8873 Extraterritorial Income Exclusion

2007 Form 8873
Extraterritorial Income Exclusion
Purpose:

This is the first circulation of the 2007 Form 8873,
Extraterritorial Income Exclusion. There are no major changes.

TPCC Meeting:

None scheduled, but may be arranged if requested.

Prior Revision:

The 2006 Form 8873 is available at:
http://www.irs.gov/pub/irs-pdf/f8873.pdf

Instructions:

The 2007 Instructions for Form 8873 will be
circulated at a later date. The 2006 instructions are available
at: http://www.irs.gov/pub/irs-pdf/i8873.pdf

Other products:

Circulations of draft tax forms and instructions are posted at:
http://taxforms.web.irs.gov/draft_products.html.

Comments:

Please email, fax, call, or mail any comments by June 12, 2007,
to me and email the form’s reviewer, Doris E. Williams, at
[email protected].

From:
Oksana R. Stowbunenko
Tax Law Specialist
Tax Forms and
Publications

VMS: 202.283.0020
Location: Date:
Fax: 202.283.2485
NCFB
May 18, 2007
C7-162
E-mail:
[email protected]

1
TLS, have you
transmitted all R
text files for this
cycle update?

Date

Form

I.R.S. SPECIFICATIONS
TO BE REMOVED BEFORE PRINTING
INSTRUCTIONS TO PRINTERS
FORM 8873, PAGE 1 of 2
MARGINS: TOP 13mm (1⁄ 2 "), CENTER SIDES. PRINTS: HEAD TO FOOT
PAPER: WHITE WRITING, SUB. 20. INK: BLACK
FLAT SIZE: 216mm (81⁄ 2 ") 3 279mm (11")
PERFORATE: NONE
DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

8873

Name(s) as shown on return

Part I
1
2
3
4a
b

5
a
c

8
9
10

2007

Attachment
Sequence No.

126

Elections and Other Information

Foreign Trade Income and Foreign Sale and Leasing Income

Caution: If a related person is also eligible for an extraterritorial income
exclusion, see Excluded property in the instructions.
Sale, exchange, or other disposition of qualifying foreign trade property
Enter the amount from line 6, column (a), attributable to the sale of property
formerly leased or rented for use by the lessee outside the United States
Lease or rental of qualifying foreign trade property for use by the lessee
outside the United States. Enter the same amount in both columns
Services related and subsidiary to the sale, exchange, or other disposition of
qualifying foreign trade property
Enter the amount from line 9, column (a), attributable to the sale of property
formerly leased or rented for use by the lessee outside the United States

Engineering or architectural services for construction projects outside the United States
Managerial services provided to unrelated persons (see instructions)

14

Enter the sum of the amounts from lines 6, 9, 12, and 13 of column (a)
attributable to foreign economic processes. Do not include any amounts
already included on lines 7, 8, 10, or 11 in column (b)
Foreign trading gross receipts. Add lines 6 through 13 in column (a)
Add lines 7 through 14 in column (b)
Cost of goods sold:
Inventory at beginning of year
Purchases
Cost of labor
Additional section 263A costs (attach schedule)
Other costs (attach schedule)
Total. Add lines 17a through 17e
Inventory at end of year
Subtract line 17g from line 17f
In column (a), subtract line 17h from line 15. In column (b), subtract line 17h
from line 16
Other expenses and deductions (see instructions) (attach schedule)
Foreign trade income. In column (a), subtract line 19 from line 18. If -0- or
less, stop here. You do not qualify for the exclusion
Foreign sale and leasing income. In column (b), subtract line 19 from line 18

21

OMB No. 1545-1722

Identifying number

12
13

19
20

Revised proofs
requested

Attach to your tax return.
See separate instructions.

Services related and subsidiary to the lease of qualifying foreign trade property for use
by the lessee outside the United States. Enter the same amount in both columns

a
b
c
d
e
f
g
h
18

O.K. to print

f
o
s
a
7
t
0
f
0
a
2
r
/
D /17
5
0
©

11

15
16
17

Signature

Check the box if you are electing under section 942(a)(3) to exclude a portion of your gross receipts from foreign trading gross
©
receipts on line 15. Attach a schedule indicating which receipts are being excluded
Check the box if you are electing to apply the extraterritorial income exclusion provisions to certain transactions involving a FSC
©
(see instructions). Attach a schedule listing the affected transactions
©
Check the box if the taxpayer is a foreign corporation electing to be treated as a domestic corporation (see instructions)
Are you excepted from the foreign economic process requirements because your foreign trading gross
©
receipts are $5 million or less?
Yes
No
If “No,” check the applicable box to indicate how you met the foreign economic process requirements:
(1)
You met the 50% foreign direct cost test (see instructions).
(2)
You met the alternative 85% foreign direct cost test (see instructions).
See instructions before completing lines 5a through 5c. Note: For transactions for which the exclusion is determined using
the foreign sale and leasing income method (i.e., line 44 equals line 45), complete only lines 5a and 5c(1).
Business activity code
b Product or product line
Check the applicable box to indicate the basis of your reporting:
(1) Transaction-by-transaction:
(a)
Aggregate on Form 8873
(b)
Aggregate on tabular schedule
(c)
Tabular schedule of transactions
(2)
Group of transactions

Part II

6
7

Date

Extraterritorial Income Exclusion
©

Department of the Treasury
Internal Revenue Service

Action

For Paperwork Reduction Act Notice, see instructions.

