Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Taxes and international boycott operations

international tax, Form 8938, businessU.S. taxpayers who have operations in, with, or related to certain countries participating in boycotts not sanctioned by the U.S. government may be required to report such operations to the IRS. Willful failure to file may result in large penalties, including $25,000 and/or imprisonment.

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As of October 10, 2019, the current list of countries that participate in an international boycott is as follows:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

A report must be filed with the IRS on Form 5713 if you or any of the following persons have operations in or related to a boycotting country or with the government, a company or a national of a boycotting country.

  • A foreign corporation in which you own 10% or more of the voting power of all voting stock, but only if you own the stock of the foreign corporation directly or through foreign entities.
  • A partnership in which you are a partner.
  • A trust you are treated as owning.

In addition to the reporting requirement, taxpayers participating in boycotts with the above-mentioned countries may forfeit certain tax benefits. For example, you must reduce either the total taxes available for the foreign tax credit or the credit otherwise allowable by your foreign taxes resulting from boycott activities. Other tax benefits that may be lost or reduced include: deferral of income from a controlled foreign corporation; deferral of tax of IC-DISC income; exemption of foreign trade income of a foreign sales corporation; and exclusion of extraterritorial income from gross income.

This information is general in nature and should not be relied on. Please seek advice from a qualified tax professional.

By Jill A. Helm, CPA