1120-FSC Instructions for Form 1120-FSC

Instructions for Form
1120-FSC

Department of the Treasury
Internal Revenue Service

(Rev. December 2016)

U.S. Income Tax Return of a Foreign Sales Corporation
Section references are to the Internal Revenue Code
unless otherwise noted.

Contents

General Instructions . . . . . . . .
Purpose of Form . . . . . . .
FSC Repeal and
Extraterritorial Income
Exclusion . . . . . . . . .
Pre-Repeal FSC Rules . . .
Who Must File . . . . . . . .
When To File . . . . . . . . .
Where To File . . . . . . . . .
Who Must Sign . . . . . . . .
Paid Preparer Authorization
Other Forms That May Be
Required . . . . . . . . . .
Assembling the Return . . .
Accounting Methods . . . .
Accounting Period . . . . . .
Recordkeeping . . . . . . . .
Tax Payments . . . . . . . .
Estimated Tax Payments .
Interest and Penalties . . . .
Rounding Off to Whole Dollars .
Specific Instructions . . . . . . . .
FSC Information . . . . . . .
Tax and Payments . . . . . .
Schedule A . . . . . . . . . .
Additional Information . . .
Schedule B . . . . . . . . . .
Schedule E . . . . . . . . . .
Schedule F . . . . . . . . . .
Schedule G . . . . . . . . . .
Schedule J . . . . . . . . . .
Schedule L . . . . . . . . . .
Schedule M-1 . . . . . . . . .

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Future Developments
For the latest information about
developments related to Form 1120-FSC
and its instructions, such as legislation
enacted after they were published, go to
www.irs.gov/form1120fsc.

What's New
New return due date for most Form
1120-FSC filers. For tax years beginning
after 2015, P.L. 114-41 changed the return
due date for most Form 1120-FSC filers. For
most of these filers, Form 1120-FSC is now
due by the 15th day of the 4th month after
the end of the foreign sales corporation's
(FSC's) tax year. Special rules apply to
corporations with tax years ending in June.
See When To File, later, for the new return
due date information for all Form 1120-FSC
filers.
Jan 19, 2017

Photographs of Missing
Children

The Internal Revenue Service is a proud
partner with the National Center for Missing
& Exploited Children® (NCMEC).
Photographs of missing children selected by
the Center may appear on pages that would
otherwise be blank. You can help bring these
children home by looking at the photographs
and calling 1-800-THE-LOST
(1-800-843-5678) if you recognize a child.

The Taxpayer Advocate
Service

The Taxpayer Advocate Service (TAS) is an
independent organization within the IRS
that helps taxpayers and protects taxpayer
rights. TAS’s job is to ensure that every
taxpayer is treated fairly and knows and
understands their rights under the Taxpayer
Bill of Rights.

As a taxpayer, the corporation has rights
that the IRS must abide by in its dealings
with the corporation. TAS can help the
corporation if:
A problem is causing financial difficulty for
the business.
The business is facing an immediate
threat of adverse action.
The corporation has tried repeatedly to
contact the IRS but no one has responded,
or the IRS hasn't responded by the date
promised.
The TAS toolkit at
www.taxpayeradvocate.irs.gov can help the
corporation understand these rights.
TAS has offices in every state, the District
of Columbia, and Puerto Rico. Local
advocates' numbers are in their local
directories and at IRS.gov/Advocate/LocalTaxpayer-Advocate. The corporation can
also call TAS at 1-877-777-4778.
TAS also works to resolve large-scale or
systemic problems that affect many
taxpayers. If the corporation knows of one of
these broad issues, please report it to TAS
through the Systemic Advocacy
Management System at IRS.gov/sams.
For more information, go to IRS.gov/
advocate.

