IRS Form 8902 – IRS Forms, Instructions, Pubs 2026

IRS Form 8902 – IRS Forms, Instructions, Pubs 2026 – If your corporation operates U.S.-flag vessels in international trade, IRS Form 8902 offers a valuable tax election under Internal Revenue Code Section 1354. This form allows qualifying vessel operators to compute an alternative tax based on notional shipping income rather than actual taxable income from qualifying activities.

The form remains current with its April 2018 revision (no updates as of February 2026, per official IRS resources). Qualifying companies can elect this simplified regime to potentially reduce compliance burdens and tax liability on core shipping operations.

Download the official IRS Form 8902 PDF here: https://www.irs.gov/pub/irs-pdf/f8902.pdf
Instructions PDF: https://www.irs.gov/pub/irs-pdf/i8902.pdf

What Is IRS Form 8902?

Form 8902, titled Alternative Tax on Qualifying Shipping Activities, serves multiple purposes:

  • Make or revoke the Section 1354(a) alternative tax election.
  • Report termination of the election.
  • Provide required vessel and income information.
  • Calculate the alternative tax owed.

Qualifying vessel operators attach this form to their corporate income tax return (Form 1120 or Form 1120-F). The election lets corporations exclude qualifying shipping income from gross income and instead pay tax on a “notional” amount derived from vessel tonnage and days in service.

This regime, often compared to international tonnage tax systems, benefits operators with stable, capital-intensive shipping fleets by providing predictability.

Key benefit: Gross income from core qualifying activities (plus limited secondary and incidental income) is excluded from the regular corporate return, replaced by the alternative tax computed on Part V, line 30.

Who Must File IRS Form 8902?

You must file Form 8902 if your corporation is a qualifying vessel operator and:

  • You are making the Section 1354 election for the current tax year (and all future years).
  • You have a valid prior election in effect and need to report information or compute the tax.
  • You are revoking the election or reporting automatic termination.

A qualifying vessel operator is any corporation that:

  • Operates one or more qualifying vessels.
  • Meets the shipping activity requirement (at least 25% average ownership or bareboat charter tonnage in qualifying vessels for the prior two tax years, or the preceding year for the first election year).

Qualifying vessel definition:

  • Self-propelled (or combination) U.S.-flag vessel.
  • 6,000+ deadweight tons.
  • Used exclusively in U.S. foreign trade (transport between U.S. and foreign ports, or between foreign ports) during the election period.

Operating a vessel includes ownership, time charters, or providing services under operating agreements. Special rules apply to bareboat charters, controlled groups, and pass-through entities (e.g., partnerships allocate interests proportionally).

Controlled groups: The election by one member applies to all qualifying members; the 25% requirement is tested on a group basis.

Making or Terminating the Section 1354 Election

Making the election (Part I, Item B): File by the due date of the return (including extensions) for the first year. The election applies to that year and all succeeding years unless revoked or terminated.

Revocation (Item C):

  • Before the 15th day of the 3rd month of the tax year → effective start of that year.
  • Later → effective start of the following year.
  • Or specify a later effective date.

Automatic termination (Item D): Occurs if the corporation ceases to be a qualifying vessel operator. Effective the date it no longer qualifies.

5-year ban on re-election: After revocation or termination, the operator (and successors) generally cannot re-elect for five tax years unless IRS consents.

Electing group: All members of a controlled group are treated together.

Qualifying Shipping Activities and Income Limits (Part II)

Report gross income to ensure compliance with activity limits:

  • Core qualifying activities (Line G(1)): Operating qualifying vessels in U.S. foreign trade. Attach a schedule. This income is fully excluded.
  • Qualifying secondary activities (Line G(2)): Limited to 20% of core income. Examples include managing non-qualifying vessels, providing cargo facilities, inland haulage, or terminal services. Excess (G(2)(b)) is taxed normally.
  • Qualifying incidental activities (Line G(3)): Limited to 0.1% of core income. Excess (G(3)(b)) is taxed normally.

Line H total (G(1) + G(2)(a) + G(3)(a)) is excluded from gross income on Form 1120/1120-F. Do not claim related deductions/credits for excluded amounts.

Examples from IRS instructions:

  • Core income $20M, secondary $5M → $4M (20%) excluded, $1M included normally.
  • Secondary only $3M → All $3M excluded.

Vessel Information and Notional Shipping Income (Parts III & IV)

Complete a separate column for each qualifying vessel (attach additional sheets if >4 vessels). Key fields:

  • Vessel name, IMO/USCG numbers, flag, type, dates.
  • Ownership type (O = owned, L = leased, CL = capitalized lease).
  • Use type (BB = bareboat out, TC = time charter out, OI = operating income).
  • Deadweight tons, net tons.
  • Days operated in U.S. foreign trade.

Notional shipping income calculation (per vessel):

  1. Smaller of net tons or 25,000 × 0.004 = daily base.
  2. Excess net tons × 0.002.
  3. Total daily notional × days operated.
  4. Multiply by ownership percentage.
  5. Adjust if any income excluded under Section 883 (pro-rate).

Line 29: Total annual notional shipping income (sum of all vessels).

How to Calculate the Alternative Tax (Part V)?

Line 30: Total notional income (Line 29) × highest corporate tax rate under Section 11.

  • For tax years beginning after December 31, 2017: Flat 21% corporate rate.
  • For fiscal years straddling 2018: Use the IRS worksheet to blend pre- and post-TCJA rates (35% blended with 21%).

Enter the result on your corporate return’s “Other taxes” line (Form 1120 Schedule J or Form 1120-F Schedule J) and check the Form 8902 box.

This alternative tax replaces regular corporate income tax on the excluded qualifying shipping income.

Step-by-Step Filing Instructions

  1. Gather vessel details, ownership docs, income breakdowns, and tonnage data.
  2. Complete Part I (election/termination status).
  3. Fill Part II (income limits; attach schedules).
  4. Detail each vessel in Part III.
  5. Compute notional income in Part IV.
  6. Calculate tax in Part V.
  7. Attach Form 8902 to your timely filed Form 1120 or 1120-F.
  8. For consolidated returns: File under common parent; list subsidiary if applicable.

Deadline: Same as your corporate return (generally 15th day of 4th month after year-end, or extended).

E-filing: Supported with modern tax software for Form 1120/1120-F.

Common Mistakes to Avoid

  • Failing the 25% shipping activity requirement.
  • Exceeding 20%/0.1% limits on secondary/incidental income without proper reporting.
  • Incorrect vessel classification or days-in-service calculation.
  • Missing attachments for income schedules or extra vessels.
  • Improper handling of controlled groups or pass-through interests.

Always consult the full IRS instructions and a qualified tax professional familiar with maritime taxation.

Why Choose the Alternative Tax Election?

  • Predictability: Tax based on tonnage/days, not fluctuating profits.
  • Simplified reporting: Exclude qualifying income and related expenses.
  • Competitiveness: Aligns U.S. operators with global tonnage tax regimes.

However, once elected, it binds future years unless properly revoked, and re-election has a 5-year waiting period.

Official Resources and Downloads

For the latest developments, visit IRS.gov/Form8902. No changes noted since the 2018 revision or TCJA rate adjustment.

Need help? Consult a tax advisor specializing in international shipping or maritime law. This article is for informational purposes only and is not tax or legal advice. Always refer to official IRS publications for your specific situation.

Sources: Official IRS Form 8902, Instructions (Rev. April 2018), and About page (reviewed 2026). All data current as of February 2026.