Looking for a Form 1120 Templates? Download it for free!

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Frequently requested tax forms that may

Made on a transaction-by-transaction

A qualifying foreign country is a foreign

be filled in electronically, printed out for

basis,

country that meets the exchange of

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submission, and saved for recordkeeping.

Effective for the tax year for which it is

information rules of section 927(e)(3)(A) or

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The Internal Revenue Bulletin.

made and for all subsequent tax years, and

(B). All U.S. possessions other than Puerto

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Revocable only with the consent of the

Rico are also certified to have met these

Buy the CD-ROM on the Internet at

IRS.

rules.

from the National

Technical Information Service (NTIS) for

The following countries are qualifying

Taxpayers use Form 8873 to determine

$22 (no handling fee) or call

foreign countries that have met the

their extraterritorial income exclusion.

1-877-CDFORMS (1-877-233-6767) toll free

exchange of information rules of section

Election To Be Treated as a

to buy the CD-ROM for $22 (plus a $5

927(e)(3)(A) or 927(e)(3)(B): Australia,

handling fee).

Austria, Barbados, Belgium, Bermuda,

Domestic Corporation

Canada, Costa Rica, Cyprus, Denmark,

By phone and in person. You can order

A FSC that was in existence on September

Dominica, the Dominican Republic, Egypt,

forms and publications by calling

30, 2000, and at all times thereafter, may

Finland, France, Germany, Grenada,

1-800-TAX-FORM (1-800-829-3676). You

elect to be treated as a domestic corporation

Guyana, Honduras, Iceland, Ireland,

can also get most forms and publications at

if substantially all of its gross receipts are

Jamaica, Korea, Malta, the Marshall Islands,

your local IRS office.

foreign trading gross receipts.

Mexico, Morocco, the Netherlands, New

The election is made by checking the

Zealand, Norway, Pakistan, Peru, the

box on line 3 of Form 8873. An electing

Philippines, St. Lucia, Sweden, and Trinidad

General Instructions

corporation files Form 1120, U.S.

and Tobago.

Corporation Income Tax Return, or Form

2. It had no more than 25 shareholders

1120-A, U.S. Corporation Short-Form

Purpose of Form

at any time during the tax year.

Income Tax Return. Once made, the

3. It had no preferred stock outstanding

Use Form 1120-FSC to report the income,

election applies to the tax year for which it is

at any time during the tax year.

gains, losses, deductions, credits, and to

made and remains in effect for all

4. During the tax year, the FSC must

figure the income tax liability of a FSC.

subsequent years unless the election is

maintain:

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revoked or terminated. If the election is

An office in one of the qualifying

FSC Repeal and

revoked or terminated, the corporation

foreign countries or U.S. possessions listed

would be a foreign corporation that files

Extraterritorial Income

above,

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Form 1120-F, U.S. Income Tax Return of a

A set of permanent books of account

Exclusion

Foreign Corporation. Furthermore, the

(including invoices) at that office, and

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foreign corporation would not be eligible to

The books and records required under

In general, the FSC Repeal and

reelect to be treated as a domestic

section 6001 at a U.S. location to sufficiently

Extraterritorial Income Exclusion Act of

corporation for 5 tax years beginning with

establish the amount of gross income,

2000:

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the first tax year for which the original

deductions, credits, or other matters

Repealed the FSC rules,

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election is not in effect as a result of the

required to be shown on its tax return.

Provided taxpayers with an exclusion,

revocation or termination.

5. It must have at least one director, at

which is figured on Form 8873,

Effect of election. A FSC that elects to be

all times during the tax year, who is not a

Extraterritorial Income Exclusion, and

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treated as a domestic corporation ceases to

resident of the United States.

Provided transition rules for existing FSCs

be a FSC for any tax year for which the

6. It must not be a member, at any time

(see Transition Rules for Existing FSCs

election applies (and for any subsequent tax

during the tax year, of a controlled group of

below).

year).

which a DISC is a member.

Note. The American Jobs Creation Act of

7. It must have elected to be a FSC or

2004 repealed the extraterritorial income

FSC Election

small FSC, and the election must have been

exclusion provisions generally for

in effect for the tax year.

No corporation may elect to be a FSC or a

transactions after 2004, subject to a

small FSC (defined below) after September

transition rule.

Small FSC. Section 922(b) defines a small

30, 2000.

FSC as a corporation that:

Transition Rules for Existing

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Termination of Inactive FSCs

Elected small FSC status and has kept

FSCs

the election in effect for the tax year and

If a FSC has no foreign trade income (see

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In general, a FSC that was in existence on

Is not a member, at any time during the

definition under Tax Treatment of a FSC

September 30, 2000, and at all times

tax year, of a controlled group that includes

below) for any 5 consecutive tax years

thereafter, may continue to use the FSC

a FSC (unless that other FSC is also a small

beginning after December 31, 2001, the

rules for qualifying transactions in the

FSC).

FSC will no longer be treated as a FSC for

ordinary course of business that are

A small FSC is exempt from the foreign

any tax year beginning after that 5-year

pursuant to a binding contract between the

management and foreign economic process

period.

FSC (or a person related to the FSC) and a

requirements outlined on page 3.

person other than a related person if that

Additional Information

$5 million limit. Generally, any foreign

binding contract was in effect on September

For additional information regarding the

trading gross receipts of a small FSC for the

30, 2000, and has remained in effect. A

rules discussed above, see Rev. Proc.

tax year that exceed $5 million are not to be

binding contract includes a purchase,

2001-37, 2001-1 C.B. 1327.

considered in determining its exempt foreign

renewal, or replacement option that is

trade income. The $5 million limit is reduced

enforceable against a lessor or seller

Pre-Repeal FSC Rules

if the small FSC has a short tax year. It may

(provided the option is part of a contract that

also be reduced if the small FSC is a

is binding and in effect on September 30,

member of a controlled group that contains

Definition of a Foreign

2000, and has remained in effect).

other small FSCs. See Regulations section

Sales Corporation (FSC)

The mere entering into of a single

1.921-2(b) for more information.

transaction, such as a lease, would not, in

Under section 922(a), a FSC is defined as a

and of itself, prevent the transaction from

Tax Treatment of a FSC

corporation that has met all of the following

being in the ordinary course of business.

rules.

A FSC is not taxed on its exempt foreign

Election To Apply Exclusion Rules

trade income. Section 923 defines foreign

1. It must be a corporation created or

trade income as the gross income of a FSC

organized under the laws of a qualifying

Taxpayers may elect to apply the

attributable to foreign trading gross receipts

foreign country or any U.S. possession other

extraterritorial income exclusion rules

(defined on page 3).

than Puerto Rico.

instead of the FSC rules for transactions

occurring during the transition period. The

Qualifying U.S. possessions include

The percentage of foreign trade income

election is:

Guam, American Samoa, the

exempt from tax is figured differently for

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Made by checking the box on line 2 of

Commonwealth of the Northern Mariana

income determined under the administrative

Form 8873,

Islands, and the U.S. Virgin Islands.

pricing rules (for details, see the instructions

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Instructions For Form 1120-Fsc - U.s. Income Tax Return Of A Foreign Sales Corporation - 2004 Page 2

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