General Instructions
Purpose of Form

Use Form 1120-FSC to report the income,
gains, losses, deductions, credits, and to
figure the income tax liability of a FSC.
Cat. No. 11532V

FSC Repeal and
Extraterritorial Income
Exclusion

In general, the FSC Repeal and
Extraterritorial Income Exclusion Act of 2000:
Repealed the FSC rules,
Provided taxpayers with an exclusion,
which is figured on Form 8873,
Extraterritorial Income Exclusion, and
Provided transition rules for existing
FSCs. These rules are included in Rules for
Existing FSCs below.
Note. The American Jobs Creation Act of
2004 repealed the extraterritorial income
exclusion provisions generally for
transactions after 2004, subject to a
transition rule. See the Instructions for Form
8873 for more information.
The Tax Increase Prevention and
Reconciliation Act of 2005 repealed the FSC
binding contract exception. See Binding
contract exception below for details.

Rules for Existing FSCs

In general, a FSC that was in existence on
September 30, 2000, and at all times
thereafter may continue to use the FSC rules
for any transaction in the ordinary course of
business that is (a) before January 1, 2002,
or (b) after December 31, 2001, if such
transaction is pursuant to a binding contract
that meets the requirements described in
Binding contract exception below.
Binding contract exception. The binding
contract exception has been repealed for tax
years beginning after May 17, 2006. For tax
years beginning before May 18, 2006, the
following rules apply: The transaction must
be pursuant to a binding contract between
the FSC (or a person related to the FSC) and
a person other than a related person if that
binding contract was in effect on September
30, 2000, and has remained in effect. A
binding contract includes a purchase,
renewal, or replacement option that is
enforceable against a lessor or seller
(provided the option is part of a contract that
is binding and in effect on September 30,
2000, and has remained in effect).
The mere entering into of a single
transaction, such as a lease, would not, in
and of itself, prevent the transaction from
being in the ordinary course of business.

Election To Apply Exclusion Rules
Taxpayers may elect to apply the
extraterritorial income exclusion rules
instead of the FSC rules for transactions

occurring during the transition period. The
election is:
Made by checking the box on line 2 of
Form 8873,
Made on a transaction-by-transaction
basis,
Effective for the tax year for which it is
made and for all subsequent tax years, and
Revocable only with the consent of the
IRS.
Taxpayers use Form 8873 to determine
their extraterritorial income exclusion.

Election To Be Treated as a
Domestic Corporation

A FSC that was in existence on September
30, 2000, and at all times thereafter may
elect to be treated as a domestic corporation
if substantially all of its gross receipts are
foreign trading gross receipts. A FSC that
elects to be treated as a domestic
corporation ceases to be a FSC for any tax
year for which the election applies (and for
any subsequent tax year).
The election is made by checking the box
on line 3 of Form 8873. An electing
corporation files Form 1120, U.S.
Corporation Income Tax Return. Once
made, the election applies to the tax year for
which it is made and remains in effect for all
subsequent years unless the election is
revoked or terminated. If the election is
revoked or terminated, the corporation would
be a foreign corporation that files Form
1120-F, U.S. Income Tax Return of a Foreign
Corporation. Furthermore, the foreign
corporation would not be eligible to reelect to
be treated as a domestic corporation for 5
tax years beginning with the first tax year for
which the original election is not in effect as a
result of the revocation or termination.

Effect of election. For purposes of section
367, a foreign corporation that has elected to
be a domestic corporation is generally
treated as transferring, as of the first day of
the first tax year to which the election
applies, all of its assets to a domestic
corporation in an exchange under section
354.

FSC Election

No corporation may elect to be a FSC or a
small FSC (defined below) after September
30, 2000.

Termination of Inactive FSCs

If a FSC has no foreign trade income (see
definition under Tax Treatment of a FSC on
page 2) for any 5 consecutive tax years
beginning after December 31, 2001, the FSC
will no longer be treated as a FSC for any tax
year beginning after that 5-year period.

Additional Information

For additional information regarding the rules
discussed above, see Rev. Proc. 2001-37,
2001-1 C.B. 1327.

