Instructions for Form 8873 |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Part I-Elections and Other Information
Line 1.
Check the box if the taxpayer is electing, under section 942(a)(3), to exclude a portion of its gross receipts from
treatment under the
extraterritorial income exclusion provisions. Attach a schedule that lists the transactions being omitted.
Note.
A foreign tax credit may be available for foreign taxes paid on the receipts the taxpayer excludes from treatment under the
extraterritorial income
exclusion provisions.
Line 2.
Check the box if the taxpayer is electing to apply the extraterritorial income exclusion provisions to certain transactions
involving a FSC (see
Eligible Transactions on page 1).
Note.
The extraterritorial income exclusion provisions and the FSC provisions may not be applied to the same transaction.
Attach a schedule listing those transactions. Once the election is made with respect to a transaction, the election applies
to the tax year for
which it was made and all later tax years. The election may be revoked only with IRS consent. See Rev. Proc. 2001-37, 2001-1
C.B. 1327.
Line 3.
Check the box if the taxpayer is an “ applicable foreign corporation” that elects to be treated as a domestic corporation under section 943(e).
To be eligible, the foreign corporation must waive the right to claim all benefits granted to it by the United States under
any treaty. If the
election is made, the corporation will be treated as a domestic corporation for all purposes of the Internal Revenue Code.
However, the corporation
may not elect to be an S corporation.
An “ applicable foreign corporation” is a foreign corporation that:
-
Manufactures, produces, grows, or extracts property in the ordinary course of the corporation's trade or business or
-
Substantially all of its gross receipts are foreign trading gross receipts.
Once made, the election applies to the tax year made and remains in effect for all subsequent years unless revoked
or terminated. Any revocation or
termination applies to tax years beginning after the tax year during which the election was made. The election will automatically
terminate if the
corporation fails to meet either of the requirements listed above. If an election is revoked by the corporation or is automatically
terminated, the
corporation (and any successor corporation) may not elect to be a domestic corporation again for 5 tax years beginning with
the first tax year after
the revocation or termination. See Rev. Proc. 2001-37.
Effect of election.
For purposes of section 367, a foreign corporation that has elected to be a domestic corporation is generally treated
as transferring, as of the
first day of the first tax year to which the election applies, all of its assets to a domestic corporation in an exchange
under section 354.
Exception for old earnings and profits of certain corporations.
If the exception described in section 5(c)(3) of the FSC Repeal and Extraterritorial Income Exclusion Act of 2000
applies, attach a statement
indicating the basis for your entitlement, if any, to that exception.
Effect of revocation or termination.
If a foreign corporation has elected to be a domestic corporation and the election ceases to apply for any subsequent
tax year, the corporation is
treated as a domestic corporation transferring, as of the first day of the subsequent tax year to which the election no longer
applies, all of its
property to a foreign corporation in an exchange under section 354.
Line 4.
Before completing lines 4a and 4b, see Foreign Economic Process Requirements on page 2.
Line 5a.
Enter the six-digit code that best describes the business activity for which the form is being filed from the list
of Principal Business Activity
Codes included in your tax return instructions.
Line 5b.
Enter your product or product line that meets one of the two standards below.
Line 5c.
Check the applicable box to indicate the basis on which the amounts on Form 8873 are determined using either the transaction-by-transaction
basis
or an election to group transactions. Use one of the following formats.
(1) Transaction-by-transaction. If your determination is based on each transaction rather than an election to group transactions, check
box (1)(a), (1)(b), or (1)(c), depending on your preferred reporting format.
(a) Aggregate on Form 8873. If you choose to aggregate your transactions on one or more Forms 8873, check box (1)(a) of line 5c.
Aggregate on one Form 8873 those transactions for which the same method is applied, provided all the transactions (other than
foreign sale and leasing
income transactions) are included in the same product or product line indicated on line 5b. If a different method is applied
to some of the
transactions in one or more of the separate product lines, additional Forms 8873 must be filed.
