Illustrated Example of Form 8689 Bill and Jane Smith live and work in the United States. In 1999,they received $14,400 in income from the rental of a condominium theyown in the Virgin Islands. The rental income was deposited in a bankin the Virgin Islands and they received $500 of interest on thisincome. They were not bona fide residents of the Virgin Islands at theend of the year. The Smiths complete Form 1040, reporting their income from allsources. They report their wages, interest income, and the income andexpenses from their Virgin Islands rental property (Schedule E, Form1040). The Smiths also complete Form 8689, to determine how much of theirU.S. tax shown on line 56 of Form 1040 (with certain adjustments) isdue to the Virgin Islands. This is the amount the Smiths must pay tothe Virgin Islands. The Smiths file their Form 1040, attaching Form 8689 and all otherschedules, with the Internal Revenue Service. At the same time, they send a copy of their Form 1040 with allschedules, including Form 8689, to the Virgin Islands Bureau ofInternal Revenue. This copy will be processed as their original VirginIslands return. Completing Form 8689.cheap hotel in TorquayBill and Jane enter their names, present home address, and socialsecurity numbers at the top of the form. Part I. The Smiths enter their income from the VirginIslands in Part I. The interest income is entered on line 2 and thenet rental income of $6,200 ($14,400 of rental income minus $8,200 ofrental expenses) is entered on line 11. The Smiths' total VirginIslands income of $6,700 is entered on line 16. Part II. The Smiths have no adjustments to their VirginIslands income, so they enter zero (-0-) on line 25, and$6,700 on line 26. Their Virgin Islands adjusted gross income is$6,700. Part III. On line 27, the Smiths enter the amount fromline 56, Form 1040 ($5,554). The amount on Form 8689, line 27, isbefore any credit for taxes paid to the Virgin Islands. The Smiths enter their worldwide adjusted gross income, $49,737,(line 34, Form 1040) on line 30. They divide their Virgin Islandsadjusted gross income, $6,700 (from line 26), by line 30. Theymultiply this decimal, .135, by the amount on line 29 to find theamount of tax due to the Virgin Islands (line 32). The Smiths includethis amount ($750) in the total on Form 1040, line 64. On the dottedline next to line 64, they write "Form 8689" and show the amount.The Smiths do not complete Form 1116. Part IV. Part IV is used to show payments of income taxto the Virgin Islands only. The Smiths had no tax withheld by theVirgin Islands, but made estimated tax payments to the Virgin Islandsof $700, which are shown on lines 34 and 36. The income tax the Smithsowe to the Virgin Islands ($50) is shown on line 40. They must paytheir Virgin Islands tax at the same time they file the copy of theirreturn with the Virgin Islands. Form 4563, page 1 for John Black Form 8689, page 1 for Bill and Jane Smith