Pre-Repeal FSC Rules
Definition of a Foreign Sales
Corporation (FSC)

Under section 922(a), a FSC is defined as a
corporation that has met all of the following
rules:
1. It must be a corporation created or
organized under the laws of a qualifying
foreign country or any U.S. possession other
than Puerto Rico.
Qualifying U.S. possessions include
Guam, American Samoa, the
Commonwealth of the Northern Mariana
Islands, and the U.S. Virgin Islands.
A qualifying foreign country is a foreign
country that meets the exchange of
information rules of section 927(e)(3)(A) or
(B). All U.S. possessions other than Puerto
Rico are also certified to have met these
rules.
The following countries are qualifying
foreign countries that have met the exchange
of information rules of section 927(e)(3)(A) or
927(e)(3)(B): Australia, Austria, Barbados,
Belgium, Bermuda, Canada, Costa Rica,
Cyprus, Denmark, Dominica, the Dominican
Republic, Egypt, Finland, France, Germany,
Grenada, Guyana, Honduras, Iceland,
Ireland, Jamaica, Korea, Malta, the Marshall
Islands, Mexico, Morocco, the Netherlands,
New Zealand, Norway, Pakistan, Peru, the
Philippines, St. Lucia, Sweden, and Trinidad
and Tobago.
2. It had no more than 25 shareholders
at any time during the tax year.
3. It had no preferred stock outstanding
at any time during the tax year.
4. During the tax year, the FSC must
maintain:
An office in one of the qualifying foreign
countries or U.S. possessions listed above,
A set of permanent books of account
(including invoices) at that office, and
The books and records required under
section 6001 at a U.S. location to sufficiently
establish the amount of gross income,
deductions, credits, or other matters required
to be shown on its tax return.
5. It must have at least one director, at
all times during the tax year, who is not a
resident of the United States.
6. It must not be a member, at any time
during the tax year, of a controlled group of
which a DISC is a member.
7. It must have elected to be a FSC or
small FSC, and the election must have been
in effect for the tax year.
Small FSC. Section 922(b) defines a small
FSC as a corporation that:
Elected small FSC status and has kept
the election in effect for the tax year and
Is not a member, at any time during the
tax year, of a controlled group that includes a
FSC (unless that other FSC is also a
small FSC).

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A small FSC is exempt from the foreign
management and foreign economic process
requirements outlined on this page.
$5 million limit. Generally, any foreign
trading gross receipts of a small FSC for the
tax year that exceed $5 million are not to be
considered in determining its exempt foreign
trade income. The $5 million limit is reduced
if the small FSC has a short tax year. It may
also be reduced if the small FSC is a
member of a controlled group that contains
other small FSCs. See Regulations section
1.921-2(b) for more information.

Tax Treatment of a FSC

A FSC is not taxed on its exempt foreign
trade income. Section 923 defines foreign
trade income as the gross income of a FSC
attributable to foreign trading gross receipts
(defined below).
The percentage of foreign trade income
exempt from tax is figured differently for
income determined under the administrative
pricing rules (for details, see the Instructions
for Schedule P (Form 1120-FSC)) and
income determined without regard to the
administrative pricing rules. These
percentages are computed on Schedule E,
page 4, Form 1120-FSC, and carried over to
lines 9a and 9b of Schedule B, page 3, Form
1120-FSC, to figure taxable income or (loss).
See section 923(a)(4) for a special rule
for foreign trade income allocable to a
cooperative. See section 923(a)(5) for a
special rule for military property.

Tax treaty benefits. A FSC may not claim
any benefits under any income tax treaty
between the United States and any foreign
country.

Foreign Trading Gross
Receipts

A FSC is treated as having foreign trading
gross receipts (defined in section 924) only if
it has met certain foreign management and
foreign economic process requirements.

