1120-F-ohjeita aikatauluun
Ohjeet I (lomake 1120-F), korkojen jakaminen asetuksessa 1.882-5
2023
Liittyvät lomakkeet
- 1120-F aikataulu Minä - Korkojen jakaminen asetuksessa 1.882-5
Department of the Treasury
Internal Revenue Service
2023
Instructions for Schedule I
(Form 1120-F)
Interest Expense Allocation Under Regulations Section 1.882-5
Section references are to the Internal Revenue
Code unless otherwise noted.
allocation rules of Regulations section
1.882-5 are the exclusive rules for
allocating interest expense under
section 882(c) to ECI and for attributing
interest expense to business profits of a
U.S. permanent establishment under all
income tax treaties other than treaties
that, pursuant to their express
Treaty-based return positions. If the
corporation determines its interest
expense attributable to its business
profits of a U.S. permanent
Future Developments
establishment pursuant to the express
provisions and accompanying
For the latest information about
developments related to Schedule I
(Form 1120-F) and its instructions, such
as legislation enacted after they were
documents of an applicable treaty, then
Schedule I still must be completed
based on the treaty method used
(substituting the amount of assets,
liabilities, and interest expense
determined under the treaty method for
the amounts that would have been
reported under Regulations section
1.882-5) and attached to Form 1120-F.
The corporation is also required to
complete and attach Form 8833,
Treaty-Based Return Position
provisions and accompanying
documents, permit attribution of
business profits to a U.S. permanent
establishment under application of the
OECD Transfer Pricing Guidelines, by
analogy. If the foreign corporation files
its tax return using a treaty-based
method of the type provided in these
treaties, see Treaty-based return
positions below for reporting
General Instructions
Purpose of Schedule
Schedule I (Form 1120-F) is used to
report the amount of interest expense
allocable to effectively connected
income (“ECI”) and the deductible
amount of such allocation for the tax
year under section 882(c) and
requirements.
Disclosure.
Who Must File
Exceptions From Filing
Schedule I
Regulations section 1.882-5. The
schedule discloses the basic
All foreign corporations that have
interest expense allocable to ECI under
section 882(c) must complete
calculations for the year and also
identifies the various elections the
taxpayer uses under Regulations
sections 1.882-5(a)(7) and (d)(5), and
under the branch profits tax rules of
Regulations section 1.884-1(e)(3).
A foreign corporation is not required to
file Schedule I if it (a) does not have a
trade or business within the United
States, (b) has no worldwide interest
expense for the tax year to allocate
under Regulations section 1.882-5, or
(c) conducts limited activities in the
United States for the tax year that it
determines do not give rise to ECI or do
not give rise to a U.S. permanent
Schedule I to report this allocation,
regardless of whether the amount
allocable under Regulations section
1.882-5 is deductible in the current year,
or is otherwise deferred or permanently
disallowed under other sections of the
Internal Revenue Code (for example,
sections 163(e), 163(j), 263A, 265(a),
and 267(a)(3)). The information
Note. The tax election under
Regulations section 1.884-1(e)(3) is not
effectuated under the regulations by its
identification on Schedule I (Form
1120-F). See Regulations section
1.884-1(e)(3)(iv) for the time, place, and
manner for making the liability reduction
election and the separate disclosures
required to be attached to Form 1120-F
for each liability reduction election
made.
establishment to which business profits
are attributable, and the corporation files
a protective income tax return under
Regulations section 1.882-4(a)(3)(vi).
Protective elections on protective re-
turns. A corporation that files a
reported on Schedule I is also needed
to complete Form 1120-F, Section III
(the determination of the branch-level
interest tax under section 884(f)).
Interest expense that is treated as
“branch interest” under Regulations
section 1.884-4(b) may be subject to
information reporting under section
1461 or section 6049 and potential
withholding under sections 1441 and
1442. A foreign corporation that is a
reporting corporation and required to file
Form 1120-F must complete Schedule I
and attach it to Form 1120-F.
Reporting corporation. A reporting
corporation is any foreign corporation
that is engaged in a trade or business or
treated as engaged in a trade or
business within the United States
directly or indirectly at any time during
the tax year.
protective tax return on Form 1120-F
under Regulations section 1.882-4(a)(3)
(vi) may voluntarily file Schedule I with
the protective return to preserve timely
elections under Regulations section
1.882-5(a)(7) if the return is filed by the
original due date (including extensions)
of the corporation's Form 1120-F. The
protective elections are not effective if
filed during the additional extended
period described under Regulations
section 1.882-4(a)(3). The foreign
corporation need only complete the
relevant portions of Schedule I that
identify its right to use the following
elections:
Under Regulations section 1.882-5,
the amount of interest expense of a
foreign corporation that is allocable
under section 882(c) to income which is
effectively connected (or treated as
effectively connected) with the conduct
of a trade or business within the United
States is the sum of the interest
expense allocable by the foreign
corporation under the three-step
process set forth in Regulations
sections 1.882-5(b), (c), and (d) or (e),
and the directly allocated interest
expense determined under Regulations
section 1.882-5(a)(1)(ii). The interest
Dec 6, 2023
Cat. No. 50606A
The Adjusted U.S.-Booked Liability
A corporation that files a protective
•
Schedule P (Form 1120-F). Enter
amounts from Schedule P (Form
1120-F), lines 13, 11, 8, and 7 on
Schedule I, line 5, column (b); line 8,
column (b); line 9, column (b), and
line 22; respectively, making any
necessary adjustments to comply with
the rules in Regulations section 1.882-5.
(“AUSBL”) method or Separate Currency return under Regulations section
Pools method (item B checkboxes);
The actual or fixed ratio in Step 2
1.882-4(a)(3)(vi) need not enter
amounts on Schedule I (other than for
the published rate election on line 10d)
in order to preserve an allocation
method. If a taxpayer files a protective
return under Regulations section
1.882-4(a)(3)(vi) and does not file
Schedule I to identify the relevant
elections under Regulations section
1.882-5 for an applicable year, then the
Director of Field Operations is
•
(line 6 checkboxes);
The published rate election for banks
•
under the AUSBL method in Step 3
(line 10 checkbox); and
The de minimis foreign currency
•
Form 8990, Limitation on Business
Interest Expense Under Section
163(j). Business interest expense
includes any interest paid or accrued on
indebtedness properly allocable to a
trade or business. Business interest
expense is generally limited to the sum
of business interest income, 30% of the
adjusted taxable income, and floor plan
financing interest. Form 8990 is
election under the Separate Currency
Pools method in Step 3 (line 16b
checkbox).
The corporation need only identify
the protective election in the first year it
is required to be made under
authorized to make all applicable
allocation method elections on behalf of
the corporation for such applicable year
if it is later determined that the taxpayer
was engaged in a trade or business or
treated as engaged in a trade or
business within the United States and
had ECI during the year.
Regulations section 1.882-5(a)(7) or in
any year a taxpayer is eligible to adopt
or change an election and chooses to
do so for that year. For example, an
election to use the AUSBL method or
the Separate Currency Pools method is
an election that must generally be
maintained for a minimum 5-year period.
