Instructions for IRS Form 1120-F Schedule I "Interest Expense Allocation Under Regulations Section 1.882-5"

December 21, 2018 "Instructions For Irs Form 1120-f Schedule I - Interest Expense Allocation Under Regulations Section 1.882-5" contain the latest filing requirements for the IRS-issued Form 1120-F. Download your copy of the instructions by clicking the link below.

IRS Form 1120-F is tax form released and collected by the Internal Revenue Service of the United States.

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Download Instructions for IRS Form 1120-F Schedule I "Interest Expense Allocation Under Regulations Section 1.882-5"

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2018
Department of the Treasury
Internal Revenue Service
Instructions for Schedule I
(Form 1120-F)
Interest Expense Allocation Under Regulations Section 1.882-5
section 882(c) to ECI and for attributing
provisions and accompanying
Section references are to the Internal Revenue
Code unless otherwise noted.
interest expense to business profits of a
documents of an applicable treaty, then
U.S. permanent establishment under all
Schedule I still must be completed
General Instructions
income tax treaties other than treaties
based on the treaty method used
that expressly permit attribution of
(substituting the amount of assets,
Future Developments
business profits to a U.S. permanent
liabilities and interest expense
establishment under application of the
determined under the treaty method for
For the latest information about
OECD Transfer Pricing Guidelines, by
the amounts that would have been
developments related to Schedule I
analogy. If the foreign corporation files
reported under Regulations section
(Form 1120-F) and its instructions, such
its tax return using a treaty-based
1.882-5) and attached to Form 1120-F.
as legislation enacted after they were
method of the type provided in these
The corporation is also required to
published, go to IRS.gov/Form1120F.
treaties, see Treaty-based return
complete and attach Form 8833,
positions below for reporting
Treaty-Based Return Position
Purpose of Schedule
requirements.
Disclosure.
Schedule I (Form 1120-F) is used to
report the amount of interest expense
Who Must File
Exceptions from Filing
allocable to effectively connected
Schedule I
All foreign corporations that have
income (“ECI”) and the deductible
interest expense allocable to ECI under
A foreign corporation is not required to
amount of such allocation for the tax
section 882(c) must complete
file Schedule I if it (a) does not have a
year under section 882(c) and
Schedule I to report this allocation,
trade or business within the United
Regulations section 1.882-5. The
regardless of whether the amount
States, (b) has no worldwide interest
schedule discloses the basic
allocable under Regulations section
expense for the tax year to allocate
calculations for the year and also
1.882-5 is deductible in the current year,
under Regulations section 1.882-5, or
identifies the various elections the
or is otherwise deferred or permanently
(c) conducts limited activities in the
taxpayer uses under Regulations
disallowed under other sections of the
United States for the tax year that it
sections 1.882-5(a)(7) and (d)(5), and
Internal Revenue Code (for example,
determines do not give rise to ECI or do
under the branch profits tax rules of
sections 163(e), 163(j), 263A, 265(a)
not give rise to a U.S. permanent
Regulations section 1.884-1(e)(3).
and 267(a)(3)). The information
establishment to which business profits
reported on Schedule I is also needed
Note. The tax election under
are attributable, and the corporation
to complete Form 1120-F, Section III
Regulations section 1.884-1(e)(3) is not
files a protective income tax return
(the determination of the branch-level
effectuated under the regulations by its
under Regulations section 1.882-4(a)(3)
interest tax under section 884(f)).
identification on Schedule I (Form
(vi).
Interest expense that is treated as
1120-F). See the requirements for the
Protective elections on protective
“branch interest” under Regulations
time, place and manner for making the
returns. A corporation that files a
section 1.884-4(b) may be subject to
branch profits tax liability reduction
protective tax return on Form 1120-F
information reporting under section
election under Regulations section
under Regulations section 1.882-4(a)(3)
1461 or section 6049 and potential
1.884-1(e)(3).
