Flott & Co. Sends Letter to IRS Regarding 1120-F Schedules S and V

On October 30th, 2009, Flott & Co. sent the attached letter to Elizabeth Karzon, Associate Chief Counsel to the IRS International Branch, commenting on the newly issued Schedules S & V to the 1120-F required for companies claiming a US tax exemption under Section 883 or paying US Source Gross Transportation Income ("USSGTI") tax under Section 887.

Flott & Co. Letter to the IRS Regarding Schedules S & V

The IRS Issues Revenue Rule 2007-18 (2008-12 IRB 1) Increasing the Number of Countries Where Corporations May Organize and Take Advantage of the Section 883 Tax Exemption

Flott & Co. assisted in qualifying the British Virgin Islands, Croatia, Gibraltar, and Monaco.

On March 24th, 2008 the Internal Revenue Service added 13 countries to its official listing of countries that exempt the shipping income of US ship-owning companies. Angola, the Bailiwick of Jersey, Bangladesh, the British Virgin Islands, the Cape Verde Islands, Croatia, Ghana, Gibraltar, Kuwait, Monaco, Qatar, Sri Lanka, and Uruguay have been included in the official list countries in which a ship-owning company may organize and qualify for exemption from US taxation pursuant to Section 883.  Companies organized in these countries must meet the rest of the Section 883 requirements. 

Section 883 provides that foreign shipping and aircraft income will be exempt from US taxation under Section 887 if the country where the corporation is organized grants an equivalent exemption to corporations organized in the US and more than 50 percent of the value of the corporation’s stock is held by individuals who reside in qualified countries.

Angola, the Cape Verde Islands, Ghana, and the Bailiwick of Jersey have exchanged diplomatic notes with the United States since the last official listing was published.  The IRS has reviewed and accepted the domestic law of the British Virgin Islands, Croatia, Gibraltar, Kuwait (for shipping income only), Monaco, Qatar (for shipping income only), and Uruguay as establishing an equivalent exemption.  Tax treaties with Bangladesh and Sri Lanka have been ratified and entered into force since the last official listing was published.

The full list of qualifying countries as set out in Rev. Rul. 2007-18.

If you have any questions about how this may affect you or your organization, please contact Stephen Flott or Benjamin Snipes under How to Reach Us.

Flott & Co. Succeeds – Section 883 Identity Disclosure Requirement Eliminated

On June 25th, 2007 the US Treasury published changes to the Section 883 Regulations that essentially adopted a proposal made by Flott & Co. in a petition filed with the IRS in February 2005.

When adopted in 2003, the Section 883 Regulations required that a company, which wanted to claim exemption from the 4% tax imposed on US source gross transportation income, had to include the name and address of the physical persons who were the controlling ultimate beneficial owners of the company as part of its tax return. A US tax return on Form 1120-F must be filed to claim exemption from the tax.

Virtually alone, Flott & Co. principal, Stephen Flott, persisted in seeking to change this particular provision of the regulations. It took almost two years, a refusal to take “no” for an answer, and the efforts of Angus and Nickerson LLC (http://angusnickerson.com) to finally win a hearing before senior policymakers at Treasury and the IRS. When the disclosure requirement was presented in contrast to the lack of similar disclosure in the treaty context and in the context of the sensitivity of the information in shipping circles, the policymakers decided to adopt the first option presented in the Flott & Co. petition, a full copy of which can be read by clicking on the link below.

All Publications

Flott & Co. Letter to the IRS Regarding Schedules S & V

The full text of the IRS Internal Revenue Bulletin 2008-12 containing Rev. Rul. 2008-17

Presentation on U.S. Taxation of International Shipping – December 2006

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IRS Website: www.irs.gov

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