However, the election available to
foreign banks to use a published rate
under the AUSBL method in Step 3
must be made each year. If a
required, unless an exception for filing is
met. For more information, see section
163(j), Form 8990, and the Instructions
for Form 8990.
Note. Under Regulations section
1.882-5(a)(7), no interest expense
allocation elections may be made on an
amended return. In addition, the relief
for late tax elections provided under the
rules of Regulations section 301.9100-1
(and any guidance promulgated
Assets and Liabilities Based on
Schedule L Set(s) of Books and
Records
Generally, the assets and liabilities
required to be reported on Schedule L
are the total assets and liabilities
corporation is subject to Regulations
section 1.882-5 for the first time, the
election is due with an original timely
filed return (excluding the additional
extended period provided by
thereunder) is not available.
reflected on the set(s) of books of the
foreign corporation that give rise to
income effectively connected with the
corporation's trade or business within
the United States and to U.S.-booked
liabilities (as defined in Regulations
section 1.882-5(d)(2)). The total assets
and liabilities reflected on such books
include the third party U.S. assets (as
defined in Regulations section
Other Forms and Schedules
Related to Schedule I
Regulations section 1.882-4(a)(3))
whether or not the taxpayer files a
protective return under Regulations
section 1.882-4(a)(3)(vi). The protective
election need not be filed with
Form 1120-F, Schedule L, and
Schedule M-3 (Form 1120-F). The
set(s) of books that give rise to
U.S.-booked liabilities under
Regulations section 1.882-5(d)(2) are
the same set(s) of books and records
that are reportable as of the tax year
end on Form 1120-F, Schedule L. They
are also the same set(s) of books and
records that are used by foreign banks
to report income and expenses on
Schedule M-3 (Form 1120-F).
subsequent protective returns filed
under Regulations section 1.882-4(a)(3)
(vi) for any subsequent year to which the
minimum 5-year period applies.
1.884-1(d)) and third party liabilities
(whether with related or unrelated
parties), as well as the interbranch
assets and liabilities and assets that
give rise to noneffectively connected
income in whole or in part. Such books
reflect the assets of the foreign
However, the indication of the election
with a protective return is only effective
for a year that the corporation is
engaged in a trade or business or
treated as engaged in a trade or
Form 1120-F, Section III, Part II
(branch-level interest tax). The
amount of interest expense from
business within the United States.
Accordingly, if a protective election is
made for a first year protective return
and in fact the taxpayer is not engaged
in a trade or business or treated as
engaged in a trade or business until the
second year of activity within the United
States, the protective election made in
the first year is not effective for the
corporation's second year of activity
because Regulations section 1.882-5 is
not applicable to the corporation until
such second year. The elections used
by a taxpayer for all years in which it
files Form 1120-F and reports ECI must
be shown on Schedule I, including years
subsequent to the year in which an
election under Regulations section
1.882-5(a)(7) is made.
corporation located in the United States
and all other of its assets used in its
trade or business within the United
States (other than its assets giving rise
to ECI under sections 864(c)(6) or (7)),
as authorized under Regulations section
1.6012-2(g)(1)(iii). A foreign corporation
may instead report its worldwide assets,
liabilities, and equity on Schedule L.
Schedule I, line 24g is reportable on
Form 1120-F, Section III, Part II, line 7b.
The amount of the allocation under
Regulations section 1.882-5 reportable
on Schedule I, line 23 is reportable on
Form 1120-F, Section III, Part II, line 7c.
Schedule M-3 (Form 1120-F), Part III,
lines 26b and 26c. The amount of
interest expense allocation reportable
on Schedule I, line 23 is includible on
Schedule M-3 (Form 1120-F), Part III,
line 26b, columns (d) and (e). The
amounts subject to deferral and
If the foreign corporation has more
than one set of books and records
relating to assets located in the United
States or assets used in a trade or
business conducted in the United
States, it must report the combined
amounts on Schedule L and must
eliminate asset and liability amounts
recorded between these books.
disallowance on Schedule I, lines 24a
through 24f are reportable on
Schedule M-3 (Form 1120-F), Part III,
line 26c, columns (b), (c), and (e).
Instructions for Schedule I (Form 1120-F) (2023)
2
duction under Regulations section
Comptroller of the Currency. See
Required Reporting on
Schedule I
1.882-5. All corporations required to file sections 581 and 585(a)(2).
Schedule I must report the summary
Note. The reference to the definition of
Lines 1 through 9. Schedule I requires
disclosure of data and interest allocation
elections for all parts of the three-step
formula under Regulations section
1.882-5. On page 1, the corporation is
required to complete Step 1 (lines 1
through 5) to determine its average U.S.
assets, Step 2 (lines 6 through 7c) to
determine its U.S.-connected liabilities,
and Step 3 (lines 8 and 9) to determine
its U.S.-booked liabilities under
amounts requested on lines 21 through
25.
the term “bank” for purposes of
determining the U.S.-booked liabilities of
banks under Regulations section
1.882-5(d)(2)(iii) requires that the
corporation meet the section 585(a)(2)
regulated banking requirements in its
trade or business within the United
States. The section 585(a)(2) standard
must also be satisfied at the
Line 22. Direct interest
allocations. Interest expense that is
directly allocable under Regulations
section 1.882-5(a)(1)(ii) in accordance
with the rules of Temporary Regulations
section 1.861-10T(b) or (c) is reported
on line 22.
corporation's U.S. trade or business
level for purposes of electing the deposit
liability safe harbor applicable to the
reduction of excess interest under
Regulations section 1.884-4(a)(2)(iii).
Line 23. Summary of Regulations
section 1.882-5 allocation. The
amount of interest expense allocable to
ECI under Regulations section 1.882-5
is the sum of the amount allocated
under either the AUSBL or Separate
Currency Pools method on line 15 or 20,
and the amount directly allocated to ECI
and reportable on line 22. The resulting
amount allocable and reported on
line 23 is also reconciled and reported
on Form 1120-F, Section III, Part II,
line 7c (branch-level interest tax).
Regulations section 1.882-5(d)(2) and
its related U.S.-booked interest
expense. The total on line 9, column (c)
is also used for purposes of determining
the corporation's branch interest under
section 884(f)(1)(A) and Regulations
section 1.884-4(b), and in the
Lines 1 Through 9: All
Foreign Corporations
Lines 1 Through 5. Step 1:
Determination of Total Value of
U.S. Assets
Assets includible on lines 1 through 5
are the U.S. assets of the corporation as
defined in Regulations sections
1.882-5(b) and 1.884-1(d). The U.S.
assets are valued on an average basis
for interest expense allocation
purposes.
Frequency of averaging. The average
value of assets for this step is to be
computed at the most frequent, regular
intervals for which data is reasonably
available. For large banks (as defined in
section 585(c)(2)) and dealers in
calculation of the corporation's
branch-level interest tax on excess
interest under section 884(f)(1)(B) and
Regulations section 1.884-4(a)(2).
