General Instructions

Purpose of Form

Use Form 1120-F to report the income, gains, losses, deductions, credits, and to figure the U.S. income tax liability of a foreign corporation. Also, use Form 1120-F to claim any refund that is due, to transmit Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), or to calculate and pay a foreign corporation's branch profits tax liability and tax on excess interest, if any, under section 884.

Who Must File

Unless one of the exceptions under Exceptions From Filing, below, applies or a special return is required (see Special Returns for Certain Organizations, later), a foreign corporation must file Form 1120-F if, during the tax year, the corporation:

  • Was engaged in a trade or business in the United States, whether or not it had U.S. source income from that trade or business, and whether or not income from such trade or business is exempt from United States tax under a tax treaty. See also Protective Return Filers, later.

  • Had income, gains, or losses treated as if they were effectively connected with the conduct of a U.S. trade or business. (See Section II, later.)

  • Was not engaged in a trade or business in the United States, but had income from any U.S. source, if its tax liability has not been fully satisfied by the withholding of tax at source under chapter 3 of the Code.

This form is also required to be filed by:

  • A foreign corporation making a claim for the refund of an overpayment of tax for the tax year. See Simplified Procedure for Claiming a Refund of U.S. Tax Withheld at Source, later.

  • A foreign corporation claiming the benefit of any deductions or credits. See Other Filing Requirements, later.

  • A foreign corporation making a claim that an income treaty overruled or modified any provision of the Internal Revenue Code with respect to income derived by the foreign corporation at any time during the tax year, and such position is required to be disclosed on Form 8833. See the instructions for Form 8833 for who must file Form 8833, and who is exempt from filing by reason of a waiver provided under section 6114 and the regulations thereunder. If Form 8833 is required, complete item W on page 2 of the form.

Others that must file Form 1120-F include:

  • A Mexican or Canadian branch of a U.S. mutual life insurance company. The branch must file Form 1120-F on the same basis as a foreign corporation if the U.S. company elects to exclude the branch's income and expenses from its own gross income.

  • A receiver, assignee, or trustee in dissolution or bankruptcy, if that person has or holds title to virtually all of a foreign corporation's property or business. Form 1120-F is due whether or not the property or business is being operated (see Who Must Sign, later, for additional information).

  • An agent in the United States, if the foreign corporation has no office or place of business in the United States when the return is due.

Treaty or Code exemption.   If the corporation does not have any gross income for the tax year because it is claiming a treaty or Code exemption, it must still file Form 1120-F to show that the income was exempted by treaty or Code. In this case the corporation should only complete the identifying information (including items A through M) at the top of page 1 of Form 1120-F and a statement that indicates the nature and amount of the exclusions claimed. In the case of a treaty exemption, the corporation may complete item W at the top of page 2 of Form 1120-F, which includes completing and attaching Form 8833, if required in lieu of attaching a statement. In the case of a Code exemption under section 883, the corporation must attach Schedule S (Form 1120-F) in lieu of attaching a statement.

Note.

If the corporation does not have any gross income for the tax year because it is claiming a treaty or Code exemption, and there was withholding at source, the corporation must complete the Computation of Tax Due or Overpayment section at the bottom of page 1 of Form 1120-F (in addition to the information specified in the previous paragraph) to claim a refund of the amounts withheld.

Entities electing to be taxed as foreign corporations.   A foreign eligible entity that elected to be classified as a corporation must file Form 1120-F under the same circumstances as a per se corporation and an entity that defaults into corporate status unless it is required to file a special return listed under Special Returns for Certain Organizations, later. The entity must also have filed Form 8832, Entity Classification Election. A foreign corporation filing Form 1120-F for the year of the election must attach a copy of Form 8832 to its Form 1120-F. See Form 8832, later, for additional information.

Protective return.   If a foreign corporation conducts limited activities in the United States in a tax year that the foreign corporation determines does not give rise to gross income which is effectively connected with the conduct of a trade or business within the United States, the foreign corporation should follow the instructions for filing a protective return to safeguard its right to receive the benefit of the deductions and credits attributable to that gross income under Regulations section 1.882-4(a)(3)(vi) in the event that it is subsequently determined that the original determination was incorrect. A foreign corporation should also file a protective return if it determines initially that it has no U.S. tax liability under the provisions of an applicable income tax treaty (for example, because its income is not attributable to a permanent establishment in the United States). See Protective Return Filers, later. A foreign corporation that does not file a return will lose the right to take deductions and credits against effectively connected income. See Other Filing Requirements, later.

Exceptions From Filing

A foreign corporation does not have to file Form 1120-F if any of the following apply:

  • It did not engage in a U.S. trade or business during the year, and its full U.S. tax was withheld at source.

  • Its only U.S. source income is exempt from U.S. taxation under section 881(c) or (d).

  • It is a beneficiary of an estate or trust engaged in a U.S. trade or business, but would itself otherwise not need to file.

Electronic Filing

Foreign corporations may generally electronically file (e-file) Form 1120-F, related forms, schedules, and attachments, Form 7004 (automatic extension of time to file), and Forms 940 and 941 (employment tax returns). If there is a balance due, the corporation may authorize an electronic funds withdrawal while e-filing. Form 1099 and other information returns may also be electronically filed. The option to e-file does not, however, apply to certain returns.

For more information, visit www.irs.gov/Filing. Click on the links for Self-Employed & Small Businesses and Corporations.

Required e-filers.   Certain corporations with total assets of $10 million or more that file at least 250 returns a year are required to e-file Form 1120-F. See Regulations section 301.6011-5. However, these corporations can request a waiver of the electronic filing requirements. See Notice 2010-13, 2010-4 I.R.B. 327.

Special Returns for Certain Organizations

Instead of filing Form 1120-F, certain foreign organizations must file special returns:

  • Form 1120-L, U.S. Life Insurance Company Income Tax Return, as a foreign life insurance company.

  • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return, as a foreign nonlife insurance company.

  • Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation, if the corporation elected to be treated as a FSC and the election is still in effect.

Consolidated returns.   A foreign corporation, regardless of whether it files a special return, may not belong to an affiliated group of corporations that files a consolidated return. However, a Canadian or Mexican corporation described in section 1504(d), maintained solely for complying with the laws of Canada or Mexico for title and operation of property may elect to be treated as a domestic corporation and thereby file as part of an affiliated group.

Claim for Refund or Credit

If the corporation is filing Form 1120-F only as a claim for refund or credit of tax paid or withheld at source, the simplified procedure described below may be used.

Simplified Procedure for Claiming a Refund of U.S. Tax Withheld at Source

To make a claim for a refund, complete Form 1120-F as follows.

Page 1.   Enter the complete name, address, and employer identification number of the corporation. Check the applicable box to indicate the type of filing. Provide all the information required in items A through M.

Refund amount.

Enter on lines 1 and 4, page 1, the amount from line 11, page 2. Enter on lines 5i and 5j the amount from line 12, page 2. Enter the excess of line 5j over line 4 on lines 8a and 9. This is the amount to be refunded to you.

Signature.

An authorized officer of the corporation must sign and date the return.

Page 2. Additional information.   Complete all items at the top of page 2 of Form 1120-F that apply to the corporation.

Section I.   Enter in column (b) the gross amount of each type of income received that is required to be reported in Section I (see Section I, later, for details). Include income from foreign sources that was subject to backup withholding. Do not include income from which no U.S. tax was withheld. If the corporation is subject to backup withholding on gross proceeds from sales of securities or transactions in regulated futures contracts, enter the gross proceeds on line 10.

  Enter in columns (c) and (d), respectively, the correct rate and amount of U.S. income tax liability for each type of income reported in column (b). If the corporation is claiming a refund of U.S. tax withheld in excess of the rate provided in a tax treaty with the United States, enter the applicable treaty rate in column (c) and figure the correct U.S. income tax liability on the gross income reported in column (b).

  Enter in column (e) the U.S. tax actually withheld at source (and not refunded by the payor or the withholding agent) from each type of income reported. If multiple rates of tax are applicable to a type of income, attach a statement showing the gross amounts of income, applicable rate and amount of liability and withholding imposed for the respective amounts at each tax rate (e.g., if a corporation receives subsidiary dividends subject to tax at 5% and portfolio dividends subject to tax at 15%, a statement must be attached for Section I, line 2, to show the amount of dividend and tax liability for each respective rate).

  Enter on line 11 the total U.S. tax liability for the reported income.

  Enter on line 12 the total U.S. tax actually withheld from such income.

  Check the appropriate box on line 13. A fiscally transparent entity is one that is not itself generally subject to income tax but one whose tax attributes flow through to its owners.

Additional Documentation Required

The corporation must attach to Form 1120-F the following:

  1. Proof of the withholding (e.g., Form 1042-S),

  2. A statement that describes the basis for the claim for refund,

  3. Any required tax certifications (e.g., Form W-8BEN or Form W-8BEN-E), and

  4. Any additional documentation to support the claim.

Refund of backup withholding tax.   If the corporation is claiming a refund of backup withholding tax based on its status as a non-U.S. resident, it must:
  • Provide a copy of the Form 1099 that shows the amount of reportable payment and backup withholding and

  • Attach a statement signed under penalties of perjury that the corporation is exempt from backup withholding because it is not a U.S. corporation or other U.S. resident (e.g., Form W-8BEN or Form W-8BEN-E).

Refunds of U.S. withholding.   If any of the following apply, attach the information requested:

  
  • If claiming a refund of U.S. withholding tax on U.S. source income, provide a copy of the Form 1042-S that shows the income and actual amount of U.S. tax withheld.

  • If claiming a refund of U.S. tax withheld from portfolio interest, include a description of the relevant debt obligation, including the name of the issuer, CUSIP number (if any), interest rate, scheduled maturity date, and the date the debt was issued. Also include a statement, signed under penalties of perjury, that the corporation is the beneficial owner of the interest income and not a U.S. corporation or other U.S. resident (e.g., Form W-8BEN or W-8BEN-E).

  • If claiming a reduced rate of, or exemption from, tax based on a tax treaty, provide a certificate of entitlement to treaty benefits (e.g., Form W-8BEN or Form W-8BEN-E). A separate statement should be provided that contains any additional representations necessary to explain the basis for the claim. The corporation may complete Item W on page 2 of the form (which includes completing and attaching Form 8833, if required) in lieu of attaching a statement.

    Note.

    To claim a reduced rate of, or exemption from, tax based on a tax treaty, the corporation must generally be a resident of the particular treaty country within the meaning of the treaty and satisfy the limitation on benefits article, if any, in the treaty with that country.

  • If claiming a refund for overwithholding on a distribution from a U.S. corporation with respect to its stock because the corporation has insufficient earnings and profits to support ordinary dividend treatment, provide a statement that identifies the distributing corporation and provides the basis for the claim.

  • If claiming a refund for overwithholding on a distribution from a mutual fund or a real estate investment trust (REIT) with respect to its stock because the distribution was designated as long-term capital gain or a return of capital, provide a statement that identifies the mutual fund or REIT and provide the basis for the claim.

  • If claiming a refund for overwithholding on a distribution from a U.S. corporation with respect to its stock because, in the foreign corporation's particular circumstances, the transaction qualifies as a redemption of stock under section 302, provide a statement that describes the transaction and presents the facts necessary to establish that the payment was (a) a complete redemption, (b) a disproportionate redemption, or (c) not essentially equivalent to a dividend.

