Instructions for IRS Form 1120-FSC "U.S. Income Tax Return of a Foreign Sales Corporation"

This document contains official instructions for IRS Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation - a tax form released and collected by the Internal Revenue Service (IRS), a subdivision of the U.S. Department of the Treasury. An up-to-date fillable IRS Form 1120-FSC Schedule P is available for download through this link.

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Download Instructions for IRS Form 1120-FSC "U.S. Income Tax Return of a Foreign Sales Corporation"

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Instructions for Form
Department of the Treasury
Internal Revenue Service
1120-FSC
(Rev. February 2019)
U.S. Income Tax Return of a Foreign Sales Corporation
now used to report the base erosion
The business is facing an immediate
Section references are to the Internal Revenue Code
unless otherwise noted.
minimum tax, if applicable.
threat of adverse action.
The corporation has tried repeatedly to
Contents
Page
Base erosion minimum tax. If the
contact the IRS but no one has responded,
corporation had gross receipts of at least
General Instructions . . . . . . . . . . . . .
1
or the IRS hasn't responded by the date
$500 million in any one of the 3 tax years
Purpose of Form . . . . . . . . . . . .
1
promised.
preceding the current tax year, complete
FSC Repeal and
The TAS toolkit at
Form 8991. See section 59A and the
Extraterritorial Income
TaxpayerAdvocate.IRS.gov
can help the
Instructions for Form 8991. Also see the
Exclusion
. . . . . . . . . . . . . .
1
corporation understand these rights.
instructions for
Schedule J, line
3, later.
Pre-Repeal FSC Rules . . . . . . . .
2
TAS has offices in every state, the District
Who Must File . . . . . . . . . . . . .
4
Small business taxpayers. Effective for
of Columbia, and Puerto Rico. Local
tax years beginning after 2017, P.L. 115-97
When To File . . . . . . . . . . . . . .
4
advocates' numbers are in their local
expanded the eligibility of small business
Where To File . . . . . . . . . . . . . .
4
directories and at
taxpayers to use the cash method. See
Who Must Sign . . . . . . . . . . . . .
4
TaxpayerAdvocate.IRS.gov. The corporation
Accounting
Methods, later.
Paid Preparer Authorization . . . . .
4
can also call TAS at 1-877-777-4778.
Limitation on business interest expense.
Other Forms That May Be
TAS also works to resolve large-scale or
For tax years beginning after 2017,
Required . . . . . . . . . . . . . . .
4
systemic problems that affect many
taxpayers who deduct business interest are
Assembling the Return . . . . . . . .
4
taxpayers. If the corporation knows of one of
required to file Form 8990, Limitation on
Accounting Methods . . . . . . . . .
5
these broad issues, please report it to TAS
Business Interest Expense Under Section
Accounting Period . . . . . . . . . . .
5
through the Systemic Advocacy
163(j), unless an exception for filing is met.
Recordkeeping . . . . . . . . . . . . .
5
Management System at IRS.gov/SAMS.
For more information, see Form 8990 and
Tax Payments . . . . . . . . . . . . .
5
the Instructions for Form 8990.
For more information, go to
IRS.gov/
Estimated Tax Payments . . . . . .
6
Advocate.
Net operating loss (NOL). The 2-year
Interest and Penalties . . . . . . . . .
6
carryback rule does not apply to NOLs
General Instructions
Rounding Off to Whole Dollars . . . . . .
5
arising in tax years ending after December
Specific Instructions . . . . . . . . . . . . .
6
31, 2017. Exceptions apply to certain
FSC Information . . . . . . . . . . . .
6
farming losses and NOLs of insurance
Purpose of Form
Tax and Payments . . . . . . . . . . .
7
companies other than life insurance
companies. See section 172(b). Also see the
Schedule A . . . . . . . . . . . . . . .
7
Use Form 1120-FSC to report the income,
instructions for
Schedule B, line
20, later.
gains, losses, deductions, credits, and to
Additional Information
. . . . . . . .
8
figure the income tax liability of a FSC.
Schedule B . . . . . . . . . . . . . . .
8
Photographs of Missing
Schedule E . . . . . . . . . . . . . . .
9
FSC Repeal and
Children
Schedule F . . . . . . . . . . . . . . .
9
Extraterritorial Income
Schedule G . . . . . . . . . . . . . .
10
The Internal Revenue Service is a proud
Exclusion
partner with the
National Center for Missing
Schedule J
. . . . . . . . . . . . . .
11
& Exploited Children®
(NCMEC).
Schedule L . . . . . . . . . . . . . .
12
In general, the FSC Repeal and
Photographs of missing children selected by
Schedule M-1 . . . . . . . . . . . . .