(vi) may voluntarily file Schedule I with
withholding under sections 1441 and
Under Regulations section 1.882-5,
the protective return to preserve timely
1442. A foreign corporation that is a
the amount of interest expense of a
elections under Regulations section
reporting corporation and required to file
foreign corporation that is allocable
1.882-5(a)(7) if the return is filed by the
Form 1120-F must complete Schedule I
under section 882(c) to income which is
original due date (including extensions)
and attach it to Form 1120-F.
effectively connected (or treated as
of the corporation's Form 1120-F. The
Reporting corporation. A reporting
effectively connected) with the conduct
protective elections are not effective if
corporation is any foreign corporation
of a trade or business within the United
filed during the additional extended
that is engaged in a trade or business or
States is the sum of the interest
period described under Regulations
treated as engaged in a trade or
expense allocable by the foreign
section 1.882-4(a)(3). The foreign
business within the United States
corporation under the three-step
corporation need only complete the
directly or indirectly at any time during
process set forth in Regulations
relevant portions of Schedule I that
the tax year.
sections 1.882-5(b), (c), and (d), or (e)
identify its right to use the following
and the directly allocated interest
elections:
Treaty-based return positions. If the
expense determined under Regulations
The Adjusted U.S.-Booked Liability
corporation determines its interest
section 1.882-5(a)(1)(ii). The interest
method (“AUSBL”) or Separate
expense attributable to its business
allocation rules of Regulations section
Currency Pools (“SCP”) method (item B
profits of a U.S. permanent
1.882-5 are the exclusive rules for
check boxes);
establishment pursuant to the express
allocating interest expense under
Dec 21, 2018
Cat. No. 50606A
2018
Department of the Treasury
Internal Revenue Service
Instructions for Schedule I
(Form 1120-F)
Interest Expense Allocation Under Regulations Section 1.882-5
section 882(c) to ECI and for attributing
provisions and accompanying
Section references are to the Internal Revenue
Code unless otherwise noted.
interest expense to business profits of a
documents of an applicable treaty, then
U.S. permanent establishment under all
Schedule I still must be completed
General Instructions
income tax treaties other than treaties
based on the treaty method used
that expressly permit attribution of
(substituting the amount of assets,
Future Developments
business profits to a U.S. permanent
liabilities and interest expense
establishment under application of the
determined under the treaty method for
For the latest information about
OECD Transfer Pricing Guidelines, by
the amounts that would have been
developments related to Schedule I
analogy. If the foreign corporation files
reported under Regulations section
(Form 1120-F) and its instructions, such
its tax return using a treaty-based
1.882-5) and attached to Form 1120-F.
as legislation enacted after they were
method of the type provided in these
The corporation is also required to
published, go to IRS.gov/Form1120F.
treaties, see Treaty-based return
complete and attach Form 8833,
positions below for reporting
Treaty-Based Return Position
Purpose of Schedule
requirements.
Disclosure.
Schedule I (Form 1120-F) is used to
report the amount of interest expense
Who Must File
Exceptions from Filing
allocable to effectively connected
Schedule I
All foreign corporations that have
income (“ECI”) and the deductible
interest expense allocable to ECI under
A foreign corporation is not required to
amount of such allocation for the tax
section 882(c) must complete
file Schedule I if it (a) does not have a
year under section 882(c) and
Schedule I to report this allocation,
trade or business within the United
Regulations section 1.882-5. The
regardless of whether the amount
States, (b) has no worldwide interest
schedule discloses the basic
allocable under Regulations section
expense for the tax year to allocate
calculations for the year and also
1.882-5 is deductible in the current year,
under Regulations section 1.882-5, or
identifies the various elections the
or is otherwise deferred or permanently
(c) conducts limited activities in the
taxpayer uses under Regulations
disallowed under other sections of the
United States for the tax year that it
sections 1.882-5(a)(7) and (d)(5), and
Internal Revenue Code (for example,
determines do not give rise to ECI or do
under the branch profits tax rules of
sections 163(e), 163(j), 263A, 265(a)
not give rise to a U.S. permanent
Regulations section 1.884-1(e)(3).
and 267(a)(3)). The information
establishment to which business profits
reported on Schedule I is also needed
Note. The tax election under
are attributable, and the corporation
to complete Form 1120-F, Section III
Regulations section 1.884-1(e)(3) is not
files a protective income tax return
(the determination of the branch-level
effectuated under the regulations by its
under Regulations section 1.882-4(a)(3)
interest tax under section 884(f)).
identification on Schedule I (Form
(vi).
Interest expense that is treated as
1120-F). See the requirements for the
Protective elections on protective
“branch interest” under Regulations
time, place and manner for making the
returns. A corporation that files a
section 1.884-4(b) may be subject to
branch profits tax liability reduction
protective tax return on Form 1120-F
information reporting under section
election under Regulations section
under Regulations section 1.882-4(a)(3)
1461 or section 6049 and potential
1.884-1(e)(3).