Use of foreign nominees.   If the corporation received income through a foreign intermediary or nominee acting on its behalf (and a Form 1042-S or 1099 is not received), the corporation may substitute a statement from the intermediary or nominee. The statement should include the following information:
  • The gross amount(s) and type(s) of income subject to withholding,

  • The name(s) and address(es) of the U.S. withholding agent(s),

  • The U.S. taxpayer identification number of the U.S. withholding agent or payor, and

  • The name in which the tax was withheld, if different from the name of the beneficial owner claiming the refund.

When To File

Foreign Corporation With An Office or Place of Business in the U.S.

A foreign corporation that maintains an office or place of business in the United States must generally file Form 1120-F by the 15th day of the 3rd month after the end of its tax year.

Extension of time to file.   The corporation must generally file Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, by the 15th day of the 3rd month after the end of its tax year to request a 6-month extension. However, there is an exception that applies under Regulations section 1.6081-5. See the Instructions for Form 7004 for additional information.

Foreign Corporation With No Office or Place of Business in the U.S.

A foreign corporation that does not maintain an office or place of business in the United States must generally file Form 1120-F by the 15th day of the 6th month after the end of its tax year.

Extension of time to file.   File Form 7004 by the 15th day of the 6th month after the end of the tax year to request a 6-month extension of time to file. See the Instructions for Form 7004 for additional information.

Other Filing Requirements

  • A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends.

  • A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved.

  • If the due date of any filing falls on a Saturday, Sunday, or legal holiday, the corporation may file on the next business day.

  • Form 1120-F must be filed on a timely basis and in a true and accurate manner in order for a foreign corporation to take deductions and credits against its effectively connected income. For these purposes, Form 1120-F is generally considered to be timely filed if it is filed no later than 18 months after the due date of the current year's return. An exception may apply to foreign corporations that have yet to file Form 1120-F for the preceding tax year. These filing deadlines may be waived, in limited situations based on the facts and circumstances, where the foreign corporation establishes to the satisfaction of the Commissioner that the foreign corporation acted reasonably and in good faith in failing to file Form 1120-F. See Regulations section 1.882-4(a)(3)(ii) for more information about the waiver.

A foreign corporation is allowed the following deductions and credits regardless of whether Form 1120-F is timely filed.

  1. The charitable contributions deduction (page 3, Section II, line 19).

  2. The credit from Form 2439 (page 1, line 5f).

  3. The credit for federal tax on fuels (page 1, line 5g).

  4. U.S. income tax paid or withheld at source (page 1, line 5i).

See Regulations section 1.882-4 for details.

Private Delivery Services

Corporations may use certain private delivery services designated by the IRS to meet the “timely mailing as timely filing” rule for tax returns. These private delivery services include only the following.

  • DHL Express (DHL): DHL Same Day Service.

  • Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First.

  • United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

The private delivery service can tell you how to get written proof of the mailing date.

For the IRS mailing address to use if you are using a private delivery service, go to IRS.gov and enter “private delivery services” in the search box.

Private delivery services cannot deliver items to P.O. boxes. You must use the U.S. Postal Service to mail any item to an IRS P.O. box address.

Where To File

File Form 1120-F with the Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409.

Who Must Sign

The return must be signed and dated by:

  • The president, vice president, treasurer, assistant treasurer, chief accounting officer or

  • Any other corporate officer (such as tax officer) authorized to sign.

If a return is filed on behalf of a corporation by a receiver, trustee, or assignee, the fiduciary must sign the return, instead of the corporate officer. Returns and forms signed by a receiver or trustee in bankruptcy on behalf of a corporation must be accompanied by a copy of the order or instructions of the court authorizing signing of the return or form.

If an employee of the corporation completes Form 1120-F, the paid preparer space should remain blank. Anyone who prepares Form 1120-F but does not charge the corporation should not complete that section. Generally, anyone who is paid to prepare the return must sign it and fill in the “Paid Preparer Use Only” area.

The paid preparer must complete the required preparer information and—

  • Sign the return in the space provided for the preparer's signature.

  • Give a copy of the return to the taxpayer.

Note.

A paid preparer may sign original or amended returns by rubber stamp, mechanical device, or computer software program.

Paid Preparer Authorization

If the corporation wants to allow the IRS to discuss its 2013 tax return with the paid preparer who signed it, check the “Yes” box in the signature area of the return. This authorization applies only to the individual whose signature appears in the “Paid Preparer Use Only” section of the return. It does not apply to the firm, if any, shown in that section.

If the “Yes” box is checked, the corporation is authorizing the IRS to call the paid preparer to answer any questions that may arise during the processing of its return. The corporation is also authorizing the paid preparer to:

  • Give the IRS any information that is missing from the return,

  • Call the IRS for information about the processing of the return or the status of any related refund or payment(s), and

  • Respond to certain IRS notices about math errors, offsets, and return preparation.

The corporation is not authorizing the paid preparer to receive any refund check, bind the corporation to anything (including any additional tax liability), or otherwise represent the corporation before the IRS.

The authorization will automatically end no later than the due date (excluding extensions) for filing the corporation's 2014 tax return. If the corporation wants to expand the paid preparer's authorization or revoke the authorization before it ends, see Pub. 947, Practice Before the IRS and Power of Attorney.

Other Forms, Schedules, and Statements That May Be Required

Forms

A foreign corporation may have to file some of the following forms and schedules. See the form or schedule for more information.

For a list of additional forms the corporation may need to file (most notably, forms pertaining to the reporting of various types of income, and any related withholding, to U.S. persons, foreign persons, and the IRS), see Pub. 542, Corporations.

Form 5472,   Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. This form is filed by or for a foreign corporation engaged in a U.S. trade or business that had certain reportable transactions with a related party. See the Instructions for Form 5472 for filing instructions and information for failure to file and maintain records.

