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2005 Tax Law Changes - Repeal of Extraterritorial Income Exclusion

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Summary

The extraterritorial income (ETI) exclusion provisions have been repealed, generally for transactions after 2004, subject to a transition rule. Under the transition rule, taxpayers may claim 80% and 60% of the otherwise-applicable pre-repeal ETI exclusion for transactions during 2005 and 2006, respectively. The general repeal of the ETI exclusion provisions does not apply to transactions in the ordinary course of a trade or business under a binding contract if such contract is between the taxpayer and an unrelated person (as defined under the ETI exclusion provisions) and such contract is in effect on September 17, 2003, and at all times thereafter.

Foreign corporations that elected to be treated as domestic corporations may, under certain circumstances, revoke such election before October 22, 2005, without recognition of gain or loss.

For more information, see the 2004 Form 8873, Extraterritorial Income Exclusion, and instructions.

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