8902 Instructions for Form 8902

Instructions for Form 8902

Department of the Treasury
Internal Revenue Service

(Rev. April 2018)

Alternative Tax on Qualifying Shipping Activities
Section references are to the Internal
Revenue Code unless otherwise noted.

Future Developments
For the latest information about
developments related to Form 8902
and its instructions, such as
legislation enacted after they were
published, go to IRS.gov/Form8902.

What’s New
Alternative tax rate for fiscal year
filers. Public Law 115-97 reduced
the highest corporate tax rate from
35% to 21%, effective for tax years
beginning after December 31, 2017.
Under section 11(b), as amended by
section 15, corporations with fiscal tax
years beginning before January 1,
2018, and ending after December 31,
2017, figure and apportion their
alternative tax by blending the 35%
rate in effect before January 1, 2018,
with the 21% rate in effect after
December 31, 2017. See the
instructions for line 30.

General Instructions
Purpose of Form

Form 8902 is used by qualifying
vessel operators (defined below) who
are making an alternative tax election
under section 1354(a) or who have
made such an election previously.
The form is used to make such an
election or report the termination of
such an election, to report information
relating to such an election, and to
figure the alternative tax.

Who Must File

Form 8902 must be filed by a
qualifying vessel operator (defined
below) who is making an alternative
tax election under section 1354(a) or
who is reporting the termination of
such an election. The form must also
be used by a qualifying vessel
operator who has a valid election in
effect to report information pertaining
to that election and to figure the
alternative tax.

Mar 27, 2018

How To File

File Form 8902 by attaching it to the
corporation's Form 1120 or Form
1120-F.

Definitions
Qualifying vessel operator. The
term “qualifying vessel operator”
means any corporation that operates
one or more qualifying vessels and
meets the shipping activity
requirement. See the definitions of
these terms below.
Operating a vessel. Except as
provided in the definition of bareboat
charters below, a person is treated as
operating any vessel during any
period if:
Such vessel is owned by, or
chartered (including a time charter) to,
the person, or the person provides
services for such vessel pursuant to
an operating agreement; and
Such vessel is in use as a qualifying
vessel during such period.
Qualifying vessel. A self-propelled
(or combination self-propelled and
non-self-propelled) U.S. flag vessel of
not less than 6,000 deadweight tons
used exclusively in the U.S. foreign
trade during the period the election is
in effect.
Shipping activity requirement. A
corporation meets this requirement for
any tax year only if the following
requirement is met for each of the 2
preceding tax years: On average
during the tax year, at least 25% of the
aggregate tonnage of qualifying
vessels used by the corporation was
owned by such corporation or
chartered to such corporation on
bareboat charter terms (see definition
below).
Special rule for first year of
election. A corporation meets this
requirement for the first tax year for
which this election is in effect only if
this requirement is met for the
preceding tax year.
Controlled groups. A corporation
that is a member of a controlled group
meets this requirement only if such
Cat. No. 39897X

requirement is met when determined
by treating all members of such group
as one person.
Bareboat charters. A person is
treated as operating and using a
vessel that it has chartered out on
bareboat charter terms only if:
The vessel is (a) temporarily
surplus to the person's requirements
and the term of the charter does not
exceed 3 years, or (b) bareboat
chartered to a member of a controlled
group which includes such person or
to an unrelated person who
sub-bareboats or time charters the
vessel to such a member (including
the owner of the vessel); and
The vessel is used as a qualifying
vessel by the person to whom
ultimately chartered.
U.S. foreign trade. The term “U.S.
foreign trade” means the
transportation of goods or passengers
between a place in the United States
and a foreign place or between
foreign places.
See section 1355 for more
definitions and special rules that apply
with respect to the above definitions.

Partnerships and Other
Pass-Through Entities

In applying these rules to a partner in
a partnership:
Each partner is treated as operating
vessels operated by the partnership;
Each partner is treated as
conducting the activities conducted by
the partnership; and
The extent of a partner's ownership,
charter, or operating agreement
interest in any vessel operated by the
partnership will be determined on the
basis of the partner's interest in the
partnership.
A similar rule applies to other
pass-through entities.