Form 8275,   Disclosure Statement, and Form 8275-R, Regulation Disclosure Statement. Use these forms to disclose items or positions taken on a tax return that are not otherwise adequately disclosed on a tax return or that are contrary to Treasury regulations (to avoid parts of the accuracy-related penalty or certain preparer penalties).

Form 8300,   Report of Cash Payments Over $10,000 Received in a Trade or Business. Use this form to report the receipt of more than $10,000 in cash or foreign currency in one transaction or a series of related transactions.

Form 8302,   Electronic Deposit of Tax Refund of $1 Million or More. The form must be filed to request an electronic deposit of a tax refund of $1 million or more.

Form 8832,   Entity Classification Election. This form is filed by an eligible entity to elect how it will be classified for federal tax purposes. If the corporation filed Form 8832 to make an initial classification election to be a corporation or to change its classification to be a corporation effective during the current tax year, the corporation must attach a copy of the Form 8832 to its Form 1120-F. If the corporation owns a direct or indirect interest in an entity that is not required to file a return, but for which a Form 8832 was filed to make a change in the classification of the entity that is effective during the current tax year, the corporation must attach a copy of the Form 8832 with respect to that entity to its Form 1120-F for the current tax year. Examples of when the corporation must attach a copy of the Form 8832 for an entity in which it has an interest include the corporation's ownership of:

  
  • An entity that elected to be a disregarded entity;

  • A foreign entity that elected to be a partnership but does not itself have a Form 1065 filing requirement; and

  • A foreign corporation that owns a foreign entity that elected to be a disregarded entity.

  The corporation does not need to attach the Form 8832 for an entity in which it has an indirect interest if an entity in which it has an interest is already attaching a copy of the Form 8832 with its return. See Regulations section 301.7701-3(c)(1)(ii).

Form 8833,   Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b). Use this form to make the treaty-based return position disclosure required by section 6114.

Form 8848,   Consent To Extend the Time To Assess the Branch Profits Tax Under Regulations Sections 1.884-2(a) and (c). Use this form to execute a waiver of period of limitations in regard to a termination or incorporation of a U.S. trade or business or liquidation or reorganization of a foreign corporation or its domestic subsidiary. See instructions for Section III, Part I, of Form 1120-F.

Form 8886,   Reportable Transaction Disclosure Statement. Use this form to disclose information for each reportable transaction in which the corporation participated. Form 8886 must be filed for each tax year that the federal income tax liability of the corporation is affected by its participation in the transaction. The following are reportable transactions:
  1. Any listed transaction, which is a transaction that is the same as or substantially similar to one of the types of transactions that the IRS has determined to be a tax avoidance transaction and identified by notice, regulation, or other published guidance as a listed transaction.

  2. Any transaction offered under conditions of confidentiality for which the corporation (or a related party) paid an advisor a fee of at least $250,000.

  3. Certain transactions for which the corporation (or a related party) has contractual protection against disallowance of the tax benefits.

  4. Certain transactions resulting in a loss of at least $10 million in any single year or $20 million in any combination of years.

  5. Any transaction identified by the IRS by notice, regulation, or other published guidance as a “transaction of interest.

  For more information, see Regulations section 1.6011-4. Also see the Instructions for Form 8886.

Penalties.

The corporation may have to pay a penalty if it is required to disclose a reportable transaction under section 6011 and fails to properly complete and file Form 8886. Penalties may also apply under section 6707A if the corporation fails to file Form 8886 with its corporate return, fails to provide a copy of Form 8886 to the Office of Tax Shelter Analysis (OTSA), or files a form that fails to include all the information required (or includes incorrect information). Other penalties, such as an accuracy-related penalty under section 6662A, may also apply. See the Instructions for Form 8886 for details on these and other penalties.

Reportable transactions by material advisors.   Material advisors to any reportable transaction must disclose certain information about the reportable transaction by filing Form 8918, Material Advisor Disclosure Statement, with the IRS. For details, see the Instructions for Form 8918.

Schedules

Schedule H, Deductions Allocated to Effectively Connected Income Under Regulations Section 1.861-8.   This schedule is required to be attached to report certain deductions of the corporation that are allocable to effectively connected income. If the corporation has any deductions reportable on Form 1120-F, Section II, lines 12 through 27, then Schedule H is required to be attached. See the separate instructions for Schedule H for details.

Note.

Line 20 of Schedule H is reportable on Form 1120-F, Section II, line 26.

Schedule I, Interest Expense Allocation Under Regulations Section 1.882-5.   This schedule is required to be attached to report any interest expense allocable to effectively connected income under Regulations section 1.882-5. The schedule must be attached whether or not such allocable interest is deductible against effectively connected income in the current year. See the separate instructions for Schedule I for identification of elective allocation methods and computation of the allocable and deductible amounts of interest expense.

Note.

Line 25 of Schedule I is reportable on Form 1120-F, Section II, line 18.

Schedule P, List of Foreign Partner Interests in Partnerships.   This schedule is required to be attached to report all effectively connected income included in Schedules K-1 the foreign corporation receives for each of its directly held partnership interests. Schedule P is also required to report the corporation's adjusted outside basis in its directly held partnership interest and the amount of the outside basis of each such interest apportioned to effectively connected income under Regulations section 1.884-1(d)(3). See the separate instructions for Schedule P for the reconciliation of effectively connected income and distributive share of expenses reported on Schedules K-1. Do not file Schedule P if the corporation has no partnership interests that give rise to effectively connected income that is included in the income reported to the corporation on Schedules K-1.

Note.

If the corporation has been subjected to partnership withholding under section 1446 and has received Form 8804, Annual Return for Partnership Withholding Tax, it will have effectively connected income includible in its Schedule K-1 that is required to be reported on Schedule P.

