.S. Tax Court, U.S. District Court, or the U.S. Court of Federal Claims. Territorial taxpayers with federal filing obligations retain these appeal rights.

An examination of a taxpayer’s financial records and tax returns by the IRS or a territorial tax authority to verify accuracy and compliance. Audits may be conducted by correspondence, at an IRS office, or in the field. In Guam and CNMI, audits of local returns are conducted by the Guam Department of Revenue and Taxation and the CNMI Division of Revenue and Taxation, respectively, following mirror-code procedures.

A business or individual authorized by the IRS to participate in the federal electronic filing program. Categories include Electronic Return Originator (ERO), Transmitter, Intermediate Service Provider, and Software Developer. Taxpayers with federal filing obligations in Guam and CNMI may use authorized e-File providers for applicable federal returns such as Form 1040-SS.

Unpaid federal or territorial tax liabilities from prior tax years. The IRS and territorial tax authorities may pursue collection through liens, levies, wage garnishment, or other enforcement actions. Resolution strategies include installment agreements, offers in compromise, currently-not-collectible status, or penalty abatement.

A legal status under IRC § 937 that determines whether an individual is treated as a resident of a U.S. possession such as Guam or the Commonwealth of the Northern Mariana Islands (CNMI) for federal income tax purposes. A bona fide resident of Guam or CNMI generally excludes possession-source income from U.S. federal gross income but must still report income from U.S. and other sources. Bona fide residency is established through a presence test, tax home test, and closer connection test as defined under Treasury Regulation § 1.937-1.

The legal obligation of a party to establish a fact or claim with sufficient evidence. In most federal tax proceedings, the burden of proof rests with the taxpayer. Under IRC § 7491, the burden may shift to the IRS in certain civil tax cases if the taxpayer introduces credible evidence and meets specific requirements.

A gross receipts tax imposed by the Government of Guam on the privilege of conducting business within Guam. The BPT is administered by the Guam Department of Revenue and Taxation under Title 11 of the Guam Code Annotated (GCA). It applies to virtually all business entities and is distinct from the Guam income tax, which mirrors the Internal Revenue Code.

A licensed accounting professional who has passed the Uniform CPA Examination and met the licensure requirements of a state or territory board of accountancy. CPAs may provide tax preparation, advisory, and representation services, but are not licensed to practice law. For complex territorial tax matters involving legal interpretation, a tax attorney or enrolled agent should be consulted alongside a CPA.

An exception under IRC § 7701(b) that may allow certain individuals to avoid U.S. resident alien status for tax purposes if they have a tax home in a foreign country and a closer connection to that country than to the United States. This concept interacts with bona fide residency rules for Guam and CNMI residents under IRC § 937.

The CNMI operates a mirror-code tax system pursuant to Section 601 of the Covenant to Establish a Commonwealth of the Northern Mariana Islands in Political Union with the United States of America. CNMI residents file income tax returns with the CNMI Division of Revenue and Taxation, not the IRS. The CNMI tax law mirrors the Internal Revenue Code with local modifications. Employers in the CNMI file Form 941-SS for federal employment taxes and issue Form W-2CM for employee wage reporting.

The Covenant to Establish a Commonwealth of the Northern Mariana Islands in Political Union with the United States of America, codified at 48 U.S.C. § 1801 et seq. Section 601 of the Covenant establishes the framework governing CNMI taxation, providing that CNMI residents are generally subject to CNMI income taxes (mirroring the IRC) rather than direct U.S. federal income tax, with certain exceptions for U.S.-source income and employment taxes.

Income earned in one period but received in a later period, most commonly through qualified retirement plans (401(k), 403(b), pension plans) or nonqualified deferred compensation arrangements under IRC § 409A. Timing and sourcing of deferred compensation income can have significant implications for territorial residents of Guam and CNMI, particularly when income is earned or received in different jurisdictions.

Prior to the Tax Cuts and Jobs Act of 2017 (TCJA, Pub. L. 115-97), taxpayers could claim a personal exemption for each qualifying child or qualifying relative. The TCJA suspended personal and dependency exemptions for tax years 2018 through 2025, replacing them with an enhanced standard deduction and expanded Child Tax Credit. Guam and CNMI mirror-code returns follow the same suspension schedule.

An individual who is treated as both a U.S. resident alien and a nonresident alien during the same tax year, typically in the year of arrival in or departure from the United States. Individuals who change bona fide residency to or from Guam or CNMI in a tax year may have dual-jurisdiction filing requirements.