Foreign trading gross receipts do not
include:
Certain excluded receipts (defined in
section 924(f)).
Receipts attributable to property excluded
from export property under section 927(a)
(2).
Investment income (defined in section
927(c)).
Carrying charges (defined in section
927(d)(1)).
Note. Computer software licensed for
reproduction abroad is not excluded from
export property under section 927(a)(2).
Therefore, receipts attributable to the sale,
lease, or rental of computer software and
services related and subsidiary to such
transactions qualify as foreign trading gross
receipts.

Instructions for Form 1120-FSC (Rev. 12-2016)

Foreign Management Rules
A FSC (other than a small FSC) is treated as
having foreign trading gross receipts for the
tax year only if the management of the FSC
during the year takes place outside the
United States. These management activities
include:
Meetings of the board of directors and
meetings of the shareholders.
Disbursing cash, dividends, legal and
accounting fees, salaries of officers, and
salaries or fees of directors from the principal
bank account (see below).
Maintaining the principal bank account at
all times during the tax year.
Meetings of directors and meetings of
the shareholders. All meetings of the
board of directors of the FSC and all
meetings of the shareholders of the FSC that
take place during the tax year must take
place outside the United States.
In addition, all such meetings must
comply with the local laws of the foreign
country or U.S. possession in which the FSC
was created or organized. The local laws
determine whether a meeting must be held,
when and where it must be held (if it is held
at all), who must be present, quorum
requirements, use of proxies, etc.
Principal bank accounts. See Regulations
section 1.924(c)-1(c) for information
regarding principal bank accounts.

Foreign Economic Process Rules
A FSC (other than a small FSC) has foreign
trading gross receipts from any transaction
only if certain economic processes for the
transaction take place outside the United
States. Section 924(d) and Regulations
section 1.924(d)-1 set forth the rules for
determining whether a sufficient amount of
the economic processes of a transaction
takes place outside the United States.
Generally, a transaction will qualify if the
FSC satisfies two requirements:
Participation outside the United States in
the sales portion of the transaction and
Satisfaction of either the 50% or the 85%
foreign direct cost test.
The activities comprising these economic
processes may be performed by the FSC or
by any other person acting under contract
with the FSC.
Participation outside the United States in
the sales portion of the transaction.
Generally, the requirement of section 924(d)
(1)(A) is met for the gross receipts of a FSC
derived from any transaction if the FSC has
participated outside the United States in the
following sales activities relating to the
transaction: (1) solicitation (other than
advertising), (2) negotiation, and (3) making
a contract.
1. Solicitation (other than advertising) is
any communication (including, but not
limited to, telephone, telegraph, mail, or in
person) by the FSC, to a specific, targeted
customer or potential customer.

2. Negotiation is any communication by
the FSC to a customer or potential customer
aimed at an agreement on one or more of the
terms of a transaction, including, but not
limited to, price, credit terms, quantity, or
time or manner of delivery.
3. Making a contract refers to
performance by the FSC of any of the
elements necessary to complete a sale, such
as making or accepting an offer.
Grouping transactions. Generally, the
sales activities described above are to be
applied on a transaction-by-transaction
basis. However, a FSC may make an annual
election to apply any of the sales activities on
the basis of a group. To make the election,
check the applicable box on line 10a,
Additional Information, on page 2 of Form
1120-FSC. See Regulations section
1.924(d)-1(c)(5) for details.
Satisfaction of either the 50% or 85% foreign direct cost test. To qualify as foreign
trading gross receipts, the foreign direct
costs incurred by the FSC attributable to the
transaction must equal or exceed 50% of the
total direct costs incurred by the FSC
attributable to the transaction.
Instead of satisfying the 50% foreign
direct cost test, the FSC may incur foreign
direct costs attributable to activities
described in each of two of the section
924(e) categories. The costs must equal or
exceed 85% of the total direct costs incurred
by the FSC attributable to the activity
described in each of the two categories. If no
direct costs are incurred by the FSC in a
particular category, that category is not taken
into account for purposes of determining
whether the FSC has met either the 50% or
85% foreign direct cost test.
Direct costs are costs that:
Are incident to and necessary for the
performance of any activity described in
section 924(e);
Include the cost of materials consumed in
the performance of the activity and the cost
of labor that can be identified or associated
directly with the performance of the activity
(but only to the extent of wages, salaries,
fees for professional services, and other
amounts paid for services actually rendered,
such as bonuses or compensation paid for
services on the basis of a percentage of
profits); and
Include the allowable depreciation
deduction for equipment or facilities (or the
rental cost for its use) that can be specifically
identified or associated with the activity, as
well as the contract price of an activity
performed on behalf of the FSC by a
contractor.
Total direct costs means all of the direct
costs of any transaction attributable to
activities described in any paragraph of
section 924(e). For purposes of the 50% test
of section 924(d)(1)(B), total direct costs are
based on the direct costs of all activities
described in all paragraphs of section
924(e). For purposes of the 85% test of
section 924(d)(2), however, the total direct

