April 4, 2006
Shipowners in U.S. trades face IRS deadline
Every shipping business which is connected to U.S. trades should file tax returns in the U.S, whether or not they consider they will be exempt from U.S. Freight Tax. If not, they may face punitive fines, warns leading shipping accountant Moore Stephens. The deadline for most is June 15, 2006.
"Regulations detailing filing requirements and exemptions now apply to all tax years beginning after September 24, 2004," says David Lifson, partner at Moore Stephens Hays LLP.
Lifson says this means any foreign owner, operator or charterer with a fiscal year end beginning after September 24, 2004 who had a vessel call at a U.S. port at any time during its fiscal year must obtain a U.S. taxpayer identification number and file a tax return with the US Internal Revenue Service within five and a half months of its fiscal year end."
Companies that account on the basis of the calendar year must, therefore, file by June 15, 2006 and report freight income/charter fees for 2005.
"Forget to file or think you don't have to because you have an exemption and you could be hit with an expensive fine," warns Lifson.
The U.S. freight tax is a 4 percent tax levied on 50 percent of the U.S. transportation income of foreign shipowners and operators, says Moore Stephens.
Under section 883 of the US tax code, if the company that owns or operates the vessel and a majority of the ultimate owners of the business are resident in a country which exempts U.S. companies engaged in international shipping from domestic tax, then a reciprocal exemption from U.S. freight tax is granted. Other treaty based exemptions are also sometimes available, but require a filing.
"Until now, the rules have been loosely enforced, and many exempt companies have not filed tax returns," explains Lifson. "But the IRS has now stated that every company with ships calling at U.S. ports must file a tax return, and must give clear details of the residency of the owners of the company if they wish to claim an exemption. This includes all owners, charterers and pool participants, even if their ship was not the vessel in the pool that called on the U.S. port. The U.S. IRS can now match tax filings with US Coast Guard records of port calls, and non-filers face fines of US $10,000 per month, even if the company is exempt from the tax."
Moore Stephens LLP and New York-based Moore Stephens Hays LLP are member firms of Moore Stephens International Limited, one of the world's leading accounting and consulting networks, with 1,700 partners and 10,520 professional staff in 539 offices of member firms in 93 countries.