Example. If you have no foreign sale and leasing income and you apply the 15% of foreign trade income method to all transactions in
three separate product lines, you would file three aggregate Forms 8873. However, if you use the 1.2% of foreign trading gross
receipts method for
some of the transactions in one of the product lines, you would then file four aggregate Forms 8873.
Note.
Taxpayers that check box (1)(a) of line 5c may aggregate 60% transactions, 80% transactions, and 100% transactions on the
same Form 8873 only if
they are applying the same method (for example, 15% of FTI, 1.2% of FTGR, 30% of FSLI) to all transactions reported on the
form and the transactions
(other than foreign sale and leasing income transactions) are included in the same product or product line.
(b) Aggregate on tabular schedule. You may choose to aggregate your transactions on a tabular schedule rather than on Form 8873. To do
so, file one Form 8873 entering only your name and identifying number at the top of the form. Also check box (1)(b) of line
5c. Attach a tabular
schedule to the partially completed Form 8873 reporting all information as if a separate form were filed for each aggregate
of transactions described
in (1)(a) above. Also see Format of tabular schedules below.
Note.
To be eligible for either of the aggregate reporting formats described in (1)(a) or (b) above, you must maintain a supporting
schedule that
contains all information that would be reported if a separate Form 8873 were filed for each transaction, including identification
of each transaction
as either a 100% transaction, an 80% transaction, or a 60% transaction. The supporting schedule should not be filed with the
Form 8873.
(c) Tabular schedule of transactions. Instead of aggregate reporting, you may choose to report transactions on a tabular schedule. File
one Form 8873 entering only your name and identifying number at the top of the form. Also check box (1)(c) of line 5c. Attach
a tabular schedule to
the partially completed Form 8873 reporting all information as if a separate Form 8873 were filed for each transaction. Also,
see Format of
tabular schedules below.
(2) Group of transactions. You may elect to group transactions (other than foreign sale and leasing income transactions) by product or
product line. The grouping of transactions applies to all transactions completed during the tax year for that product or product
line.
To make the election, complete one Form 8873 entering only your name and identifying number at the top of the form.
Also check box (2) of line 5c.
Attach a tabular schedule to the partially completed Form 8873 reporting all information as if a separate Form 8873 were filed
for each group of
transactions. See Format of tabular schedules below.
Note.
If a grouping basis is elected, aggregate reporting is not permitted.
Attach Form 8873 to your tax return. Once the election is made, grouping redeterminations are permitted until one
year after the later of:
-
The due date of your timely filed return (including extensions) or
-
In the event of an examination of your return by the IRS, notification by the IRS of such examination (provided you agree
to extend the
statute of limitations for assessment by one year).
Note.
If your foreign trading gross receipts are $5 million or less for the tax year, you may file a separate Form 8873 for each
group of transactions
instead of filing a tabular schedule.
Note.
If you are electing to group transactions, 100% transactions, 80% transactions, and 60% transactions must be grouped separately.
Therefore,
transactions must be grouped both by product or product line and by type of transaction (that is, 100%, 80%, or 60%).
Format of tabular schedules.
If a tabular schedule is attached to Form 8873, the schedule must:
-
Be in spreadsheet or similar format,
-
List your name and identifying number on each numbered page,
-
Be formatted in columns that correspond to each line item of Form 8873, and
-
Show totals in each column.
Part II-Foreign Trade Income and Foreign Sale and Leasing Income
Lines 6 through 14.
Enter your foreign trading gross receipts identified on lines 6 through 14 using the rules outlined under Foreign Trading Gross Receipts
beginning on page 1.
Line 14, column (b).
Enter on this line only the sum of those portions of the amounts on lines 6, 9, 12, and 13, column (a), that are attributable
to foreign economic
processes (see definition on page 2). Because only foreign trading gross receipts attributable to foreign economic processes
are included in line 14,
column (b), the amount entered on line 14, column (b), will not necessarily equal the total of the foreign trading gross receipts
amounts entered on
lines 6, 9, 12, and 13, column (a).
Line 17.