12
Extraterritorial Income Exclusion Act of 2000:
the Center may appear on pages that would
Repealed the FSC rules,
otherwise be blank. You can help bring these
Future Developments
Provided taxpayers with an exclusion,
children home by looking at the photographs
which is figured on Form 8873,
and calling 1-800-THE-LOST
For the latest information about
Extraterritorial Income Exclusion, and
(1-800-843-5678) if you recognize a child.
developments related to Form 1120-FSC
Provided transition rules for existing
and its instructions, such as legislation
FSCs. These rules are included in Rules for
The Taxpayer Advocate
enacted after they were published, go to
Existing FSCs below.
Service
IRS.gov/Form1120FSC.
Note. The American Jobs Creation Act of
The Taxpayer Advocate Service (TAS) is an
What's New
2004 repealed the extraterritorial income
independent organization within the IRS
exclusion provisions generally for
that helps taxpayers and protects taxpayer
Tax rates. For tax years beginning after
transactions after 2004, subject to a
rights. TAS’s job is to ensure that every
2017, P.L. 115-97 replaced the graduated
transition rule. See the Instructions for Form
taxpayer is treated fairly and knows and
corporate tax structure with a flat 21%
8873 for more information.
understands their rights under the
Taxpayer
corporate tax rate. See the instructions for
Bill of
Rights.
The Tax Increase Prevention and
Schedule J, line
2, later.
Reconciliation Act of 2005 repealed the FSC
As a taxpayer, the corporation has rights
binding contract exception. See
Binding
Alternative minimum tax. The alternative
that the IRS must abide by in its dealings
contract exception
below for details.
minimum tax (previously reported on
with the corporation. TAS can help the
Schedule J, line 3) does not apply to
Rules for Existing FSCs
corporation if:
corporations for tax years beginning after
A problem is causing financial difficulty for
In general, a FSC that was in existence on
December 31, 2017. Schedule J, line 3 is
the business.
September 30, 2000, and at all times
Feb 11, 2019
Cat. No. 11532V
Instructions for Form
Department of the Treasury
Internal Revenue Service
1120-FSC
(Rev. February 2019)
U.S. Income Tax Return of a Foreign Sales Corporation
now used to report the base erosion
The business is facing an immediate
Section references are to the Internal Revenue Code
unless otherwise noted.
minimum tax, if applicable.
threat of adverse action.
The corporation has tried repeatedly to
Contents
Page
Base erosion minimum tax. If the
contact the IRS but no one has responded,
corporation had gross receipts of at least
General Instructions . . . . . . . . . . . . .
1
or the IRS hasn't responded by the date
$500 million in any one of the 3 tax years
Purpose of Form . . . . . . . . . . . .
1
promised.
preceding the current tax year, complete
FSC Repeal and
The TAS toolkit at
Form 8991. See section 59A and the
Extraterritorial Income
TaxpayerAdvocate.IRS.gov
can help the
Instructions for Form 8991. Also see the
Exclusion
. . . . . . . . . . . . . .
1
corporation understand these rights.
instructions for
Schedule J, line
3, later.
Pre-Repeal FSC Rules . . . . . . . .
2
TAS has offices in every state, the District
Who Must File . . . . . . . . . . . . .
4
Small business taxpayers. Effective for
of Columbia, and Puerto Rico. Local
tax years beginning after 2017, P.L. 115-97
When To File . . . . . . . . . . . . . .
4
advocates' numbers are in their local
expanded the eligibility of small business
Where To File . . . . . . . . . . . . . .
4
directories and at
taxpayers to use the cash method. See
Who Must Sign . . . . . . . . . . . . .
4
TaxpayerAdvocate.IRS.gov. The corporation
Accounting
Methods, later.
Paid Preparer Authorization . . . . .
4
can also call TAS at 1-877-777-4778.
Limitation on business interest expense.
Other Forms That May Be
TAS also works to resolve large-scale or
For tax years beginning after 2017,
Required . . . . . . . . . . . . . . .
4
systemic problems that affect many
taxpayers who deduct business interest are
Assembling the Return . . . . . . . .
4
taxpayers. If the corporation knows of one of
required to file Form 8990, Limitation on
Accounting Methods . . . . . . . . .
5
these broad issues, please report it to TAS
Business Interest Expense Under Section
Accounting Period . . . . . . . . . . .
5
through the Systemic Advocacy
163(j), unless an exception for filing is met.
Recordkeeping . . . . . . . . . . . . .
5
Management System at IRS.gov/SAMS.
For more information, see Form 8990 and
Tax Payments . . . . . . . . . . . . .
5
the Instructions for Form 8990.
For more information, go to
IRS.gov/
Estimated Tax Payments . . . . . .
6
Advocate.
Net operating loss (NOL). The 2-year
Interest and Penalties . . . . . . . . .
6
carryback rule does not apply to NOLs
General Instructions
Rounding Off to Whole Dollars . . . . . .
5
arising in tax years ending after December
Specific Instructions . . . . . . . . . . . . .
6
31, 2017. Exceptions apply to certain
FSC Information . . . . . . . . . . . .
6
farming losses and NOLs of insurance
Purpose of Form
Tax and Payments . . . . . . . . . . .
