Revision Date: December 3, 2001
SHIPPING AND AIR TRANSPORT INDUSTRIES
FEDERAL INCOME TAX WITHHOLDING ON COMPENSATION PAID TO
NONRESIDENT ALIEN CREW MEMBER BY A FOREIGN TRANSPORTATION
Revised for Years Beginning after December 31, 1997
The coordinated issue paper, “FEDERAL INCOME TAX WITHHOLDING ON
COMPENSATION PAID TO NONRESIDENT ALIEN CREW MEMBER BY A FOREIGN
TRANSPORTATION ENTITY” issued on July 24, 1995, is being revised to reflect additional support
that section 3402(e) does not apply to compensation paid to nonresident alien crew members
performing services partly within and partly outside of the United States during a pay period of 31 days
The paper is also being revised as a result of changes made by Section 1174 of The Taxpayer Relief
Act of 1997, Public Law 105-34. Section 1174 “treats gross income of a nonresident alien individual,
who is present in the United States as a member of the regular crew of a foreign vessel, from the
performance of personal services in connection with international operation of a ship as income from
foreign sources.” Thus, such income is exempt from U.S. income tax and withholding tax effective for
taxable years beginning after December 31, 1997.
As Section 1174 applies only to foreign “vessels” and not to foreign “aircraft,” the coordinated issue
paper will only apply to U.S. sourced compensation paid to nonresident alien crew members of aircraft
for taxable years beginning on or after January 1, 1998. However, this paper will continue to apply with
respect to nonresident alien crew members of both ships and aircraft for taxable years beginning before
January 1, 1998.
Whether compensation paid by a foreign transportation entity to nonresident alien crew for services
performed within the United States on trips between U.S. and foreign destinations should be subject to
withholding tax under section 3402 or section 1441.
In cases involving international transportation other than transportation to a U.S.