Schedule S, Exclusion of Income From the International Operation of Ships or Aircraft Under Section 883.   This schedule is required to be attached to claim a Code exemption under section 883. This schedule incorporates the information required under Regulations sections 1.883-1 through 1.883-4. See the separate instructions for Schedule S for details.

Schedule V, List of Vessels or Aircraft, Operators, and Owners.   This schedule is required to be attached if the corporation is required to report gross transportation income in Section I, line 9, column (b). See the separate instructions for Schedule V for details.

Statements

Transfers to a corporation controlled by the transferor.   Every significant transferor (as defined in Regulations section 1.351-3(d)) that receives stock of a corporation in exchange for property in a nonrecognition event must include the statement required by Regulations section 1.351-3(a) on or with the transferor's tax return for the tax year of the exchange. The transferee corporation must include the statement required by Regulations section 1.351-3(b) on or with its return for the tax year of the exchange, unless all the required information is included in any statement(s) provided by a significant transferor that is attached to the same return for the same section 351 exchange. If the transferor or transferee corporation is a controlled foreign corporation, each U.S. shareholder (within the meaning of section 951(b)) must include the required statement on or with its return.

Distributions under section 355.   Every corporation that makes a distribution of stock or securities of a controlled corporation, as described in section 355 (or so much of section 356 as relates to section 355), must include the statement required by Regulations section 1.355-5(a) on or with its return for the year of the distribution. A significant distributee (as defined in Regulations section 1.355-5(c)) that receives stock or securities of a controlled corporation must include the statement required by Regulations section 1.355-5(b) on or with its return for the year of the receipt. If the distributing or distributee corporation is a controlled foreign corporation, each U.S. shareholder (within the meaning of section 951(b)), must include the statement on or with its return.

Election to reduce basis under section 362(e)(2)(C).   If property is transferred to a corporation subject to section 362(e)(2), the transferor and the acquiring corporation may elect, under section 362(e)(2)(C), to reduce the transferor's basis in the stock received instead of reducing the acquiring corporation's basis in the property transferred. Once made, the election is irrevocable. If an election is made, a statement must be filed in accordance with Regulations section 1.362-4(d)(3). If an election was made before September 3, 2013, also see Notice 2005-70, 2005-41 I.R.B. 694, and Regulations section 1.362-4(j).

Annual information statement for elections under section 108(i).   If the corporation made an election in 2009 or 2010 to defer income from cancellation of debt (COD) in connection with the reacquisition of an applicable debt instrument, the corporation must attach a statement to its return beginning with the tax year following the tax year for which the corporation made the election, and ending the first tax year all income deferred has been included in income. The statement must be labeled “Section 108(i) Information Statement” and must clearly identify, for each applicable debt instrument to which an election under section 108(i) applies, any deferred:
  1. COD income that is included in income in the current tax year.

  2. COD income that has been accelerated because of an event described in section 108(i)(5)(D) and must be included in income in the current tax year. Include a description and the date of the acceleration event.

  3. COD income that has not been included in income in the current or prior tax years.

  4. Original issue discount (OID) deduction allowed as a deduction in the current tax year.

  5. OID deduction that is allowed as a deduction in the current tax year because of an accelerated event described in section 108(i)(5)(D).

  6. OID deduction that has not been deducted in the current or prior tax years.

  In addition, the corporation must annually include a copy of the election statement it filed to make the election to defer the income.

  For more information regarding the annual information statement, see Rev. Proc. 2009-37, 2009-36 I.R.B. 309. For more information on deferring COD income, see the instructions for Section II, line 10.

Foreign corporation with income excluded from gross income.   If the foreign corporation has income excluded from gross income for the tax year, do not complete the Form 1120-F schedules. Instead, attach a statement to the return showing the types and amounts of income excluded from gross income. See Treaty or Code exemption, earlier, for more information.

Election to reduce liabilities under Regulations section 1.884-1(e)(3).   If a taxpayer has a dividend equivalent amount that is subject to the branch profits tax under section 884(a), it may elect to reduce its U.S. liabilities under the branch profits tax regulations to treat its effectively connected earnings and profits as reinvested rather than remitted. A taxpayer may elect to reduce the amount of its liabilities by an amount that does not exceed the lesser of the amount of U.S. liabilities or the amount of U.S. liability reduction needed to reduce a dividend equivalent amount to zero. The election is made by attaching a statement to a timely filed tax return (including the extension due date) indicating the amount of U.S. liabilities reduced for branch profits tax purposes and the corresponding amount also reduced from U.S.-connected liabilities for interest expense allocation purposes. See Regulations section 1.884-1(e)(3).

Assembling the Return

To ensure that the corporation's tax return is correctly processed, attach all schedules and other forms after page 7 of Form 1120-F, in the following order:

  1. Form 4136.

  2. Form 8913.

  3. Form 8941.

  4. Form 3800.

  5. Additional schedules in alphabetical order.

  6. Additional forms in numerical order.

  7. Supporting statements and attachments.

Complete every applicable entry space on Form 1120-F. Do not enter “See Attached” or “Available Upon Request” instead of completing the entry spaces. If more space is needed on the forms or schedules, attach separate sheets using the same size and format as the printed forms.

If there are supporting statements and attachments, arrange them in the same order as the schedules or forms they support and attach them last. Show the totals on the printed forms. Enter the corporation's name and EIN on each supporting statement or attachment.

Accounting Methods

Figure taxable income using the method of accounting regularly used in keeping the corporation's books and records. In all cases, the method used must clearly show taxable income. Permissible methods include cash, accrual, or any other method authorized by the Internal Revenue Code.

Generally, the following rules apply. For more information, see Pub. 538, Accounting Periods and Methods.

  • A corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. However, see Nonaccrual experience method for service providers, in the instructions for Section I, line 1a, later.