7
companies other than life insurance
companies. See section 172(b). Also see the
Schedule A . . . . . . . . . . . . . . .
7
Use Form 1120-FSC to report the income,
instructions for
Schedule B, line
20, later.
gains, losses, deductions, credits, and to
Additional Information
. . . . . . . .
8
figure the income tax liability of a FSC.
Schedule B . . . . . . . . . . . . . . .
8
Photographs of Missing
Schedule E . . . . . . . . . . . . . . .
9
FSC Repeal and
Children
Schedule F . . . . . . . . . . . . . . .
9
Extraterritorial Income
Schedule G . . . . . . . . . . . . . .
10
The Internal Revenue Service is a proud
Exclusion
partner with the
National Center for Missing
Schedule J
. . . . . . . . . . . . . .
11
& Exploited Children®
(NCMEC).
Schedule L . . . . . . . . . . . . . .
12
In general, the FSC Repeal and
Photographs of missing children selected by
Schedule M-1 . . . . . . . . . . . . .
12
Extraterritorial Income Exclusion Act of 2000:
the Center may appear on pages that would
Repealed the FSC rules,
otherwise be blank. You can help bring these
Future Developments
Provided taxpayers with an exclusion,
children home by looking at the photographs
which is figured on Form 8873,
and calling 1-800-THE-LOST
For the latest information about
Extraterritorial Income Exclusion, and
(1-800-843-5678) if you recognize a child.
developments related to Form 1120-FSC
Provided transition rules for existing
and its instructions, such as legislation
FSCs. These rules are included in Rules for
The Taxpayer Advocate
enacted after they were published, go to
Existing FSCs below.
Service
IRS.gov/Form1120FSC.
Note. The American Jobs Creation Act of
The Taxpayer Advocate Service (TAS) is an
What's New
2004 repealed the extraterritorial income
independent organization within the IRS
exclusion provisions generally for
that helps taxpayers and protects taxpayer
Tax rates. For tax years beginning after
transactions after 2004, subject to a
rights. TAS’s job is to ensure that every
2017, P.L. 115-97 replaced the graduated
transition rule. See the Instructions for Form
taxpayer is treated fairly and knows and
corporate tax structure with a flat 21%
8873 for more information.
understands their rights under the
Taxpayer
corporate tax rate. See the instructions for
Bill of
Rights.
The Tax Increase Prevention and
Schedule J, line
2, later.
Reconciliation Act of 2005 repealed the FSC
As a taxpayer, the corporation has rights
binding contract exception. See
Binding
Alternative minimum tax. The alternative
that the IRS must abide by in its dealings
contract exception
below for details.
minimum tax (previously reported on
with the corporation. TAS can help the
Schedule J, line 3) does not apply to
Rules for Existing FSCs
corporation if:
corporations for tax years beginning after
A problem is causing financial difficulty for
In general, a FSC that was in existence on
December 31, 2017. Schedule J, line 3 is
the business.
September 30, 2000, and at all times
Feb 11, 2019
Cat. No. 11532V
thereafter may continue to use the FSC rules
tax years beginning with the first tax year for
An office in one of the qualifying foreign
for any transaction in the ordinary course of
which the original election is not in effect as a
countries or U.S. possessions listed above,
business that is (a) before January 1, 2002,
result of the revocation or termination.
A set of permanent books of account
or (b) after December 31, 2001, if such
(including invoices) at that office, and
Effect of election. For purposes of section
transaction is pursuant to a binding contract
The books and records required under
367, a foreign corporation that has elected to
that meets the requirements described in
section 6001 at a U.S. location to sufficiently
be a domestic corporation is generally
Binding contract exception below.
establish the amount of gross income,
treated as transferring, as of the first day of
deductions, credits, or other matters required
Binding contract exception. The binding
the first tax year to which the election
to be shown on its tax return.
contract exception has been repealed for tax
applies, all of its assets to a domestic
5. It must have at least one director, at
years beginning after May 17, 2006. For tax
corporation in an exchange under section
all times during the tax year, who is not a
years beginning before May 18, 2006, the
354.
resident of the United States.
following rules apply: The transaction must
FSC Election
be pursuant to a binding contract between
6. It must not be a member, at any time
the FSC (or a person related to the FSC) and
No corporation may elect to be a FSC or a
during the tax year, of a controlled group of
a person other than a related person if that
small FSC (defined below) after September
which a DISC is a member.
binding contract was in effect on September
30, 2000.
7. It must have elected to be a FSC or
30, 2000, and has remained in effect. A
Termination of Inactive FSCs
small FSC, and the election must have been
binding contract includes a purchase,
in effect for the tax year.
renewal, or replacement option that is
If a FSC has no foreign trade income (see
definition under
Tax Treatment of a
FSC,
enforceable against a lessor or seller
Small FSC. Section 922(b) defines a small
(provided the option is part of a contract that
later) for any 5 consecutive tax years
FSC as a corporation that:
is binding and in effect on September 30,
beginning after December 31, 2001, the FSC
Elected small FSC status and has kept
will no longer be treated as a FSC for any tax
2000, and has remained in effect).
the election in effect for the tax year and
year beginning after that 5-year period.
