Instructions For Schedule I (Form 1120-F) - 2009 (Page 5 of 8) in pdf

1120-F, plus the corporation’s share of

reduction election is made for the tax

booked interest expense. It does not

partnership liabilities and any liabilities of

year, enter -0- on line 7b.

apply for other purposes such as

any disregarded entities that are treated

determining the eligibility for the fixed

Line 7c. U.S.-connected liabilities.

as liabilities of the foreign corporation

ratio under Step 2, reportable on line 6d.

Subtract line 7b from line 7a and enter the

under U.S. tax principles. The books of

The liability must be recorded on the

amount on line 7c. The amount entered is

the foreign corporation and any such

Schedule L books before the close of the

the amount of U.S.-connected liabilities

disregarded entities must be combined,

day on which the liability is incurred

for purposes of determining the amount of

with applicable eliminating entries for

unless an inadvertent error is shown

interest expense allocable to effectively

transactions between them. See

under the facts and circumstances. See

connected income in Step 3. If the

Regulations section 1.882-5(c)(2)(viii).

the definition and requirements for U.S.

corporation uses the Separate Currency

The classification of the worldwide

booked liabilities of foreign banks under

Pools Method for Step 3, the sum of all

liabilities is determined under U.S. tax

Regulations section 1.882-5(d)(2)(iii).

U.S.-connected liabilities shown on line

principles. See Regulations section

Note: The section 585(a)(2)(B) standard

17b (including any attachments for lines

1.882-5(c)(2). The value of the worldwide

also applies for eligibility to reduce excess

16 through 19 for additional separate

liabilities must be determined

interest using the deposit liability safe

currency pool computations) must equal

substantially in accordance with U.S. tax

harbor under the branch-level interest tax

the amount shown on line 7c after the

principles. Foreign banks must average

on excess interest under Regulations

liability reduction election has been taken

the worldwide liabilities using the

section 1.884-4(a)(2)(iii).

into account.

beginning, middle, and end of year

Line 8, column (b). U.S. booked

values. Corporations other than banks

Lines 8 and 9. Step 3: Interest

liabilities of partnership interests.

must average the worldwide liabilities

Expense Allocation (Including

Enter on line 8, column (b), the amount

using the year-to-year values of its

from Schedule P, line 17 (“Total” column).

U.S. Booked Liabilities and U.S.

liabilities.

This amount is the corporation’s average

Booked Interest Expense

Line 6b. Average worldwide assets.

U.S. booked liabilities with respect to its

Included in the Determination

Enter the average worldwide assets as

distributive share of liabilities during the

of Branch Interest)

adjusted for U.S. tax principles on line 6b,

averaging period from partnerships

using the same nonconsolidated books

engaged in trade or business within the

Line 8. Average Third Party

for reporting average worldwide liabilities

United States. The amount reportable on

on line 6a. Transactions with disregarded

U.S.-Booked Liabilities

line 8, column (b), and Schedule P is the

entities included in the actual ratio

corporation’s share of partnership

Line 8, column (a). Schedule L U.S.

computation constitute interbranch

liabilities for which it is allocated a

booked liabilities. Enter on line 8,

transactions under U.S. tax principles and

distributive share of interest expense. See

column (a), the average amount of

must be eliminated. See Regulations

Regulations section 1.884-1(d)(3)(vi).

third-party U.S.-booked liabilities from the

section 1.882-5(c)(2)(viii). Use the same

set(s) of books reportable on Schedule L

averaging period applicable to worldwide

Line 9. U.S. Booked Interest

using the most frequent averaging period

liabilities. If the corporation uses the

Expense

available but not less frequently than the

actual ratio method, the amount entered

minimum averaging periods required for

on line 6b is also reported on Schedule H

Line 9, column (a). Schedule L booked

U.S. assets reported on line 5. The

(Form 1120-F), line 22b.

interest expense. Enter the amount of

average U.S.-booked liabilities include all

third-party interest expense from the

third-party liabilities on the set(s) of

Fixed Ratio Filers — Regulations

Schedule L set(s) of books with respect to

Schedule L books whether interest

Section 1.882-5(c)(4)

liabilities reported on line 8, column (a).

bearing or not. Exclude interbranch

Do not include interest expense that is

Line 7a. U.S.-connected liabilities

liabilities shown on the Schedule L books

directly allocable under Regulations

before Regulations section

unless such amounts are treated as

section 1.882-5(a)(1)(ii), including the

1.884-1(e)(3) election(s). Multiply the

allocations of third-party amounts with

corporation’s distributive share of direct

average U.S. assets from line 5, column

respect to a global dealing operation

interest expense allocations from

(d), by the ratio entered on line 6e and

under Proposed Regulations section

partnerships otherwise reportable in

enter the result on line 7a. The result is

1.863-3(h) (e.g., mark-to-market

column (b). All direct interest expense

the amount of U.S.-connected liabilities

valuations of dealer derivative securities

allocations to ECI are reported on line 22.

determined before the application of any

may constitute liabilities that are treated

liability reduction election(s) made under

as U.S. booked liabilities includible on line

Line 9, column (b). U.S. booked

Regulations section 1.884-1(e)(3).

8, column (a)). Do not include liability

interest expense from partnerships.

amounts on line 8a to the extent they give

Line 7b. U.S. liability reduction election

Enter on line 9, column (b), the amount

rise to directly allocable interest under

amount. Enter the total amount of all

from Schedule P (Form 1120-F), line 14c

Regulations section 1.882-5(a)(1)(ii) or

liability reduction election amounts made

(“Total” column). Do not include interest

are partnership liabilities includible in

under Regulations section 1.884-1(e)(3).

expense that is directly allocable under

column (b).

Regulations section 1.882-5(a)(1)(ii) from

Note. A liability reduction election may

•

Corporations other than banks. The

the corporation’s distributive share of a

be made only to the extent needed to

definition of U.S. booked liability for a

partnership’s direct interest expense

reduce a dividend equivalent amount

corporation other than a bank is

allocations. All direct interest expense

under section 884 to zero. See

described in Regulations section

allocations to ECI are reported on line 22.

Regulations section 1.884-1(e)(3) for the

1.882-5(d)(2)(ii). Liabilities reflected on

time, place, and manner for making the

the Schedule L books must be recorded

Line 9, column (c). Total U.S. booked

liability reduction election and the

on such books reasonably

interest expense. Add the amounts on

separate disclosures required to be

contemporaneous to the time the liability

line 9, column (a), and line 9, column (b)

attached to Form 1120-F for each liability

is incurred.

and enter the result on line 9, column (c).

reduction election made.

•

Foreign banks. The liability recorded

This result is also required to be reported

If the corporation uses the Separate

on the set(s) of Schedule L books must

on Form 1120-F, Section III, line 8. This

Currency Pools Method for Step 3 (lines

be that of a foreign bank that conducts

amount is the corporation’s tentative

16 through 20), the amount included on

regulated banking operations in the

branch interest for purposes of the

line 7b must also be allocated to

United States as described in section

branch-level interest tax under

determine the U.S.-connected liabilities

585(a)(2)(B). Note: This requirement

Regulations section 1.884-4(b). See the

for each currency. See the instructions for

applies only for the determination of U.S.

instructions for Form 1120-F, Section III,

lines 7c and 17b below. If no liability

booked liabilities and corresponding U.S.

Part II, line 8.

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Instructions For Schedule I (Form 1120-F) - 2009 Page 5

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