Instructions For Schedule S (Form 1120-F) - 2012
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Department of the Treasury
Internal Revenue Service
Instructions for Schedule S
(Form 1120-F)
Exclusion of Income From the International Operation of Ships or Aircraft Under
Section 883
A qualified foreign corporation is a
The term international operation of
Section references are to the Internal Revenue
Code unless otherwise noted.
corporation as defined in section 7701(a)
ships or aircraft means the operation of
(3) that is organized in a qualified foreign
ships or aircraft (as defined above) with
Future Developments
country and considered engaged in the
respect to the carriage of passengers or
international operation of ships or aircraft.
cargo on voyages or flights that begin or
For the latest information about
Furthermore, to be a qualified foreign
end in the United States, as determined in
developments related to Schedule S
corporation, the corporation must satisfy
Regulations section 1.883-1(f)(2). The
(Form 1120-F) and its instructions, such
one of the stock ownership tests
term does not include the carriage of
as legislation enacted after they were
described in the instructions for Parts II, III,
passengers or cargo on a voyage or flight
published, go to
and IV, later.
that begins and ends in the United States,
even if the voyage or flight contains a
General Instructions
Note. A corporation may be a qualified
segment extending beyond the territorial
foreign corporation with respect to one
limits of the United States, unless the
Purpose of Schedule
category of qualified income but not with
passenger disembarks or the cargo is
respect to another such category.
unloaded outside the United States.
Schedule S (Form 1120-F) is used by
Operation of ships or aircraft beyond the
foreign corporations to claim an exclusion
territorial limits of the United States does
of income under section 883 and to
A foreign corporation is considered
not constitute in itself international
provide reporting information required by
engaged in the operation of ships or
operation of ships or aircraft.
the section 883 regulations.
aircraft only during the time it is an owner
Equivalent Exemption. A foreign
or lessee of one or more entire ships or
Who Must File
country grants an equivalent exemption
aircraft and uses such ships or aircraft in
when it exempts from taxation income
one or more of the following activities:
Qualified foreign corporations engaged in
from the international operation of ships or
Carriage of passengers or cargo for
the international operation of ships or
aircraft derived by corporations organized
hire,
aircraft that are claiming an exclusion of
in the United States. Whether a foreign
In the case of a ship, the leasing out of
gross income under section 883 must
country provides an equivalent exemption
the ship under a time or voyage charter
complete Schedule S (Form 1120-F). See
must be determined separately with
(full charter), space or slot charter, or
Definitions below.
respect to each category of income listed
bareboat charter (as those terms are
on lines 2a through 2h of the schedule.
When and Where to File
defined in Regulations section 1.883-1(e)
See Regulations section 1.883-1(h)(2) for
(5)), provided the ship is used to carry
Attach Schedule S (Form 1120-F) to the
rules for determining equivalent
passengers or cargo for hire, and
foreign corporation's Form 1120-F income
exemptions for each category of income.
In the case of aircraft, the leasing out of
tax return. See the Instructions for Form
An equivalent exemption may be
the aircraft under a wet lease (full charter),
1120-F for the time, place, and manner for
available for income derived from the
space, slot, or block-seat charter, or dry
filing the corporation's income tax return.
international operation of ships even
lease (as those terms are defined in
though income derived from the
Regulations section 1.883-1(e)(5)),
Definitions
international operation of aircraft may not
provided the aircraft is used to carry
Qualified income is income derived from
be exempt, and vice versa. For rules
passengers or cargo for hire. See
the international operation of ships or
regarding foreign corporations organized
Regulations sections 1.883-1(e)(1) and (2)
aircraft that is (a) properly includible in any
in countries that provide exemptions only
for additional information.
of the income categories described on
through an income tax convention, see
lines 2a through 2h of the schedule, and
Activities that do not constitute
Regulations section 1.883-1(h)(3).
(b) the subject of an equivalent exemption
operation of ships or aircraft include, but
An equivalent exemption may exist
(defined below) granted by the qualified
are not limited to:
where the foreign country:
foreign country (defined below) in which
The activities of a non-vessel operating
Generally imposes no tax on income,
the corporation is organized.
common carrier,
including income from the international
Ship or aircraft management,
operation of ships or aircraft,
A qualified foreign country is a
Obtaining crews for ships or aircraft
Specifically provides a domestic law tax
foreign country or U.S. possession that
operated by another party,
exemption for income derived from the
grants to corporations organized in the
Acting as a ship's agent,
international operation of ships or aircraft,
United States an equivalent exemption
Ship or aircraft brokering,
either by statute, decree, income tax
(defined below) for the category of
Freight forwarding,
qualified income, derived by the foreign
convention, or otherwise, or
The activities of travel agents and tour
corporation seeking qualified foreign
Exchanges diplomatic notes with the
operators,
corporation status. A foreign country may
United States, or enters into an agreement
Rental by a container leasing company
be a qualified foreign country with respect
with the United States, that provides for a
of containers and related equipment, and
to one category of qualified income but not
reciprocal exemption for purposes of
with respect to another such category.
The activities of a concessionaire.
section 883.
Dec 12, 2012
Cat. No. 51665B
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