(vi) may voluntarily file Schedule I with
withholding under sections 1441 and
Under Regulations section 1.882-5,
the protective return to preserve timely
1442. A foreign corporation that is a
the amount of interest expense of a
elections under Regulations section
reporting corporation and required to file
foreign corporation that is allocable
1.882-5(a)(7) if the return is filed by the
Form 1120-F must complete Schedule I
under section 882(c) to income which is
original due date (including extensions)
and attach it to Form 1120-F.
effectively connected (or treated as
of the corporation's Form 1120-F. The
Reporting corporation. A reporting
effectively connected) with the conduct
protective elections are not effective if
corporation is any foreign corporation
of a trade or business within the United
filed during the additional extended
that is engaged in a trade or business or
States is the sum of the interest
period described under Regulations
treated as engaged in a trade or
expense allocable by the foreign
section 1.882-4(a)(3). The foreign
business within the United States
corporation under the three-step
corporation need only complete the
directly or indirectly at any time during
process set forth in Regulations
relevant portions of Schedule I that
the tax year.
sections 1.882-5(b), (c), and (d), or (e)
identify its right to use the following
and the directly allocated interest
elections:
Treaty-based return positions. If the
expense determined under Regulations
The Adjusted U.S.-Booked Liability
corporation determines its interest
section 1.882-5(a)(1)(ii). The interest
method (“AUSBL”) or Separate
expense attributable to its business
allocation rules of Regulations section
Currency Pools (“SCP”) method (item B
profits of a U.S. permanent
1.882-5 are the exclusive rules for
check boxes);
establishment pursuant to the express
allocating interest expense under
Dec 21, 2018
Cat. No. 50606A
The adjusted basis or fair market
1.882-4(a)(3)(vi) need not enter
disallowance on Schedule I, lines 24a
value method for valuing its average
amounts on Schedule I (other than for
through 24c are reportable on
assets in Steps 1 and 2 of the
the published LIBOR election on
Schedule M-3 (Form 1120-F), Part III,
computation (line 1 check boxes);
line 10d) in order to preserve an
line 26c, columns (b), (c), and (e).
The actual or fixed ratio in Step 2
allocation method. If a taxpayer files a
Schedule P (Form 1120-F). Enter
(line 6 check boxes);
protective return under Regulations
amounts from Schedule P (Form
The published 30-day LIBOR election
section 1.882-4(a)(3)(vi) and does not
1120-F), lines 20, 18, and 15c on
for banks under the AUSBL method in
file Schedule I to identify the relevant
Schedule I, line 5, column (b); line 8,
Step 3 (line 10 check box); and
elections under Regulations section
column (b); and line 9, column (b);
The de minimis foreign currency
1.882-5 for an applicable year, then the
respectively, making any necessary
election under the Separate Currency
Director of Field Operations is
adjustments to comply with the rules in
Pools method in Step 3 (line 16b check
authorized to make all applicable
Regulations section 1.882-5.
box).
allocation method elections on behalf of
Form 8990, Limitation on Business
the corporation for such applicable year
The corporation need only identify
Interest Expense Under Section
if it is later determined that the taxpayer
the protective election in the first year it
163(j). Business interest expense
was engaged in trade or business within
is required to be made under
includes any interest paid or accrued on
the United States and had ECI during
Regulations section 1.882-5(a)(7) or in
indebtedness properly allocable to a
the year.
any year a taxpayer is eligible to adopt
trade or business. Business interest
or change an election and chooses to
Note. Under Regulations section
expense is generally limited to the sum
do so for that year. For example, an
1.882-5(a)(7), no interest expense
of business interest income, 30% of the
election to use the adjusted
allocation elections may be made on an
adjusted taxable income, and floor plan
U.S.-booked liability method or the
amended return. In addition, the relief
financing interest. Form 8990 is
separate currency pools method is an
for late tax elections provided under the
required, unless an exception for filing is
election that generally must be
rules of Regulations section 301.9100-1
met. For more information, see section
maintained for a minimum 5-year
(and any guidance promulgated
163(j), Form 8990, and the Instructions
period. However, the election available
thereunder) is not available. An election
for Form 8990.
to foreign banks to use 30-day LIBOR
identified on line 1 of a change from a
under the AUSBL method in Step 3
Assets and Liabilities Based on
fair market value method to a previously
must be made each year. If a
Schedule L Set(s) of Books and
elected adjusted basis method for
corporation is subject to Regulations
Records
reporting U.S. assets is not effective
section 1.882-5 for the first time, the
without advance consent of the
Generally, the assets and liabilities
election is due with a timely filed return
Commissioner or his delegate. See
required to be reported on Schedule L
(excluding the additional extended
Regulations section 1.882-5(b)(2)(ii)(A).
are the total assets and liabilities
period provided by Regulations section
reflected on the set or sets of books of
1.882-4(a)(3)) whether or not the
Other Forms and Schedules
the foreign corporation that give rise to
taxpayer files a protective return under
Related to Schedule I
income effectively connected with the
Regulations section 1.882-4(a)(3)(vi).
