EXPORT ASSIST IS THE LEADER IN PROVIDING FOREIGN ECONOMIC PROCESSING (FEP) and EXTRATERRITORIAL INCOME EXCLUSION (ETI) COMPLIANCE SERVICES TO HELP THE EXPORTER RECEIVE ONGOING EXPORT TAX BENEFITS. THIRD PARTY (E.G., EXPORT ASSIST) VERIFICATION OF COMPLIANCE HAS NEVER BEEN CONTESTED BY THE IRS.

Under the former Foreign Sales Corporation (FSC) legislation and the repealed Extraterritorial Income Exclusion (ETI) Act of 2000, U.S. exporters with annual export gross receipts exceeding $5,000,000 are obligated to perform certain foreign economic processes (FEP) in order to be eligible for export tax benefits.

On October 11, 2004, the American Jobs Creation Act of 2004 was passed which repealed the Extraterritorial Income Exclusion (ETI). This act reduces ETI benefits to 80% in 2005 and 60% in 2006. After 2006, ETI no longer exists. In order to take the ETI benefits for 2004, 2005 and 2006, the exporter must meet the minimum FEP requirements by establishing that it participated outside of the United States in the sales promotion of export transactions and that it satisfied either the 50% or the 85% foreign direct cost test. These two tests must be satisfied separately:

• sales activity test, includes solicitation, negotiation and making of a contract
• foreign direct cost test, includes advertising and sales promotion; processing customer orders and arranging for delivery; transportation; determination and transmittal of a final invoice or statement of account and/or receipt of payment; and assumption of credit risk. This test is met if 50% of all export-related direct costs are foreign direct costs in all categories or if 85% of export-related direct costs are foreign direct costs in each of the two chosen direct cost categories.

Although the sales activities and direct cost tests are to be done on a transaction-by-transaction basis, the grouping of transactions is allowed. There are four ways that transactions can be grouped to accomplish these tests: by product, by customer, by contract, or by product or product line with a customer or contract group.

In order to capture the maximum ETI exclusion, Export Assist will help the U.S. exporter to comply with FEP requirements by analyzing its financial information and retrieving all export-related activities. The results of this analysis and report will offer guidance regarding how the exporter can meet the FEP tests and how it can prepare records to verify the performance of FEP activities. The exporter must take further action to ensure proper FEP documentation in order to constitute proof of compliance.

For the exporter that missed or needs to re-evaluate any FSC or ETI compliance steps before the close of its 2001, 2002, or 2003 tax years, Export Assist offers FEP Forensic Advisory Services that analyze the export-related activities concluded during each applicable year in order to help it comply, after the fact, with FEP requirements.

If you would like Export Assist to provide economic process services to help you comply with FEP and ETI, please complete the Foreign Economic Processes Annual Agreement (pdf) and return it to us, as directed on the form.

FREE IC-DISC TAX BENEFIT REPORT
With the repeal of ETI, the IC-DISC is now the only 100% safe harbor export tax incentive available. To compare your IC-DISC tax benefits and ETI, Export Assist will customize a FREE IC-DISC TAX BENEFIT REPORT for you. Just fax a copy of your most recent Form 8873 with all schedules to us at 888-894-8366 (toll free) and we will process the comparison quickly. There is no cost or obligation. If you have not taken ETI benefits and are interested, please contact us and we will complete your FREE IC-DISC Tax Benefit Report based upon a few export numbers that we can receive over the phone. Many exporters are having Export Assist incorporate their Managed IC-DISC immediately or activating their new IC-DISC on January 1, 2005. By doing so, you are positioned to realize this higher export tax benefit and to use the expense deduction this year.

If you have any questions, please contact Ms. Tamara Crews, Vice President – Professional Markets, directly at 800-894-8366 or tcrews@exportassist.com.