Income reporting requirements for foreign corporations operating under the Jones Act waiver

The Merchant Marine Act of 1920, also known as the “Jones Act” (46 U.S.C. § 55102), prohibits vessels from transporting merchandise between points in the United States if any part of the shipment is by water, a combination of land and water, or through a foreign port, unless the vessel is U.S.-built, U.S.-owned, and coastwise endorsed by the U.S. Coast Guard. On March 17, 2026, the Department of Homeland Security issued a limited waiver of the Jones Act pursuant to 46 U.S.C. § 501(a), at the request of the Department of War (the “Jones Act waiver”). The Jones Act waiver allows foreign-flagged vessels to transport cargo between U.S. ports.

The Jones Act waiver covered a 60-day period that expired at 11:59 p.m. Eastern Daylight Time on May 17, 2026. This waiver was extended for a period of 90 days commencing on May 18, 2026 at 12 a.m. and expiring at 11:59 p.m. Eastern time on Aug. 16, 2026. A second 90-day extension of the waiver will commence on Aug. 17, 2026 at 12 a.m.

Income of a foreign corporation from the operation of vessels transporting cargo between U.S. ports under the Jones Act waiver is not derived from the international operation of ships and is thus not eligible for the gross income exclusion under section 883 or treaty benefits related to the operation of ships in international traffic. See Treas. Reg. section 1.883-1(f)(1). Therefore, a foreign corporation must report such income on Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, and should not complete Schedule S, Exclusion of Income from the International Operation of Ships or Aircraft Under Section 883, nor claim treaty benefits related to the operation of ships in international traffic on Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).