Form 1120-F, Schedule L, and
corporation's trade or business within
The protective election need not be filed
Schedule M-3 (Form 1120-F). The set
the United States and to U.S.-booked
with subsequent protective returns filed
or set(s) of books that give rise to
liabilities (as defined in Regulations
under Regulations section 1.882-4(a)(3)
U.S.-booked liabilities under
section 1.882-5(d)(2)). The total assets
(vi) for any subsequent year to which
Regulations section 1.882-5(d)(2) are
and liabilities reflected on such books
the minimum 5-year period applies.
the same sets of books and records that
include the third party U.S. assets (as
However, the indication of the election
are reportable as of the tax year end on
defined in Regulations section
with a protective return is only effective
Form 1120-F, Schedule L. They are
1.884-1(d)) and third party liabilities
for a year that the corporation is
also the same sets of books and
(whether with related or unrelated
engaged in trade or business within the
records that are used by foreign banks
parties), as well as the interbranch
United States. Accordingly, if a
to report income and expenses on
assets and liabilities and assets that
protective election is made for a first
Schedule M-3 (Form 1120-F).
give rise to noneffectively connected
year protective return and in fact the
income in whole or in part. Such books
taxpayer is not engaged in trade or
Form 1120-F, Section III, Part II
reflect the assets of the foreign
business until the second year of activity
(branch-level interest tax). The
corporation located in the United States
within the United States, the protective
amount of interest expense from
and all other of its assets used in its
election made in the first year is not
Schedule I, line 24d is reportable on
trade or business within the United
effective for the corporation's second
Form 1120-F, Section III, Part II, line 7b.
States (other than its assets giving rise
year of activity because Regulations
The amount of the allocation under
to ECI under sections 864(c)(6) or (7)),
section 1.882-5 is not applicable to the
Regulations section 1.882-5 reportable
as authorized under Regulations section
corporation until such second year. The
on Schedule I, line 23 is reportable on
1.6012-2(g)(1)(iii). A foreign corporation
elections used by a taxpayer for all
Form 1120-F, Section III, Part II, line 7c.
may instead report its worldwide assets,
years in which it files Form 1120-F and
Schedule M-3 (Form 1120-F), Part III,
liabilities, and equity on Schedule L.
reports ECI must be shown on
lines 26b and 26c. The amount of
Schedule I, including years subsequent
If the foreign corporation has more
interest expense allocation reportable
to the year in which an election under
than one set of books and records
on Schedule I, line 23 is includible on
Regulations section 1.882-5(a)(7) is
relating to assets located in the United
Schedule M-3 (Form 1120-F), Part III,
made.
States or assets used in a trade or
line 26b, columns (d) and (e). The
A corporation that files a protective
business conducted in the United
amounts subject to deferral and
return under Regulations section
States, it must report the combined
-2-
Instructions for Schedule I (Form 1120-F) (2018)
amounts on Schedule L and must
25. Do not complete lines 10 through
the corporation's business must consist
eliminate asset and liability amounts
15.
of receiving deposits and making loans
recorded between these books.
and discounts, or of exercising fiduciary
Lines 21 through 25. Summary – In-
powers similar to those permitted to
Required Reporting on
terest expense allocation and de-
national banks under authority of the
duction under Regulations section
Schedule I
Comptroller of the Currency. See
1.882-5. All corporations required to file
sections 581 and 585(a)(2).