  • Unless it is a qualifying taxpayer or a qualifying small business taxpayer, a corporation must use the accrual method for sales and purchases of inventory items. See the instructions for Form 1125-A, Cost of Goods Sold.

  • A corporation engaged in farming must use the accrual method. For exceptions, see section 447.

  • Special rules apply to long-term contracts. See section 460.

  • Dealers in securities must use the mark-to-market accounting method. Dealers in commodities and traders in securities and commodities may elect to use the mark-to-market accounting method. See section 475.

Change in accounting method.   Generally, the corporation must get IRS consent to change the method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). To do so, the corporation generally must file Form 3115, Application for Change in Accounting Method. For more information, see the Instructions for Form 3115, and Pub. 538.

  There are some instances when the corporation can obtain automatic consent from the IRS to change to certain accounting methods. See Rev. Proc. 2011-14, 2011-4 I.R.B. 330, as modified and clarified by Rev. Proc. 2012-19, 2012-14 I.R.B. 689, and Rev. Proc. 2012-20, 2012-14 I.R.B. 700, or any successor.

Section 481(a) adjustment.    If the corporation's taxable income for the current tax year is figured under a method of accounting different from the method used in the preceding tax year, the corporation may have to make an adjustment under section 481(a) to prevent amounts of income or expense from being duplicated or omitted. The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. However, in some cases, a corporation can elect to modify the section 481(a) adjustment period. The corporation must complete the appropriate lines of Form 3115 to make this election. See the instructions for Form 3115. If the net section 481(a) adjustment is positive, report it on page 3, Section II, line 10 as other income. If the net section 481(a) adjustment is negative, report it on line 27 of Section II as a deduction.

Accounting Period

A corporation must figure its taxable income on the basis of a tax year. A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. Generally, corporations may use a calendar year or a fiscal year. Personal service corporations, however, must generally use a calendar year unless they meet one of the exceptions discussed under Personal Service Corporation, later. Furthermore, special rules apply to specified foreign corporations. See Specified Foreign Corporations below.

Change of tax year.   Generally, a corporation, including a personal service corporation, must get the consent of the IRS before changing its tax year by filing Form 1128, Application To Adopt, Change, or Retain a Tax Year. However, exceptions may apply. See the Instructions for Form 1128 and Pub. 538 for more information.

Specified Foreign Corporations

The annual accounting period of a specified foreign corporation (defined below) is generally required to be the tax year of its majority U.S. shareholder. If there is more than one majority shareholder, the required tax year will be the tax year that results in the least aggregate deferral of income to all U.S. shareholders of the foreign corporation. For more information, see section 898 and Rev. Procs. 2006-45, 2006-45, I.R.B. 851, and 2002-39, 2002-22 I.R.B. 1046, as modified by Notice 2002-72, 2002-46 I.R.B. 843.

Specified foreign corporation.   A specified foreign corporation is any foreign corporation that is treated as a controlled foreign corporation (CFC) under subpart F (sections 951 through 964) and with respect to which more than 50% of the total voting power or value of all classes of stock of the corporation is treated as owned by a U.S. shareholder.

Rounding Off to Whole Dollars

The corporation may round off cents to whole dollars on its return and schedules. If the corporation does round to whole dollars, it must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3.

If two or more amounts must be added to figure the amount to enter on a line, include cents when adding the amounts and round off only the total.

Recordkeeping

Keep the corporation's records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. Usually, records that support an item of income, deduction, or credit on the return must be kept for 3 years from the date the return is due or filed, whichever is later. Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property.

The corporation should keep copies of all filed returns. They help in preparing future and amended returns and in the calculation of earnings and profits.

Payment of Tax Due

The requirements for payment of tax depend on whether the foreign corporation has an office or place of business in the United States.

Foreign corporations that do not maintain an office or place of business in the United States must pay any tax due (page 1, line 7) in full no later than the 15th day of the 6th month after the end of the tax year. If the foreign corporation files Form 1120-F electronically, it may pay the tax due by initiating an electronic funds withdrawal (direct debit). It does so by checking the box on line 6c of Form 8453-I, Foreign Corporation Income Tax Declaration for an IRS e-file Return. If the foreign corporation does not file Form 1120-F electronically, or if it files Form 1120-F electronically and does not choose the direct debit option, the foreign corporation may use the Electronic Federal Tax Payment System (EFTPS) to pay the tax due if it has a U.S. bank account. If the foreign corporation does not have a U.S. bank account, it may arrange for its financial institution to initiate a same-day payment on its behalf or it can arrange for either a qualified intermediary, tax professional, payroll service, or other trusted third party to make a deposit on its behalf using a master account. In addition, the foreign corporation still has the option to pay by check or money order, payable to the United States Treasury. To help ensure proper crediting, write the corporation's employer identification number (EIN), “Form 1120-F,” and the tax period to which the payment applies on the check or money order. Enclose the payment when the corporation files Form 1120-F.

Foreign corporations that do maintain an office or place of business in the United States must generally pay any tax due (page 1, line 7) in full no later than the 15th day of the 3rd month after the end of the tax year. However, see Regulations section 1.6081-5 for an exception. If the foreign corporation files Form 1120-F electronically, it may pay the tax due by initiating an electronic funds withdrawal (direct debit). It does so by checking the box on line 6c of Form 8453-I. If the foreign corporation does not file Form 1120-F electronically, or if it files Form 1120-F electronically and does not choose the direct debit option, the tax may be paid as follows. The foreign corporation may pay the tax using EFTPS or it can arrange for its tax professional, financial institution, payroll service, or other trusted third party to make deposits on its behalf. In addition, the foreign corporation also has the option to arrange for its financial institution to initiate a same-day payment.