Compensation received for personal services rendered, including wages, salaries, tips, net earnings from self-employment, and certain other amounts includible in gross income under IRC § 32(c)(2). Earned income is the basis for calculating the Earned Income Tax Credit and self-employment tax. For territorial residents of Guam and CNMI, earned income sourced within the territory is generally taxable only to the territory.

A refundable federal tax credit for low- to moderate-income workers under IRC § 32. Bona fide residents of Guam and CNMI who file Form 1040-SS may be eligible for the Additional Child Tax Credit (ACTC) even without EITC eligibility, as EITC generally does not apply directly in those territories. Eligibility thresholds and credit amounts are adjusted annually for inflation.

The transmission of a tax return to the IRS or a territorial tax authority using electronic means. Federal forms such as Form 1040-SS and Form 941-SS filed by Guam and CNMI taxpayers may be submitted electronically through IRS-authorized providers. Guam’s Department of Revenue and Taxation also accepts electronic filing for Guam territorial income tax returns.

A federally-licensed tax practitioner authorized to represent taxpayers before the IRS in all matters including audits, collections, and appeals, pursuant to 31 C.F.R. Part 10 (Circular 230). Enrolled agents earn this status by passing the Special Enrollment Examination (SEE) or by virtue of prior IRS employment. EAs practicing in Guam and CNMI may assist with both federal filing obligations and territorial tax matters.

A federal tax imposed on the transfer of a decedent’s taxable estate under IRC §§ 2001–2210. The federal estate tax applies to U.S. citizens and residents regardless of domicile, including those domiciled in Guam or CNMI. The estate tax exemption is $13.61 million per individual for 2024 and is scheduled to sunset under the TCJA at the end of 2025 absent Congressional action. Guam and CNMI do not currently impose a separate estate tax at the territorial level.

The willful attempt to evade or defeat a tax imposed by law, constituting a federal felony under IRC § 7201, punishable by up to five years imprisonment and substantial fines. Tax evasion is distinguished from tax avoidance (legal reduction of tax liability) and negligence. Prosecutions may be brought in federal court for evasion of federal taxes and in territorial courts for evasion of Guam or CNMI taxes.

A tax imposed on the manufacture, sale, or use of specific goods or services, or on certain transactions, under IRC §§ 4001–4999. Federal excise taxes include those on fuel, tobacco, alcohol, air transportation, and certain medical devices. Guam and CNMI impose their own territorial excise taxes, separate from and in addition to any applicable federal excise taxes.

Enacted as part of the HIRE Act of 2010 (Pub. L. 111-147), FATCA (IRC §§ 1471–1474) requires U.S. persons, including those residing in U.S. territories such as Guam and CNMI, to report foreign financial assets exceeding specified thresholds on Form 8938. Foreign financial institutions are also required to report information about U.S. account holders to the IRS. FATCA is separate from, but complementary to, FBAR reporting requirements.

A Report of Foreign Bank and Financial Accounts filed with the Financial Crimes Enforcement Network (FinCEN) by U.S. persons who have a financial interest in, or signature authority over, foreign financial accounts exceeding an aggregate value of $10,000 at any point during the calendar year. U.S. citizens and permanent residents residing in Guam and CNMI are subject to FBAR requirements. The annual deadline is April 15, with an automatic extension to October 15.

In Guam and CNMI, employers withhold territorial income taxes from employee wages rather than federal income tax. However, employers do withhold and remit federal Social Security and Medicare (FICA) taxes via Form 941-SS. Employees in these territories complete a W-4 equivalent for territorial withholding purposes under the respective mirror-code systems.

Bona fide residents of Guam and CNMI who have federal filing obligations (such as Form 1040-SS or Form 5074) follow federal filing deadlines: generally April 15, with extensions available. Territorial income tax returns filed with the Guam Department of Revenue and Taxation or the CNMI Division of Revenue and Taxation also follow April 15 deadlines, with extension procedures mirroring federal rules.

An IRS form filed by bona fide residents of American Samoa, Guam, the CNMI, Puerto Rico, or the U.S. Virgin Islands who have net self-employment income of $400 or more. Form 1040-SS is used to calculate and pay self-employment tax (Social Security and Medicare) on self-employment earnings and may also be used to claim the Additional Child Tax Credit (ACTC). This is a federal return filed directly with the IRS—not the territorial tax authority.

An IRS form used by bona fide residents of American Samoa to exclude American Samoa-source income from U.S. gross income under IRC § 931. While specific to American Samoa, this form illustrates the broader framework of possession income exclusions that operate in parallel with the rules applicable to Guam and CNMI residents.