Instructions for Form 1120-FSC (Rev. 12-2016)

-3-

costs are determined separately for each
paragraph of section 924(e).
Foreign direct costs means the portion
of the total direct costs of any transaction
attributable to activities performed outside
the United States. For purposes of the 50%
test, foreign direct costs are based on the
direct costs of all activities described in all
paragraphs of section 924(e). For purposes
of the 85% test, however, foreign direct costs
are determined separately for each
paragraph of section 924(e).
For more details, see Regulations section
1.924(d)-1(d).
Check the applicable box(es) on line 10b,
Additional Information, on page 2 of the form,
to indicate how the FSC met the foreign
direct costs requirement.
Grouping transactions. Generally, the
foreign direct cost tests under Regulations
section 1.924(d)-1(d) are applied on a
transaction-by-transaction basis. However,
the FSC may make an annual election (on
line 10d, Additional Information, on page 2 of
the form) to apply the foreign direct cost tests
on a customer, contract, or product or
product line grouping basis. Any grouping
used must be supported by adequate
documentation of performance of activities
and costs of activities relating to the grouping
used. See Regulations section 1.924(d)-1(e)
for details.
Exception for foreign military property.
The economic process rules do not apply to
any activities performed in connection with
foreign military sales except those activities
described in section 924(e). See Regulations
section 1.924(d)-1(f) for details.

Section 925(c) Rule

To use the administrative pricing rules to
determine the FSC's (or small FSC's) profit
on a transaction or group of transactions, the
FSC must perform (or contract with another
person to perform) all of the economic
process activities relating to the transaction
or group of transactions. All of the direct and
indirect expenses relating to the
performance of those activities must be
reflected on the books of the FSC and on
Form 1120-FSC.
Under Temporary Regulations section
1.925(a)-1T(b)(2)(ii), an election may be
made to include on the FSC's books all
expenses, other than cost of goods sold, that
are necessary to figure combined taxable
income for the transaction or group of
transactions. The expenses must be
identified on Schedule G on the applicable
line.

Who Must File

File Form 1120-FSC if the corporation
elected to be treated as a FSC or small FSC,
and the election is still in effect.
Note. A FSC that elects to be treated as a
domestic corporation under section 943(e)
(1) does not file Form 1120-FSC. Instead, it
files Form 1120.

When To File

Generally, a corporation must file Form
1120-FSC by the 15th day of the 4th month
after the end of its tax year. A FSC that has
dissolved must generally file by the 15th day
of the 4th month after the date it dissolved.
However, a FSC with a fiscal tax year
ending June 30 must file by the 15th day of
the 3rd month after the end of its tax year. A
FSC with a short tax year ending anytime in
June will be treated as if the short year
ended on June 30, and must file by the 15th
day of the 3rd month after the end of its tax
year.
If the due date falls on a Saturday,
Sunday, or legal holiday, the FSC may file on
the next business day.

