OF EXTRATERRITORIAL INCOME EXCLUSION (ETI) BENEFITS
EXPORT ASSIST CONTINUES TO PROVIDE ETI COMPLIANCE
SERVICES TO HELP QUALIFIED U.S. EXPORTERS MAXIMIZE THEIR ETI BENEFITS
FOR OPEN TAX YEARS 2005 and 2006. THIRD PARTY (E.G., EXPORT
ASSIST) VERIFICATION OF COMPLIANCE HAS NEVER BEEN
CONTESTED BY THE IRS.
Although ETI was repealed in 2006, exporters
might be able to recover ETI benefits for open tax years 2005
and 2006 as long as they did not have an active IC-DISC in those
years. This could be of interest to the majority of U.S. exporters
who never applied for ETI benefits because they didn’t know
they existed and to those who only applied for the minimum ETI benefit
because they didn’t know how to perform foreign economic processing
Those exporters with $5,000,000 or less in annual export sales
who never benefited from ETI can file IRS Form 8873 in order
to recover ETI benefits with no FEP requirement.
Those exporters with annual export sales in excess of $5,000,000
who want to maximize their ETI benefits must show proof of foreign
economic processing by meeting each of the following tests:
- sales activities test, including solicitation, negotiation or making
of a contract
- direct cost test, including
advertising and sales promotion; processing customer orders and
arranging for delivery; transportation; determination and transmittal
of a final invoice or statement of account and/or receipt of payment;
and assumption of credit risk. This test is met if 50% of all export-related
direct costs are foreign direct costs in all categories or if 85%
of export-related direct costs are foreign direct costs in each
of the two chosen direct cost categories.
Although the sales activities
and direct cost tests are to be done on a transaction-by-transaction
basis, the grouping of transactions is allowed. There are four ways
that transactions can be grouped to accomplish these tests: by product,
by customer, by contract, or by product or product line with a customer
or contract group.
In order to help ensure FEP compliance, Export Assist, for an hourly
fee, will work with your tax professional to analyze the exporter’s
financial information and retrieve all export-related activities
for each applicable year. The results of this analysis will offer
guidance regarding how the exporter can meet the FEP tests and how
it can prepare records to verify the performance of FEP activities.
The exporter must take further action to ensure proper FEP documentation
in order to constitute proof of compliance and it must file or amend
IRS Form 8873 in order to claim ETI benefits.
For more information about ETI or our other export tax benefit programs,
please contact Wendy Weir, Chief Operating Officer, at 800-894-8366 or firstname.lastname@example.org.