Lines 1 through 9. Schedule I requires
Schedule I must report the summary
disclosure of data and interest allocation
amounts requested on lines 21 through
Note. The reference to the definition of
elections for all parts of the three-step
25.
the term “bank” for purposes of
formula under Regulations section
determining the U.S.-booked liabilities
Line 22. Direct interest
1.882-5. On page 1, the corporation is
of banks under Regulations section
allocations. Interest expense that is
required to complete Step 1 (lines 1
1.882-5(d)(2)(iii) requires that the
directly allocable under Regulations
through 5) to determine its average U.S.
corporation meet the section 585(a)(2)
section 1.882-5(a)(1)(ii) in accordance
assets, Step 2 (lines 6 through 7c) to
regulated banking requirements in its
with the rules of Temporary Regulations
determine its U.S.-connected liabilities,
trade or business within the United
section 1.861-10T(b) or (c) is reported
and Step 3 (lines 8 and 9) to determine
States. The section 585(a)(2) standard
on line 22.
its U.S.-booked liabilities under
must also be satisfied at the
Regulations section 1.882-5(d)(2) and
Line 23. Summary of Regulations
corporation's U.S. trade or business
its related U.S.-booked interest
section 1.882-5 allocation. The
level for purposes of electing the
expense. The total on line 9, column (c)
amount of interest expense allocable to
deposit liability safe harbor applicable to
is also used for purposes of determining
ECI under Regulations section 1.882-5
the reduction of excess interest under
the corporation's branch interest under
is the sum of the amount allocated
Regulations section 1.884-4(a)(2)(iii).
section 884(f)(1)(A) and Regulations
under either the AUSBL or Separate
section 1.884-4(b), and in the
Lines 1 Through 9: All
Currency Pools method on line 15 or 20,
calculation of the corporation's
and the amount directly allocated to ECI
Foreign Corporations
branch-level interest tax on excess
and reportable on line 22. The resulting
interest under section 884(f)(1)(B) and
amount allocable and reported on
Lines 1 Through 5. Step 1:
Regulations section 1.884-4(a)(2).
line 23 is also reconciled and reported
Determination of Total Value of
Line 8, column (c), and line 9, column
on Form 1120-F, Section III, Part II,
U.S. Assets
(c) are also included in the interest
line 7c (branch-level interest tax).
expense allocation computation in Step
Assets includible on lines 1 through 5
Line 24. Deferrals and
3 of the AUSBL method if elected by the
are the U.S. assets of the corporation as
disallowances under other Code
corporation.
defined in Regulations sections
sections. The interest expense
1.882-5(b) and 1.884-1(d). The U.S.
Lines 1 through 9 must be
allocation reportable on line 23 is
assets are valued on an average basis
completed by all corporations
!
determined under Regulations section
for interest expense allocation
required to file Schedule I,
1.882-5 before application of other
CAUTION
purposes.
regardless of whether the corporation
Code sections that defer or disallow the
allocates interest expense under the
Frequency of averaging. The
interest deduction in whole or in part.
AUSBL or Separate Currency Pools
average value of assets for this step is
See Regulations section 1.882-5(a)(5).
method for the applicable year.
to be computed at the most frequent,
Specific Instructions
regular intervals for which data is
Lines 10 through 20. Allocations, di-
reasonably available. For foreign banks,
rect interest allocations, deferrals
the minimum averaging period is
Item A. Foreign banks. Check the box
and other disallowances. Step 3 of
monthly (beginning of tax year and
in item A if the foreign corporation is a
the AUSBL method is provided on lines
monthly thereafter). For corporations
bank as defined in Regulations section
10 through 15. Step 3 of the Separate
other than a bank, the minimum
1.882-5(c)(4). The term “bank” is
Currency Pools method is provided on
averaging period is semi-annually
defined in the regulation as a bank that
lines 16a through 20. These Step 3
(beginning, middle, and end of the tax
meets the statutory definition applicable
methods are mutually exclusive and
year). See Regulations section
to domestic banks (except for the fact
cannot both apply to the corporation in
1.882-5(b)(3).
that the corporation is foreign) and
the same year. The methods are subject
without regard to whether the
Line 1. Indicate whether the
to the general 5-year minimum period
corporation's required banking activities
corporation values its U.S. assets on the
election rules of Regulations section
are effectively connected with its trade
adjusted basis method (see Regulations
1.882-5(a)(7).
or business within the United States.
section 1.882-5(b)(2)(i)) or whether it
The required banking activities need
AUSBL method filers. AUSBL
has elected the fair market value
only be conducted on a worldwide
method filers complete all columns on
method (see Regulations section
basis. To qualify as a bank for interest
lines 1 through 15 and lines 21 through
1.882-5(b)(2)(ii)). The adjusted basis
expense allocation purposes, the
25. Do not complete lines 16a through
method election is subject to the
foreign corporation must be subject to
20.
