Instructions For Form 8873 - 2006 (Page 2 of 4) in pdf

•

The taxpayer has elected to exclude the

annualized basis. For purposes of the

purposes of the extraterritorial income

receipts under section 942(a)(3). See the

exception, all related persons are treated as

exclusion, if the persons are treated as a

instructions for line 1 for more details.

one taxpayer and, therefore, only one $5

single employer under section 52(a) or (b) or

million limit applies.

section 414(m) or (o). For this purpose,

Foreign Economic

determinations under section 52(a) and (b)

Process Requirements

In the case of a partnership, S

are made without regard to section 1563(b).

corporation, or other pass-through entity, the

You are generally treated as having foreign

limit applies to both the pass-through entity

Foreign Trade Income

trading gross receipts from a transaction

and its partners, shareholders, or other

only if certain economic processes take

Foreign trade income (FTI) is your taxable

owners. The pass-through entity must

place outside the United States with respect

income (determined without regard to the

advise its partners, shareholders, or other

to that transaction. However, see $5 million

extraterritorial income exclusion) attributable

owners if and how the entity met the foreign

gross receipts exception below.

to foreign trading gross receipts. See

economic process requirements.

Generally, a transaction will qualify if two

section 941(b)(2) for special rules for

cooperatives.

requirements are met:

Qualifying Foreign

•

Participation outside the United States in

Trade Property

Foreign Sale and Leasing

the sales portion of the transaction and

•

Satisfaction of either the 50% or the 85%

Generally, qualifying foreign trade property

Income

foreign direct cost test.

is property that meets all three of the

Foreign sale and leasing income (FSLI) is

following conditions.

For purposes of determining whether

generally the amount of your foreign trade

•

The property must be held primarily for

your gross receipts qualify as foreign trading

income for a transaction that is:

sale, lease, or rental, in the ordinary course

•

gross receipts, the foreign economic

Properly allocable to activities that

of a trade or business, for direct use,

process requirements are treated as

constitute foreign economic processes

consumption, or disposition outside the

satisfied if any related person has met the

(described above),

United States and Puerto Rico.

•

economic process requirements with

Derived by you from the lease or rental of

•

Not more than 50% of the fair market

respect to the same qualifying foreign trade

qualifying foreign trade property for use by

value of the property can be attributable to

property.

the lessee outside the United States, or

(a) articles manufactured, produced, grown,

•

Participation outside the United States in

Derived by you from the sale of qualifying

or extracted outside the United States and

the sales portion of the transaction.

foreign trade property formerly leased or

Puerto Rico and (b) direct costs of labor

Generally, the foreign economic process

rented for use by the lessee outside the

performed outside the United States and

requirements are met for your gross receipts

United States.

Puerto Rico.

derived from any transaction if you have (or

•

Only directly allocable expenses are

The property generally must be

any person acting under a contract with you

taken into account in figuring your foreign

manufactured, produced, grown, or

has) participated outside the United States

sale and leasing income. Income properly

extracted within the United States and

in the solicitation (other than advertising),

allocable to certain intangibles is excluded

Puerto Rico. However, property

negotiation, or the making of the contract

from foreign sale and leasing income. See

manufactured, produced, grown, or

relating to the transaction.

sections 941(c)(2)(B) and 941(c)(3) for

extracted outside the United States and

50% foreign direct cost test. You meet

special rules related to foreign sale and

Puerto Rico is qualifying foreign trade

this test if the foreign direct costs you

property if the property was manufactured,

leasing income.

incurred that are attributable to the

produced, grown, or extracted by:

transaction equal or exceed 50% of the total

Reporting of Transactions

1. A domestic corporation,

direct costs you incurred attributable to the

Generally, you may report transactions

2. An individual who is a citizen or

transaction.

resident of the United States,

(including sale transactions and leasing

Total direct costs are those costs for

transactions) either on a transaction-by-

3. A foreign corporation that elects to be

any transaction that are attributable to the

treated as a domestic corporation under

transaction basis or on the basis of groups

following activities you (or any person acting

of transactions based on product lines or

section 943(e), or

under a contract with you) performed at any

4. A partnership or other pass-through

recognized industry or trade usage. See the

location with respect to qualifying foreign

instructions for line 5c for rules concerning

entity all of the partners or owners of which

trade property:

are described in items 1, 2, or 3 above.

grouping elections that may be made with

•

Advertising and sales promotion,

respect to transactions. However, you may

•

Processing of customer orders and

not group sales and leases together, and

Excluded property. The following property

arranging for delivery,

you may not report foreign sale and leasing

is excluded from the definition of qualifying

•

Transportation outside the United States

income in column (b) of Part II of the form

foreign trade property:

•

in connection with delivery to the customer,

on the basis of groups.

Property with respect to which a related

•

Determination and transmittal of a final

person (defined below) has calculated its

invoice or statement of account or the

exclusion using the 1.2% of foreign trading

receipt of payment, and

gross receipts method,

•

Specific Instructions

•

Assumption of credit risk.

Property you lease or rent for use by any

Foreign direct costs are the portion of

related person,

•

the total direct costs of any transaction

Certain intangibles described in section

Part I–Elections and Other

attributable to activities performed outside

943(a)(3)(B),

•

Information

the United States.

Oil or gas (or any primary product of oil or

gas),

Alternative 85% foreign direct cost test.

•

Line 1. Check the box if the taxpayer is

Any log, cant, or similar form of

You meet this test if, for any two of the

electing, under section 942(a)(3), to exclude

unprocessed softwood timber,

activities listed above, the foreign direct

•

a portion of its gross receipts from treatment

Products the transfer of which is

costs equal or exceed 85% of the total direct

under the extraterritorial income exclusion

prohibited or curtailed to carry out the policy

costs attributable to that activity.

provisions. Attach a schedule that lists the

stated in paragraph (2)(C) of section 3 of

If you incur no direct costs with respect

transactions being omitted.

Public Law 96-72, The Export Administration

to any activity listed above, that activity is

Act of 1979, and

Note. A foreign tax credit may be available

not taken into account for purposes of

•

Property designated by an Executive

for foreign taxes paid on the receipts the

determining whether you have met either

order of the President as in short supply

taxpayer excludes from treatment under the

the 50% or 85% foreign direct cost test.

because the property is insufficient to meet

extraterritorial income exclusion provisions.

$5 million gross receipts exception. The

the requirements of the domestic economy

foreign economic process requirements do

Line 2. Check the box if the taxpayer is

(beginning with the date specified in the

not apply to taxpayers whose foreign trading

electing to apply the extraterritorial income

Executive order).

gross receipts for the tax year are $5 million

exclusion provisions to certain transactions

or less. For tax years of less than 12

Related person. Generally, a person is

involving a FSC (see Eligible Transactions

months, the test is determined on an

considered related to another person, for

on page 1).

-2-

Instructions For Form 8873 - 2006 Page 2

Related Articles

Related forms

Related Categories