Line 8, column (c), and line 9, column
(c) are also included in the interest
expense allocation computation in Step
3 of the AUSBL method if elected by the
corporation.
Line 24. Deferrals and
disallowances under other Code
sections. The interest expense
allocation reportable on line 23 is
determined under Regulations section
1.882-5 before application of other
Code sections that defer or disallow the
interest deduction in whole or in part.
See Regulations section 1.882-5(a)(5).
Lines 1 through 9 must be
completed by all corporations
!
CAUTION
required to file Schedule I,
regardless of whether the corporation
allocates interest expense under the
AUSBL or Separate Currency Pools
method for the applicable year.
Specific Instructions
Lines 10 through 20. Allocations, di-
rect interest allocations, deferrals,
and other disallowances. Step 3 of
the AUSBL method is provided on lines
10 through 15. Step 3 of the Separate
Currency Pools method is provided on
lines 16a through 20. These Step 3
methods are mutually exclusive and
cannot both apply to the corporation in
the same year. The methods are subject
to the general 5-year minimum period
election rules of Regulations section
1.882-5(a)(7).
Item A. Foreign banks. Check the box
in item A if the foreign corporation is a
bank as defined in Regulations section
1.882-5(c)(4). The term “bank” is
securities (within the meaning of section
475) the minimum averaging period is
monthly (beginning of tax year and
monthly thereafter). For any other
taxpayer, the minimum averaging period
is semi-annually (beginning, middle, and
end of the tax year). See Regulations
section 1.882-5(b)(3).
Line 1. Under section 864(e)(2), the
foreign corporation must value its U.S.
assets on lines 2 through 5, using the
adjusted basis method as described in
Regulations section 1.882-5(b)(2)(i)).
defined in the regulation as a bank that
meets the statutory definition applicable
to domestic banks (except for the fact
that the corporation is foreign) and
without regard to whether the
corporation's required banking activities
are effectively connected with its trade
or business within the United States.
The required banking activities need
only be conducted on a worldwide
basis. To qualify as a bank for interest
expense allocation purposes, the
AUSBL method filers. AUSBL
method filers complete all columns on
lines 1 through 15 and lines 21 through
25. Do not complete lines 16a through
20.
Line 2, column (a). Total assets per
books. Enter the total average assets
derived from the combined set(s) of
books that are reportable on
foreign corporation must be subject to
bank regulatory supervision and
examination in its home country of a
type similar to that required of domestic
banks by a State or Federal authority
having supervision over banking
Schedule L. The total average assets
include interbranch balances with other
set(s) of books of the corporation that
are not reportable on Schedule L.
Separate currency pools method
filers. Separate Currency Pools
method filers complete all columns on
lines 1 through 9 and lines 16a through
25. Do not complete lines 10 through
15.
institutions, and a substantial amount of
the corporation's business must consist
of receiving deposits and making loans
and discounts, or of exercising fiduciary
powers similar to those permitted to
national banks under authority of the
Line 3a, column (a). Total inter-
branch assets. Enter on line 3a,
column (a), the total of the corporation's
average interbranch assets included on
line 2, column (a). The average
Lines 21 through 25. Summary – In-
terest expense allocation and de-
Instructions for Schedule I (Form 1120-F) (2023)
3
interbranch assets recorded on the
set(s) of Schedule L books do not
create U.S. assets under Regulations
section 1.882-5(b)(1)(iv) and are
disregarded for purposes of the interest
expense allocation rules.
section 1.864-4(c)(5)(ii), enter the
amount of the asset on line 3c, column
(a), in the proportion that the income,
gain, or loss from such asset that is
treated as non-ECI bears to the total
income, gain, or loss from such asset.
Do the same for the non-ECI portion of
any asset whose income is allocated
under the proposed global dealing
regulations or under an Advance Pricing
Agreement pursuant to a competent
authority agreement. See Proposed
Regulations sections 1.884-1(d)(2)(vii)
and 1.884-1(d)(2)(xi), Example 8. Attach
a statement which describes each type
of “other” non-ECI asset included on
line 3c. For each type, show the
disregarded treatment in Regulations
section 1.882-5.
Line 3e, column (a). Adjustments for
assets that give rise to direct inter-
est expense allocations under Regu-
lations section 1.882-5(a)(1)(ii).
Enter on line 3e, column (a), the
Note. If under Proposed Regulations
section 1.863-3(h) ("the proposed
global dealing regulations"), which
references the Proposed Regulations
section 1.482-8 principles), the
average value of the portion of all assets
included on line 2 that give rise to direct
interest expense allocations under
Regulations section 1.882-5(a)(1)(ii) in
accordance with the requirements of
Temporary Regulations section
corporation recognizes an amount
recorded as an interbranch asset, such
amount is treated as the allocation and
source of third-party securities dealing
income and is not eliminated from U.S.
assets on line 3a, column (a). Such
interbranch assets are eliminated only
to the extent they are allocated under
the proposed global dealing regulations
to foreign source non-ECI. The allocable
amount to non-ECI is eliminated from
U.S. assets on line 3c, column (a) (total
other non-ECI assets).
1.861-10T(b) or (c), and Temporary
Regulations section 1.861-10T(d). A
foreign corporation that allocates its
interest expense under the direct
calculation of the amount included on
line 3c for that type, including a total for
each type.
allocation rules shall reduce the basis of
the asset that meets the requirements of
Temporary Regulations section
Line 3d, column (a). Adjustments for
amounts from partnerships and cer-
1.861-10T (b) or (c) by the principal
amount of the indebtedness that meets
tain disregarded entities included on the requirements of Temporary
line 2, column (a). With respect to
amounts from partnerships included on
line 2, column (a), all such amounts
must be “backed out” on this line 3d,
column (a). Enter on line 3d, column (a),
all amounts on the Schedule L books for
investments in partnerships (whether
recorded as an investment in the
Regulations section 1.861-10T (b) or
(c). The amount of directly allocable
interest under Regulations section
1.882-5(a)(1)(ii) is reported on line 22.
Line 3b, column (a). Total non-ECI
assets under section 864(c)(4)(D).