Is not a member, at any time during the
The mere entering into of a single
Additional Information
tax year, of a controlled group that includes a
transaction, such as a lease, would not, in
FSC (unless that other FSC is also a
and of itself, prevent the transaction from
For additional information regarding the rules
small FSC).
being in the ordinary course of business.
discussed above, see Rev. Proc. 2001-37,
A small FSC is exempt from the foreign
2001-1 C.B. 1327.
management and foreign economic process
Election To Apply Exclusion Rules
Pre-Repeal FSC Rules
requirements outlined on this page.
Taxpayers may elect to apply the
$5 million limit. Generally, any foreign
extraterritorial income exclusion rules
Definition of a Foreign Sales
trading gross receipts of a small FSC for the
instead of the FSC rules for transactions
Corporation (FSC)
tax year that exceed $5 million are not to be
occurring during the transition period. The
considered in determining its exempt foreign
election is:
Under section 922(a), a FSC is defined as a
trade income. The $5 million limit is reduced
Made by checking the box on line 2 of
corporation that has met all of the following
if the small FSC has a short tax year. It may
Form 8873,
rules:
also be reduced if the small FSC is a
Made on a transaction-by-transaction
1. It must be a corporation created or
member of a controlled group that contains
basis,
organized under the laws of a qualifying
other small FSCs. See Regulations section
Effective for the tax year for which it is
foreign country or any U.S. possession other
1.921-2(b) for more information.
made and for all subsequent tax years, and
than Puerto Rico.
Revocable only with the consent of the
Tax Treatment of a FSC
Qualifying U.S. possessions include
IRS.
Guam, American Samoa, the
A FSC is not taxed on its exempt foreign
Commonwealth of the Northern Mariana
trade income. Section 923 defines foreign
Taxpayers use Form 8873 to determine
trade income as the gross income of a FSC
Islands, and the U.S. Virgin Islands.
their extraterritorial income exclusion.
attributable to foreign trading gross receipts
A qualifying foreign country is a foreign
Election To Be Treated as a
(defined below).
country that meets the exchange of
Domestic Corporation
information rules of section 927(e)(3)(A) or
The percentage of foreign trade income
(B). All U.S. possessions other than Puerto
A FSC that was in existence on September
exempt from tax is figured differently for
Rico are also certified to have met these
30, 2000, and at all times thereafter may
income determined under the administrative
rules.
elect to be treated as a domestic corporation
pricing rules (for details, see the Instructions
if substantially all of its gross receipts are
The following countries are qualifying
for Schedule P (Form 1120-FSC)) and
foreign trading gross receipts. A FSC that
income determined without regard to the
foreign countries that have met the exchange
elects to be treated as a domestic
of information rules of section 927(e)(3)(A) or
administrative pricing rules. These
corporation ceases to be a FSC for any tax
927(e)(3)(B): Australia, Austria, Barbados,
percentages are computed on Schedule E,
year for which the election applies (and for
page 4, Form 1120-FSC, and carried over to
Belgium, Bermuda, Canada, Costa Rica,
any subsequent tax year).
Cyprus, Denmark, Dominica, the Dominican
lines 9a and 9b of Schedule B, page 3, Form
Republic, Egypt, Finland, France, Germany,
1120-FSC, to figure taxable income or (loss).
The election is made by checking the box
Grenada, Guyana, Honduras, Iceland,
on line 3 of Form 8873. An electing
See section 923(a)(4) for a special rule
Ireland, Jamaica, Korea, Malta, the Marshall
corporation files Form 1120, U.S.
for foreign trade income allocable to a
Islands, Mexico, Morocco, the Netherlands,
Corporation Income Tax Return. Once
cooperative. See section 923(a)(5) for a
New Zealand, Norway, Pakistan, Peru, the
made, the election applies to the tax year for
special rule for military property.
Philippines, St. Lucia, Sweden, and Trinidad
which it is made and remains in effect for all
and Tobago.
Tax treaty benefits. A FSC may not claim
subsequent years unless the election is
any benefits under any income tax treaty
revoked or terminated. If the election is
2. It had no more than 25 shareholders
between the United States and any foreign
revoked or terminated, the corporation would
at any time during the tax year.
country.
be a foreign corporation that files Form
3. It had no preferred stock outstanding
1120-F, U.S. Income Tax Return of a Foreign
at any time during the tax year.
