IRS Rules Out Key Tax Exemption for Foreign Ships Using Jones Act Waiver

The Internal Revenue Service has issued new guidance clarifying that foreign shipping companies operating between U.S. ports under the Jones Act waiver cannot claim a longstanding tax exemption normally available to international shipping income, potentially adding a significant cost to waiver voyages.

The IRS said income earned by foreign corporations transporting cargo between U.S. ports under the waiver does not qualify as income from the “international operation of ships” and therefore is not eligible for the gross income exclusion under Section 883 of the Internal Revenue Code or related shipping provisions in U.S. tax treaties.

Foreign corporations earning income