Instructions For Schedule H (Form 1120-F) - 2008 (Page 2 of 6) in pdf

expenses allocated and apportioned

and apportioned to ECI are reported

263(g), depreciation and

under Regulations sections 1.861-8

on line 19. If the corporation uses

amortization, general loan loss

and 1.861-17 and Temporary

management cost accounting

reserves).

Regulations section 1.861-8T.

statements for its home office books

3. Permanent differences (e.g.,

Deductions reported on home office

that include expenses of one or more

interbranch transactions other than

books may include expenses incurred

disregarded entities, and also

interest, non-deductible meals and

outside the foreign corporation’s

maintains certified audited

entertainment and executive salary

home country (other than in the

third-country GAAP statements for a

compensation).

United States). Home office

disregarded entity, the expenses of

If the corporation is a foreign bank

deductions do not include deductions

the disregarded entity must be

that charges its U.S. branch office

that are reported on books and

included in line 1 in either U.S. dollars

cost reimbursements for services and

records used to complete Form

or the home office’s functional

overhead which are booked by the

1120-F, Schedule L (“Schedule L

currency even if the audited

branch in the third party category of

books”). Schedule L books are the

third-country GAAP statements are in

expense actually incurred rather than

set or sets of books of the

another non-dollar functional

as a lump sum interbranch amount,

corporation’s U.S. trade or business

currency.

list the adjustment for each third party

or books of its U.S. branch (whether

Line 2. Enter on line 2 the total of

category expense separately on the

maintained within or outside the

the adjustments necessary to

attachment for permanent

United States) as defined in

conform the amounts on line 1 to the

differences.

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

amounts that are deductible for U.S.

Line 3. Combine lines 1 and 2 and

tax purposes. These adjustments

Part I may be completed in U.S.

enter the result on line 3. The amount

include temporary and permanent

dollars or in the foreign corporation’s

reported on line 3 is the total amount

differences of the type applicable in

functional currency. If the corporation

of deductible expenses (determined

determining the deductions of U.S.

completes Part I in U.S. dollars,

under U.S. tax principles before

corporations that file their income tax

check the box in the Part I heading. If

apportionment between ECI and

returns on Form 1120 (e.g.,

the corporation completes Part I in its

non-ECI) of the foreign corporation

adjustments eliminating any line 1

foreign functional currency, specify

that files Form 1120-F, other than

expenses of entities whose expenses

the currency in the space provided in

those that are included on the

are includible in the corporation’s

the Part I heading.

corporation’s Schedule L books.

expenses for book purposes but not

Line 1. Enter on line 1 the total

Line 4. Enter on line 4 the total

for U.S. tax purposes). In addition,

expenses recorded on the

amount of interest expense (including

include adjustments to loan losses

non-Schedule L books and records of

interbranch interest), if any, recorded

and loss reserves included in line 1

the home office (including books and

on the home office books that is

expenses to reflect the amount of bad

records maintained in locations

included on line 3.

debt expense that is deductible for

outside the United States other than

U.S. tax purposes. Such adjustments

Line 5. Enter on line 5 the bad debt

in the corporation’s home country).

include any amount of bad debt

expense, if any, that is included on

The books and records may be home

expense included in line 1 that is

line 3. Any portion of the amount

office records (e.g., management cost

treated as an involuntary charge-off

included on line 5 that is allocable to

accounting reports) that identify only

under Regulations section

ECI is reported directly on Form

the expenses included in the

1.166-2(d)(2). The deductible amount

1120-F, Section II, line 15.

corporation’s financial statements for

of bad debt expense remaining after

Line 7. Subtract line 6 from line 3

the tax year. It is not necessary that

any adjustments on line 2 is

and enter the difference on line 7.

the home office records or reports

eliminated from Schedule H

This is the total amount of the

used also include items of income,

expenses on line 5.

corporation’s home office deductions

gain or loss (including bad debt

which are allocated and apportioned

Do not allocate and apportion

charge-offs), or financial transaction

between ECI and non-ECI in Parts I

expenses to ECI and non-ECI on

expenses such as interest expense

and II of Schedule H.

line 2. In addition, do not make

and periodic notional principal

adjustments on line 2 to reflect

Lines 8 through 10. The amounts

contract expense. Alternatively, the

book-to-tax adjustments for any home

reported on lines 8 through 10 are

expenses reported on line 1 may be

office interest expense (including

deductions that are definitely related

derived from audited or unaudited

interbranch interest expense)

to non-ECI under Regulations

financial statements. The home office

included on line 1. Interest expense

sections 1.861-8 and 1.861-17 and

books may be books recorded under

included on line 1 is adjusted on line

Temporary Regulations section

the Generally Accepted Accounting

4. The allocation of deductible

1.861-8T. If the corporation has

Principles (“GAAP”) applicable to the

interest expense to ECI is reported on

deductions included in line 7 that are

corporation’s local accounting

Schedule I (Form 1120-F). Attach a

definitely related and allocable to ECI

practices or under U.S. GAAP, at the

schedule listing the amount of the

that is exempt from tax under the

corporation’s choosing. Expenses of

adjustment for each of the following

Code or an income tax treaty, the

other includible entities (i.e.,

categories:

deductions should be treated as

disregarded entities) are included in

allocable to non-ECI for purposes of

home office expenses reported on

1. Expenses included on line 1 of

Schedule H and included in the

line 1 only if the expenses of such

entities whose expenses are not

amounts reported on lines 8 through

other entities are recorded on the

includible in the corporation’s

10.

home office’s books. Expenses

expenses for U.S. tax purposes.

recorded on non-Schedule L books of

2. Temporary differences (e.g.,

Line 8. Enter on line 8 deductions

disregarded entities (and not on the

costs capitalized under section 263A,

included on line 7 that are definitely

home office books) that are allocated

carrying charges under section

related to non-ECI received from

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Instructions for Schedule H (Form 1120-F)

Instructions For Schedule H (Form 1120-F) - 2008 Page 2

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