Corporation. Furthermore, the foreign
4. During the tax year, the FSC must
corporation would not be eligible to reelect to
maintain:
be treated as a domestic corporation for 5
Instructions for Form 1120-FSC (Rev. 2-2019)
-2-
Foreign Trading Gross
the economic processes of a transaction
Are incident to and necessary for the
takes place outside the United States.
performance of any activity described in
Receipts
section 924(e);
A FSC is treated as having foreign trading
Include the cost of materials consumed in
Generally, a transaction will qualify if the
gross receipts (defined in section 924) only if
the performance of the activity and the cost
FSC satisfies two requirements:
it has met certain foreign management and
of labor that can be identified or associated
Participation outside the United States in
foreign economic process requirements.
directly with the performance of the activity
the sales portion of the transaction and
(but only to the extent of wages, salaries,
Satisfaction of either the 50% or the 85%
Foreign trading gross receipts do not
fees for professional services, and other
foreign direct cost test.
include:
amounts paid for services actually rendered,
Certain excluded receipts (defined in
such as bonuses or compensation paid for
section 924(f)).
The activities comprising these economic
services on the basis of a percentage of
processes may be performed by the FSC or
Receipts attributable to property excluded
profits); and
by any other person acting under contract
from export property under section 927(a)
Include the allowable depreciation
(2).
with the FSC.
deduction for equipment or facilities (or the
Investment income (defined in section
Participation outside the United States in
rental cost for its use) that can be specifically
927(c)).
the sales portion of the transaction.
identified or associated with the activity, as
Carrying charges (defined in section
Generally, the requirement of section 924(d)
well as the contract price of an activity
927(d)(1)).
(1)(A) is met for the gross receipts of a FSC
performed on behalf of the FSC by a
derived from any transaction if the FSC has
contractor.
Note. Computer software licensed for
participated outside the United States in the
Total direct costs means all of the direct
reproduction abroad is not excluded from
following sales activities relating to the
costs of any transaction attributable to
export property under section 927(a)(2).
transaction: (1) solicitation (other than
activities described in any paragraph of
Therefore, receipts attributable to the sale,
advertising), (2) negotiation, and (3) making
section 924(e). For purposes of the 50% test
lease, or rental of computer software and
a contract.
of section 924(d)(1)(B), total direct costs are
services related and subsidiary to such
1. Solicitation (other than advertising) is
based on the direct costs of all activities
transactions qualify as foreign trading gross
any communication (including, but not
described in all paragraphs of section
receipts.
limited to, telephone, telegraph, mail, or in
924(e). For purposes of the 85% test of
person) by the FSC, to a specific, targeted
section 924(d)(2), however, the total direct
Foreign Management Rules
customer or potential customer.
costs are determined separately for each
paragraph of section 924(e).
A FSC (other than a small FSC) is treated as
2. Negotiation is any communication by
having foreign trading gross receipts for the
the FSC to a customer or potential customer
Foreign direct costs means the portion
tax year only if the management of the FSC
aimed at an agreement on one or more of the
of the total direct costs of any transaction
during the year takes place outside the
terms of a transaction, including, but not
attributable to activities performed outside
United States. These management activities
limited to, price, credit terms, quantity, or
the United States. For purposes of the 50%
include:
time or manner of delivery.
test, foreign direct costs are based on the
Meetings of the board of directors and
direct costs of all activities described in all
3. Making a contract refers to
meetings of the shareholders.
paragraphs of section 924(e). For purposes
performance by the FSC of any of the
Disbursing cash, dividends, legal and
of the 85% test, however, foreign direct costs
elements necessary to complete a sale, such
accounting fees, salaries of officers, and
are determined separately for each
as making or accepting an offer.
salaries or fees of directors from the principal
paragraph of section 924(e).
bank account (see below).
Grouping transactions. Generally, the
For more details, see Regulations section
Maintaining the principal bank account at
sales activities described above are to be
1.924(d)-1(d).
all times during the tax year.
applied on a transaction-by-transaction
Check the applicable box(es) on line 10b,
basis. However, a FSC may make an annual
Meetings of directors and meetings of
Additional Information, on page 2 of the form,
election to apply any of the sales activities on
the shareholders. All meetings of the
to indicate how the FSC met the foreign
the basis of a group. To make the election,
board of directors of the FSC and all
direct costs requirement.
check the applicable box on line 10a,
meetings of the shareholders of the FSC that
Additional Information, on page 2 of Form
take place during the tax year must take
Grouping transactions. Generally, the
1120-FSC. See Regulations section
place outside the United States.
foreign direct cost tests under Regulations
1.924(d)-1(c)(5) for details.
section 1.924(d)-1(d) are applied on a
In addition, all such meetings must
transaction-by-transaction basis. However,
Satisfaction of either the 50% or 85% for-
comply with the local laws of the foreign
the FSC may make an annual election (on
eign direct cost test. To qualify as foreign
country or U.S. possession in which the FSC
line 10d, Additional Information, on page 2 of
trading gross receipts, the foreign direct
was created or organized. The local laws
the form) to apply the foreign direct cost tests
costs incurred by the FSC attributable to the
determine whether a meeting must be held,
on a customer, contract, or product or
transaction must equal or exceed 50% of the
when and where it must be held (if it is held
product line grouping basis. Any grouping
total direct costs incurred by the FSC
at all), who must be present, quorum
used must be supported by adequate
attributable to the transaction.
requirements, use of proxies, etc.
documentation of performance of activities
Instead of satisfying the 50% foreign
Principal bank accounts. See Regulations
and costs of activities relating to the grouping
direct cost test, the FSC may incur foreign
section 1.924(c)-1(c) for information
used. See Regulations section 1.924(d)-1(e)
direct costs attributable to activities
regarding principal bank accounts.
for details.
described in each of two of the section
924(e) categories. The costs must equal or
Exception for foreign military property.
