Q:  Vic King from Houston, TX , attended an FDTA conference in Houston about a year ago, and has followed the new legislation with great interest.  Vic asks:  

          “I was recently informed that the IRS is coming out with several Revenue Procedures in the near future, to clarify some of the Extraterritorial Income Exclusion provisions.   Have you heard anything about this?  Do you know what the procedures will address and when they expect to release them?

          Since the EIE so closely mirrors the FSC, I personally don't see a whole lot of need for clarification, and was surprised that they would be working on this.

A:  Until the WTO reviews the ETI legislation and the EU accepts the replacement legislation, the IRS will not undertake any substantive regulations.  Procedural guidelines, usually issued in the form of Revenue Procedures, are required for the administration of the tax law and to implement tax reporting and compliance standards for taxpayers.  For example, the IRS recently released a new tax form - 8873 - that contains questions and data for computing the ETI exclusion.  The Instructions indicate that the ETI exemption is to be reported as an Other Deduction or Other Expense. Thus, tax practitioners now have a format and instructions for claiming the ETI tax benefit for 2000 tax returns. New procedures are required to clarify and explain the operation of the FSC/ETI transition rules - how to elect ETI benefits in 2000 if you have an FSC, etc. 

          Eventually, IRS guidance will be needed in determining the U.S. content of foreign trade property and the treatment of foreign corporations electing to be treated as a U.S. corporation.  Amendments to conform the current U.S. sourcing, Subpart F, foreign tax credit and cross-border reorganization rules also are required.  Like the DISC/FSC transition period, however, tax practitioners relied on the DISC rules for a couple of years before FSC rules were finalized.  There are a number of differences between the ETI and FSC rules, so you can expect new substantive regulations under Secs. 941-941 and Sec. 114 will be issued when the WTO controversy is settled.