For lines 17a through 17h, compute your cost of goods sold allocated to your foreign trading gross receipts. See the
instructions for the tax
return to which this form is attached for basic rules for determining cost of goods sold.
Line 19.
Enter on line 19, column (a), the deductions, other than those you included in figuring your cost of goods sold, that
are allocable to the amount
reported on line 15.
Enter on line 19, column (b), the deductions, other than those you included in figuring your cost of goods sold, that
are directly allocable to the
amount reported on line 16.
Note.
Do not include your allocable portion of general and administrative expenses on line 19, column (b).
For both column (a) and column (b), attach to Form 8873 a schedule listing these amounts. See the instructions for
the tax return to which this
form is attached for basic rules for determining expenses.
Part III-Marginal Costing
Marginal costing is a method under which only direct production costs of producing a particular product or product line are
taken into account for
purposes of computing your qualifying foreign trade income. Complete this section to see if you will benefit by using marginal
costing. If you do not
wish to use this method, skip Part III and complete Part IV using the instructions below.
Part IV-Extraterritorial Income Exclusion
Line 45.
Generally, your qualifying foreign trade income is based on the greatest of lines 33, 36, 38, 42, or 44. Under the
alternative computation,
however, you may instead choose to enter on line 45 the amount from any of those five lines (33, 36, 38, 42, or 44). For example,
although line 42 may
produce the greatest exclusion for you, use of that line could eliminate or reduce the exclusion for a related person because
of the limitation under
section 941(a)(3) on the use of the 1.2% of foreign trading gross receipts method. Therefore, to maximize the combined exclusion
for you and that
related person, you may prefer to enter on line 45 the greatest of lines 33, 36, 38, or 44 (instead of the amount on line
42).
Line 50.
If you had any operations in or related to a country associated with carrying out an international boycott or you
participated in or cooperated
with an international boycott, your extraterritorial income exclusion may be reduced. See the separate instructions for Form
5713, International
Boycott Report, for definitions and other details and to find out if you are required to file Form 5713. If you are required
to file Form 5713, also
complete Schedule A (Form 5713), International Boycott Factor (Section 999(c)(1)), and Schedule C (Form 5713), Tax Effect
of the International Boycott
Provisions. Enter the amount from Schedule C (Form 5713), line 6c, on Form 8873, line 50.
The exception from filing Form 5713 that generally applies to foreign persons does not apply to a foreign person that is claiming
the
extraterritorial income exclusion.
Also include on line 50 the total of any illegal bribes, kickbacks, or other payments (within the meaning of section
162(c)) paid by or on behalf
of the taxpayer directly or indirectly to government officials, employees, or agents.
Line 53.
For definitions of “ 100% transactions,” “ 80% transactions,” and “ 60% transactions,” see Definitions on page 1.
You may report 100% transactions, 80% transactions, and 60% transactions on the same Form 8873 only if you are reporting
on a
transaction-by-transaction basis. If you are reporting on a grouping basis, you must use a separate Form 8873 for each type
of transaction. See the
instructions for line 5c on page 3 for more details and for other restrictions that apply with respect to reporting on a transaction-by-transaction
basis or on a grouping basis.
Line 53b.
Determine the amount to enter on this line using the following two steps:
-
Determine the amount from line 52 that is attributable to 80% transactions.
-
Multiply the amount in step 1 by 80% and enter the result on line 53b.
Line 53c.
Determine the amount to enter on this line using the following two steps:
-
Determine the amount from line 52 that is attributable to 60% transactions.
-
Multiply the amount in step 1 by 60% and enter the result on line 53c.
Line 54.
Add lines 53a through 53c. Report the total as follows: Although the total is an exclusion from income and not a
deduction, include it on the
“ Other deductions” or “ Other expenses” line of your tax return or schedule. If you are filing Schedule C (Form 1040), enter
“ Extraterritorial income exclusion from Form 8873” on a line in Part V of Schedule C. For filers of Form 1120, include the amount on Form 1120,
page 1, line 26.
Previous | Index | Next
2006 Instructions Main | 2006 Tax Help Archives | Tax Help Archives Main | Home
|
|
|