IRS Establishes Task Force to Establish Tax Filing Compliance of Foreign Vessels
In an effort to collect unpaid taxes, the U.S. Internal Revenue Service ("IRS") has recently established a task force to determine the compliance of foreign vessel companies with U.S. tax filing requirements. This initiative has arisen due to the increased number of foreign vessels that have applied to enter and work on the Outer Continental Shelf in the Gulf of Mexico ("OCS"), many of whom the IRS believes do not comply with U.S. tax requirements such as reporting U.S. income and filing tax returns.
Under applicable U.S. tax laws, the OCS is considered geographically within the United States for purposes of applying the Internal Revenue Code. Accordingly, foreign vessels and contractors who provide services on the OCS are considered to perform those services in the United States; derive U.S. income; are engaged in a U.S. trade; and are subject to tax on a net basis.
The directive specifically targets: (1) contractors that perform services on the OCS (such as seismographic testing, drilling, repair and salvage work); (2) vessel operators that transport supplies and personnel between U.S. ports and locations on the OCS; and (3) owners and/or operators of foreign-registered vessels that bareboat or time charter to persons that are engaged in activities related to the exploration for, or exploitation of, natural resources on the OCS.
To date, the IRS has contacted approximately two hundred (200) vessel owners and operators, requesting that the vessel owner file U.S. tax returns and pay any tax and interest due.
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