Foreign Economic Process Rules
exceed 85% of the total direct costs incurred
The economic process rules do not apply to
by the FSC attributable to the activity
any activities performed in connection with
A FSC (other than a small FSC) has foreign
described in each of the two categories. If no
foreign military sales except those activities
trading gross receipts from any transaction
direct costs are incurred by the FSC in a
described in section 924(e). See Regulations
only if certain economic processes for the
particular category, that category is not taken
section 1.924(d)-1(f) for details.
transaction take place outside the United
into account for purposes of determining
States. Section 924(d) and Regulations
Section 925(c) Rule
whether the FSC has met either the 50% or
section 1.924(d)-1 set forth the rules for
85% foreign direct cost test.
To use the administrative pricing rules to
determining whether a sufficient amount of
determine the FSC's (or small FSC's) profit
Direct costs are costs that:
Instructions for Form 1120-FSC (Rev. 2-2019)
-3-
Where To File
on a transaction or group of transactions, the
The authorization will automatically end
FSC must perform (or contract with another
no later than the due date (excluding
File Form 1120-FSC with the:
person to perform) all of the economic
extensions) for filing the FSC's tax return. If
Internal Revenue Service Center
process activities relating to the transaction
the FSC wants to expand the paid preparer's
P.O. Box 409101
or group of transactions. All of the direct and
authorization or revoke it before it ends, see
Ogden, UT 84409
indirect expenses relating to the
Pub. 947, Practice Before the IRS and Power
performance of those activities must be
of Attorney.
Who Must Sign
reflected on the books of the FSC and on
Other Forms That May Be
Form 1120-FSC.
The return must be signed and dated by:
The president, vice president, treasurer,
Required
Under Temporary Regulations section
assistant treasurer, chief accounting officer
1.925(a)-1T(b)(2)(ii), an election may be
The FSC may have to file some of the forms
or
made to include on the FSC's books all
listed below. See the form for more
Any other corporate officer (such as tax
expenses, other than cost of goods sold, that
information.
officer) authorized to sign.
are necessary to figure combined taxable
For a list of additional forms the FSC may
If a return is filed on behalf of a FSC by a
income for the transaction or group of
need to file (most notably, forms pertaining to
receiver, trustee, or assignee, the fiduciary
transactions. The expenses must be
the reporting of various types of income, and
must sign the return, instead of the corporate
identified on Schedule G on the applicable
any related withholding, to U.S. persons,
officer. Returns and forms signed by a
line.
foreign persons, and the IRS), see Pub. 542,
receiver or trustee in bankruptcy on behalf of
Corporations.
Who Must File
a FSC must be accompanied by a copy of
Form 5471, Information Return of U.S.
the order or instructions of the court
File Form 1120-FSC if the corporation
Persons With Respect to Certain Foreign
authorizing signing of the return or form.
elected to be treated as a FSC or small FSC,
Corporations. This form may have to be filed
and the election is still in effect.
by certain U.S. officers, directors, or
If an employee of the FSC completes
Form 1120-FSC, the paid preparer space
shareholders of a FSC to report changes in
Note. A FSC that elects to be treated as a
ownership (see sections 6046 and the
should remain blank. Anyone who prepares
domestic corporation under section 943(e)
Form 1120-FSC but does not charge the
related regulations).
(1) does not file Form 1120-FSC. Instead, it
FSC should not complete that section.
If a Form 1120-FSC is filed, Form 5471 is
files Form 1120.
Generally, anyone who is paid to prepare the
not required to be filed to satisfy the
return must sign it and fill in the “Paid
requirements of section 6038 (see
When To File
Preparer Use Only” area.
Temporary Regulations section 1.921-1T(b)
Generally, a corporation must file Form
(3)). However, certain U.S. shareholders
The paid preparer must complete the
1120-FSC by the 15th day of the 4th month
may be required to file Form 5471 and the
required preparer information and:
after the end of its tax year. A FSC that has
applicable schedules to report subpart F
Sign the return in the space provided for
dissolved must generally file by the 15th day
income.
the preparer's signature.
of the 4th month after the date it dissolved.
See the Instructions for Form 5471 for
Give a copy of the return to the taxpayer.
more information.
However, a FSC with a fiscal tax year
Form 5472, Information Return of a 25%
Note. A paid preparer may sign original or
ending June 30 must file by the 15th day of
Foreign-Owned U.S. Corporation or a
amended returns by rubber stamp,
the 3rd month after the end of its tax year. A
Foreign Corporation Engaged in a U.S.
mechanical device, or computer software
FSC with a short tax year ending anytime in
Trade or Business. Generally, a FSC that is
programs.
