CCA 201212012: IRS advises when vessel service income is transportation income

Plain-English summary

The Office of Chief Counsel gave general advice about when income from personal services performed onboard a vessel may be treated as transportation income. It stated that this treatment applies when a nonresident alien individual earns the income for services performed between the United States and a possession. If the income is not effectively connected with a United States trade or business, it may be subject to the 4 percent tax on United States source gross transportation income under section 887(b)(4). The advice also states that services on vessels operating between the United States and a foreign country, or between foreign countries outside those countries' territorial limits, may instead produce ocean activity income, depending on the contracts and taxpayers involved.

Ruling snapshot

• Question: When is income from personal services performed onboard a vessel treated as transportation income?
• Outcome: Advice given.
• Key authorities: IRC § 887(b)(4); 26 U.S.C. § 6110(k)(3)

Full text (IRS public release)

ID: CCA-119450-11 Number: 201212012
Release Date: 3/23/2012
Office: ------------------
UILC: 887.00-00

From: ------------------
Sent: Wednesday, October 19, 2011 4:50 PM
To: -----------------
Cc: ------------------------------------------
Subject: Question about transportation income

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I apologize for not being able to get back to you sooner concerning your telephone message. I tried to phone you and missed you and then other matters intervened. I would like to have heard more facts about the contract and taxpayer(s) you were thinking about when you left the message. However, in general, the income from personal services performed onboard a vessel will only be treated as transportation income if it is earned by a nonresident alien individual for services performed between the U.S. and a possession. If that were the case, and it was not effectively connected with a US trade or business, within the meaning of section 887(b)(4), then the income could be subject to the 4% tax on US source gross transportation income. Such income is not subject to withholding If the services are performed onboard vessels operating between the US and a foreign country or between foreign countries and not within the territorial limits of any such country, ------- advised that the income would be characterized and sourced as ocean activity income and I agree. But the character of the income could be different depending on the contracts and who the taxpayers are.

I will be happy to discuss it with you further if you have any more questions.

Best regards,

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