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Qualify for the 70% deduction under

of the stock of the foreign corporation by

91-day period beginning 45 days before the

section 243(a)(1).

vote and value.

ex-dividend date. When counting the

number of days the FSC held the stock, you

Also include on line 1 dividends (except

Line 7, Column (a)

cannot count certain days during which the

those received on debt-financed stock

Enter the U.S.-source portion of dividends

FSC’s risk of loss was diminished. See

acquired after July 18, 1984) from a

that are received from 20%-or-more-owned

section 246(c)(4) and Regulations section

regulated investment company (RIC). The

foreign corporations and that qualify for the

1.246-5 for more details.

amount of dividends eligible for the

80% deduction under section 245(a).

b. Dividends attributable to periods

dividends-received deduction under section

totaling more than 366 days that the

243 is limited by section 854(b). The FSC

Line 8, Column (c)

corporation received on any share of

should receive a notice from the RIC

preferred stock held for less than 91 days

Limitation on dividends-received

specifying the amount of dividends that

during the 181-day period that began 90

deduction. Generally, line 8, column (c),

qualify for the deduction.

days before the ex-dividend date. When

cannot exceed the amount on line 10 of the

Report so-called dividends or earnings

counting the number of days the FSC held

worksheet below. However, in a year in

received from mutual savings banks, etc., as

the stock, you cannot count certain days

which an NOL occurs, this limitation does

interest. Do not treat them as dividends.

during which the FSC’s risk of loss was

not apply even if the loss is created by the

diminished. See section 246(c)(4) and

dividends-received deduction. See sections

Line 2, Column (a)

Regulations section 1.246-5 for more

172(d) and 246(b).

Enter dividends (except those received on

details. Preferred dividends attributable to

debt-financed stock acquired after July 18,

periods totaling less than 367 days are

1. Refigure line 18, Part II, Schedule

1984) that are received from

B (page 3 of Form 1120-FSC)

subject to the 46-day holding period rule

20%-or-more-owned domestic corporations

without any adjustment under

above.

subject to income tax and that are subject to

section 1059 and without any

c. Dividends on any share of stock to

the 80% deduction under section 243(c).

capital loss carryback to the tax

the extent the FSC is under an obligation

year under section 1212(a)(1) . . .

(including a short sale) to make related

Line 3, Column (a)

payments with respect to positions in

2. Multiply line 1 by 80% . . . . . . . .

Enter dividends that are:

substantially similar or related property.

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Received on debt-financed stock acquired

3. Add lines 2, 5, and 7, column (c),

5. Any other taxable dividend income

and the part of the deduction on

after July 18, 1984, from domestic and

not properly reported above (including

line 3, column (c), that is

foreign corporations subject to income tax

distributions under section 936(h)(4)).

attributable to dividends from

that would otherwise be subject to the

If patronage dividends or per-unit retain

20%-or-more-owned corporations

dividends-received deduction under section

allocations are included on line 11, identify

243(a)(1), 243(c), or 245(a). Generally,

4. Enter the smaller of line 2 or 3. If

the total of these amounts in a schedule

debt-financed stock is stock that the FSC

line 3 is greater than line 2, stop

attached to Form 1120-FSC.

acquired by incurring a debt (e.g., it

here; enter the amount from line 4

borrowed money to buy the stock).

on line 8, column (c), and do not

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complete lines 5-10 below . . . . .

Schedule G

Received from a RIC on debt-financed

stock. The amount of dividends eligible for

5. Enter the total amount of dividends

Deductions Allocated or

the dividends-received deduction is limited

from 20%-or-more-owned

by section 854(b). The FSC should receive

corporations that are included on

Apportioned to Foreign Trade

a notice from the RIC specifying the amount

lines 2, 3, 5, and 7, column (a) . .

Income Other Than Foreign

of dividends that qualify for the deduction.

6. Subtract line 5 from line 1 . . . . . .

Trade Income Reported on

Line 3, Columns (b) and (c)

7. Multiply line 6 by 70% . . . . . . . .

Schedule F

Dividends received on debt-financed stock

8. Subtract line 3 above from line 8,

acquired after July 18, 1984, are not entitled

column (c) . . . . . . . . . . . . . . .

Limitations on Deductions

to the full 70% or 80% dividends-received

9. Enter the smaller of line 7 or

deduction. The 70% or 80% deduction is

Section 263A uniform capitalization

line 8 . . . . . . . . . . . . . . . . . . .

reduced by a percentage that is related to

rules. The uniform capitalization rules of

the amount of debt incurred to acquire the

section 263A require FSCs to capitalize, or

10. Dividends-received deduction

stock. See section 246A. Also, see section

after limitation (sec. 246(b)). Add

include in inventory, certain costs incurred in

245(a) before making this computation for

lines 4 and 9. Enter the result here

connection with:

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an additional limitation that applies to

and on line 8, column (c) . . . . . . 10.

Personal property (tangible and certain

dividends received from foreign

intangible property) acquired for resale.

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corporations. Attach a schedule to Form

Line 10, Column (a)

The production of real property and

1120-FSC showing how the amount on line

tangible personal property by a FSC for use

If the FSC claims the foreign tax credit,

3, column (c), was figured.

in its trade or business or in an activity

enter the tax that is deemed paid under

engaged in for profit.

sections 902 and 960. See sections 78 and

Line 4, Column (a)

906(b)(4).

Tangible personal property produced

Enter dividends received on the preferred

by a FSC includes a film, sound recording,

stock of a less-than-20%-owned public utility

Line 11, Column (a)

videotape, book, or similar property.

that is subject to income tax and is allowed

Include the following:

FSCs subject to the section 263A

the deduction provided in section 247 for

1. Dividends (other than capital gain

uniform capitalization rules are required to

dividends paid.

distributions reported on Schedule D (Form

capitalize:

Line 5, Column (a)

1120) and exempt-interest dividends) that

1. Direct costs and

are received from RICs and that are not

Enter dividends received on preferred stock

2. An allocable part of most indirect

subject to the 70% deduction.

of a 20%-or-more-owned public utility that is

costs (including taxes) that (a) benefit the

2. Dividends from tax-exempt

subject to income tax and is allowed the

assets produced or acquired for resale or (b)

organizations.

deduction provided in section 247 for

are incurred by reason of the performance

3. Dividends (other than capital gain

dividends paid.

of production or resale activities.

distributions) received from a real estate

Line 6, Column (a)

investment trust that, for the tax year of the

For inventory, some of the indirect

trust in which the dividends are paid,

Enter the U.S.-source portion of dividends

expenses that must be capitalized are:

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qualifies under sections 856 through 860.

that:

Administration expenses.

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4. Dividends not eligible for a

Are received from less-than-20%-owned

Taxes.

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dividends-received deduction, which include

foreign corporations and

Depreciation.

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the following.

Qualify for the 70% deduction under

Insurance.

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section 245(a). To qualify for the 70%

a. Dividends received on any share of

Compensation paid to officers attributable

deduction, the FSC must own at least 10%

stock held for less than 46 days during the

to services.

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Instructions For Form 1120-Fsc - U.s. Income Tax Return Of A Foreign Sales Corporation - 2004 Page 10

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