Specific Instructions
Part I. Section 1354
Election or Termination
Item B

A corporation must make the
alternative tax election on or before
the due date (including extensions of
time to file) of the income tax return for
the tax year for which the election is
made.

Election by a member of a controlled group. An election under section
1354(a) by a member of a controlled
group applies to all qualifying vessel
operators that are members of such
group.

Item C

Generally, a revocation of an election
under section 1354(a) made:
On or before the 15th day of the 3rd
month of the tax year will be effective
on the 1st day of that tax year; or
After the 15th day of the 3rd month
of the tax year will be effective the 1st
day of the following tax year.
However, if the revocation specifies
a date for revocation that is on or after
the day on which the revocation is
made, the revocation will be effective
for tax years beginning on and after
the date of revocation specified.

Item D

An election under section 1354(a) will
be terminated effective on and after
the date the corporation ceases to be
a qualifying vessel operator.

Election after termination. If a
qualifying vessel operator made the
election under section 1354(a) and
subsequently revoked the election
(Item C) or ceased to be a qualifying
vessel operator (Item D), that operator
(and any successor operator) is not
eligible to make another section
1354(a) election for any tax year
before the fifth tax year that begins
after the first tax year for which the
termination is effective, unless the IRS
consents to the election.

Part II. Other Information
Question E

The term “electing group” means a
controlled group of which one or more
members is an electing corporation.
The term “controlled group” means
any group which would be treated as

a single employer under section 52(a)
or (b) if sections 52(a)(1) and (2) did
not apply.

Line G(1). Core Qualifying
Activities

Enter on line G(1) the corporation's
gross income from core qualifying
activities. Attach a schedule.

For purposes of this election, the
term “core qualifying activities” means
activities in operating qualifying
vessels in U.S. foreign trade.

Line G(2). Qualifying
Secondary Activities

For purposes of this election, the term
"qualifying secondary activities"
means secondary activities (defined
below) but only to the extent that the
gross income derived by the
corporation from such activities does
not exceed 20% of the gross income
derived by the corporation from its
core qualifying activities.
Secondary activities. The term
"secondary activities" means:
The active management or
operation of vessels other than
qualifying vessels in the U.S. foreign
trade;
The provision of vessel, barge,
container, or cargo-related facilities or
services to any person; and
Other activities of the electing
corporation and other members of its
electing group that are an integral part
of its business of operating qualifying
vessels in U.S. foreign trade,
including:
1. Ownership or operation of
barges, containers, chassis, and other
equipment that are the complement
of, or used in connection with, a
qualifying vessel in U.S. foreign trade;
2. The inland haulage of cargo
shipped, or to be shipped, on
qualifying vessels in U.S. foreign
trade; and
3. The provision of terminal,
maintenance, repair, logistical, or
other vessel, barge, container, or
cargo-related services that are an
integral part of operating qualifying
vessels in U.S. foreign trade.
The term “secondary activities”
does not include any core qualifying
activities.
Line G(2)(a). Amount included in
20% limit. Enter on line G(2)(a) the
corporation's gross income from
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secondary activities that does not
exceed 20% of line G(1).
Electing groups. In the case of an
electing group, the above rules are
applied as if the group were one
entity, and the 20% limitation is
allocated among the corporations in
the group.
Line G(2)(b). Amount that exceeds
the 20% limit. Enter on line G(2)(b)
the corporation's gross income from
secondary activities that exceeds
20% of line G(1).
Attach a schedule showing
computations for lines G(2)(a) and (b).
Example 1. The corporation has
gross income from core qualifying
activities of $20 million and gross
income from secondary activities of
$5 million. The corporation enters $20
million on line G(1), $4 million (20% of
$20 million) on line G(2)(a), and $1
million (gross income from secondary
activities of $5 million less the $4
million limit) on line G(2)(b).
Example 2. The facts are the
same as in Example 1 above, except
the corporation has gross income
from secondary activities of $3 million.
The corporation would enter $3 million
on line G(2)(a) and zero on line G(2)
(b). Gross income from secondary
activities of $3 million is less than the
$4 million limit.