minimum 5-year period described in
bank regulatory supervision and
Regulations section 1.882-5(a)(7). In
Separate currency pools method
examination in its home country of a
order to elect the fair market value
filers. Separate Currency Pools
type similar to that required of domestic
method, the corporation must also use
method filers complete all columns on
banks by a State or Federal authority
the actual ratio method (rather than the
lines 1 through 9 and lines 16a through
having supervision over banking
fixed ratio) under Step 2. Once elected,
institutions, and a substantial amount of
the fair market value method must be
Instructions for Schedule I (Form 1120-F) (2018)
-3-
used for Step 1 and Step 2 of the
described in section 864(c)(4)(D) on
With respect to amounts from
three-step formula under Regulations
line 3b, column (a), regardless of
disregarded entities included on line 2,
section 1.882-5 and may not be
whether such assets give rise to
column (a), enter on line 3d, column (a)
changed back to the adjusted basis
non-ECI under another Code section or
any adjustment needed to reflect the
method without advance consent from
regulation. For example, report income
following: Investments in disregarded
the Commissioner or his delegate.
that is non-ECI under section 864(c)(4)
entities should not be included on line 2,
(D) on line 3b, column (a) even if such
column (a) if the set(s) of books are
Line 2, column (a). Total assets per
income is also not attributable to a U.S.
reportable on Schedule L. Instead, the
books. Enter the total average assets
office of a banking, financing, or similar
total assets of such disregarded entity's
derived from the combined set or sets of
business under Regulations section
Schedule L books should be combined
books that are reportable on
1.864-6(b)(2)(ii)(b) and the principles of
on line 2, column (a) with all other set(s)
Schedule L. The total average assets
Regulations section 1.864-4(c)(5)(ii).
of books reportable on Schedule L. If
include interbranch balances with other
another Schedule L book reflects an
sets of books of the corporation that are
Line 3c, column (a). Total other
investment in a disregarded entity
not reportable on Schedule L.
non-ECI assets. Enter on line 3c,
whose books are not reportable on
column (a), all other assets (or portion
Line 3a, column (a). Total inter-
Schedule L, then the assets of the
thereof) included on line 2, column (a)
branch assets. Enter on line 3a,
disregarded entity are not reported on
that give rise to domestic or foreign
column (a), the total of the corporation's
line 2, column (a). The amount of the
source non-ECI. If income from a
average interbranch assets included on
investment in the disregarded entity that
security is treated as partially ECI and
line 2, column (a). The average
is included in the total assets reported
partially non-ECI under Regulations
interbranch assets recorded on the
on line 2, column (a) must be reversed
section 1.864-4(c)(5)(ii), enter the
set(s) of Schedule L books do not
on line 3d, column (a) to reflect its
amount of the asset on line 3c, column
create U.S. assets under Regulations
disregarded treatment in Regulations
(a) in the proportion that the income,
section 1.882-5(b)(1)(iv) and are
section 1.882-5.
gain, or loss from such asset that is
disregarded for purposes of the interest
treated as non-ECI bears to the total
Line 3e, column (a). Adjustments for
expense allocation rules.
income, gain, or loss from such asset.
assets that give rise to direct inter-
Do the same for the non-ECI portion of
est expense allocations under Regu-
Note. If under the global dealing
any asset whose income is allocated
lations section 1.882-5(a)(1)(ii).
proposed regulations (Proposed
under the proposed global dealing
Enter on line 3e, column (a), the
Regulations section 1.863-3(h), which
regulations or under an Advance Pricing
average value of the portion of all assets
references the Proposed Regulations
Agreement pursuant to a competent
included on line 2 that give rise to direct
section 1.482-8 principles), the
authority agreement. See Proposed
interest expense allocations under
corporation recognizes an amount
Regulations sections 1.884-1(d)(2)(vii)
Regulations section 1.882-5(a)(1)(ii) in
recorded as an interbranch asset, such
and 1.884-1(d)(2)(xi), Example 8.
accordance with the requirements of
amount is treated as the allocation and
Attach a statement which describes
Temporary Regulations section
source of third-party securities dealing
each type of “other” non-ECI asset
1.861-10T(b) or (c), and Temporary
income and is not eliminated from U.S.
included on line 3c. For each type, show
Regulations section 1.861-10T(d). A
assets on line 3a, column (a). Such
the calculation of the amount included
foreign corporation that allocates its
interbranch assets are eliminated only
on line 3c for that type, including a total
interest expense under the direct
to the extent they are allocated under
for each type.
allocation rules shall reduce the basis of
Proposed Regulations section
the asset that meets the requirements of
1.863-3(h) to foreign source non-ECI.