Enter on line 3b, column (a), the
Line 3f, column (a). Other adjust-
ments to average assets included on
line 2. Enter on line 3f, column (a), the
average asset balances for any other
amounts included on line 2, column (a),
that do not constitute U.S. assets as
defined in Regulations section
average assets included on line 2,
column (a) that give rise to non-ECI
received from foreign related
corporations under section 864(c)(4)
(D). Such amounts include assets from
transactions with foreign related
partnership interest or in the partnership
assets) included on line 2, column (a).
corporations that give rise to foreign
source dividends, interest, rents, or
royalties, whether or not such amounts
are attributable to a U.S. office of the
corporation under section 864(c)(5). A
foreign related corporation is a foreign
corporation the taxpayer owns (under
section 958(a)) or is treated as owning
(under section 958(b)) more than 50%
of the total combined voting power of all
classes of stock entitled to vote. Enter
the average asset number for assets
described in section 864(c)(4)(D) on
line 3b, column (a), regardless of
Note. Partnership interests are
reported in Step 1 as follows: The
corporation's adjusted outside basis in a
partnership (from Schedule P (Form
1120-F), line 13, “Total” column) that is
treated as a U.S. asset under
1.884-1(d). Assets includible on this line
may include, for example, amounts with
respect to securities that are
marked-to-market for tax purposes
under section 475 that are not
marked-to-market on the set(s) of books
reported on line 2, column (a). If the
mark-to-market amount includible for tax
purposes is an increase to the basis of
the assets included on line 2, column
(a), include such increase as a negative
number on line 3f, column (a). Similarly,
if the mark-to-market amount decreases
the basis of the assets included on
line 2, column (a), include such
Regulations sections 1.882-5 and
1.884-1(d)(3) is generally entered on
Schedule I (Form 1120-F), line 5,
column (b).
With respect to amounts from
disregarded entities included on line 2,
column (a), enter on line 3d, column (a),
any adjustment needed to reflect the
following: Investments in disregarded
entities should not be included on line 2,
column (a) if the set(s) of books are
reportable on Schedule L. Instead, the
total assets of such disregarded entity's
Schedule L books should be combined
on line 2, column (a), with all other
set(s) of books reportable on
whether such assets give rise to
non-ECI under another Code section or
regulation. For example, report income
that is non-ECI under section 864(c)(4)
(D) on line 3b, column (a) even if such
income is also not attributable to a U.S.
office of a banking, financing, or similar
business under Regulations section
1.864-6(b)(2)(ii)(b) and the principles of
Regulations section 1.864-4(c)(5)(ii).
decrease as a positive number on
line 3f, column (a). Other adjustments
for book-to-tax differences with respect
to asset values on line 2, column (a),
such as depreciation and amortization,
are also reportable on line 3f, column
(a). Enter an aggregate net increase as
a negative number. Enter an aggregate
net decrease as a positive number.
Line 4, column (a). Combine lines 3a
through 3f and enter the result on line 4,
column (a). The result on line 4, column
(a), constitutes the total net adjustment
to the average book assets from the
Schedule L set(s) of books reported on
line 2, column (a).
Schedule L. If another Schedule L book
reflects an investment in a disregarded
entity whose books are not reportable
on Schedule L, then the assets of the
disregarded entity are not reported on
line 2, column (a). The amount of the
investment in the disregarded entity that
is included in the total assets reported
on line 2, column (a), must be reversed
on line 3d, column (a), to reflect its
Line 3c, column (a). Total other
non-ECI assets. Enter on line 3c,
column (a), all other assets (or portion
thereof) included on line 2, column (a),
that give rise to domestic or foreign
source non-ECI. If income from a
security is treated as partially ECI and
partially non-ECI under Regulations
Instructions for Schedule I (Form 1120-F) (2023)
4
tax principles for the year. The
Line 5. Total Value of U.S. Assets
for the Tax Year
Line 5, column (d). Total average val-
ue of U.S. assets included in Step 1.
Combine the amounts on line 5,
corporation's worldwide liabilities
include the liabilities of only the
Line 5, column (a). Average U.S. as-
sets on set(s) of Schedule L books.
Subtract the amount on line 4, column
(a), from line 2, column (a), and enter
the amount on line 5, column (a). The
resulting amount is the total average
value of U.S. assets under Regulations
section 1.884-1(d) included on the
Schedule L set(s) of books, excluding
any partnership interests included on
line 2.
corporation filing the Form 1120-F, plus
the corporation's share of partnership
liabilities and any liabilities of any
disregarded entities that are treated as
liabilities of the foreign corporation
under U.S. tax principles. The books of
the foreign corporation and any such
disregarded entities must be combined,
with applicable eliminating entries for
transactions between them. See
Regulations section 1.882-5(c)(2)(viii).
The classification of the worldwide
liabilities is determined under U.S. tax
principles. See Regulations section
1.882-5(c)(2)(ii). The value of the
worldwide liabilities must be determined
substantially in accordance with U.S. tax
principles. Large banks (as defined in
section 585(c)(2)) must average the
worldwide liabilities using the beginning,
middle, and end of year values.
columns (a), (b), and (c), and enter the
amount on line 5, column (d). This
amount is the total average value of the
corporation's U.S. assets included in
Step 1 of the Regulations section
1.882-5 formula. If the corporation uses
the Separate Currency Pools method to
allocate interest expense in Step 3 of
the Regulations section 1.882-5
formula, see the instructions for
line 16a, later. The amount on line 5,
column (d), is also reportable on
Line 5, column (b). Average value of
partnership interests that is a U.S.
asset. Enter on line 5, column (b), the
amount from Schedule P (Form
Schedule H (Form 1120-F), line 22a.
Lines 6 Through 7c. Step 2:
Determination of
U.S.-Connected Liabilities –
Regulations Section 1.882-5(c)
Line 6. Actual ratio or fixed ratio
method. Check the applicable box to
specify whether the corporation uses
the actual ratio or the fixed ratio method
for the tax year to determine its
1120-F), line 13 (“Total” column) that is
treated as a U.S. asset under
Regulations sections 1.882-5 and
1.884-1(d)(3). This amount is the sum of
the corporation's outside basis in
partnership interests as adjusted under
Regulations section 1.884-1(d)(3). The
amount entered from Schedule P,
line 13, may include the corporation's
outside basis in partnerships whose
book value is included on line 2, column
(a), as well as partnership interests
whose book value is not recorded on the
Schedule L books and is not included
on line 2, column (a).
Corporations other than large banks
must average the worldwide liabilities
using the year-to-year values of its
liabilities.
U.S.-connected liabilities in Step 2 of
the allocation formula. The amount of
U.S.-connected liabilities is the total
value of U.S. assets for the tax year
(line 5, column (d)) multiplied by the
actual ratio or the applicable fixed ratio
the corporation has timely elected and is
eligible to use for the tax year. The
actual ratio or fixed ratio election must
be made on an original timely filed tax
return for the first year the corporation is
subject to Regulations section 1.882-5
and is subject to the minimum 5-year
period under Regulations section
1.882-5(a)(7). An election to change the
method after such minimum 5-year
period is also subject to the minimum
5-year period.
Actual ratio information. If the
corporation uses the actual ratio,
complete lines 6a through 6c, and skip
line 6d.
Fixed ratio information. If the
corporation uses the fixed ratio, skip
lines 6a through 6c, and enter the
applicable fixed ratio on line 6d. For
foreign banks (described in Regulations
section 1.882-5(c)(4)), the fixed ratio is
95%. For corporations other than foreign
banks and insurance companies, the
fixed ratio is 50%.
Line 6b. Average worldwide assets.
Enter the average worldwide assets as
adjusted for U.S. tax principles on
line 6b, using the same nonconsolidated
books for reporting average worldwide
liabilities on line 6a. Transactions with
disregarded entities included in the
actual ratio computation constitute
interbranch transactions under U.S. tax
principles and must be eliminated. See
Regulations section 1.882-5(c)(2)(viii).