Line G(3). Qualifying Incidental
Activities

For purposes of this election, the term
“qualifying incidental activities” means
shipping-related activities if:
1. They are incidental to the
corporation's core qualifying activities,
2. They are not qualifying
secondary activities, and
3. The gross income derived by
the corporation from such activities
does not exceed 0.1% of the
corporation's gross income from its
core qualifying activities.
Line G(3)(a). Amount included in
the 0.1% limit. Enter on line G(3)(a)
the corporation's gross income from
incidental activities that does not
exceed 0.1% of line G(1).
Electing groups. In the case of an
electing group, the above rules are
applied as if the group were one
entity, and the 0.1% limitation is

Instructions for Form 8902 (Rev. 4-2018)

allocated among the corporations in
the group.

the sum of all columns of Part IV,
line 28.

Line G(3)(b). Amount that exceeds
the 0.1% limit. Enter on line G(3)(b)
the corporation's gross income from
incidental activities that exceeds 0.1%
of line G(1).
Attach a schedule showing
computations for lines G(3)(a) and (b).

Indicate in each column the type of
ownership for the vessel. Enter “O” for
an owned vessel, “L” for a leased
vessel, and “CL” for a capitalized
lease.

Line H. Gross Income From
Qualifying Shipping Activities
Excluded From Gross Income
on the Corporation's Income
Tax Return

Enter on line H the total of lines G(1),
G(2)(a), and G(3)(a). Do not include
this amount in gross income on the
corporation's Form 1120 or Form
1120-F. Furthermore, do not include
on the corporation's Form 1120 or
Form 1120-F any item of loss,
deduction, or credit with respect to
this line H excluded income.

Note. The amounts entered on lines
G(2)(b) and G(3)(b) must be included
in gross income on the corporation's
Form 1120 or Form 1120-F.

Part III. Vessel Information

With respect to Parts III and IV,
complete a separate column for each
qualifying vessel. If the corporation
has more than four qualifying vessels,
attach separate sheets for Parts III
and IV using the same size and format
as Form 8902. Also, on line 29, enter

Line 9. Type of Ownership

Line 10. Type of Vessel Use

Indicate in each column the type of
vessel use. Enter “BB” for bareboat
charter out, “TC” for time charter out,
and “OI” for operating income.

Part IV. Notional Shipping
Income
Line 21. Ownership Percentage
Enter the corporation's percentage of
ownership in the vessel. If, for any
period, two or more persons are
operators of a qualifying vessel, the
notional shipping income from the
operation of such vessel for that
period must be allocated among the
operators on the basis of their
respective ownership, charter, and
operating agreement interests in the
vessel.

Part V. Alternative Tax
Line 30. Alternative Tax on
Qualifying Shipping Activities

Enter the highest rate of tax
applicable for the period of qualified
shipping activities, under section 11.

Effective for tax years beginning after
December 31, 2017, a corporation' s
alternative tax is figured by multiplying
taxable income by 21% (0.21).
However, under section 15,
corporations with fiscal tax years
beginning before January 1, 2018,
and ending after December 31, 2017,
figure and apportion their tax by
blending the rates in effect before
January 1, 2018, with the rate in effect
after December 31, 2017. Figure the
corporation's alternative tax for the
2017 fiscal tax year using the
worksheet below.
1. Total annual notional shipping
income (Part V, line 29) . . . . . . .
2. Tax on line 29 figured using the 35%
tax rate . . . . . . . . . . . . . . . . .
3. Tax on line 29 figured using the 21%
rate . . . . . . . . . . . . . . . . . . .
4. Multiply line 2 by the number of days
in the corporation's tax year before
January 1, 2018 . . . . . . . . . . .
5. Multiply line 3 by the number of days
in the corporation's tax year after
December 31, 2017 . . . . . . . . .
6. Divide line 4 by the total number of
days in the corporation's tax
year . . . . . . . . . . . . . . . . . . .
7. Divide line 5 by the total number of
days in the corporation's tax
year . . . . . . . . . . . . . . . . . . .
8. Add lines 6 and 7. This is the
corporation's total alternative tax for
the fiscal tax year . . . . . . . . . . .

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Instructions for Form 8902 (Rev. 4-2018)

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