Instructions for Form 8902

(Rev. April 2018)

Alternative Tax on Qualifying Shipping Activities

Department of the Treasury

Internal Revenue Service

Section references are to the Internal 

Revenue Code unless otherwise noted.

Future Developments

For the latest information about 

developments related to Form 8902 

and its instructions, such as 

legislation enacted after they were 

published, go to IRS.gov/Form8902.

What’s New

Alternative tax rate for fiscal year 

filers. Public Law 115-97 reduced 

the highest corporate tax rate from 

35% to 21%, effective for tax years 

beginning after December 31, 2017. 

Under section 11(b), as amended by 

section 15, corporations with fiscal tax 

years beginning before January 1, 

2018, and ending after December 31, 

2017, figure and apportion their 

alternative tax by blending the 35% 

rate in effect before January 1, 2018, 

with the 21% rate in effect after 

December 31, 2017. See the 

instructions for line 30.

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 

figure 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 figure 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 2 

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.

Mar 27, 2018 Cat. No. 39897X
Specific Instructions

Part I. Section 1354 

Election or Termination

Item B

A corporation must make the 

alternative tax election on or before 

the due date (including extensions of 

time to file) of the income tax return for 

the tax year for which the election is 

made.

Election by a member of a controlled group. An election under section 

1354(a) by a member of a controlled 

group applies to all qualifying vessel 

operators that are members of such 

group.

Item C

Generally, a revocation of an election 

under section 1354(a) made:

On or before the 15th day of the 3rd 

month of the tax year will be effective 

on the 1st day of that tax year; or

After the 15th day of the 3rd month 

of the tax year will be effective the 1st 

day of the following tax year.

However, if the revocation specifies 

a date for revocation that is on or after 

the day on which the revocation is 

made, the revocation will be effective 

for tax years beginning on and after 

the date of revocation specified.

Item D

An election under section 1354(a) will 

be terminated effective on and after 

the date the corporation ceases to be 

a qualifying vessel operator.

Election after termination. If a 

qualifying vessel operator made the 

election under section 1354(a) and 

subsequently revoked the election 

(Item C) or ceased to be a qualifying 

vessel operator (Item D), that operator 

(and any successor operator) is not 

eligible to make another section 

1354(a) election for any tax year 

before the fifth tax year that begins 

after the first tax year for which the 

termination is effective, unless the IRS 

consents to the election.

Part II. Other Information

Question E

The term “electing group” means a 

controlled group of which one or more 

members is an electing corporation.

The term “controlled group” means 

any group which would be treated as 

a single employer under section 52(a) 

or (b) if sections 52(a)(1) and (2) did 

not apply.

Line G(1). Core Qualifying 

Activities

Enter on line G(1) the corporation's 

gross income from core qualifying 

activities. Attach a schedule.

For purposes of this election, the 

term “core qualifying activities” means 

activities in operating qualifying 

vessels in U.S. foreign trade.

Line G(2). Qualifying 

Secondary Activities

For purposes of this election, the term 

"qualifying secondary activities" 

means secondary activities (defined 

below) but only to the extent that the 

gross income derived by the 

corporation from such activities does 

not exceed 20% of the gross income 

derived by the corporation from its 

core qualifying activities.

Secondary activities. The term 

"secondary activities" means:

The active management or 

operation of vessels other than 

qualifying vessels in the U.S. foreign 

trade;

The provision of vessel, barge, 

container, or cargo-related facilities or 

services to any person; and

Other activities of the electing 

corporation and other members of its 

electing group that are an integral part 

of its business of operating qualifying 

vessels in U.S. foreign trade, 

including:

1. Ownership or operation of 

barges, containers, chassis, and other 

equipment that are the complement 

of, or used in connection with, a 

qualifying vessel in U.S. foreign trade;

2. The inland haulage of cargo 

shipped, or to be shipped, on 

qualifying vessels in U.S. foreign 

trade; and

3. The provision of terminal, 

maintenance, repair, logistical, or 

other vessel, barge, container, or 

cargo-related services that are an 

integral part of operating qualifying 

vessels in U.S. foreign trade.

The term “secondary activities” 

does not include any core qualifying 

activities.

Line G(2)(a). Amount included in 

20% limit. Enter on line G(2)(a) the 

corporation's gross income from 

secondary activities that does not 

exceed 20% of line G(1).

Electing groups. In the case of an 

electing group, the above rules are 

applied as if the group were one 

entity, and the 20% limitation is 

allocated among the corporations in 

the group.

Line G(2)(b). Amount that exceeds 

the 20% limit. Enter on line G(2)(b) 

the corporation's gross income from 

secondary activities that exceeds 

20% of line G(1).

Attach a schedule showing 

computations for lines G(2)(a) and (b).