Use the same averaging period
Line 5, column (c). Average U.S. as-
sets not includible in set(s) of
Schedule L books reported on line 5,
column (a), or from partnerships re-
ported on line 5, column (b). Enter
on line 5, column (c), the average value
of U.S. assets (other than the
applicable to worldwide liabilities. If the
corporation uses the actual ratio
corporation's outside basis in
partnership interests that is a U.S.
asset) from set(s) of books that are not
reportable on Schedule L. Such assets
may generally include certain securities
attributable to a U.S. office of a banking,
financing, or similar business under
Regulations section 1.864-4(c)(5)(iii)
that are booked in a foreign bank's
home office or other foreign location.
Other assets reportable on line 5,
column (c), may generally also include
assets that are no longer held in
method, the amount entered on line 6b
is also reported on Schedule H (Form
1120-F), line 22b.
Fixed Ratio Filers — Regulations
Section 1.882-5(c)(4)
Line 7a. U.S.-connected liabilities be-
fore Regulations section 1.884-1(e)
(3) election(s). Multiply the average
U.S. assets from line 5, column (d), by
the ratio entered on line 6e and enter
the result on line 7a. The result is the
amount of U.S.-connected liabilities
determined before the application of any
liability reduction election(s) made
under Regulations section 1.884-1(e)
(3).
Line 7b. U.S. liability reduction elec-
tion amount. Enter the total amount of
U.S. liability reductions made under
Regulations section 1.884-1(e)(3) for
the current year.
connection with a trade or business
within the United States that give rise to
ECI under section 864(c)(6) or section
864(c)(7). However, not all assets that
give rise to ECI, including ECI
recognized under section 864(c)(7),
constitute U.S. assets under
Actual Ratio Filers — Regulations
Section 1.882-5(c)
Regulations section 1.884-1(d). See
Regulations section 1.884-1(d)(2)(xi),
Example 5, and Regulations section
1.884-1(d)(5).
Line 6a. Average worldwide liabili-
ties. Enter on line 6a the average
worldwide liabilities as adjusted for U.S.
Instructions for Schedule I (Form 1120-F) (2023)
5
Note. A liability reduction election may
be made only to the extent needed to
reduce a dividend equivalent amount
under section 884(b) to zero. See
dealing regulations (for example,
mark-to-market valuations of dealer
derivative securities may constitute
liabilities that are treated as
Line 9. U.S.-Booked Interest
Expense
Line 9, column (a). Schedule L
Regulations section 1.884-1(e)(3)(iv) for U.S.-booked liabilities includible on
booked interest expense. Enter the
amount of third-party interest expense
from the Schedule L set(s) of books with
respect to liabilities reported on line 8,
column (a). Do not include interest
expense that is directly allocable under
Regulations section 1.882-5(a)(1)(ii),
including the corporation's distributive
share of direct interest expense
the time, place, and manner for making
the liability reduction election and the
separate disclosures required to be
attached to Form 1120-F for each
liability reduction election made.
If the corporation uses the Separate
Currency Pools method for Step 3 (lines
16a through 20), the amount included
on line 7b must also be allocated to
determine the U.S.-connected liabilities
for each currency. See the instructions
for lines 7c below and line 17b later. If
no liability reduction election is made for
the tax year, enter -0- on line 7b.
line 8, column (a)). Do not include
liability amounts on line 8a to the extent
they give rise to directly allocable
interest under Regulations section
1.882-5(a)(1)(ii) or are partnership
liabilities includible in column (b).
Corporations other than banks.
•
The definition of U.S.-booked liability for
a foreign corporation other than a bank
is described in Regulations section
1.882-5(d)(2)(ii). Liabilities reflected on
allocations from partnerships otherwise
reportable in column (b). All direct
interest expense allocations to ECI are
the Schedule L books must be recorded reported on line 22.
on such books reasonably
Line 9, column (b). U.S.-booked in-
contemporaneous to the time the liability
is incurred.
terest expense from partnerships.
Enter on line 9, column (b), the portion
of the amount from Schedule P (Form
1120-F), line 8 (“Total” column) that is
interest expense on U.S.-booked
liabilities. Do not include interest
expense that is directly allocable under
Regulations section 1.882-5(a)(1)(ii)
from the corporation's distributive share
of a partnership's direct interest
expense allocations. All direct interest
expense allocations to ECI are reported
on line 22.
Line 7c. U.S.-connected liabilities.
Subtract line 7b from line 7a and enter
the amount on line 7c. The amount
entered is the amount of
Foreign banks. The liability recorded
•
on the set(s) of Schedule L books must
be that of a foreign bank that conducts
regulated banking operations in the
United States as described in section
585(a)(2)(B). Note: This requirement
applies only for the determination of
U.S.-booked liabilities and
U.S.-connected liabilities for purposes
of determining the amount of interest
expense allocable to ECI in Step 3. If
the corporation uses the Separate
Currency Pools method for Step 3, the
sum of all U.S.-connected liabilities
shown on line 17b (including any
statements for lines 16a through 19 for
additional separate currency pool
computations) must equal the amount
shown on line 7c after the liability
reduction election has been taken into
account.
corresponding U.S.-booked interest
expense. It does not apply for other
purposes such as determining the
eligibility for the fixed ratio under Step 2,
reportable on line 6d. The liability must
be recorded on the Schedule L books
before the close of the day on which the
liability is incurred unless an inadvertent
error is shown under the facts and
circumstances. See the definition and
requirements for U.S.-booked liabilities
of foreign banks under Regulations
section 1.882-5(d)(2)(iii). Note: The
section 585(a)(2)(B) standard also
applies for eligibility to reduce excess
interest using the deposit liability safe
harbor under the branch-level interest
tax on excess interest under
Line 9, column (c). Total U.S.-booked
interest expense. Add the amounts on
line 9, column (a), and line 9, column
(b), and enter the result on line 9,
column (c). This result is also required
to be reported on Form 1120-F,
Lines 8 and 9. Step 3: Interest
Expense Allocation (Including
U.S.-Booked Liabilities and
U.S.-Booked Interest Expense
Included in the Determination
of Branch Interest)
Section III, line 8. This amount plus
line 22 is the corporation’s tentative
branch interest for purposes of the
branch level interest tax under
Regulations section 1.884-4(b). See the
instructions for Form 1120-F, Section III,
Part II, line 8.
Line 8. Average Third Party
U.S.-Booked Liabilities
Regulations section 1.884-4(a)(2)(iii).
Lines 10 Through 15. Step
3: Adjusted U.S.-Booked
Liabilities Method
Line 8, column (b). U.S.-booked lia-
bilities of partnership interests.