Electronic deposit requirement.   Foreign corporations with an office or place of business in the United States must use electronic funds transfer to make all federal tax deposits (such as deposits of employment, excise, and corporate income tax). Generally, electronic funds transfers are made using EFTPS. However, if the corporation does not want to use EFTPS, it can arrange for its tax professional, financial institution, payroll service, or other trusted third party to make deposits on its behalf. Also, it may arrange for its financial institution to initiate a same-day payment (discussed below) on its behalf. EFTPS is a free service provided by the Department of the Treasury. Services provided by a tax professional, financial institution, payroll service, or other third party may have a fee.

  To get more information about EFTPS or to enroll in EFTPS, visit www.eftps.gov, or call 1-800-555-4477 (TTY/TDD 1-800-733-4829).

Depositing on time.    For deposits made by EFTPS to be on time, the corporation must initiate the deposit by 8 p.m. Eastern time the day before the date the deposit is due. If the corporation uses a third party to make deposits on its behalf, they may have different cutoff times.

Same-day payment option.    If the corporation fails to initiate a deposit transaction on EFTPS by 8 p.m. Eastern time the day before the date a deposit is due, it can still make the deposit on time by using the Federal Tax Application (FTA). Before using the same-day payment option, the corporation will need to make arrangements with its financial institution ahead of time. Please check with the financial institution regarding availability, deadlines, and costs. To learn more about making a same-day payment and download the Same-Day Payment Worksheet, visit www.eftps.gov.

Estimated Tax Payments

Generally, the following rules apply to a foreign corporation's payments of estimated tax.

  • The corporation must make installment payments of estimated tax if it expects its total tax for the year (less applicable credits) to be $500 or more.

  • The installments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the tax year. If any date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next regular business day.

  • Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to compute estimated tax. See the Instructions for Form 1120-W.

  • If the foreign corporation maintains an office or place of business in the United States, it must use electronic funds transfer to make installment payments of estimated tax.

  • If the foreign corporation does not maintain an office or place of business in the United States, it may pay the estimated tax by EFTPS providing it has a U.S. bank account. The foreign corporation may also arrange for its financial institution to initiate a same-day payment on its behalf or can arrange for its qualified intermediary, tax professional, payroll service, or other trusted third party to make a deposit on its behalf using a master account. In addition, the foreign corporation still has the option to pay the estimated tax due by check or money order. See Form 1120-W, Estimated Tax for Corporations, for additional payment information.

  • Penalties may apply if the corporation does not make required estimated tax payment deposits. See Estimated tax penalty, below.

  • If the corporation overpaid estimated tax, it may be able to get a quick refund by filing Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. See the Instructions for Form 1120-F, page 1, line 5c, later.

Estimated tax penalty.   A corporation that does not make estimated tax payments when due may be subject to an underpayment penalty for the period of underpayment. Generally, a corporation is subject to the penalty if its tax liability is $500 or more and it did not timely pay at least the smaller of:
  • Its tax liability for the current year or

  • Its prior year's tax.

  No estimated tax payments are required with respect to a foreign corporation's liability for the branch profits tax. See Regulations section 1.884-1(a).

  Use Form 2220, Underpayment of Estimated Tax by Corporations, to see if the corporation owes a penalty and to figure the amount of the penalty. If Form 2220 is completed, enter the penalty on Form 1120-F, page 1, line 6. See the instructions for line 6, estimated tax penalty, later.

Interest and Penalties

If the corporation receives a notice about penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable cause criteria. Do not attach an explanation when the corporation's return is filed.

Interest.   Interest is charged on taxes paid late even if an extension of time to file is granted. Interest is also charged on penalties imposed for failure to file, negligence, fraud, substantial valuation misstatements, substantial understatements of tax, and reportable transaction understatements from the due date (including extensions) to the date of payment. The interest charge is figured at a rate determined under section 6621.

Penalty for late filing of return.   A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $135. The penalty will not be imposed if the corporation can show that the failure to file on time was due to reasonable cause. See Caution above.

Penalty for late payment of tax.   A corporation that does not pay the tax when due generally may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. See Caution above.

Trust fund recovery penalty.   This penalty may apply if certain excise, income, social security, and Medicare taxes that must be collected or withheld are not collected or withheld, or these taxes are not paid. These taxes are generally reported on:
  • Form 720, Quarterly Federal Excise Tax Return;

  • Form 941, Employer's QUARTERLY Federal Tax Return;

  • Form 943, Employer's Annual Federal Tax Return for Agricultural Employees;

  • Form 944, Employer's ANNUAL Federal Tax Return; or

  • Form 945, Annual Return of Withheld Federal Income Tax.

  The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to have been responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so. The penalty is equal to the full amount of the unpaid trust fund tax. See the Instructions for Form 720, Pub. 15 (Circular E), Employer's Tax Guide, or Pub. 51 (Circular A), Agricultural Employer's Tax Guide, for details, including the definition of responsible persons.

Other penalties.   Other penalties may be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. See sections 6662, 6662A, and 6663.

Special Rules for Foreign Corporations

Source of Income Rules

The source of income is important in determining the extent to which income is taxable to foreign corporations. Each type of income has its own sourcing rules.

Interest Income

The source of interest income is usually determined by the residence of the obligor.

For example, interest paid by an obligor who is a resident of the United States is U.S. source income, and interest paid by an obligor who is a resident of a country other than the United States is foreign source income. Interest paid by a foreign partnership that is predominantly engaged in the active conduct of a trade or business outside the United States is treated as U.S.-source income only if the interest is paid by a U.S. trade or business conducted by the partnership or is allocable to income that is treated as effectively connected with the conduct of a U.S. trade or business. See section 861(a)(1)(B).

Exceptions.   The following types of interest income are treated as foreign source income:
  • Interest income received from foreign branches of U.S. banks and savings and loan associations and

  • In the case of a foreign partnership that is predominantly engaged in the active conduct of a trade or business outside the United States, any interest not paid by a trade or business engaged in by the partnership in the United States and not allocable to income that is effectively connected (or treated as effectively connected) with the conduct of a U.S. trade or business.

