Instructions For Schedule I (Form 1120-F) - 2011 (Page 2 of 8) in pdf

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election that generally must be

If the foreign corporation has more

maintained for a minimum five-year

than one set of books and records

Related to Schedule I

relating to assets located in the United

period. However, the election available to

Form 1120-F, Schedule L, and

foreign banks to use 30-day LIBOR under

States or assets used in a trade or

Schedule M-3 (Form 1120-F). The set

business conducted in the United States,

the AUSBL method in Step 3 must be

or set(s) of books that give rise to

it must report the combined amounts on

made each year. If a corporation is

U.S.-booked liabilities under Regulations

Schedule L and must eliminate asset and

subject to Regulations section 1.882-5 for

section 1.882-5(d)(2) are the same sets of

liability amounts recorded between these

the first time, the election is due with a

books and records that are reportable as

books.

timely filed return (excluding the

of the tax year end on Form 1120-F,

additional extended period provided by

Required Reporting on

Schedule L. They are also the same sets

Regulations section 1.882-4(a)(3))

Schedule I

of books and records that are used by

whether or not the taxpayer files a

foreign banks to report income and

protective return under Regulations

Lines 1 through 9. Schedule I requires

expenses on Schedule M-3 (Form

section 1.882-4(a)(3)(vi). The protective

disclosure of data and interest allocation

1120-F).

election need not be filed with subsequent

elections for all parts of the three-step

protective returns filed under Regulations

formula under Regulations section

Form 1120-F, Section III, Part II

section 1.882-4(a)(3)(vi) for any

1.882-5. On page 1, the corporation is

(branch-level interest tax). The amount

subsequent year to which the minimum

required to complete Step 1 (lines 1

of interest expense from Schedule I, line

five-year period applies. However, the

through 5) to determine its average U.S.

24d is reportable on Form 1120-F,

indication of the election with a protective

assets, Step 2 (lines 6 through 7c) to

Section III, Part II, line 7b. The amount of

return is only effective for a year that the

determine its U.S.-connected liabilities,

the allocation under Regulations section

corporation is engaged in trade or

and Step 3 (lines 8 and 9) to determine its

1.882-5 reportable on Schedule I, line 23

business within the United States.

U.S.-booked liabilities under Regulations

is reportable on Form 1120-F, Section III,

Accordingly, if a protective election is

section 1.882-5(d)(2) and its related

Part II, line 7c.

made for a first year protective return and

U.S.-booked interest expense. The total

Schedule M-3 (Form 1120-F), Part III,

in fact the taxpayer is not engaged in

on line 9, column (c) is also used for

lines 26b and 26c. The amount of

trade or business until the second year of

purposes of determining the corporation’s

interest expense allocation reportable on

branch interest under section 884(f)(1)(A)

activity within the United States, the

Schedule I, line 23 is includible on

protective election made in the first year

and Regulations section 1.884-4(b), and

Schedule M-3 (Form 1120-F), Part III, line

in the calculation of the corporation’s

is not effective for the corporation’s

26b, columns (d) and (e). The amounts

second year of activity because

branch-level interest tax on excess

subject to deferral and disallowance on

interest under section 884(f)(1)(B) and

Regulations section 1.882-5 is not

Schedule I, lines 24a through 24c are

Regulations section 1.884-4(a)(2). Line 8,

applicable to the corporation until such

reportable on Schedule M-3 (Form

column (c), and line 9, column (c) are also

second year. The elections used by a

1120-F), Part III, line 26c, columns (b),

included in the interest expense allocation

taxpayer for all years in which it files Form

(c), and (e).

computation in Step 3 of the AUSBL

1120-F and reports effectively connected

method if elected by the corporation.

income must be shown on Schedule I,

Schedule P (Form 1120-F). Enter

including years subsequent to the year in

amounts from Schedule P (Form 1120-F),

Lines 1 through 9 must be

which an election under Regulations

lines 19, 17, and 14c on Schedule I, line

completed by all corporations

section 1.882-5(a)(7) is made.

5, column (b); line 8, column (b); and line

required to file Schedule I,

CAUTION

9, column (b); respectively.

regardless of whether the corporation

A corporation that files a protective

allocates interest expense under the

return under Regulations section

Assets and Liabilities Based on

AUSBL or Separate Currency Pools

1.882-4(a)(3)(vi) need not enter amounts

Schedule L Set(s) of Books and

method for the applicable year.

on Schedule I (other than for the

Records

Lines 10 through 20. Allocations,

published LIBOR election on line 10d) in

direct interest allocations, deferrals

Generally, the assets and liabilities

order to preserve an allocation method. If

and other disallowances. Step 3 of the

required to be reported on Schedule L are

a taxpayer files a protective return under

AUSBL method is provided on lines 10

the total assets and liabilities reflected on

Regulations section 1.882-4(a)(3)(vi) and

through 15. Step 3 of the Separate

the set or sets of books of the foreign

does not file Schedule I to identify the

corporation that give rise to income

Currency Pools method is provided on

relevant elections under Regulations

lines 16 through 20. These Step 3

effectively connected with the

section 1.882-5 for an applicable year,

methods are mutually exclusive and

corporation’s trade or business within the

then the Director of Field Operations is

cannot both apply to the corporation in

United States and to U.S.-booked

authorized to make all applicable

the same year. The methods are subject

liabilities (as defined in Regulations

allocation method elections on behalf of

section 1.882-5(d)(2).) The total assets

to the general five-year minimum period

the corporation for such applicable year if

election rules of Regulations section

and liabilities reflected on such books

it is later determined that the taxpayer

1.882-5(a)(7).

include the third party U.S. assets (as

was engaged in trade or business within

defined in Regulations section 1.884-1(d))

the United States and had ECI during the

AUSBL method filers. AUSBL

and third party liabilities (whether with

year.

method filers complete all columns on

related or unrelated parties), as well as

lines 1 through 15 and lines 21 through

Note. Under Regulations section

the interbranch assets and liabilities and

25. Do not complete lines 16a through 20.

1.882-5(a)(7), no interest expense

assets that give rise to noneffectively

Separate currency pools method

allocation elections may be made on an

connected income in whole or in part.

filers. Separate Currency Pools method

amended return. In addition, the relief for

Such books reflect the assets of the

filers complete all columns on lines 1

late tax elections provided under the rules

foreign corporation located in the United

through 9 and lines 16a through 25. Do

of Regulations section 301.9100-1 (and

States and all other of its assets used in

not complete lines 10 through 15.

any guidance promulgated thereunder) is

its trade or business within the United

Lines 21 through 25. Summary –

not available. An election identified on line

States (other than its assets giving rise to

Interest expense allocation and

1 of a change from a fair market value

effectively connected income under

deduction under Regulations section

method to a previously elected adjusted

sections 864(c)(6) or (7)), as authorized

1.882-5

basis method for reporting U.S. assets is

under Regulations section

Line 22. Direct interest allocations.

not effective without advance consent of

1.6012-2(g)(1)(iii). A foreign corporation

the Commissioner or his delegate. See

may instead report its worldwide assets,

Interest expense that is directly allocable

Regulations section 1.882-5(b)(2)(ii)(A).

liabilities, and equity on Schedule L.

under Regulations section

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Instructions For Schedule I (Form 1120-F) - 2011 Page 2

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