Line 3d, column (a). Adjustments for
Temporary Regulations section
The allocable amount to non-ECI is
amounts from partnerships and cer-
1.861-10T (b) or (c) by the principal
eliminated from U.S. assets on line 3c,
tain disregarded entities included on
amount of the indebtedness that meets
column (a) (total other non-ECI assets).
line 2, column (a). With respect to
the requirements of Temporary
amounts from partnerships included on
Line 3b, column (a). Total non-ECI
Regulations section 1.861-10T (b) or
line 2, column (a), all such amounts
assets under section 864(c)(4)(D).
(c). The amount of directly allocable
must be “backed out” on this line 3d,
Enter on line 3b, column (a), the
interest under Regulations section
column (a). Enter on line 3d, column (a),
average assets included on line 2,
1.882-5(a)(1)(ii) is reported on line 22.
all amounts on the Schedule L books for
column (a) that give rise to non-ECI
investments in partnerships (whether
Line 3f, column (a). Other adjust-
received from foreign-related
recorded as an investment in the
ments to average assets included on
corporations under section 864(c)(4)
partnership interest or in the partnership
line 2. Enter on line 3f, column (a), the
(D). Such amounts include assets from
assets) included on line 2, column (a).
average asset balances for any other
transactions with foreign-related
amounts included on line 2, column (a)
corporations that give rise to foreign
Note. Partnership interests are
that do not constitute U.S. assets as
source dividends, interest, rents or
reported in Step 1 as follows: The
defined in Regulations section
royalties, whether or not such amounts
corporation's adjusted outside basis in a
1.884-1(d). Assets includible on this line
are attributable to a U.S. office of the
partnership (from Schedule P (Form
may include, for example, amounts with
corporation under section 864(c)(5). A
1120-F), line 20, “Total” column) that is
respect to securities that are
foreign related corporation is a foreign
treated as a U.S. asset under
marked-to-market for tax purposes
corporation the taxpayer owns (under
Regulations sections 1.882-5 and
under section 475 that are not
section 958(a)) or is treated as owning
1.884-1(d)(3) is generally entered on
marked-to-market on the set(s) of books
(under section 958(b)) more than 50%
Schedule I (Form 1120-F), line 5,
reported on line 2, column (a). If the
of the total combined voting power of all
column (b).
mark-to-market amount includible for
classes of stock entitled to vote. Enter
tax purposes is an increase to the basis
the average asset number for assets
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Instructions for Schedule I (Form 1120-F) (2018)
of the assets included on line 2, column
ratio the corporation has timely elected
Line 5, column (c). Average U.S. as-
(a), include such increase as a negative
and is eligible to use for the tax year.
sets not includible in set(s) of
number on line 3f, column (a). Similarly,
The actual ratio or fixed ratio election
Schedule L books reported on line 5,
if the mark-to-market amount decreases
must be made on a timely filed tax
column (a), or from partnerships re-
the basis of the assets included on
return for the first year the corporation is
ported on line 5, column (b). Enter
line 2, column (a), include such
subject to Regulations section 1.882-5
on line 5, column (c), the average value
decrease as a positive number on
and is subject to the minimum 5-year
of U.S. assets (other than the
line 3f, column (a). Other adjustments
period under Regulations section
corporation's outside basis in
for book-to-tax differences with respect
1.882-5(a)(7). An election to change the
partnership interests that is a U.S.
to asset values on line 2, column (a),
method after such minimum 5-year
asset) from set(s) of books that are not
such as depreciation and amortization
period is also subject to the minimum
reportable on Schedule L. Such assets
for taxpayers using the adjusted basis
5-year period.
may generally include certain securities
method for valuing U.S. assets, are also
attributable to a U.S. office of a banking,
Actual ratio information. If the
reportable on line 3f, column (a). Enter
financing, or similar business under
corporation uses the actual ratio,
an aggregate net increase as a negative
Regulations section 1.864-4(c)(5)(iii)
complete lines 6a through 6c and skip
number. Enter an aggregate net
that are booked in a foreign bank's
line 6d.
decrease as a positive number.
home office or other foreign location.