Private delivery services. FSCs may use
certain private delivery services designated
by the IRS to meet the “timely mailing as
timely filing” rule for tax returns. These
private delivery services include only the
following:
DHL Express: DHL Express 9:00, DHL
Express 10:30, DHL Express 12:00, DHL
Express Worldwide, DHL Express Envelope,
DHL Import Express 10:30, DHL Import
Express 12:00, and DHL Import Express
Worldwide.
Federal Express (FedEx): FedEx First
Overnight, FedEx Priority Overnight, FedEx
Standard Overnight, FedEx 2 Day, FedEx
International Next Flight Out, FedEx
International Priority, FedEx International
First, and FedEx International Economy.
United Parcel Service (UPS): UPS Next
Day Air Early AM, UPS Next Day Air, UPS
Next Day Air Saver, UPS 2nd Day Air, UPS
2nd Day Air A.M., UPS Worldwide Express
Plus, and UPS Worldwide Express.
The private delivery service can tell you
how to get written proof of the mailing date.
For the IRS mailing address to use if you
are using a private delivery service, go to
IRS.gov and enter “private delivery services”
in the search box. Be sure to use the
Ogden address.
Private delivery services cannot
deliver items to P.O. boxes. You
CAUTION must use the U.S. Postal Service to
mail any item to an IRS P.O. box address.

!

Extension of time to file. File Form 7004,
Application for Automatic Extension of Time
To File Certain Business Income Tax,
Information, and Other Returns, to request
an extension of time to file. Generally, the
FSC must file Form 7004 by the return due
date specified earlier.

Where To File

File Form 1120-FSC with the:
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409

Who Must Sign

The return must be signed and dated by:

The president, vice president, treasurer,
assistant treasurer, chief accounting officer
or
Any other corporate officer (such as tax
officer) authorized to sign.
If a return is filed on behalf of a FSC by a
receiver, trustee, or assignee, the fiduciary
must sign the return, instead of the corporate
officer. Returns and forms signed by a
receiver or trustee in bankruptcy on behalf of
a FSC must be accompanied by a copy of
the order or instructions of the court
authorizing signing of the return or form.
If an employee of the FSC completes
Form 1120-FSC, the paid preparer space
should remain blank. Anyone who prepares
Form 1120-FSC but does not charge the
FSC should not complete that section.
Generally, anyone who is paid to prepare the
return must sign it and fill in the “Paid
Preparer Use Only” area.
The paid preparer must complete the
required preparer information and:
Sign the return in the space provided for
the preparer's signature.
Give a copy of the return to the taxpayer.
Note. A paid preparer may sign original or
amended returns by rubber stamp,
mechanical device, or computer software
programs.

Paid Preparer
Authorization

If the FSC wants to allow the IRS to discuss
its tax return with the paid preparer who
signed it, check the “Yes” box in the
signature area of the return. This
authorization applies only to the individual
whose signature appears in the “Paid
Preparer Use Only” section of the return. It
does not apply to the firm, if any, shown in
that section.

If the “Yes” box is checked, the FSC is
authorizing the IRS to call the paid preparer
to answer any questions that may arise
during the processing of its return. The FSC
is also authorizing the paid preparer to:
Give the IRS any information that is
missing from the return,
Call the IRS for information about the
processing of the return or the status of any
related refund or payment(s), and
Respond to certain IRS notices about
math errors, offsets, and return preparation.
The FSC is not authorizing the paid
preparer to receive any refund check, bind
the FSC to anything (including any additional
tax liability), or otherwise represent the FSC
before the IRS.
The authorization will automatically end
no later than the due date (excluding
extensions) for filing the FSC's tax return. If
the FSC wants to expand the paid preparer's
authorization or revoke it before it ends, see
Pub. 947, Practice Before the IRS and Power
of Attorney.
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Other Forms That May Be
Required