Enter on line 8, column (b), the portion
of the amount from Sched ule P, line 11
(“Total” column) that constitutes U.S.
booked liabilities under Regulations
section 1.882-5(d)(2). This amount is
the corporation's average U.S.-booked
liabilities with respect to its distributive
share of liabilities during the averaging
period from partnerships engaged in a
trade or business or treated as engaged
in a trade or business within the United
States. The amount reportable on line 8,
column (b), is the corporation's share of
partnership liabilities for which it is
allocated a distributive share of interest
expense. See Regulations section
1.884-1(d)(3)(vi).
Line 8, column (a). Schedule L
U.S.-booked liabilities. Enter on
line 8, column (a), the average amount
of third-party U.S.-booked liabilities from
the set(s) of books reportable on
Schedule L using the most frequent
averaging period available but not less
frequently than the minimum averaging
periods required for U.S. assets
If the amount on line 7c exceeds the
amount on line 8, column (c), the
corporation has “excess interest” as
defined in section 884(f)(1)(B).
Complete lines 10 through 13, and skip
lines 14a and 14b. If the amount on
line 7c is less than or equal to the
amount on line 8, column (c), skip lines
10 through 13, and complete the
determination of the scaling ratio on
lines 14a and 14b.
reported on line 5. The average
U.S.-booked liabilities include all
third-party liabilities on the set(s) of
Schedule L books whether interest
bearing or not. Exclude interbranch
liabilities shown on the Schedule L
books unless such amounts are treated
as allocations of third-party amounts
with respect to a global dealing
operation under the proposed global
Instructions for Schedule I (Form 1120-F) (2023)
6
See Regulations section 1.882-5(d)(5)
(ii).
Lines 10 Through 13.
Lines 14a Through 15.
Computation of AUSBL Method
Allocation Under the
Computation of AUSBL Method
Allocation With Excess Interest
Line 10e. If the amount on line 10b is
zero and the foreign corporation does
not properly make or is not eligible to
make the published rate election, enter
on line 10e an interest rate that is
reasonable under the facts and
circumstances. One reasonable
approach in determining such interest
rate would include using an interest rate
that:
Scale-Down Ratio
Line 10. Published rate election for
banks. If the corporation is a foreign
bank that elects to compute excess
interest under the AUSBL method using
the average published one-month Term
Secured Overnight Financing Rate
published by the Chicago Mercantile
Exchange Group Benchmark
If U.S.-connected liabilities on line 7c
are less than U.S.-booked liabilities on
line 8, column (c), the AUSBL method
allocation is subject to a “scale-down” of
the U.S.-booked interest expense
reported on line 9, column (c). Complete
lines 14a and 14b in lieu of lines 10
through 13. If line 7c exceeds line 8,
column (c), leave lines 14a and 14b
blank.
Line 14b. Scaled-down U.S. book in-
terest. Multiply the amount of U.S.
booked interest on line 9, column (c), by
the scale-down ratio on line 14a, and
enter the result on line 14b. The
Administration, Ltd. (or any successor
administrator) (“Term SOFR”) for the
taxable year, plus a static spread
adjustment of 0.11448% for the tax year
(or the transitional rate as explained in
the "Note" below), check the box on
line 10 and skip lines 10a through 10c.
Enter the published rate on line 10d.
See Regulations section 1.882-5(d)(5)
(ii)(B) for additional information. The
published rate election does not apply
to corporations other than foreign
banks. For this purpose, the corporation
is eligible to make the published rate
election under the same standard that
qualifies the corporation as a bank
eligible to make the 95% fixed ratio
election in Regulations section
Approximates the foreign
•
corporation's actual average U.S.-dollar
borrowing rate with respect to
interest-bearing U.S.-dollar
denominated liabilities, and
Is consistently applied by the foreign
•
corporation from year to year.
Examples of interest rates that would
generally be considered reasonable
include the actual average interest rate
on interest-bearing U.S.-dollar
allocated amount is the total amount of
the AUSBL method allocation under
Regulations section 1.882-5(d)(4). The
amount on line 14b does not include any
amount directly allocable to ECI under
Regulations section 1.882-5(a)(1)(ii).
denominated liabilities that are
U.S.-booked liabilities or an average
arm's length rate of interest that would
be charged to the foreign corporation on
its interest-bearing U.S.-dollar
Hedging amounts. If the
corporation has income, expense, gain,
or loss from a hedging transaction of a
U.S.-booked liability that gives rise to
interest expense subject to the
denominated liabilities. A U.S.-dollar
borrowing rate of zero would generally
not be considered reasonable.
1.882-5(c)(4). The published rate
election is an annual election.
scale-down ratio, such hedging income,
expense, gain, or loss amount is also
subject to reduction under the same
scaling ratio reported on line 14a. See
Regulations section 1.882-5(d)(4) and
Proposed Regulations section
Note. For a taxable year that includes
June 30, 2023, a taxpayer that makes
the annual published rate election must
compute the interest expense
If the rules set forth above apply to
the foreign corporation, attach a
statement to Schedule I (Form 1120-F)
explaining how the interest rate entered
on line 10e was derived.
attributable to excess U.S.-connected
liabilities by ratably using the average
30-day U.S. dollar London Interbank
Offered Rate for the portion of its
1.882-5(d)(2)(vi). Do not report such
scale-down reductions of hedging
income, expense, gains, or losses on
line 14b. The ratio reported on line 14a
shall be applied to each type of item in
accordance with its characterization and
the scaled down hedging income,
expense, gain, or loss is reported on
Form 1120-F, Section II, in the
Line 12. Excess interest. Multiply the
rate on line 10e by the amount of excess
U.S.-connected liabilities on line 11 and
enter the result on line 12. This amount
is the corporation's excess interest
expense portion of its overall
taxable year ending on June 30, 2023,
and the average one-month Term
SOFR, plus a static spread adjustment
of 0.11448%, for the portion of its
taxable year beginning on July 1, 2023.
Regulations section 1.882-5 allocation
that is allocable to ECI under the AUSBL
method in Regulations section
Lines 10a Through 10c. Excess
Interest – Average Actual U.S.
Dollar Rate
Line 10a. Actual U.S. dollar interest.
If the corporation does not properly
make or is not eligible to make a
appropriate category to which the
hedging item is characterized. For
instance, periodic expense from an
interest rate notional principal contract
hedging transaction that is recorded on
the set(s) of books reportable on
Schedule L, and that is subject to the
scaling ratio, is reported on Form
1120-F, Section II, line 27. Such amount
is also subject to reporting on
1.882-5(d)(5). The amount on line 12
also constitutes the corporation's
excess interest under section 884(f)(1)
(B). See Regulations section 1.884-4(a)
(2).
Line 13. Interest expense allocation.
Add the amount reported on line 12 and
the amount of U.S.-booked interest
expense from line 9, column (c) and
enter the result on line 13. This amount
is the corporation's total amount of
interest expense allocable under the
three-step formula when
published rate election for the tax year,
enter the interest expense paid or
accrued by the corporation for the tax
year on its average worldwide U.S.
dollar liabilities, excluding U.S.-booked
liabilities included on line 8, column (c).
Schedule H (Form 1120-F), line 38a, as
allocable in part to ECI and in part to
non-ECI in accordance with the scaling
ratio of line 14a.