Example 1. The corporation has 

gross income from core qualifying 

activities of $20 million and gross 

income from secondary activities of 

$5 million. The corporation enters $20 

million on line G(1), $4 million (20% of 

$20 million) on line G(2)(a), and $1 

million (gross income from secondary 

activities of $5 million less the $4 

million limit) on line G(2)(b).

Example 2. The facts are the 

same as in Example 1 above, except 

the corporation has gross income 

from secondary activities of $3 million. 

The corporation would enter $3 million 

on line G(2)(a) and zero on line G(2)

(b). Gross income from secondary 

activities of $3 million is less than the 

$4 million limit.

Line G(3). Qualifying Incidental 

Activities

For purposes of this election, the term 

“qualifying incidental activities” means 

shipping-related activities if:

1. They are incidental to the 

corporation's core qualifying activities,

2. They are not qualifying 

secondary activities, and

3. The gross income derived by 

the corporation from such activities 

does not exceed 0.1% of the 

corporation's gross income from its 

core qualifying activities.

Line G(3)(a). Amount included in 

the 0.1% limit. Enter on line G(3)(a) 

the corporation's gross income from 

incidental activities that does not 

exceed 0.1% of line G(1).

Electing groups. In the case of an 

electing group, the above rules are 

applied as if the group were one 

entity, and the 0.1% limitation is 

-2- Instructions for Form 8902 (Rev. 4-2018)
allocated among the corporations in 

the group.

Line G(3)(b). Amount that exceeds 

the 0.1% limit. Enter on line G(3)(b) 

the corporation's gross income from 

incidental activities that exceeds 0.1% 

of line G(1).

Attach a schedule showing 

computations for lines G(3)(a) and (b).

Line H. Gross Income From 

Qualifying Shipping Activities 

Excluded From Gross Income 

on the Corporation's Income 

Tax Return

Enter on line H the total of lines G(1), 

G(2)(a), and G(3)(a). Do not include 

this amount in gross income on the 

corporation's Form 1120 or Form 

1120-F. Furthermore, do not include 

on the corporation's Form 1120 or 

Form 1120-F any item of loss, 

deduction, or credit with respect to 

this line H excluded income.

Note. The amounts entered on lines 

G(2)(b) and G(3)(b) must be included 

in gross income on the corporation's 

Form 1120 or Form 1120-F.

Part III. Vessel Information

With respect to Parts III and IV, 

complete a separate column for each 

qualifying vessel. If the corporation 

has more than four qualifying vessels, 

attach separate sheets for Parts III 

and IV using the same size and format 

as Form 8902. Also, on line 29, enter 

the sum of all columns of Part IV, 

line 28.

Line 9. Type of Ownership

Indicate in each column the type of 

ownership for the vessel. Enter “O” for 

an owned vessel, “L” for a leased 

vessel, and “CL” for a capitalized 

lease.

Line 10. Type of Vessel Use

Indicate in each column the type of 

vessel use. Enter “BB” for bareboat 

charter out, “TC” for time charter out, 

and “OI” for operating income.

Part IV. Notional Shipping 

Income

Line 21. Ownership Percentage

Enter the corporation's percentage of 

ownership in the vessel. If, for any 

period, two or more persons are 

operators of a qualifying vessel, the 

notional shipping income from the 

operation of such vessel for that 

period must be allocated among the 

operators on the basis of their 

respective ownership, charter, and 

operating agreement interests in the 

vessel.

Part V. Alternative Tax

Line 30. Alternative Tax on 

Qualifying Shipping Activities

Enter the highest rate of tax 

applicable for the period of qualified 

shipping activities, under section 11. 

Effective for tax years beginning after 

December 31, 2017, a corporation' s 

alternative tax is figured by multiplying 

taxable income by 21% (0.21). 

However, under section 15, 

corporations with fiscal tax years 

beginning before January 1, 2018, 

and ending after December 31, 2017, 

figure and apportion their tax by 

blending the rates in effect before 

January 1, 2018, with the rate in effect 

after December 31, 2017. Figure the 

corporation's alternative tax for the 

2017 fiscal tax year using the 

worksheet below.

1. Total annual notional shipping 

income (Part V, line 29) .......

2. Tax on line 29 figured using the 35% 

tax rate .................

3. Tax on line 29 figured using the 21% 

rate ...................

4. Multiply line 2 by the number of days 

in the corporation's tax year before 

January 1, 2018 ...........

5. Multiply line 3 by the number of days 

in the corporation's tax year after 

December 31, 2017 .........

6. Divide line 4 by the total number of 

days in the corporation's tax 

year ...................

7. Divide line 5 by the total number of 

days in the corporation's tax 

year ...................

8. Add lines 6 and 7. This is the 

corporation's total alternative tax for 

the fiscal tax year ...........

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Instructions for Form 8902 (Rev. 4-2018) -3-