The FSC may have to file some of the forms
listed below. See the form for more
information.
For a list of additional forms the FSC may
need to file (most notably, forms pertaining to
the reporting of various types of income, and
any related withholding, to U.S. persons,
foreign persons, and the IRS), see Pub. 542,
Corporations.
Form 5471, Information Return of U.S.
Persons With Respect to Certain Foreign
Corporations. This form may have to be filed
by certain U.S. officers, directors, or
shareholders of a FSC to report changes in
ownership (see sections 6046 and the
related regulations).
If a Form 1120-FSC is filed, Form 5471 is
not required to be filed to satisfy the
requirements of section 6038 (see
Temporary Regulations section 1.921-1T(b)
(3)). However, certain U.S. shareholders
may be required to file Form 5471 and the
applicable schedules to report subpart F
income.
See the Instructions for Form 5471 for
more information.
Form 5472, Information Return of a 25%
Foreign-Owned U.S. Corporation or a
Foreign Corporation Engaged in a U.S.
Trade or Business. Generally, a FSC that is
engaged in a trade or business in the United
States that had a reportable transaction with
a foreign or domestic related party during the
tax year must file Form 5472.
Form 5713, International Boycott Report.
FSCs that had operations in, or related to,
certain “boycotting” countries file
Form 5713.
Form 8275, Disclosure Statement, and
Form 8275-R, Regulation Disclosure
Statement. Use these forms to disclose
items or positions taken on a tax return that
are not otherwise adequately disclosed on a
tax return or that are contrary to Treasury
regulations (to avoid parts of the
accuracy-related penalty or certain preparer
penalties).
Form 8300, Report of Cash Payments
Over $10,000 Received in a Trade or
Business. Use this form to report the receipt
of more than $10,000 in cash or foreign
currency in one transaction or a series of
related transactions.

Assembling the Return

To ensure that the FSC's tax return is
correctly processed, attach all schedules
and other forms after page 6, Form
1120-FSC, and in the following order:
1. Form 4136.
2. Additional schedules in alphabetical
order.
3. Additional forms in numerical order.
Complete every applicable entry space
on Form 1120-FSC. Do not enter “See
Attached” or “Available Upon Request”
instead of completing the entry spaces. If

Instructions for Form 1120-FSC (Rev. 12-2016)

more space is needed on the forms or
schedules, attach separate sheets using the
same size and format as the printed forms.
If there are supporting statements and
attachments, arrange them in the same order
as the schedules or forms they support and
attach them last. Show the totals on the
printed forms. Enter the FSC's name and EIN
on each supporting statement or attachment.

Accounting Methods

Figure taxable income using the method of
accounting regularly used in keeping the
FSC's books and records. In all cases, the
method used must clearly show taxable
income. Permissible methods include cash,
accrual, or any other method authorized by
the Internal Revenue Code.
Generally, the following rules apply:
A FSC (other than a qualified personal
service corporation) must use an accrual
method of accounting if its average annual
gross receipts exceed $5 million. However,
see Nonaccrual experience method for
service providers, later.
Unless it is a qualifying taxpayer or a
qualifying small business taxpayer, a FSC
must use an accrual method for sales and
purchases of inventory items. See
Schedule A, Cost of Goods Sold Related to
Foreign Trading Gross Receipts, later.
For more information, see Pub. 538,
Accounting Periods and Methods.
Change in accounting method. Generally,
the FSC must get IRS consent to change
either an overall method of accounting or the
accounting treatment of any material item.
To do so, the FSC generally must file Form
3115, Application for Change in Accounting
Method. For more information, see the
Instructions for Form 3115.
Section 481(a) adjustment. If the
FSC's taxable income for the current tax year
is figured under a method of accounting
different from the method used in the
preceding tax year, the FSC may have to
make an adjustment under section 481(a) to
prevent amounts of income or expense from
being duplicated or omitted. The section
481(a) adjustment period is generally 1 year
for a net negative adjustment and 4 years for
a net positive adjustment. However, in some
cases, a FSC can elect to modify the section
481(a) adjustment period. The FSC may
have to complete the appropriate lines of
Form 3115 to make an election. See the
Instructions for Form 3115 for more
information and exceptions.
If the net section 481(a) adjustment is
positive, report it on page 4, Schedule F,
line 16, as other income. If the net section
481(a) adjustment is negative, report it on
page 4, Schedule F, line 18, as a deduction.

