Instructions For Form 8873 - Extraterritorial Income Exclusion

2 0 00

Department of the Treasury

Internal Revenue Service

Instructions for Form 8873

Extraterritorial Income Exclusion

Section references are to the Internal Revenue Code unless otherwise noted.

or any instrumentality of the United States

Qualifying Foreign

General Instructions

and such use is required by law or

Trade Income

regulation,

Purpose of Form

Generally, qualifying foreign trade income

Such transaction is accomplished by a

is the amount of gross income that, if

subsidy granted by the government (or

Use this form to figure the amount of

any instrumentality) of the country or

excluded, would result in a reduction of

extraterritorial income (defined below)

possession in which the property is

taxable income by the greatest of:

excluded from gross income for the tax

manufactured, produced, grown, or

15% of foreign trade income,

year. Attach the form to your income tax

extracted, or

1.2% of foreign trading gross receipts,

return.

The taxpayer has elected to exclude the

Note: The amount figured on the form is

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

30% of foreign sale and leasing income.

net of the disallowed deductions.

instructions for line 1 for more details.

See definitions below and on page 2.

Who Qualifies for

Foreign Economic

Foreign Trading

the Exclusion

Process Requirements

Gross Receipts

You are generally treated as having

Eligible Taxpayers

foreign trading gross receipts from a

A taxpayer is treated as having foreign

transaction only if certain economic

Individuals, corporations (including S

trading gross receipts derived from certain

processes take place outside the United

corporations), partnerships, and other

activities in connection with qualifying

States with respect to that transaction.

pass-through entities are entitled to the

foreign trade property (defined on page

However, see $5 million gross receipts

exclusion if they have extraterritorial

2) only if it meets the foreign economic

exception on page 2.

income.

process requirements (described below).

Generally, a transaction will qualify if

Foreign trading gross receipts are the

Special rule for DISCs. The

two requirements are met:

taxpayer's gross receipts that are:

extraterritorial income exclusion does not

apply to any taxpayer for any tax year if,

Participation outside the United States

1. From the sale, exchange, or other

at any time during the tax year, the

in the sales portion of the transaction and

disposition of qualifying foreign trade

taxpayer is a member of a controlled

property,

Satisfaction of either the 50% or the

group of corporations (as defined in

85% foreign direct cost test.

2. From the lease or rental of

section 927(d)(4), as in effect before its

qualifying foreign trade property for use

For purposes of determining whether

repeal) of which a DISC is a member.

by the lessee outside the United States,

your gross receipts qualify as foreign

trading gross receipts, the foreign

3. For services that are related and

Eligible Transactions

economic process requirements are

subsidiary to (a) any sale, exchange, or

Generally, the extraterritorial income

treated as satisfied if any related person

other disposition of qualifying foreign

exclusion applies to taxpayers with

has met the economic process

trade property by such taxpayer or (b) any

respect to transactions after September

requirements with respect to the same

lease or rental of qualifying foreign trade

30, 2000. However, the exclusion does

qualifying foreign trade property.

property for use by the lessee outside the

not apply to any transaction in the

United States,

Participation outside the United States

ordinary course of a trade or business

in the sales portion of the transaction.

4. For engineering or architectural

involving a FSC that occurs before

Generally, the foreign economic process

services for construction projects located

January 1, 2002, unless the taxpayer

requirements are met for your gross

(or proposed for location) outside the

elects to apply the exclusion rules in lieu

receipts derived from any transaction if

United States, or

of the FSC rules. To make the election,

you have (or any person acting under a

5. For the performance of managerial

check the box on line 2. See the

contract with you has) participated outside

services for a person other than a related

instructions for line 2 for more details.

the United States in the solicitation (other

person connected with the production of

than advertising), negotiation, or the

foreign trading gross receipts described in

Extraterritorial Income

making of the contract relating to the

items 1, 2, or 3 above. Item 5 does not

transaction.

apply to a taxpayer for any tax year

Extraterritorial income is the gross income

50% foreign direct cost test. You meet

unless at least 50% of its foreign trading

of the taxpayer attributable to foreign

this test if the foreign direct costs you

gross receipts (determined without regard

trading gross receipts (defined below).

incurred that are attributable to the

to this sentence) for such tax year are

The taxpayer reports all of its

transaction equal or exceed 50% of the

derived from the activities described in

extraterritorial income on its tax return. It

total direct costs you incurred attributable

items 1, 2, or 3 above.

then uses Form 8873 to exclude its

to the transaction.

extraterritorial income that is qualifying

Excluded receipts. Foreign trading

foreign trade income.

Total direct costs are those costs for

gross receipts do not include the receipts

any transaction that are attributable to the

of a taxpayer from a transaction if:

following activities you (or any person

The qualifying foreign trade property or

acting under a contract with you)

services are for ultimate use in the United

performed at any location with respect to

States,

qualifying foreign trade property:

The qualifying foreign trade property or

Advertising and sales promotion,

services are for use by the United States

Cat. No. 31661R

Instructions For Form 8873 - Extraterritorial Income Exclusion - 2000

Related Articles

Related forms

Related Categories