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Page 1 of 4 Instructions for Form 8873 (Rev. 12-2010) 14:55 - 10-FEB-2011
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Department of the Treasury
Internal Revenue Service
Instructions for Form 8873
(Rev. December 2010)
Extraterritorial Income Exclusion
RevenueSection referencesCode unlessareotherwiseto the Internalnoted. Pre-Repeal ETI Exclusion pageprocess2) onlyrequirementsif it meets(describedthe foreignbelow).economic
Rules Foreign trading gross receipts are the
taxpayer’s gross receipts that are:
What’s New Who Qualifies for the Exclusion disposition of qualifying foreign trade1. From the sale, exchange, or other
Future revisions of Form 8873. The IRS Eligible Taxpayers property;
will revise the December 2010 version of Individuals, corporations (including S 2. From the lease or rental of qualifying
Form 8873 only when necessary. Continue corporations), partnerships, and other foreign trade property for use by the lessee
to use the 2010 version of Form 8873 for tax pass-through entities are entitled to the outside the United States;
years beginning after 2009 until a new exclusion if they have extraterritorial income. 3. For services that are related and
General Instructions
revisionUseextraterritorialexcludedPurposethisisformfromissued.toincomeofgrossfigureFormincome(definedthe amountforbelow)theoftax year. 927(d)(4),taxpayerSpecialincomecorporationsmemberduringCorporation)which atheexclusionDISCruleofforastaxaany(asiscontrolledforin(Domesticyear,aeffectdefinedtaxDISCs.member.doestheyearbeforenotgrouptaxpayerinInternationalif,Thesectionapplyatitsofanyextraterritorialrepeal)istotimeaanySalesof propertyproposedservicesforStates;orStates;subsidiaryotherrentaluse4.dispositionForbyorforbyofforengineeringthetoqualifyingsuchconstruction(a)location)lesseeanyoftaxpayerqualifyingsale,outsideforeignoutsideorprojectsarchitecturalexchange,ortrade(b)theforeigntheanyUnitedlocatedUnitedpropertyleasetradeor (or
Attach the form to your income tax return. Eligible Transactions 5. For the performance of managerial
Note. The amount figured on the form is Generally, the extraterritorial income services for a person other than a related
net of the disallowed deductions. exclusion applies to taxpayers with respect person connected with the production of
to transactions after September 30, 2000. foreign trading gross receipts described in
generallyTheETItorepealedtransitionAmericanRepealtheforrules.transactionsETIJobsexclusionCreationafterprovisionsAct2004,of 2004subject SalescontracttradeHowever,2000,any transactionorCorporation)andbusinessthattheatisallexclusioninintimeseffectinvolvingthethatthereafter,ordinaryisondoesunderSeptembera FSCnotcourseaandapply(Foreignbindingthatof30,toais toforactivitiesitems50%(determinedasuchtaxpayerof1,its2,taxdescribedforeignoryearwithout3forabove.anyaretradinginregardderivedtaxitemsItemyeargrossto51,fromdoesunlessthis2,receiptsorsentence)thenot3atabove.applyleast
Transition(a)TaxpayerstransactionsmayRuleclaimunderthea bindingETI exclusioncontractfor betweenFSC)person.andthea personFSC (orothera personthan arelatedrelatedto the taxpayerExcludedreceipts dofromreceipts.notaincludetransactionForeignthe receiptsif: tradingofgrossa
that meets the requirements described in Line 2 election. The taxpayer may elect to • The qualifying foreign trade property or
Binding Contract Exception below or (b) apply the exclusion rules for the transactions services are for ultimate use in the United
transactions before 2005. Also see described above involving a FSC. To make States;
Pre-Repeal ETI Exclusion Rules below. the election, check the box on line 2. See • The qualifying foreign trade property or
the instructions for line 2 for more details. services are for use by the United States or
ReconciliationbindingtradetransactionsTheclaimfollowingbeginningbeginningBindingTaxorancontractbusinessIncreaseETIrulesafterbeforeContractinexclusionActapply:theMayexceptionMayunderPreventionofordinary17,2005The18,with2006.aExceptiontaxpayer2006,bindingrepealedforcourserespectandtaxFortheyearscontracttaxofmaytotheayearsETIifextraterritorialcalculatereportsforeigntaxExtraterritorialExtraterritorialgrossthereturn.taxpayerreceiptstradeallitsofItexclusionthenitsattributableincome.incomeincome(definedextraterritorialusesIncomethatfromisFormbelow).thetoisforeignincomegrossqualifying8873incomeThetoincometradingfortaxpayeron itsof••subsidyanyinstrumentality)receiptssuchinproduced,instructionsTheSuchwhichinstrumentalityusetaxpayertransactiongrantedundertheisgrown,requiredforpropertysectionlineofhasbyortheof1theiselectedextracted;byforistheaccomplishedcountry942(a)(3).governmentmanufactured,lawmoreUnitedortoordetails.regulation;excludeorpossessionStatesSee(orbythetheanyaand
such contract is between the taxpayer and Qualifying Foreign Foreign Economic
an unrelated person (defined below) andsuch contract was in effect on September Trade Income Process Requirements
17, 2003, and at all times thereafter. Generally, qualifying foreign trade income is You are generally treated as having foreign
the amount of gross income that, if trading gross receipts from a transaction
For these purposes, a binding contract excluded, would result in a reduction of only if certain economic processes take
includes a purchase option, renewal option, taxable income by the greatest of: place outside the United States with respect
or replacement option that is included in • 15% of foreign trade income, to that transaction. However, see $5 million
such contract and that is enforceable • 1.2% of foreign trading gross receipts, or gross receipts exception on page 2.
•
•
theagainsttheaenforceablereplacementfactreplacementthethatselleragainsta lessoroptionlessee.or lessor.aretainedwilllessorbeForconsiderednotwithstandingapprovalthis purpose,of •ForeignGross30%SeeofdefinitionsReceiptsforeignTradingsalebelowandandleasingon pageincome.2. requirementstheSatisfactionParticipationGenerally,sales portionareaofoutsidetransactioneitherofmet:thethethetransactionUnited50%will qualifyorStatestheandif85%twoin
Unrelated person. An unrelated person is A taxpayer is treated as having foreign foreign direct cost test.
a person that is not a related person as trading gross receipts (FTGR) derived from For purposes of determining whether
defined in Qualifying Foreign Trade Property certain activities in connection with your gross receipts qualify as foreign trading
on page 2. qualifying foreign trade property (defined on gross receipts, the foreign economic
Cat. No. 31661R