Federal Extraterritorial Income Exclusion

Extraterritorial Income Exclusion
Form 8873 (Rev. December 2010)
Form

8873

(Rev. December 2010)
Department of the Treasury
Internal Revenue Service
Name(s) as shown on return

Part I

Extraterritorial Income Exclusion

OMB No. 1545-1722

▶ Attach

▶ See

to your tax return.
separate instructions.

Attachment
Sequence No.

126

Identifying number

Elections and Other Information

1

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 . . . . . . . . . . . . . .

2

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) . . ▶

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4a
b

5
a
c

Are you excepted from the foreign economic process requirements because your foreign trading gross
receipts are $5 million or less? . . . . . . . . . . . . . . . . . . . . . . .
If “No,” check the applicable box to indicate how you met the foreign economic process requirements:
You met the 50% foreign direct cost test (see instructions).
(1)
You met the alternative 85% foreign direct cost test (see instructions).
(2)

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a
b
c
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f
g
h
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Yes

No

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:
Aggregate on Form 8873
(b)
Aggregate on tabular schedule
(a)
(2)
Group of transactions

Part II

6

▶

▶

(c)

Tabular schedule of transactions

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

(a) Foreign Trade
Income

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

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13

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
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17a
17b
17c
17d
17e
17f
17g
17h

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) . . .

18
19

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

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21

For Paperwork Reduction Act Notice, see instructions.

(b) Foreign Sale and
Leasing Income

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Cat. No. 30732F

Form 8873 (Rev. 12-2010)

Form 8873 (Rev. 12-2010)

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

Foreign trading gross receipts. Enter the amount from line 15 . .
Costs and expenses allocable to the amount reported on line 22:
Cost of direct material attributable to property sold . . . . .
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:
Cost of goods sold attributable to property sold . . . . . .
Other expenses and deductions attributable to gross income . .
Add lines 26a and 26b . . . . . . . . . . . . . .

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23c
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26b
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26c

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 . . . . .

Page 2

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30

Section B — 15% of Foreign Trade Income Method
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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 . . . . . . . . . . . .

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Section C — 1.2% of Foreign Trading Gross Receipts Method
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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

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Extraterritorial Income Exclusion (Net of Disallowed Deductions)

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43
44

Enter your foreign trade income from line 20 . . .
Multiply line 37 by 15% (.15) . . . . . . . .
Enter your foreign trading gross receipts from line 15
Multiply line 39 by 1.2% (.012) . . . . . . .
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) . . . . . . . .

45

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 . . . . . . . . . . . . . . . . . . . . .

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42
43
44
45

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.
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 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).
Otherwise, enter the amount from line 19, column (a) . . . . .
47
Multiply line 46 by line 47 . . . . . . . . . . . . . . . . . . . . . .
Add lines 45 and 48 . . . . . . . . . . . . . . . . . . . . . . . .
Reduction for international boycott operations, illegal bribes, kickbacks, etc. (see instructions).

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50

46

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48
49
50

51

Qualifying foreign trade income. Subtract line 50 from line 49. If -0- or less, stop here. You do not
qualify for the exclusion
. . . . . . . . . . . . . . . . . . . . . . . .

51

52

Extraterritorial income exclusion (net of disallowed deductions). Subtract line 48 from line 51.
Enter the result here and include it on the “other deductions” line of your tax return or schedule (see
instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Form 8873 (Rev. 12-2010)