Instructions For Form 8873 - Extraterritorial Income Exclusion


Instructions for Form 8873
Department of the Treasury
Internal Revenue Service
(Rev. September 2017)
(Use with the December 2010 revision of Form 8873.)
Extraterritorial Income Exclusion
be considered enforceable against a
income that is qualifying foreign trade
Section references are to the Internal Revenue
Code unless otherwise noted.
lessor notwithstanding the fact that a
lessor retained approval of the
Qualifying Foreign
What’s New
replacement lessee.
Trade Income
Unrelated person. An unrelated person
These instructions are being revised
Generally, qualifying foreign trade income
is a person that is not a related person as
because of a required change to the
is the amount of gross income that, if
defined in Qualifying Foreign Trade
Paperwork Reduction Act Notice
excluded, would result in a reduction of
Property, later.
regarding the OMB control number under
taxable income by the greatest of:
which the information pertaining to Form
Pre-Repeal ETI Exclusion
15% of foreign trade income,
8873 is being collected.
1.2% of foreign trading gross receipts,
General Instructions
30% of foreign sale and leasing
Who Qualifies for the Exclusion
Purpose of Form
Eligible Taxpayers
See definitions below.
Use this form to figure the amount of
Individuals, corporations (including S
Foreign Trading
extraterritorial income (defined below)
corporations), partnerships, and other
Gross Receipts
excluded from gross income for the tax
pass-through entities are entitled to the
year. Attach the form to your income tax
exclusion if they have extraterritorial
A taxpayer is treated as having foreign
trading gross receipts (FTGR) derived
from certain activities in connection with
Special rule for DISCs. The
Note. The amount figured on the form is
qualifying foreign trade property (defined
extraterritorial income exclusion does not
net of the disallowed deductions.
later) only if it meets the foreign economic
apply to any taxpayer for any tax year if, at
process requirements (described below).
ETI Repeal
any time during the tax year, the taxpayer
Foreign trading gross receipts are the
is a member of a controlled group of
The American Jobs Creation Act of 2004
taxpayer's gross receipts that are:
corporations (as defined in section 927(d)
repealed the ETI exclusion provisions
(4), as in effect before its repeal) of which
1. From the sale, exchange, or other
generally for transactions after 2004,
a DISC (Domestic International Sales
disposition of qualifying foreign trade
subject to transition rules.
Corporation) is a member.
Transition Rule
2. From the lease or rental of
Eligible Transactions
qualifying foreign trade property for use by
Taxpayers may claim the ETI exclusion for
the lessee outside the United States;
(a) transactions under a binding contract
Generally, the extraterritorial income
that meets the requirements described in
exclusion applies to taxpayers with
3. For services that are related and
Binding Contract Exception below or (b)
respect to transactions after September
subsidiary to (a) any sale, exchange, or
transactions before 2005. Also see
30, 2000. However, the exclusion does
other disposition of qualifying foreign trade
Pre-Repeal ETI Exclusion Rules below.
not apply to any transaction in the ordinary
property by such taxpayer or (b) any lease
course of a trade or business involving a
or rental of qualifying foreign trade
Binding Contract Exception
FSC (Foreign Sales Corporation) that is
property for use by the lessee outside the
The Tax Increase Prevention and
under a binding contract that is in effect on
United States;
Reconciliation Act of 2005 repealed the
September 30, 2000, and at all times
4. For engineering or architectural
ETI binding contract exception for tax
thereafter, and that is between the FSC (or
services for construction projects located
years beginning after May 17, 2006. For
a person related to the FSC) and a person
(or proposed for location) outside the
tax years beginning before May 18, 2006,
other than a related person.
United States; or
the following rules apply: The taxpayer
Line 2 election. The taxpayer may elect
5. For the performance of managerial
may claim an ETI exclusion with respect to
to apply the exclusion rules for the
services for a person other than a related
transactions in the ordinary course of a
transactions described above involving a
person connected with the production of
trade or business under a binding contract
FSC. To make the election, check the box
foreign trading gross receipts described in
if such contract is between the taxpayer
on line 2. See the instructions for line 2 for
item 1, 2, or 3 above. Item 5 does not
and an unrelated person (defined below)
more details.
apply to a taxpayer for any tax year unless
and such contract was in effect on
at least 50% of its foreign trading gross
September 17, 2003, and at all times
Extraterritorial Income
receipts (determined without regard to this
Extraterritorial income is the gross income
sentence) for such tax year are derived
of the taxpayer attributable to foreign
For these purposes, a binding contract
from the activities described in item 1, 2,
trading gross receipts (defined below).
includes a purchase option, renewal
or 3 above.
The taxpayer reports all of its
option, or replacement option that is
extraterritorial income on its tax return. It
included in such contract and that is
Excluded receipts. Foreign trading
then uses Form 8873 to calculate its
enforceable against the seller or lessor.
gross receipts do not include the receipts
exclusion from income for extraterritorial
For this purpose, a replacement option will
of a taxpayer from a transaction if:
Sep 05, 2017
Cat. No. 31661R


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