An IRS form that certain individuals must attach to their Form 1040 to allocate U.S. federal income tax between the United States and Guam or CNMI. Form 5074 is required when a filer has income from both U.S. sources and Guam/CNMI sources, or when a bona fide resident of Guam or CNMI has U.S.-source income subject to federal tax. Proper completion is essential for avoiding double taxation and ensuring correct allocation of tax liability between jurisdictions.

An IRS form required under IRC § 937(c) for U.S. citizens or resident aliens who become or cease to be bona fide residents of a U.S. possession—including Guam or CNMI—in any tax year. The form must be filed if the individual’s gross income for the year exceeds $75,000. Failure to file may result in penalties. This is a critical form for individuals relocating to or from Guam or CNMI.

The Commonwealth of the Northern Mariana Islands equivalent of the federal Form W-2, issued by employers in the CNMI to report employee wages and CNMI income tax withheld. Form W-2CM supports employees in filing their CNMI territorial income tax return with the CNMI Division of Revenue and Taxation. Employers are required to issue W-2CM forms and file copies with the CNMI tax authority by applicable deadlines.

The territorial equivalent of the federal Form W-2, issued by employers in Guam to report employee wages, Guam income tax withheld, and Social Security and Medicare taxes withheld. Form W-2GU is used by employees to file their Guam territorial income tax return with the Guam Department of Revenue and Taxation. Employers must issue W-2GU forms and file copies with Guam DRT by applicable deadlines.

A federal tax imposed on transfers of property by gift under IRC §§ 2501–2524. The annual gift tax exclusion is $18,000 per recipient for 2024. Gifts exceeding the annual exclusion reduce the donor’s lifetime applicable exclusion amount. U.S. citizens and residents domiciled in Guam and CNMI are subject to federal gift tax, making proper planning essential for high-net-worth individuals in the territories.

All income from whatever source derived unless specifically excluded by the Internal Revenue Code, as defined in IRC § 61. This includes wages, salaries, tips, interest, dividends, rents, royalties, business income, and capital gains. For bona fide residents of Guam and CNMI, income sourced within the territory is generally subject to territorial income tax only, while other-source income may also be subject to U.S. federal tax depending on applicable possession provisions.

The governmental agency responsible for administering Guam’s territorial income tax, Business Privilege Tax, use tax, and other territorial taxes. Guam DRT operates under Title 11 of the Guam Code Annotated (GCA), which mirrors the Internal Revenue Code. Guam residents file their territorial income tax returns with Guam DRT rather than the IRS.

Guam’s income tax law, codified in Title 11 of the Guam Code Annotated (GCA), is a mirror image of the Internal Revenue Code—incorporating the IRC by substituting ‘Guam’ for ‘United States’ throughout. Guam’s income tax rules therefore generally parallel federal rules in terms of rates, deductions, and credits, with Guam DRT administering and collecting the tax. Bona fide residents of Guam file their income tax returns with Guam DRT and receive refunds from Guam, not from the IRS.

Under IRC § 937 and Treasury Regulation § 1.937-2, income is sourced to a U.S. possession based on where services are performed, where property is located, or where business is conducted. Proper sourcing determines whether income is subject to territorial tax, U.S. federal tax, or both—and is a critical issue for businesses and individuals operating across multiple jurisdictions, including between the U.S. mainland and Guam or CNMI.

An individual who performs services for another party but is not an employee. Independent contractors are self-employed and must pay self-employment tax via Form 1040-SS (in Guam and CNMI) or Form 1040 Schedule SE. Worker misclassification is a common IRS audit issue; the IRS applies a multi-factor test focusing on behavioral control, financial control, and the type of relationship.

A tax processing number issued by the IRS to individuals who are required to have a U.S. taxpayer identification number but are not eligible to obtain a Social Security Number. ITINs are frequently needed by nonresident alien workers in Guam and CNMI who have U.S. tax filing obligations, as well as by foreign national business partners or investors with U.S.-source income.

A formal arrangement under IRC § 6159 between a taxpayer and the IRS (or a territorial tax authority) to pay a tax liability in monthly installments over an extended period. For federal obligations, installment agreements may be requested via Form 9465. Streamlined installment agreements are available for liabilities under $50,000. Territorial tax authorities in Guam and CNMI offer analogous installment arrangements for territorial tax debts.

