n-05-65.pdf

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# Part III - Administrative, Procedural, and Miscellaneous

Announcement of rules relating to the temporary operation of ships in the domestic
trade as a result of Hurricane Katrina

Notice 2005-65

As a result of the devastation caused by Hurricane Katrina, the Treasury
Department and the Internal Revenue Service (IRS) understand that on September 1,
2005, the Secretary of the Department of Homeland Security waived the Merchant
Marine Act of 1920 and related laws for the transportation of petroleum and refined
petroleum products for the period until 12:01 a.m., September 19, 2005, and for the
transportation of petroleum released from the Strategic Petroleum Reserve undertaken
in response to the circumstances arising from Katrina (the waiver). As a result of these
unique circumstances, Treasury and the IRS announce the following guidance with
respect to the temporary operation of ships in the domestic trade pursuant to the
waiver.

The IRS will not challenge a position taken by a foreign corporation, who is
otherwise engaged in the international operation of ships, that the transport of
petroleum pursuant to the waiver is an activity incidental to its international operation of
ships under Treas. Reg. § 1.883-1(g). In addition, Treasury and the IRS consider such

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activities conducted pursuant to the waiver by enterprises otherwise engaged in the
operation of ships in international traffic to be ancillary activities the income from which
will qualify for exemption under the shipping article of U.S. income tax treaties.

In light of these unique circumstances, and the special consideration given to
foreign crew members reflected in section 861(a)(3), the IRS will not challenge a
position that compensation for labor or services performed by a nonresident alien as a
regular member of a crew of a foreign vessel during the use of the vessel pursuant to
the waiver is income from sources without the United States.

For purposes of section 7701(b)(7), the IRS will not challenge a position taken
by an individual who is temporarily present in the United States on any day as a regular
member of the crew of a foreign vessel operating in the United States pursuant to the
waiver that the individual is not present in the United States on such day unless such
individual otherwise engages in any trade or business in the United States on such day.

In addition, for purposes of the alternative tax under subchapter R of the Internal
Revenue Code, the IRS will not challenge a position that days operating in the United
States pursuant to the waiver are not included in the computation of the 30-day
limitation of section 1355(f)(4).

## EFFECTIVE DATE

This notice is an emergency measure and relates to the specific circumstances
described in the waiver. Except as otherwise provided, the rules of this
notice are applicable from September 1, 2005, through September 18, 2005. With
respect to the transportation of petroleum released from the Strategic Petroleum

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Reserve undertaken pursuant to the waiver, the rules of this notice are applicable from
September 1, 2005, through October 31, 2005.

## DRAFTING INFORMATION

The principal author of this notice is Patricia A. Bray of the Office of Associate
Chief Counsel (International). For further information regarding this notice, contact
Patricia Bray or David Lundy at (202) 622-3880 (not a toll-free call).