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 compute 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 compute the alternative tax.

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 two 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 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.


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