Internal Revenue Code Section 931 provides an exclusion from U.S. gross income for income derived from sources within Guam, American Samoa, or the CNMI by a bona fide resident of one of those possessions, subject to specific statutory requirements. This section is foundational to understanding the federal tax treatment of U.S. possession residents and operates in conjunction with IRC §§ 932–937.

Internal Revenue Code Section 937 defines ‘bona fide resident’ of a U.S. possession (including Guam and CNMI) and establishes income source rules for possession-source income. Treasury Regulation §§ 1.937-1 through 1.937-3 provide detailed guidance. This section governs whether an individual’s income is taxable by the U.S. or only by the possession, and is critical for any individual or business with a territorial nexus.

A procedural right under IRC §§ 6320 and 6330 entitling taxpayers to a hearing before the IRS Independent Office of Appeals before the IRS files a Notice of Federal Tax Lien or proceeds with a levy. CDP hearings allow taxpayers to challenge collection actions and propose alternatives such as installment agreements, offers in compromise, or currently-not-collectible status. CDP rights are available to all taxpayers with federal obligations, including territorial residents of Guam and CNMI.

A legal doctrine under IRC § 6013(d)(3) providing that spouses who file a joint federal income tax return are each individually liable for the full amount of tax, interest, and penalties—regardless of who earned the income. Relief may be available through innocent spouse relief (IRC § 6015(b)), separation of liability relief (IRC § 6015(c)), or equitable relief (IRC § 6015(f)).

The IRS’s legal seizure of a taxpayer’s property or rights to property to satisfy a tax liability, authorized under IRC §§ 6330–6343. A levy can attach to wages, bank accounts, and business assets. Prior to levy, the IRS must issue a Final Notice of Intent to Levy and provide the taxpayer the opportunity for a Collection Due Process hearing.

A legal claim by the U.S. government against all property and rights to property of a taxpayer who neglects or refuses to pay a tax debt after assessment and demand, arising under IRC § 6321. A Notice of Federal Tax Lien is filed in the public record to establish the government’s priority against third parties. Taxpayers in Guam and CNMI with federal tax liabilities are subject to federal tax liens on all their U.S. and territorial property.

A tax-deferred exchange of real property held for business or investment use under IRC § 1031. Following the TCJA (2017), like-kind exchanges are limited to real property. The exchanger must identify replacement property within 45 days and complete the exchange within 180 days. Taxpayers in Guam and CNMI may engage in § 1031 exchanges involving U.S. real property, but exchanges involving territorial real property raise additional sourcing and jurisdictional considerations.

A business entity that provides limited liability protection to its owners (members) and offers flexible pass-through taxation by default under Treasury Regulation § 301.7701-3. Single-member LLCs are treated as disregarded entities; multi-member LLCs are treated as partnerships for tax purposes unless an election is made to be taxed as a corporation. LLCs are a common structure for businesses operating in Guam and CNMI.

A component of FICA taxes imposed under IRC §§ 3101 and 3111, currently at a rate of 1.45% on all wages (employee share) with an employer match of 1.45%. An Additional Medicare Tax of 0.9% applies to wages and self-employment income exceeding $200,000 for single filers ($250,000 for joint filers) under IRC § 3103. Medicare taxes apply to covered wages paid in Guam and CNMI, remitted via Form 941-SS.

A U.S. territory whose income tax law is structured as a mirror image of the Internal Revenue Code, substituting the territory’s name for ‘United States.’ Guam and the CNMI are mirror code jurisdictions. Residents of mirror code jurisdictions file income tax returns with their territorial tax authority (not the IRS) and pay income taxes to the territory rather than the federal government, except for specific federal obligations such as self-employment tax and employment taxes.

The incorrect classification of an employee as an independent contractor, resulting in failure to withhold and remit employment taxes. The IRS and territorial tax authorities scrutinize worker classification under a multi-factor common law test. Employers found to have misclassified workers may face back taxes, penalties, and interest. The IRS Voluntary Classification Settlement Program (VCSP) offers relief to employers who voluntarily reclassify workers.

A 3.8% surtax imposed on the lesser of a taxpayer’s net investment income or the amount by which modified adjusted gross income exceeds a statutory threshold ($200,000 for single filers; $250,000 for married filing jointly) under IRC § 1411. Net investment income includes interest, dividends, capital gains, rental income, and passive income. The NIIT may apply to persons who are bona fide residents of Guam or CNMI with investment income from outside the territory.

An individual who is neither a U.S. citizen nor a U.S. resident alien under IRC § 7701(b). In the context of Guam and CNMI, foreign nationals working or investing in the territories may have complex federal and territorial filing obligations depending on the source and character of their income. NRAs with U.S.-source income not effectively connected with a U.S. trade or business may be required to file Form 1040-NR.

