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Rework labor.

amounts if control of the FSC changes. See

Also see Special rules below for limits on

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Contributions to pension, stock bonus,

section 280G.

certain other deductions.

and certain profit-sharing, annuity, or

Line 1. Enter only foreign direct costs on

Do not deduct:

deferred compensation plans.

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lines 1a through 1e. See section 924(e) and

Fines or penalties paid to a government

Regulations sections 1.924(e)-1(a) through

Regulations section 1.263A-1(e)(3)

for violating any law.

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(e) for definitions and rules on direct activity

specifies other indirect costs that relate to

Any amount that is allocable to a class of

costs related to foreign trade income.

production or resale activities that must be

exempt income. See section 265(b) for

capitalized and those that may be currently

exceptions.

Line 4. Depreciation. Include on line 4

deductible.

depreciation and the part of the cost of

Special rules apply to the following

certain property that the FSC elected to

Interest expense paid or incurred

expenses:

expense under section 179. See Form 4562,

during the production period of designated

Travel, meals, and entertainment. Subject

Depreciation and Amortization, and its

property must be capitalized and is

to limitations and restrictions discussed

instructions.

governed by special rules. For more details,

below, the FSC can deduct ordinary and

see Regulations sections 1.263A-8 through

Line 5. Salaries and wages. Enter the total

necessary travel, meals, and entertainment

salaries and wages paid for the tax year. Do

1.263A-15.

expenses paid or incurred in its trade or

not include salaries and wages deductible

The costs required to be capitalized

business. Also, special rules apply to

elsewhere on the return, such as amounts

under section 263A are not deductible until

deductions for gifts, skybox rentals, luxury

included in cost of goods sold, elective

the property (to which the costs relate) is

water travel, convention expenses, and

contributions to a section 401(k) cash or

sold, used, or otherwise disposed of by the

entertainment tickets. See section 274 and

deferred arrangement, or amounts

FSC.

Pub. 463, Travel, Entertainment, Gift, and

contributed under a salary reduction SEP

Car Expenses, for more details.

Exceptions. Section 263A does not apply

agreement or a SIMPLE IRA plan.

to:

Travel. The FSC cannot deduct travel

Line 10. Compensation of officers. Enter

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Personal property acquired for resale if

expenses of any individual accompanying a

deductible officers’ compensation on line 10.

the FSC’s average annual gross receipts for

corporate officer or employee, including a

Do not include compensation deductible

the 3 prior tax years were $10 million or

spouse or dependent of the officer or

elsewhere on the return, such as amounts

less.

employee, unless:

included in cost of goods sold, elective

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Inventoriable items accounted for in the

That individual is an employee of the

contributions to a section 401(k) cash or

same manner as materials and supplies that

corporation and

deferred arrangement, or amounts

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are not incidental. See Schedule A on page

His or her travel is for a bona fide

contributed under a salary reduction SEP

7 for details.

business purpose and would otherwise be

agreement or a SIMPLE IRA plan.

deductible by that individual.

For more details on the uniform

Line 11. Bad debts. Enter the total debts

capitalization rules, see Regulations

that became worthless in whole or in part

Meals and entertainment. Generally,

sections 1.263A-1 through 1.263A-3.

during the tax year. A cash basis taxpayer

the FSC can deduct only 50% of the amount

may not claim a bad debt deduction unless

otherwise allowable for meals and

Transactions between related taxpayers.

the amount was previously included in

entertainment expenses paid or incurred in

Generally, an accrual basis taxpayer can

income.

its trade or business. In addition (subject to

only deduct business expenses and interest

exceptions under section 274(k)(2)):

owed to a related party in the year the

Line 14. Other deductions. Attach a

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Meals must not be lavish or extravagant,

payment is included in the income of the

schedule, listing by type and amount, all

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A bona fide business discussion must

related party. See sections 163(e)(3), 163(j),

allowable deductions that are not deductible

occur during, immediately before, or

and 267 for limitations on deductions for

elsewhere on Form 1120-FSC. Enter the

immediately after the meal; and

unpaid interest and expenses.

total on line 14.

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An employee of the FSC must be present

Golden parachute payments. A portion of

Examples of other deductions include:

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at the meal.

the payments made by a FSC to key

Amortization (see Form 4562).

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personnel that exceeds their usual

Insurance premiums.

See section 274(n)(3) for a special rule

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compensation may not be deductible. This

Legal and professional fees.

that applies to expenses for meals

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occurs when the FSC has an agreement

Supplies used and consumed in the

consumed by individuals subject to the

(golden parachute) with these key

business.

hours of service limits of the Department of

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employees to pay them these excess

Utilities.

Transportation.

Dividends and Dividends-Received Deduction Worksheet

(a) Dividends

(b) %

received

deduction: (a)

(b)

(See instructions that begin on page 9)

Dividends from less-than-20%-owned domestic corporations that are subject to

the 70% deduction (other than debt-financed stock)

Dividends from 20%-or-more-owned domestic corporations that are subject to

the 80% deduction (other than debt-financed stock)

See

Inst.

Dividends on debt-financed stock of domestic and foreign corporations (section 246A)

Dividends on certain preferred stock of less-than-20%-owned public utilities

Dividends on certain preferred stock of 20%-or-more-owned public utilities

Dividends from less-than-20%-owned foreign corporations that are subject to

the 70% deduction

Dividends from 20%-or-more-owned foreign corporations that are subject to the

80% deduction

Total dividends-received deduction. Add lines 1 through 7. See instructions for

limitation. Enter here and on line 19b, Schedule B

Other dividends from foreign corporations not included on lines 3, 6, or 7

Foreign dividend gross up (section 78)

Other dividends

Total dividends. Add lines 1 through 11. Enter here and on line 9, Schedule F

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Instructions For Form 1120-Fsc - U.s. Income Tax Return Of A Foreign Sales Corporation - 2004 Page 11

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