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Attach a schedule that shows the

allocate the amount on line 6g between

Part I

computation of the taxable and nontaxable

columns (a) and (b) on line 6h based on

Enter net income from nonexempt foreign

income included on line 15, column (b).

whether the administrative pricing rules

trade income and related expenses in Part I.

Include only the taxable amount on line 16.

were used for the gross receipts selected.

Line 2. Enter FSC income that resulted

See Regulations section 1.921-2(b), Q&A-4.

Nonaccrual experience method.

from the FSC’s cooperation with an

Corporations that qualify to use the

international boycott. See section 927(e)(2)

Part II

nonaccrual experience method (described

and Form 5713 and related schedules and

on page 5) should attach a schedule

Line 19a. Net operating loss deduction.

instructions.

showing total gross receipts, the amount not

A FSC can use the NOL incurred in one tax

Line 3. Enter the amount, if any, of illegal

accrued as a result of the application of

year to reduce its taxable income in another

payments, bribes, or kickbacks that the FSC

section 448(d)(5), and the net amount

tax year. Enter on line 19a the total NOL

paid, directly or indirectly, to government

accrued. Enter the net amount on the

carryovers from other tax years, but do not

officials, employees, or agents. See section

applicable line of Schedule B.

enter more than the FSC’s taxable income

927(e)(2).

Lines 1 through 5. Enter the foreign

(after the dividends-received deduction).

trading gross receipts requested on lines 1

Line 5. See the instructions for Schedule A

Attach a schedule showing the computation

through 5. See section 924 and Foreign

before completing this line.

of the NOL deduction. Also complete line 8

Trading Gross Receipts on page 3 of these

in Additional Information on page 2 of the

Part II

instructions for receipts that are excluded

form.

and other details. Report commission

Enter the taxable portion of gross income of

For details on the NOL deduction, see

income on line 1 or line 2 based on the sale,

the FSC that was not derived from foreign

Pub. 542, section 172, and Form 1139.

lease, or rental of property on which that

trading gross receipts. This type of income

commission arose.

includes:

Line 19b. Dividends-received deduction.

•

Small FSCs only. Amounts specifically

Line 5. If the 50% gross receipts test of

A FSC may be entitled to a deduction for

excluded from foreign trade income because

section 924(a)(5) is not met, report the

dividends it receives from other

of the small FSC limitation (the amount by

FSC’s gross receipts that would have

corporations. Complete the worksheet on

which line 6f of Schedule B exceeds line 6e

otherwise qualified under that section on line

page 11 using the instructions that begin

of Schedule B). (Enter the excess, if any, on

16, Schedule F, instead of line 5, Schedule

below. Attach the completed worksheet to

line 7 of Schedule F.)

Form 1120-FSC.

•

Investment type income. (Enter on lines 8

Lines 6b through 6h. See section

Line 20. Taxable income or (loss). If line

through 12 of Schedule F.)

924(b)(2)(B) for the rules regarding the

•

20 is zero or less, the FSC may have an

Income from property that is subsidized,

limitation on the amount of foreign trading

NOL that can be carried back or forward as

deemed in short supply, or destined for use

gross receipts that a small FSC may take

a deduction to other tax years. Generally, a

in the United States. (Enter on lines 13 and

into account in determining its exempt

FSC first carries back an NOL 2 tax years.

14 of Schedule F.)

foreign trade income.

•

However, the FSC can elect to waive the

Amounts from transactions that did not

Line 6d. Temporary Regulations section

carryback period and instead carry the NOL

meet the foreign economic process

1.921-1T(b)(5) indicates that, in the case of

forward to future tax years. To make the

requirements. (Enter on line 15 of Schedule

a small FSC having a short tax year, the

election, see the instructions for line 7 on

F.)

•

dollar limitation reported on line 6b or 6c is

page 8.

Other nonforeign trade income. (Enter on

to be prorated on a daily basis. A small FSC

line 16 of Schedule F.)

See Form 1139 for details, including

having a short tax year must divide the

other elections that may be available, which

For more details, see sections 924(f)

number of days in its short tax year by the

must be made no later than 6 months after

and 927(a)(2) and (3).

number of days that would have made up a

the due date (excluding extensions) of the

full tax year and enter the resulting fraction

Line 9. Complete the worksheet on page 11

FSC’s tax return.

on line 6d as a decimal less than 1.00000.

to figure the total dividends to report on line

9. Attach the completed worksheet to Form

Example. For its 2004 calendar year tax

Schedule E

1120-FSC.

year, a small FSC has a short tax year of

100 days. The FSC enters 0.27322 (100/

Line 18. Enter the deductions allocated or

Exemption Percentages Used in

366) on line 6d.

apportioned to line 17 income. Attach to

Figuring Exempt Foreign Trade

Form 1120-FSC a schedule listing each type

Line 6f. If commission income is reported in

of deduction. Show deductions related to

Income

the total for line 6a of Schedule B, total

cost of goods sold separately. See the

receipts for purposes of line 6f are figured

For purposes of the Note at the top of

instructions for Schedule A on page 7 before

as follows:

Schedule E, a C corporation is a corporation

completing this line.

other than an S corporation. Shareholders,

1. Enter total of columns (a) and (b),

Passive activity limitations. Section 469

other than C corporations, are individuals,

line 6a, Schedule B . . . . . . . . . . . 1.

generally limits the deduction of passive

partnerships, S corporations, trusts, and

activity losses for closely held FSCs and

2. Enter total commission income

estates.

FSCs that are personal service

reported on line 1 and line 2,

Use lines 2a through 2d to figure the

corporations. See section 469 and the

Schedule B . . . . . . . . . . . . . . . . 2.

exemption percentage for foreign trade

Instructions for Form 8810 for details.

3. Subtract line 2 from line 1 . . . . . . . 3.

income determined by not using the

Instructions for Dividends

administrative pricing rules. See section

4. With respect to the commission

923(a)(2).

income reported on line 2 above,

and Dividends-Received

enter total gross receipts on the

Deduction Worksheet

Use lines 3a through 3d to figure the

sale, lease, or rental of property on

exemption percentage for foreign trade

which the commission income

For purposes of the 20% ownership test on

income that was determined by using the

arose (section 927(b)(2)) . . . . . . . 4.

lines 1 through 7, the percentage of stock

administrative pricing rules (see section

owned by the FSC is based on voting power

5. Add lines 3 and 4. Enter here and

923(a)(3)). If a qualified cooperative is a

and the value of the stock. Preferred stock

on line 6f, Schedule B . . . . . . . . . 5.

shareholder of the FSC, see section

described in section 1504(a)(4) is not taken

923(a)(4).

Line 6h. When making the line 6h

into account.

allocation, allocate only the commission

Line 1, Column (a)

Schedule F

income from the gross receipts on line 4

above. If the small FSC’s foreign trading

Enter dividends (except those received on

Net Income From Nonexempt

gross receipts for the tax year (line 6f,

debt-financed stock acquired after July 18,

Schedule B) exceed its allowable limitation

1984 — see section 246A) that:

Foreign Trade Income and

•

(line 6e, Schedule B), the small FSC may

Are received from less-than-20%-owned

Taxable Nonforeign Trade

select the gross receipts to which the

domestic corporations subject to income tax

Income

limitation is allocated. In such a case,

and

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Instructions For Form 1120-Fsc - U.s. Income Tax Return Of A Foreign Sales Corporation - 2004 Page 9

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