A formal settlement mechanism under IRC § 7122 allowing eligible taxpayers to resolve a federal tax liability for less than the full amount owed. The IRS evaluates OICs based on three grounds: doubt as to collectibility, doubt as to liability, and effective tax administration. Taxpayers submit an OIC using Form 656, accompanied by Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. Some territorial tax authorities offer analogous settlement programs.

A business entity—such as a partnership, S corporation, or LLC taxed as a partnership—that does not pay entity-level income tax. Income, deductions, and credits pass through to the owners’ individual tax returns. Under IRC § 199A (enacted by the TCJA), eligible pass-through business owners may deduct up to 20% of qualified business income. Pass-through treatment has important implications for territorial tax planning in Guam and CNMI.

Federal Insurance Contributions Act taxes comprise Social Security tax (6.2% employee / 6.2% employer on wages up to the annual wage base) and Medicare tax (1.45% employee / 1.45% employer on all wages), under IRC §§ 3101–3128. FICA taxes apply to covered employment in Guam and CNMI. Employers in these territories use Form 941-SS to report and remit FICA taxes quarterly.

An administrative IRS policy allowing taxpayers with a clean compliance history to request abatement of certain failure-to-file and failure-to-pay penalties for a single tax year. First-time penalty abatement (FTA) is requested orally or in writing and does not require a showing of reasonable cause. It is available to all taxpayers with applicable federal filing obligations, including territorial residents of Guam and CNMI.

IRC § 30A currently provides a tax credit for certain economic activity-based income in American Samoa for domestic corporations. The original possession tax credit under former IRC § 936—applicable to Puerto Rico and other possessions including Guam and CNMI—was repealed effective after 1995 with a phase-out period. Understanding the history of § 936 is important for historical tax planning matters and certain legacy corporate structures in the territories.

An individual who meets the relationship, age, residency, support, citizenship/residency, joint return, and dependent taxpayer tests under IRC § 152(c). A qualifying child entitles the taxpayer to claim the Child Tax Credit, Earned Income Tax Credit, Child and Dependent Care Credit, and head of household filing status where applicable. Territorial residents of Guam and CNMI who file Form 1040-SS may claim the Additional Child Tax Credit (ACTC) for qualifying children.

An individual who fails the qualifying child tests but meets the not-a-qualifying-child, member of household or relationship, gross income, support, citizenship/residency, joint return, and dependent taxpayer tests under IRC § 152(d). A qualifying relative may be claimed as a dependent but does not qualify the taxpayer for EITC. This analysis applies equally under Guam and CNMI mirror-code returns.

A formal request for return of overpaid taxes, filed either through an original return or an amended return (Form 1040-X for federal purposes). Under IRC § 6511, a refund claim must generally be filed within three years from the original filing date or two years from the date the tax was paid, whichever is later. Refund claims for Guam and CNMI territorial taxes are filed with the respective territorial tax authority under their mirror-code statutes of limitation.

Under IRC § 6672, a ‘responsible person’ who willfully fails to collect, account for, or pay over federal employment taxes (trust fund taxes) may be personally liable for a penalty equal to 100% of the unpaid taxes. The trust fund recovery penalty can be asserted against officers, directors, shareholders, and other individuals with authority over a business’s finances. This penalty applies to employment taxes remitted via Form 941-SS in Guam and CNMI.

A corporation that elects pass-through taxation under Subchapter S of the Internal Revenue Code (IRC §§ 1361–1379). Income, deductions, and credits flow through to shareholders’ individual returns. Corporations operating in Guam or CNMI may elect S corporation status if they otherwise qualify. An important limitation: S corporations may not have nonresident alien shareholders, which can affect ownership planning for territorial businesses with foreign national investors.

A tax on net earnings from self-employment, equal to 15.3% (12.4% Social Security + 2.9% Medicare) on net self-employment income up to the Social Security wage base, with 2.9% Medicare on amounts above the base, under IRC §§ 1401–1403. Self-employed bona fide residents of Guam and CNMI report and pay self-employment tax on Form 1040-SS filed with the IRS. One-half of the self-employment tax is deductible in computing AGI.

The employee and employer portions of the Social Security component of FICA, each at 6.2% of covered wages up to the annual wage base ($168,600 for 2024), under IRC §§ 3101 and 3111. Social Security taxes are remitted by Guam and CNMI employers via Form 941-SS. Self-employed individuals in Guam and CNMI pay the combined 12.4% self-employment Social Security tax via Form 1040-SS.

