Instructions For Schedule I (Form 1120-F) - 2008 (Page 2 of 8) in pdf

•

The published LIBOR election for

expense allocation elections may be

party liabilities (whether with related or

banks under the AUSBL method in Step 3

made on an amended return. In addition,

unrelated parties), as well as the

(line 10 check box); and

the relief for late tax elections provided

interbranch assets and liabilities and

•

The de minimis foreign currency

under the rules of Regulations section

assets that give rise to noneffectively

election under the Separate Currency

301.9100-1 (and any guidance

connected income in whole or in part.

Pools method in Step 3 (line 16b check

promulgated thereunder) is not available.

Such books reflect the assets of the

box).

An election identified on line 1 of a

foreign corporation located in the United

change from a fair market value method

States and all other of its assets used in

The corporation need only identify the

to a previously elected adjusted basis

its trade or business within the United

protective election in the first year it is

method for reporting U.S. assets is not

States (other than its assets giving rise to

required to be made under Temporary

effective without advance consent of the

effectively connected income under

Regulations section 1.882-5T(a)(7) or in

Commissioner or his delegate. See

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

any year a taxpayer is eligible to adopt or

Temporary Regulations section

under Regulations section

change an election and chooses to do so

1.882-5T(b)(2)(ii)(A).

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

for that year. For example, an election to

may instead report its worldwide assets,

use the adjusted U.S. booked liability

Other Forms and Schedules

liabilities, and equity on Schedule L.

method or the separate currency pools

Related to Schedule I

method is an election that generally must

If the foreign corporation has more

Form 1120-F, Schedule L, and

be maintained for a minimum five-year

than one set of books and records

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

period. If a corporation is subject to

relating to assets located in the United

or set(s) of books that give rise to U.S.

Regulations section 1.882-5 for the first

States or assets used in a trade or

booked liabilities under Regulations

time, the election is due with a timely filed

business conducted in the United States,

section 1.882-5(d)(2) and Temporary

return (excluding the additional extended

it must report the combined amounts on

Regulations section 1.882-5T(d)(2) are

period provided by Regulations section

Schedule L and must eliminate asset and

the same sets of books and records that

1.882-4(a)(3)) whether or not the taxpayer

liability amounts recorded between these

are reportable as of the tax year end on

files a protective return under Regulations

books.

Form 1120-F, Schedule L. They are also

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

the same sets of books and records that

election need not be filed with subsequent

Required Reporting on

are used by foreign banks to report

protective returns filed under Regulations

Schedule I

income and expenses on Schedule M-3

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

Lines 1 through 9. Schedule I requires

(Form 1120-F).

subsequent year to which the minimum

disclosure of data and interest allocation

five-year period applies. However, the

Form 1120-F, Section III, Part II

elections for all parts of the three-step

indication of the election with a protective

(branch-level interest tax). The amount

formula under Regulations section

return is only effective for a year that the

of interest expense from Schedule I, line

1.882-5 and Temporary Regulations

corporation is engaged in trade or

24d is reportable on Form 1120-F,

section 1.882-5T. On page 1, the

business within the United States.

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

corporation is required to complete Step 1

Accordingly, if a protective election is

the allocation under Regulations section

(lines 1 through 5) to determine its

made for a first year protective return and

1.882-5 reportable on Schedule I, line 23

average U.S. assets, Step 2 (lines 6

in fact the taxpayer is not engaged in

is reportable on Form 1120-F, Section III,

through 7c) to determine its

trade or business until the second year of

Part II, line 7c.

U.S.-connected liabilities, and Step 3

activity within the United States, the

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

(lines 8 and 9) to determine its U.S.

protective election made in the first year

lines 26b and 26c. The amount of

booked liabilities and U.S. booked interest

is not effective for the corporation’s

interest expense allocation reportable on

expense under Regulations section

second year of activity because

Schedule I, line 23 is includible on

1.882-5(d)(2) and Temporary Regulations

Regulations section 1.882-5 is not

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

section 1.882-5T(d)(2). The total on line

applicable to the corporation until such

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

9, column (c) is also used for purposes of

second year. The elections used by a

subject to deferral and disallowance on

determining the corporation’s branch

taxpayer for all years in which it files Form

Schedule I, lines 24a through 24c are

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

1120-F and reports effectively connected

reportable on Schedule M-3 (Form

Regulations section 1.884-4(b), and in the

income must be shown on Schedule I,

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

calculation of the corporation’s

including years subsequent to the year in

and (e).

branch-level interest tax on excess

which an election under Temporary

Schedule P (Form 1120-F). Enter

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

Regulations section 1.882-5T(a)(7) is

amounts from Schedule P (Form 1120-F),

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

made.

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

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

A corporation that files a protective

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

included in the interest expense allocation

return under Regulations section

9, column (b); respectively.

computation in Step 3 of the AUSBL

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

method if elected by the corporation.

Assets and Liabilities Based on

on Schedule I (other than for the

Schedule L Set(s) of Books and

published LIBOR election on line 10d) in

Lines 1 through 9 must be

Records

order to preserve an allocation method. If

completed by all corporations

a taxpayer files a protective return under

Generally, the assets and liabilities

required to file Schedule I,

CAUTION

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

required to be reported on Schedule L are

regardless of whether the corporation

does not file Schedule I to identify the

the total assets and liabilities reflected on

allocates interest expense under the

relevant elections under Regulations

the set or sets of books of the foreign

AUSBL or Separate Currency Pools

section 1.882-5 for an applicable year,

corporation that give rise to income

method for the applicable year. Schedule

then the Director of Field Operations is

effectively connected with the

I, lines 1 through 9 must also be

authorized to make all applicable

corporation’s trade or business within the

completed under the rules of Regulations

allocation method elections on behalf of

United States and to U.S. booked

section 1.882-5 and Temporary

the corporation for such applicable year if

liabilities (as defined in Regulations

Regulations section 1.882-5T even if the

it is later determined that the taxpayer

section 1.882-5(d)(2) and Temporary

corporation reports business profits

was engaged in trade or business within

Regulations sections 1.882-5T(d)(2)(ii)(A)

attributable to a U.S. permanent

the United States and had ECI during the

and (iii)). The total assets and liabilities

establishment (other than under the ECI

year.

reflected on such books include the third

rules of sections 864(c), 882(a) and

Note. Under Temporary Regulations

party U.S. assets (as defined in

882(c)) pursuant to the express

section 1.882-5T(a)(7), no interest

Regulations section 1.884-1(d)) and third

provisions of an applicable income tax

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

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