Line 10b. Enter on line 10b the average
worldwide U.S. dollar denominated
liabilities (whether or not interest
U.S.-connected liabilities exceed
U.S.-booked liabilities under the AUSBL
method. It does not include any
bearing) that are not U.S.-booked
liabilities included on line 8, column (c).
amounts directly allocable to ECI under
Regulations section 1.882-5(a)(1)(ii).
Instructions for Schedule I (Form 1120-F) (2023)
7
A transaction that hedges a U.S.
asset is taken into account for purposes
of determining the currency
allocation is made in additional
columns. See Regulations section
1.882-5(e)(2). The worldwide interest
expense in each currency pool includes
interest expense in each currency that is
recorded on the Schedule L books and
reportable on Schedule I, line 9, column
(c).
Line 18b. Worldwide average liabili-
ties in each separate currency pool.
Enter on line 18b the average liabilities
(whether or not interest bearing)
Lines 16a Through 20.
Step 3: Separate Currency
Pools Method
denomination and the value of the U.S.
asset. See Regulations section
1.882-5(e)(1)(i).
Corporations that allocate interest
expense under a Separate Currency
Pools election report the allocations
under a three-step method for each
currency in which the corporation has
U.S. assets (as defined in Regulations
section 1.884-1(d)), on Schedule I, lines
16a through 20. The amount of the
Line 17b. U.S.-connected liabilities
per currency. Complete line 17b as
follows:
Determination of U.S.-connected
liabilities if no U.S. liability reduction
interest expense allocation is the sum of election is made. For each applicable
denominated in each separate currency
pool. In column (a), enter the average
worldwide liabilities (whether or not
interest bearing) denominated in U.S.
dollars. For all other separate currency
pools, enter the average amount of
liabilities (whether or not interest
the separate interest expense
column, multiply the U.S. assets on
line 16a by the U.S.-connected liability
ratio on line 17a and enter the amount
on line 17b. The resulting amount
constitutes the U.S.-connected liabilities
for each currency pool when the
corporation does not make a U.S.
liability reduction election under
allocations in each currency. If the
corporation makes a 3% currency
election under Regulations section
1.882-5(e)(1)(i), check the box on
line 16b and include the U.S. dollar
value of all currencies for which the 3%
currency election applies in the U.S.
dollar denominated column on line 16a.
bearing) denominated in the currency of
the currency pool. Do not enter the U.S.
dollar value of the currency pool for any
column other than column (a). In
Regulations section 1.884-1(e)(3).
Schedule I accommodates reporting
of the interest expense allocations in
Determination of U.S.-connected
liabilities if a U.S. liability reduction
determining the average worldwide
borrowing rate, the liabilities in each
currency pool include the amounts
recorded on the set(s) of books
four currencies (including the U.S. dollar election is made. If the corporation
and the foreign corporation's functional
currency). If the foreign corporation has
makes one or more U.S. liability
reduction elections for the tax year
reportable on Schedule L and included
on Schedule I, line 8, column (c).
Determine the average third-party
liabilities using the most frequent
averaging period for which data is
reasonably available in accordance with
the principles of Regulations sections
1.882-5(b)(3) and (c)(2)(iv).
U.S. assets in more than four currencies under Regulations section 1.884-1(e)
that are not subject to a 3% currency
election, attach separate sheets using
the same size and format as shown on
the schedule and provide the
(3), the total amount of the liability
reduction shown on line 7b must be
allocated to each of the separate
currency pools in proportion to the U.S.
assets in each pool. The amount
information requested on lines 16a
through 19 on the attached sheets for all entered on line 17b for each column is
such additional currencies. Report on
Schedule I, line 20, column (d), the total
results for all separate currency
computed as:
1. The amount on line 16a multiplied
Line 18c. Borrowing rate. Divide
line 18a by line 18b. The result is the
average worldwide borrowing rate for
each separate currency pool.
Line 19. Interest expense allocation
by separate currency pool. For each
column, multiply the amount on line 17b
by the borrowing rate on line 18c and
enter the result on line 19. The amount
on line 19 is the amount of interest
expense allocable to ECI in each
separate currency pool.
by the ratio on line 17a, less
allocations shown on line 19 for
2. The amount of the liability
reduction election entered on line 7b
multiplied by the proportion that the
average U.S. assets in the separate
currency pool bears to all of the U.S.
assets in all separate currencies (that is,
the total average U.S. assets entered on
line 5, column (d)).
columns (a) through (d), plus any
additional line 19 amounts shown on
attached separate sheets (if any).
Line 16a. U.S. Assets — U.S. dollar
value denominated in currency.
Enter the U.S. dollar value of the
average amount of U.S. assets in the
appropriate column (a) through (d) (or
on the attached separate sheets for
additional currencies). Enter in column
(a) the U.S. dollar denominated U.S.
assets, plus the U.S. dollar value of any
U.S. assets for which a 3% currency
election is applicable for the tax year. In
column (b), enter the average U.S.
dollar value of U.S. assets denominated
in the corporation's home country
functional currency. Enter the average
U.S. assets of all other currency pools
beginning with column (c).
Attach a statement showing the
computation and the allocation of the
liability reduction election to each
separate currency pool.
Line 20. Total interest expense allo-
cable to ECI under the separate cur-
rency pools method. On line 20, enter
the sum of the amounts in each column
on line 19 (including amounts from
line 19 of attached statement, if any).
The amount on line 20 is the total
Line 18a. Worldwide book interest
expense for each separate currency
pool. Enter for each column on line 18a
the corporation's worldwide interest
expense paid or accrued for the tax year
in the separate currency pool. In column
(a), enter the worldwide U.S. dollar
interest paid or accrued. For all other
separate currency pools, enter the
worldwide interest expense in the
amount of interest expense allocable to
ECI under the Separate Currency Pools
method. The amount on line 20 does
not include any amount of interest
expense directly allocable under
Note. The sum of all U.S. assets in
columns (a) through (d) (and in any
columns shown on any attached
separate sheets) must equal the total
average U.S. assets entered on line 5,
column (d).
Regulations section 1.882-5(a)(1)(ii).
functional currency of the currency pool.
Do not enter the U.S. dollar value of the
functional currency pool in column (b) or
for any other non-U.S. dollar currencies
for which a separate currency pool
Instructions for Schedule I (Form 1120-F) (2023)
8
amount of interest expense taken into
account for branch-level interest tax
The amount reportable on line 24a is
included on Schedule M-3 (Form
Lines 21 Through 25.
Summary – Interest
Expense Allocation and
Deduction Under
Regulations Section
1.882-5
purposes under section 884(f)(1)(B) and 1120-F), Part III, line 26c, column (c).