A flat reduction to adjusted gross income in lieu of itemized deductions, under IRC § 63(c). For 2024: $14,600 for single filers, $29,200 for married filing jointly, and $21,900 for head of household. Guam and CNMI mirror-code returns use equivalent standard deduction amounts under their respective territorial tax codes.

The time period within which the IRS or a territorial tax authority may assess additional tax, and within which taxpayers may file refund claims. Under IRC § 6501, the standard IRS assessment period is three years from the filing date of the return. A six-year period applies if there is a substantial omission of income (more than 25% of gross income). There is no limitations period if a return is fraudulent or not filed. Guam and CNMI apply mirror-code limitation periods.

The legal reduction of tax liability through planning strategies permitted under the Internal Revenue Code, such as contributing to retirement accounts, harvesting capital losses, timing income and deductions, and utilizing territorial tax incentives. Tax avoidance is expressly distinguished from tax evasion, which is illegal. Effective tax planning for businesses and individuals in Guam and CNMI requires understanding both federal and territorial rules.

A federal Article I court with jurisdiction over disputes between taxpayers and the IRS regarding deficiency determinations, collection actions, and certain other matters, governed by IRC §§ 7441–7479. Taxpayers in Guam and CNMI with federal tax disputes may petition the U.S. Tax Court. Tax Court jurisdiction does not extend to disputes with Guam DRT or CNMI Division of Revenue and Taxation; those disputes are resolved through the respective territorial court systems.

A direct, dollar-for-dollar reduction of tax liability. Credits may be refundable (generating a refund if they exceed tax liability), nonrefundable (limited to reducing tax to zero), or partially refundable. Key credits available to Guam and CNMI filers with federal obligations include the Additional Child Tax Credit (via Form 1040-SS) and various business credits under the regular IRC provisions.

A bilateral agreement between the United States and a foreign country governing the taxation of cross-border income aimed at eliminating or reducing double taxation. The U.S. has income tax treaties with over 60 countries. U.S. territories such as Guam and CNMI are generally not treated as the United States for treaty purposes unless the treaty specifically provides otherwise—a significant planning consideration for businesses in Guam and CNMI with international operations.

The pricing of transactions between related parties and the tax rules under IRC § 482 requiring such transactions to be priced on an arm’s-length basis. Transfer pricing can be a significant issue for businesses operating across U.S. and territorial jurisdictions, particularly where the allocation of income between a U.S. parent and a Guam or CNMI affiliate is at issue.

Taxes collected by an employer from employees’ wages on behalf of the government—specifically federal income tax withheld and the employee’s share of FICA taxes—that the employer holds in trust for the IRS until remitted. Failure to remit trust fund taxes can result in personal liability under the Trust Fund Recovery Penalty of IRC § 6672. In Guam and CNMI, territorial income taxes withheld from employee wages are similarly held in trust for the territorial tax authority.

A territorial tax imposed by Guam on the use, storage, or consumption of tangible personal property purchased outside Guam but used within Guam, complementary to Guam’s sales tax regime. Businesses and individuals in Guam may be subject to use tax on goods purchased from the U.S. mainland or from foreign vendors. The use tax is administered by the Guam Department of Revenue and Taxation.

An IRS program that allows eligible taxpayers to voluntarily reclassify workers as employees for federal employment tax purposes with partial relief from employment tax liabilities for prior years, pursuant to Rev. Proc. 2012-44. Employers in Guam and CNMI who have misclassified workers may participate in VCSP for their federal employment tax obligations. Separate disclosure to territorial tax authorities may also be advisable.

A program under IRS policy allowing taxpayers who have failed to comply with federal tax laws—particularly international reporting and offshore account obligations—to come into compliance with reduced risk of criminal prosecution. The IRS Criminal Investigation Voluntary Disclosure Practice requires that disclosure be timely, complete, and accompanied by payment arrangements. Businesses and individuals in Guam and CNMI with unreported foreign accounts or offshore income may benefit from voluntary disclosure procedures.

In Guam and CNMI, employers withhold territorial income taxes from employee wages under procedures mirroring federal withholding rules. Employers do not withhold federal income tax from wages paid for services performed in these territories; instead, they withhold Guam or CNMI income tax. However, employers do withhold and remit federal FICA taxes (Social Security and Medicare) via Form 941-SS. Employees complete a W-4 equivalent for territorial withholding purposes.