Not Logged In, Login,

Sunday, July 15, 2018

STATUS REPORT - IRS TAX PROPOSAL - REGULATION 883

 Reference is made to our Weekly NEWS No. 24 reporting on the IRS public hearing held June 8 at which INTERTANKO’s positions on the principal issues of concern to our members were presented.  This following report is to update the members on the status of possible modifications to the Proposed Regulations based on these submissions by INTERTANKO.  The report is based on informal and ongoing discussions with the IRS subsequent to the 8 June hearing, that except for issues related to lightering and the onerous nature of the documentation requirements, INTERTANKO comments have been favourably received.

1/ EFFECTIVE DATE:  The IRS has informally conceded that the Proposed Regulations, as finalized, should be prospective and not retroactive in application. The IRS is considering making the final Regulations effective for tax years beginning (instead of ending as the Proposed Regulations currently provide) 30 days after the final Regulations are published. This means the earliest effective date for calendar year taxpayers will be January 1, 2001 if the Proposed Regulations are published in final form on or prior to the current IRS target date of December 1, 2000.  It is entirely possible that the IRS will not be able to make its target date and if not, the effective date for calendar year taxpayers would slip to January 1, 2001. 

2/  LIGHTERING:  Tentative indications are that for policy and other reasons, the IRS is not inclined to change their position that income derived from lightering activities (e.g. Gulf of Mexico) does not qualify for exemption.  This is despite the fact that a strong technical position to the contrary can be taken as set forth in INTERTANKO’s written comments.  If the IRS adheres to its position, this could have serious potential tax implications for not only the several lightering companies operating in the Gulf of Mexico but also owners and operators of vessels that are time chartered into the lightering trade.

3/  PASSIVE INVESTOR RULE: The IRS  appears to be favorably disposed to accepting INTERTANKO’s comments that a passive investor in a joint venture should not be precluded from claiming exemption on its pro rata share of joint venture shipping income.

4/  TREATY CRAM-DOWN RULE.  Again, the IRS appears to be receptive to INTERTANKO’s comments that a taxpayer claiming exemption under Section 883 should not have to satisfy applicable "flag" or "treaty-shopping" provisions of an income tax treaty between the U.S. and a country in which a beneficial owner resides.

5/  DOCUMENTATION REQUIREMENTS.  For the moment, the IRS does not appear to be disposed to modify any of the documentation requirements of the Proposed Regulations, including its position that bearer shares in a chain of ownership will be treated as per se owned by a non-qualifying beneficial owner.

Pending the issuance of final Regulations, INTERTANKO’s members would be well advised to review their existing U.S. tax position and where appropriate, to consider the possible restructuring of their operations to the extent required to ensure the continued exemption of their operations from U.S. tax.   For further details: mailto: betts@sewkis.com