IRS Rules Out Key Tax Exemption for Foreign Ships Using Jones Act Waiver

Income earned by foreign corporations carrying cargo between U.S. ports under the Jones Act waiver does not qualify as Section 883 "international operation of ships" income, so no gross income exclusion or shipping-related treaty benefit applies. The IRS said such voyages must be reported on Form 1120-F, the U.S. Income Tax Return of a Foreign Corporation. Seward & Kissel and Hughes Hubbard & Reed had flagged the ambiguity since April, outlining possible treatments from a 21% corporate tax plus 30% branch profits tax to a 30% gross-basis withholding tax; some charter agreements may shift that cost to charterers. The second 90-day waiver extension takes effect August 17.