(a) Foreign Trade
Income

(b) Foreign Sale and
Leasing Income

6
7
8
9
10
11
12
13

14
15
16
17a
17b
17c
17d
17e
17f
17g
17h
18
19
20
21

Cat. No. 30732F

Form

8873

(2007)

1
I.R.S. SPECIFICATIONS
TO BE REMOVED BEFORE PRINTING
INSTRUCTIONS TO PRINTERS
FORM 8873, PAGE 2 of 2
MARGINS: TOP 13mm (1⁄ 2 "), CENTER SIDES. PRINTS: HEAD TO FOOT
PAPER: WHITE WRITING, SUB. 20. INK: BLACK
FLAT SIZE: 216mm (81⁄ 2 ") 3 279mm (11")
PERFORATE: NONE
DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

Form 8873 (2007)

Page

2

Marginal Costing (Note: If you are not using Marginal Costing, skip Part III and go to Part IV.)
Part III
Section A — Foreign Trade Income Using Marginal Costing Method
22
23
a
b
c
24
25
26
a
b
c
27
28
29
30

f
o
s
a
7
t
0
f
0
a
2
r
/
D /17
5
0

Foreign trading gross receipts. Enter the amount from line 15
Costs and expenses allocable to the amount reported on line 22:
23a
Cost of direct material attributable to property sold
23b
Cost of direct labor attributable to property sold
Add lines 23a and 23b
Subtract line 23c from line 22
Worldwide gross receipts from sales of the product or product line
Costs and expenses allocable to the amount reported on line 25:
26a
Cost of goods sold attributable to property sold
26b
Other expenses and deductions attributable to gross income
Add lines 26a and 26b
Subtract line 26c from line 25. (Note: If -0- or less, stop here. You may not use Part III to determine
your qualifying foreign trade income. Go to line 37.)
Overall profit percentage. Divide line 27 by line 25. Carry the result to at least three decimal
places
Overall profit percentage limitation. Multiply line 22 by line 28
Foreign trade income using marginal costing. Enter the smaller of line 24 or line 29

22

23c
24
25

26c
27
28
29
30

Section B — 15% of Foreign Trade Income Method
31
32
33

Multiply line 30 by 15% (.15)
Foreign trade income using full costing. Enter the amount from line 20
Enter the smaller of line 31 or line 32

31
32
33

Section C — 1.2% of Foreign Trading Gross Receipts Method
34
35
36

Multiply line 22 by 1.2% (.012)
Multiply line 30 by 30% (.30)
Enter the smallest of lines 32, 34, or 35

Part IV
37
38
39
40
41
42
43
44
45

34
35
36

Extraterritorial Income Exclusion (Net of Disallowed Deductions)

Enter your foreign trade income from line 20
Multiply line 37 by 15% (.15)
39
Enter your foreign trading gross receipts from line 15
40
Multiply line 39 by 1.2% (.012)
41
Multiply line 38 by 2.0
Enter the smaller of line 40 or line 41
Enter your foreign sale and leasing income from line 21
Multiply line 43 by 30% (.30)
Enter the greatest of lines 33, 36, 38, 42, or 44. If you are using the alternative computation,
see instructions for the amount to enter
Note: If you do not have a reduction for international boycott operations, illegal bribes, kickbacks, etc. (see
the instructions for line 50), skip lines 46 through 51 and enter on line 52 the amount from line 45.

37
38

42
43
44
45

46

If line 44 equals line 45, divide the amount on line 45 by the amount
on line 43. Otherwise, divide the amount on line 45 by the amount on
46
line 37. Carry the result to at least three decimal places
47 If line 44 equals line 45, enter the amount from line 19, column (b).
47
Otherwise, enter the amount from line 19, column (a)
48 Multiply line 46 by line 47
49 Add lines 45 and 48
50 Reduction for international boycott operations, illegal bribes, kickbacks, etc. (see instructions)
51 Qualifying foreign trade income. Subtract line 50 from line 49. If -0- or less, stop here. You do
not qualify for the exclusion
52 Subtract line 48 from line 51
53a Enter the amount from line 52 that is attributable to 100% transactions (see instructions)

51
52
53a

b Multiply the amount from line 52 that is attributable to 80% transactions (see instructions) by
80% (0.80) and enter the result

53b

c Multiply the amount from line 52 that is attributable to 60% transactions (see instructions) by
60% (0.60) and enter the result
54 Extraterritorial income exclusion (net of disallowed deductions). Add lines 53a through 53c. Enter the result
here and include it on the “other deductions” line of your tax return or schedule (see instructions)

48
49
50

53c
54
Form

8873

(2007)