Instructions For Form 8873 - Extraterritorial Income Exclusion (Page 3 of 5) in pdf

Derived by you from the sale of

eligible, the foreign corporation must

Line 5b. Enter your product or product

qualifying foreign trade property formerly

waive the right to claim all benefits granted

line that meets one of the two standards

leased or rented for use by the lessee

to it by the United States under any treaty.

below.

outside the United States.

If the election is made, the corporation will

The product or product line based on

be treated as a domestic corporation for

the North American Industry Classification

Only directly allocable expenses are

all purposes of the Internal Revenue

System (NAICS), or

taken into account in figuring your foreign

Code. However, the corporation may not

A recognized industry or trade usage.

sale and leasing income. Income properly

elect to be an S corporation.

allocable to certain intangibles is excluded

Line 5c. Check the applicable box to

An “applicable foreign corporation” is a

from foreign sale and leasing income. See

indicate the basis on which the amounts

foreign corporation that:

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

on Form 8873 are determined using either

special rules related to foreign sale and

1. Manufactures, produces, grows, or

the transaction-by-transaction basis or an

leasing income.

extracts property in the ordinary course of

election to group transactions. Use one of

the corporation's trade or business; or

the following formats.

Reporting of Transactions

2. Substantially all of its gross receipts

(1) Transaction-by-transaction. If

Generally, you may report transactions

are foreign trading gross receipts.

your determination is based on each

(including sale transactions and leasing

transaction rather than an election to

transactions) either on a transaction-by-

Once made, the election applies to the

group transactions, check box (1)(a), (1)

transaction basis or on the basis of groups

tax year made and remains in effect for all

(b), or (1)(c), depending on your preferred

of transactions based on product lines or

subsequent years unless revoked or

reporting format.

recognized industry or trade usage. See

terminated. Any revocation or termination

the instructions for line 5c for rules

(a) Aggregate on Form 8873. If you

applies to tax years beginning after the tax

concerning grouping elections that may be

choose to aggregate your transactions on

year during which the election was made.

made with respect to transactions.

one or more Forms 8873, check box (1)(a)

The election will automatically terminate if

of line 5c. Aggregate on one Form 8873

However, you may not group sales and

the corporation fails to meet either of the

those transactions for which the same

leases together, and you may not report

requirements listed above. If an election is

foreign sale and leasing income in column

method is applied, provided all the

revoked by the corporation or is

(b) of Part II of the form on the basis of

transactions (other than foreign sale and

automatically terminated, the corporation

groups.

leasing income transactions) are included

(and any successor corporation) may not

in the same product or product line

elect to be a domestic corporation again

Specific Instructions

indicated on line 5b. If a different method

for 5 tax years beginning with the first tax

is applied to some of the transactions in

year after the revocation or termination.

one or more of the separate product lines,

See Rev. Proc. 2001-37.

Part I–Elections and Other

additional Forms 8873 must be filed.

Effect of election. For purposes of

Information

Example. If you have no foreign sale

section 367, a foreign corporation that has

and leasing income and you apply the

elected to be a domestic corporation is

Line 1. Check the box if the taxpayer is

15% of foreign trade income method to all

generally treated as transferring, as of the

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

transactions in three separate product

first day of the first tax year to which the

exclude a portion of its gross receipts from

lines, you would file three aggregate

election applies, all of its assets to a

treatment under the extraterritorial income

Forms 8873. However, if you use the 1.2%

domestic corporation in an exchange

exclusion provisions. Attach a statement

of foreign trading gross receipts method

under section 354.

that lists the transactions being omitted.

for some of the transactions in one of the

Exception for old earnings and

product lines, you would then file four

Note. A foreign tax credit may be

profits of certain corporations. If the

aggregate Forms 8873.

available for foreign taxes paid on the

exception described in section 5(c)(3) of

receipts the taxpayer excludes from

Note. Taxpayers that check box (1)(a) of

the FSC Repeal and Extraterritorial

treatment under the extraterritorial income

line 5c may aggregate transactions on the

Income Exclusion Act of 2000 applies,

exclusion provisions.

same Form 8873 only if they are applying

attach a statement indicating the basis for

the same method (for example, 15% of

Line 2. Check the box if the taxpayer is

your entitlement, if any, to that exception.

FTI, 1.2% of FTGR, 30% of FSLI) to all

electing to apply the extraterritorial income

Effect of revocation or termination.

transactions reported on the form and the

exclusion provisions to certain

If a foreign corporation has elected to be a

transactions (other than foreign sale and

transactions involving a FSC (see Eligible

domestic corporation and the election

leasing income transactions) are included

Transactions, earlier).

ceases to apply for any subsequent tax

in the same product or product line.

year, the corporation is treated as a

Note. The extraterritorial income

(b) Aggregate on tabular schedule.

domestic corporation transferring, as of

exclusion provisions and the FSC

You may choose to aggregate your

the first day of the subsequent tax year to

provisions may not be applied to the same

transactions on a tabular schedule rather

which the election no longer applies, all of

transaction.

than on Form 8873. To do so, file one

its property to a foreign corporation in an

Attach a statement listing those

Form 8873 entering only your name and

exchange under section 354.

transactions. Once the election is made

identifying number at the top of the form.

with respect to a transaction, the election

Line 4. Before completing lines 4a and

Also check box (1)(b) of line 5c. Attach a

applies to the tax year for which it was

4b, see Foreign Economic Process

tabular schedule to the partially completed

made and all later tax years. The election

Requirements, earlier.

Form 8873 reporting all information as if a

may be revoked only with IRS consent.

separate form were filed for each

Line 5a. Enter the six-digit code that best

See Rev. Proc. 2001-37, 2001-1 C.B.

aggregate of transactions described in (1)

describes the business activity for which

1327.

(a) above. Also see Format of tabular

the form is being filed from the list of

schedules below.

Line 3. Check the box if the taxpayer is

Principal Business Activity Codes included

an “applicable foreign corporation” that

in your tax return instructions.

Note. To be eligible for either of the

elects to be treated as a domestic

aggregate reporting formats described in

corporation under section 943(e). To be

Instructions for Form 8873 (Rev. 9-2017)

-3-

Instructions For Form 8873 - Extraterritorial Income Exclusion Page 3

Related Articles

Related forms

Related Categories