The following types of interest income are treated as domestic source income even though paid by a foreign corporation.

  • For a foreign corporation engaged in a U.S. trade or business, interest paid by the U.S. trade or business (branch interest) is treated as if paid by a domestic corporation to the actual recipient of the interest. See section 884(f)(1)(A) and regulations thereunder. Interest paid from a U.S. trade or business is only treated as branch interest to the extent the interest is allocable to effectively connected income under the interest expense allocation rules in Regulations section 1.882-5. Amounts paid but not allocable to effectively connected income are not branch interest. See Regulations section 1.884-4(b)(6).

  • If the foreign corporation has allocable interest in excess of branch interest (excess interest), the foreign corporation must treat that interest as if paid by a wholly owned domestic corporation to the foreign corporation. See section 884(f)(1)(B) and the instructions for Section III, Part II, later.

Dividend Income

The source of dividend income is usually determined by the residence of the payer. For example, dividends paid by a corporation that was incorporated in the United States are generally U.S. source income and dividends paid by a corporation that was incorporated in a foreign country are generally foreign source income.

Exceptions:   
  • Dividends paid by a U.S. corporation are foreign source income:

    1. If the U.S. corporation has made a valid election under section 936 (or section 30A), relating to certain U.S. corporations operating in a U.S. possession or

    2. To the extent the dividends are from qualified export receipts described in section 993(a)(1) (other than interest and gains described in section 995(b)(1)).

  • Dividends paid by a foreign corporation are U.S. source income:

    1. If the dividend is treated under section 243(e) as a distribution from the accumulated profits of a predecessor U.S. corporation or

    2. To the extent the foreign corporation's effectively connected gross income for the testing period (defined below) bears to all of the foreign corporation's gross income for the testing period, but only if 25% or more of the foreign corporation's gross income during the testing period was effectively connected with the conduct of a U.S. trade or business.

  The testing period is generally the 3 tax years of the foreign corporation payer preceding the tax year during which it declared the dividend. If the foreign corporation existed for fewer than 3 years before the tax year of declaration, the testing period is the term of the foreign corporation's existence before the current year. If the foreign corporation declared the dividend in its first tax year, that year is the testing period. Regardless of source, however, there is no tax imposed on any dividends paid by a foreign corporation out of earnings and profits for a tax year in which the foreign corporation was subject to the branch profits tax (determined after application of any income tax treaty). See Regulations section 1.1441-1(b)(4)(vii).

Rent and Royalty Income

The source of rent and royalty income for the use of property is determined based on where the property is located.

Income From the Sale or Exchange of Real Estate

Gain from the disposition of a U.S. real property interest (a USRPI) is U.S. source. A USRPI includes, but is not limited to, real property situated in the United States, an interest in real property other than solely as a creditor (such as a contingent interest in real property), and an interest in a United States real property holding corporation (USRPHC). See section 897 and the regulations thereunder.

Income From the Sale or Exchange of Personal Property

Income from the sale of personal property by a foreign corporation is generally treated as foreign source under section 865(a). However, special rules may apply to source such income as follows:

  • Income from the purchase and sale of inventory property is generally sourced under section 861(a)(6) as U.S. source if the property is purchased without the United States and sold within the United States and under section 862(a)(6) as foreign source if the property is purchased within the United States and sold without the United States. See also U.S. source treatment of inventory sales attributable to a U.S. office or fixed place of business under section 865(e)(2).

  • Income from the production and sale of inventory property is generally sourced as mixed U.S. and foreign source under section 863(b)(2).

  • Income from the sale of depreciable property is generally sourced as mixed U.S. and foreign source under section 865(c).

  • Income from the sale of certain intangibles is generally subject to the source rules applicable to royalties, found in section 861(a)(4). See section 865(d).

Foreign corporations with an office or fixed place of business in the United States.   Income from the sale of personal property attributable to an office or fixed place of business is U.S. source income regardless of any of the above rules relating to the source of income from the sale or exchange of personal property, except that this source rule is not applicable for purposes of defining an export trade corporation (see sections 865(e)(2)(A) and 971).

Exception.   Income from the sale of inventory property is foreign source income if the goods were sold for use, disposition, or consumption outside the United States and a foreign office of the corporation materially participated in the sale.

Income on Guarantees

With respect to guarantees issued after September 27, 2010:

  • The following income is U.S. source: Amounts received directly or indirectly from (1) a noncorporate resident or domestic corporation for the provision of a guarantee of any indebtedness of such resident or corporation or (2) any foreign person for the provision of a guarantee of any indebtedness of such person, if such amount is connected with income which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States. See section 861(a)(9).

  • The following income is foreign source: Amounts received, directly or indirectly, from a foreign person for the provision of a guarantee of indebtedness of such person other than amounts which are derived from sources within the United States as provided in section 861(a)(9). See section 862(a)(9).

Other Special Rules

Basis of Property and Inventory Costs for Property Imported by a Related Person

If property is imported into the United States by a related person in a transaction and the property has a customs value, the basis or inventory cost to the importer may not exceed the customs value. See section 1059A.

Income of Foreign Governments and International Organizations

Income of foreign governments and international organizations from the following sources is generally not subject to tax or withholding:

  • Investments in the United States in stocks, bonds, or other domestic securities owned by such foreign government or international organization;

  • Interest on deposits in banks in the United States of money belonging to such foreign government or international organization; and

  • Investments in the United States in financial instruments held (by a foreign government) in executing governmental financial or monetary policy.

Exception.   The income described in section 892(a)(2) that is received directly or indirectly from commercial activities is subject to both tax and withholding.


More Online Instructions