June will be treated as if the short year
engaged in a trade or business in the United
ended on June 30, and must file by the 15th
Paid Preparer
States that had a reportable transaction with
day of the 3rd month after the end of its tax
a foreign or domestic related party during the
Authorization
year.
tax year must file Form 5472.
If the FSC wants to allow the IRS to discuss
Form 5713, International Boycott Report.
If the due date falls on a Saturday,
its tax return with the paid preparer who
FSCs that had operations in, or related to,
Sunday, or legal holiday, the FSC may file on
certain “boycotting” countries file
signed it, check the “Yes” box in the
the next business day.
signature area of the return. This
Form 5713.
Private delivery services. FSCs can use
authorization applies only to the individual
Form 8275, Disclosure Statement, and
certain private delivery services (PDS)
whose signature appears in the “Paid
Form 8275-R, Regulation Disclosure
designated by the IRS to meet the “timely
Preparer Use Only” section of the return. It
Statement. Use these forms to disclose
items or positions taken on a tax return that
mailing as timely filing” rule for tax returns.
does not apply to the firm, if any, shown in
Go to IRS.gov/PDS. The PDS can tell you
that section.
are not otherwise adequately disclosed on a
how to get written proof of the mailing date.
tax return or that are contrary to Treasury
If the “Yes” box is checked, the FSC is
regulations (to avoid parts of the
For the IRS mailing address to use if
authorizing the IRS to call the paid preparer
accuracy-related penalty or certain preparer
you’re using PDS, go to
IRS.gov/
to answer any questions that may arise
penalties).
PDSstreetAddresses.
during the processing of its return. The FSC
Form 8300, Report of Cash Payments
is also authorizing the paid preparer to:
Private delivery services cannot
Over $10,000 Received in a Trade or
Give the IRS any information that is
deliver items to P.O. boxes. You
!
Business. Use this form to report the receipt
missing from the return,
must use the U.S. Postal Service to
of more than $10,000 in cash or foreign
CAUTION
Call the IRS for information about the
mail any item to an IRS P.O. box address.
currency in one transaction or a series of
processing of the return or the status of any
related transactions.
Extension of time to file. File Form 7004,
related refund or payment(s), and
Assembling the Return
Application for Automatic Extension of Time
Respond to certain IRS notices about
To File Certain Business Income Tax,
math errors, offsets, and return preparation.
To ensure that the FSC's tax return is
Information, and Other Returns, to request
correctly processed, attach all schedules
The FSC is not authorizing the paid
an extension of time to file. Generally, the
and other forms after page 6, Form
preparer to receive any refund check, bind
FSC must file Form 7004 by the return due
1120-FSC, and in the following order:
the FSC to anything (including any additional
date specified earlier. See the Instructions
tax liability), or otherwise represent the FSC
for Form 7004.
1. Form 4136.
before the IRS.
Instructions for Form 1120-FSC (Rev. 2-2019)
-4-
2. Additional schedules in alphabetical
To do so, the FSC generally must file Form
must be kept for 3 years from the date the
order.
3115, Application for Change in Accounting
return is due or filed, whichever is later. Keep
Method. For more information, see the
records that verify the FSC's basis in
3. Additional forms in numerical order.
Instructions for Form 3115 and Pub. 538.
property for as long as they are needed to
Complete every applicable entry space
Also see Rev. Proc. 2015-13, 2015-5 I.R.B.
figure the basis of the original or replacement
on Form 1120-FSC. Do not enter “See
419, and Rev. Proc. 2018-31, 2018-22 I.R.B.
property.
Attached” or “Available Upon Request”
637 (or any successors).
The FSC should keep copies of all filed
instead of completing the entry spaces. If
Section 481(a) adjustment. If the
returns. They help in preparing future and
more space is needed on the forms or
FSC's taxable income for the current tax year
amended returns.
schedules, attach separate sheets using the
is figured under a method of accounting
same size and format as the printed forms.
Tax Payments
different from the method used in the
If there are supporting statements and
preceding tax year, the FSC may have to
The FSC must pay the tax due in full no later
attachments, arrange them in the same order
make an adjustment under section 481(a) to
than the due date for filing Form 1120-FSC
as the schedules or forms they support and
prevent amounts of income or expense from
(not including extensions). See
When To
attach them last. Show the totals on the
being duplicated or omitted. The section
File, earlier, for this due date. The method for
printed forms. Enter the FSC's name and EIN
481(a) adjustment period is generally 1 year
payment of the tax due depends upon
on each supporting statement or attachment.
for a net negative adjustment and 4 years for
whether the FSC has an office or place of
a net positive adjustment. However, in some
business in the United States.