Fixed ratio information. If the
Other assets reportable on line 5,
Line 4, column (a). Combine lines 3a
corporation uses the fixed ratio, skip
column (c), may generally also include
through 3f and enter the result on line 4,
lines 6a through 6c and enter the
assets that are no longer held in
column (a). The result on line 4, column
applicable fixed ratio on line 6d. For
connection with a trade or business
(a) constitutes the total net adjustment
foreign banks (described in Regulations
within the United States that give rise to
to the average book assets from the
section 1.882-5(c)(4)), the fixed ratio is
ECI under section 864(c)(6) or section
Schedule L set(s) of books reported on
95%. For corporations other than
864(c)(7). However, not all assets that
line 2, column (a).
foreign banks and insurance
give rise to ECI, including ECI
companies, the fixed ratio is 50%.
recognized under section 864(c)(7),
Line 5. Total Value of U.S. Assets
constitute U.S. assets under
for the Tax Year
Actual Ratio Filers — Regulations
Regulations section 1.884-1(d). See
Regulations section 1.884-1(d)(2)(xi),
Section 1.882-5(c)
Line 5, column (a). Average U.S. as-
example 5, and Regulations section
sets on set(s) of Schedule L books.
Line 6a. Average worldwide liabili-
1.884-1(d)(5).
Subtract the amount on line 4, column
ties. Enter on line 6a the average
(a) from line 2, column (a) and enter the
Line 5, column (d). Total average
worldwide liabilities as adjusted for U.S.
amount on line 5, column (a). The
value of U.S. assets included in Step
tax principles for the year. The
resulting amount is the total average
1. Combine the amounts on line 5,
corporation's worldwide liabilities
value of U.S. assets under Regulations
columns (a), (b), and (c) and enter the
include the liabilities of only the
section 1.884-1(d) included on the
amount on line 5, column (d). This
corporation filing the Form 1120-F, plus
Schedule L set(s) of books, excluding
amount is the total average value of the
the corporation's share of partnership
any partnership interests included on
corporation's U.S. assets included in
liabilities and any liabilities of any
line 2.
Step 1 of the Regulations section
disregarded entities that are treated as
1.882-5 formula. If the corporation uses
Line 5, column (b). Average value of
liabilities of the foreign corporation
the Separate Currency Pools method to
partnership interests that is a U.S.
under U.S. tax principles. The books of
allocate interest expense in Step 3 of
asset. If the corporation values its U.S.
the foreign corporation and any such
the Regulations section 1.882-5
assets under the adjusted basis
disregarded entities must be combined,
formula, see the instructions for line 16a
method, enter on line 5, column (b), the
with applicable eliminating entries for
later. The amount on line 5, column (d)
amount from Schedule P (Form
transactions between them. See
is also reportable on Schedule H (Form
1120-F), line 20 (“Total” column) that is
Regulations section 1.882-5(c)(2)(viii).
1120-F), line 22a.
treated as a U.S. asset under
The classification of the worldwide
Regulations sections 1.882-5 and
liabilities is determined under U.S. tax
Lines 6 Through 7c. Step 2:
1.884-1(d)(3). This amount is the sum of
principles. See Regulations section
Determination of
the corporation's outside basis in
1.882-5(c)(2)(ii). The value of the
U.S.-Connected Liabilities -
partnership interests as adjusted under
worldwide liabilities must be determined
Regulations Section 1.882-5(c)
Regulations section 1.884-1(d)(3). The
substantially in accordance with U.S.
amount entered from Schedule P,
tax principles. Foreign banks must
Line 6. Actual ratio or fixed ratio
line 20 may include the corporation's
average the worldwide liabilities using
method. Check the applicable box to
outside basis in partnerships whose
the beginning, middle, and end of year
specify whether the corporation uses
book value is included on line 2, column
values. Corporations other than banks
the actual ratio or the fixed ratio method
(a) as well as partnership interests
must average the worldwide liabilities
for the tax year to determine its
whose book value is not recorded on
using the year-to-year values of its
U.S.-connected liabilities in Step 2 of
the Schedule L books and is not
liabilities.
the allocation formula. (If the fair market
included on line 2, column (a). If the fair
value method is used (line 1), the actual
Line 6b. Average worldwide assets.
market value method election has been
ratio method must also be used.) The
Enter the average worldwide assets as
made, see Regulations section
amount of U.S.-connected liabilities is
adjusted for U.S. tax principles on
1.882-5(b)(2)(ii)(B) to determine the
the total value of U.S. assets for the tax
line 6b, using the same nonconsolidated
amount to enter on Line 5, column (b).
year (line 5, column (d)) multiplied by
books for reporting average worldwide
the actual ratio or the applicable fixed
liabilities on line 6a. Transactions with
Instructions for Schedule I (Form 1120-F) (2018)
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