Regulations section 1.884-4(a),
Line 24b. Deferred interest
regardless of whether the deductibility
expense. Enter on line 24b the amount
of such amount is temporarily deferred
of allocable interest expense on line 23
or disallowed for allocation to
that is deferred as a deduction in the
tax-exempt income (including treaty
current tax year by a provision of the
exempt income). The amount reportable
Internal Revenue Code other than
on line 23 is reconciled and reported on
section 163(j) (for example, section
Form 1120-F, Section III, line 7c, and on
163(e) or section 267(a)(3)) but may be
Schedule M-3 (Form 1120-F), Part III,
allowed as a deduction in a subsequent
line 26b, columns (d) and (e).
Line 22. Interest expense directly al-
locable under Regulations section
1.882-5(a)(1)(ii). Enter the amount of
interest expense directly allocable to
ECI under Regulations section
tax year. Attach a statement indicating
1.882-5(a)(1)(ii), including such
amounts from Schedule P (Form
1120-F), line 7. A foreign corporation
that has a U.S. asset and indebtedness
that meet the requirements of
Line 24. Tax-exempt allocations, dis-
allowances, deferrals, and capitaliza-
tion of interest expense allocation
from line 23. The amount of interest
expense allocable to ECI entered on
line 23 is subject to additional rules that
may defer or disallow deductibility in
whole or in part.
the amount of current year deferral for
each applicable provision.
Note. Enter all amounts on line 24b as
a negative amount. These line 24b
amounts are a reduction of the
Temporary Regulations section
1.861-10T(b) or (c), as limited by
Temporary Regulations section
1.861-10T(d)(1), shall directly allocate
interest expense from such
allocation in determining the deductible
interest expense for the year.
The amount reportable on line 24b is
Line 24a. Tax-exempt allocations
and other permanently disallowed
interest expense. Enter on line 24a
the amount of allocable interest
included on Schedule M-3 (Form
indebtedness to income from such
asset in the manner and to the extent
provided in Temporary Regulations
section 1.861-10T.
1120-F), Part III, line 26c, column (b).
Line 24c. Disallowed business
interest expense under section
163(j). Enter on line 24c the amount of
allocable interest expense on line 23
that cannot be deducted in the current
year because it is disallowed business
interest expense under section 163(j).
Attach Form 8990, Limitation on
Business Interest Expense Under
Section 163(j).
expense on line 23 that is subject to
further allocation and apportionment to
tax-exempt income under section 265 or
under the provisions of an applicable
income tax treaty. Attach a statement
showing how such allocation between
exempt and non-exempt ECI has been
made. See Regulations section
Note. See Temporary Regulations
section 1.861-10T(d) for rules requiring
reductions in basis to assets required by
the direct interest allocation rules in
Temporary Regulations section
1.861-10T(b) or (c). The rules of
Temporary Regulations section
1.861-10T(c) apply only to non-financial
institutions. Financial institutions are
permitted to directly allocate interest
expense only under the non-recourse
indebtedness rules described in
Temporary Regulations section
1.861-10T(b).
1.882-5(a)(5) and Regulations section
1.882-5(a)(8), examples (3) and (4).
Treaty-exempt income may include
income that is ECI under the force of
attraction principle of section 864(c)(3)
but which is business profits not
Note. Enter all amounts on line 24c as
a negative amount. These line 24c
amounts are a reduction of the
allocation in determining the deductible
interest expense for the year.
attributable to a U.S. permanent
establishment of the corporation under
an applicable treaty to which
The amount reportable on line 24c is
included on Schedule M-3 (Form
Line 23. Total interest expense allo-
cable to ECI under Regulations sec-
tion 1.882-5. Add lines 21 and 22 and
enter the result on line 23. This result is
the total amount of interest expense
allocable to ECI, including directly
allocated interest. This allocable amount
may not exceed the total interest
Regulations section 1.882-5 applies in
determining the attributable business
profits. For such treaties, the amount
allocable to ECI reported on line 23
requires additional allocation and
apportionment between taxable ECI and
treaty-exempt ECI under Regulations
section 1.882-5(a)(5). Also include on
line 24a any other interest expense that
is permanently disallowed by a section
of the Internal Revenue Code (for
example, section 163(f)(2)) or an
income tax treaty. Include in the
1120-F), Part III, line 26c, column (b).
Line 24d. Capitalized interest
expense. Enter on line 24d the amount
of allocable interest expense on line 23
that is capitalizable (for example, under
section 263A). Attach a statement
describing how such allocation has
been made.
expense paid or accrued by the
corporation. See Regulations section
1.882-5(a)(3). The amount on line 23
does not include any interest expense
that was allocable to ECI under
Note. Enter all amounts on line 24d as
a negative amount. These amounts are
treated as a reduction of the allocation
in determining the deductible interest
expense for the year.
Regulations section 1.882-5 in a
attached statement the amount of
interest expense disallowed for each
applicable provision or income tax
treaty.
previous tax year and was subject to
limitation and deferral by another
The amount reportable on line 24d is
section of the Internal Revenue Code in
that previous tax year but deductible in
the current tax year. If the corporation's
total interest expense paid or accrued is
less than the amount of allocation that
would result by adding lines 21 and 22,
enter such lesser amount on line 23.
The amount entered on line 23 is the
included on Schedule M-3 (Form
1120-F), Part III, line 26c, column (c).
Note. Enter all amounts on line 24a as
a negative amount. These line 24a
amounts are a reduction of the
Line 24e. Current year deduction
of interest expense deferred in a
prior year. Enter on line 24e the
amount of allocable interest expense
deductible in the current tax year that
allocation in determining the deductible
interest expense for the year.
Instructions for Schedule I (Form 1120-F) (2023)
9
was deferred in a prior tax year under a
provision of the Internal Revenue Code
other than section 163(j) (for example,
section 163(e) or section 267(a)(3)).
Attach a statement indicating the
amount of current year deduction of a
prior year deferral for each applicable
provision.
deductible in the current tax year that
was disallowed in a prior tax year under
section 163(j). Attach Form 8990.
line 24g is also reported and reconciled
for its temporary and permanent
differences on Schedule M-3 (Form
1120-F), Part III, line 26c, columns (b)
and (c). See the Instructions for
Schedule M-3 (Form 1120-F), Part III,
line 26c.
Line 25. Amount of allocation deduc-
tible on Form 1120-F, Section II,
line 18. Combine lines 23 and 24g and
enter the result on line 25. The result is
the corporation's deductible amount of
interest expense allocation for the tax
year and is reportable on Form 1120-F,
Section II, line 18.
Note. Enter all amounts on lines 24e
and 24f as positive amounts. These
amounts are treated as an increase to
the deductible interest expense for the
year.
The amount reportable on line 24e is
The amount reportable on line 24f is
included on Schedule M-3 (Form
included on Schedule M-3 (Form
1120-F), Part III, line 26c, column (b).
1120-F), Part III, line 26c, column (b).
Line 24f. Current year deduction
of business interest expense
Line 24g. Total deferrals and
disallowances. Combine lines 24a
through 24f and enter the result on
line 24g. The amount entered on
disallowed in a prior year under
section 163(j). Enter on line 24f the
amount of business interest expense
Instructions for Schedule I (Form 1120-F) (2023)
10