Accounting Methods
cases, a FSC can elect to modify the section
481(a) adjustment period. The FSC may
FSCs that do not maintain an office or
In general, figure taxable income using the
have to complete the appropriate lines of
place of business in the United States can
method of accounting used in keeping the
Form 3115 to make an election. See the
use the Electronic Federal Tax Payment
FSC's books and records. In all cases, the
Instructions for Form 3115 for more
System (EFTPS) to pay the tax due providing
method used must clearly show taxable
information and exceptions.
the FSC has a U.S. bank account. If the FSC
income. Permissible overall methods of
does not have a U.S. bank account, it may
If the net section 481(a) adjustment is
accounting include cash, accrual, or any
arrange for a financial institution to initiate a
positive, report it on page 4, Schedule F,
other method authorized by the Internal
same-day wire payment on its behalf or it
line 16, as other income. If the net section
Revenue Code.
can arrange for either a qualified
481(a) adjustment is negative, report it on
Generally, the following rules apply.
intermediary, tax professional, payroll
page 4, Schedule F, line 18, as a deduction.
A FSC (other than a qualified personal
service, or other trusted third party to make a
Accounting Period
service corporation (as defined in section
deposit on its behalf using a master account.
448(d)(2)) or a small business taxpayer
In addition, the FSC still has the option to
A FSC must figure its taxable income on the
(defined below)) must use an overall accrual
pay by check or money order, payable to
basis of a tax year. A tax year is the annual
method. However, see
Nonaccrual
“United States Treasury.” To help ensure
accounting period a FSC uses to keep its
experience method for service
providers,
proper crediting, write the FSC's employer
records and report its income and expenses.
later.
identification number (EIN), “Form
Generally, FSCs may use a calendar year or
Generally, a FSC that is a qualified
1120-FSC,” and the tax period to which the
a fiscal year. Personal service corporations,
personal service corporation or a small
payment applies on the check or money
however, must generally use a calendar
business taxpayer may use the cash method
order. Enclose the payment when Form
year.
of accounting.
1120-FSC is filed.
Unless it is a small business taxpayer
Note. The tax year of a FSC must be the
FSCs that do maintain an office or place
(defined below), a FSC that is required to
same as the tax year of the principal
of business in the United States must pay the
maintain inventories must use an overall
shareholder which, at the beginning of the
tax due by electronic funds transfer. The
accrual method. See the instructions for
FSC tax year, has the highest percentage of
FSC can pay the tax using EFTPS or it can
Schedule
A, later.
voting power. If two or more shareholders
arrange for its tax professional, financial
Special rules apply to long-term contracts.
have the highest percentage of voting power,
institution, payroll service, or other trusted
See section 460.
the FSC must have a tax year that conforms
third party to make deposits on its behalf. In
Small business taxpayer. Effective for tax
to the tax year of any such shareholder. See
addition, the FSC also has the option to
years beginning after 2017, a small business
section 441(h).
arrange for its financial institution to initiate a
taxpayer is a taxpayer that (a) has average
same-day payment.
Rounding Off to Whole
annual gross receipts of $25 million or less
for the 3 prior tax years, and (b) is not a tax
Note. If the due date falls on a Saturday,
Dollars
shelter (as defined in section 448(d)(3)).
Sunday, or legal holiday, the payment is due
The FSC may round off cents to whole
on the next day that isn't a Saturday,
A small business taxpayer can adopt or
dollars on its return and schedules. If the
Sunday, or legal holiday.
change its accounting method to account for
FSC does round to whole dollars, it must
inventories (a) in the same manner as
Electronic Deposit
round all amounts. To round, drop amounts
materials and supplies that are
Requirement
under 50 cents and increase amounts from
nonincidental, or (b) to conform to its
50 to 99 cents to the next dollar (for example,
treatment of inventories in an applicable
FSCs with an office or place of business in
$1.39 becomes $1 and $2.50 becomes $3).
financial statement (as defined in section
the United States must use electronic funds
451(b)(3)). If it does not have an applicable
transfers to make all federal tax deposits
If two or more amounts must be added to
financial statement, it can use the method of
(such as deposits of employment and
figure the amount to enter on a line, include
accounting used in its books and records
corporate income tax). Generally, electronic
cents when adding the amounts and round
prepared according to its accounting
funds transfers are made using EFTPS.
off only the total.
procedures.
However, if the corporation does not want to
use EFTPS, it can arrange for its tax
Recordkeeping
For more information, see Pub. 538,
professional, financial institution, payroll
Accounting Periods and Methods.
Keep the FSC's records for as long as they
service, or other trusted third party to make
may be needed for the administration of any
Change in accounting method. Generally,
deposits on its behalf. Also, it can arrange for
provision of the Internal Revenue Code.
the FSC must get IRS consent to change
its financial institution to submit a same-day
Usually, records that support an item of
either an overall method of accounting or the
payment (discussed below) on its behalf.
income, deduction, or credit on the return
accounting treatment of any material item.
EFTPS is a free service provided by the
Instructions for Form 1120-FSC (Rev. 2-2019)
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