Accounting Period

A FSC must figure its taxable income on the
basis of a tax year. A tax year is the annual
accounting period a FSC uses to keep its
records and report its income and expenses.

Generally, FSCs may use a calendar year or
a fiscal year. Personal service corporations,
however, must generally use a calendar
year.

1120-FSC,” and the tax period to which the
payment applies on the check or money
order. Enclose the payment when Form
1120-FSC is filed.

Note. The tax year of a FSC must be the
same as the tax year of the principal
shareholder which, at the beginning of the
FSC tax year, has the highest percentage of
voting power. If two or more shareholders
have the highest percentage of voting power,
the FSC must have a tax year that conforms
to the tax year of any such shareholder. See
section 441(h).

FSCs that do maintain an office or place
of business in the United States must pay the
tax due by electronic funds transfer. The
FSC can pay the tax using EFTPS or it can
arrange for its tax professional, financial
institution, payroll service, or other trusted
third party to make deposits on its behalf. In
addition, the FSC also has the option to
arrange for its financial institution to initiate a
same-day payment.

Rounding Off to Whole
Dollars

The FSC may round off cents to whole
dollars on its return and schedules. If the
FSC does round to whole dollars, it must
round all amounts. To round, drop amounts
under 50 cents and increase amounts from
50 to 99 cents to the next dollar (for example,
$1.39 becomes $1 and $2.50 becomes $3).
If two or more amounts must be added to
figure the amount to enter on a line, include
cents when adding the amounts and round
off only the total.

Recordkeeping

Keep the FSC's records for as long as they
may be needed for the administration of any
provision of the Internal Revenue Code.
Usually, records that support an item of
income, deduction, or credit on the return
must be kept for 3 years from the date the
return is due or filed, whichever is later. Keep
records that verify the FSC's basis in
property for as long as they are needed to
figure the basis of the original or replacement
property.
The FSC should keep copies of all filed
returns. They help in preparing future and
amended returns.

Tax Payments

The FSC must pay the tax due in full no later
than the due date for filing Form 1120-FSC
(not including extensions). See When To
File, earlier, for this due date. The method for
payment of the tax due depends upon
whether the FSC has an office or place of
business in the United States.
FSCs that do not maintain an office or
place of business in the United States can
use the Electronic Federal Tax Payment
System (EFTPS) to pay the tax due providing
the FSC has a U.S. bank account. If the FSC
does not have a U.S. bank account, it may
arrange for a financial institution to initiate a
same-day wire payment on its behalf or it
can arrange for either a qualified
intermediary, tax professional, payroll
service, or other trusted third party to make a
deposit on its behalf using a master account.
In addition, the FSC still has the option to
pay by check or money order, payable to
“United States Treasury.” To help ensure
proper crediting, write the FSC's employer
identification number (EIN), “Form

Instructions for Form 1120-FSC (Rev. 12-2016)

-5-

Note. If the due date falls on a Saturday,
Sunday, or legal holiday, the payment is due
on the next day that isn't a Saturday,
Sunday, or legal holiday.

Electronic Deposit
Requirement

FSCs with an office or place of business in
the United States must use electronic funds
transfers to make all federal tax deposits.
Generally, electronic funds transfers are
made using EFTPS. However, if the
corporation does not want to use EFTPS, it
can arrange for its tax professional, financial
institution, payroll service, or other trusted
third party to make deposits on its behalf.
Also, it can arrange for its financial institution
to submit a same-day wire payment on its
behalf. EFTPS is a free service provided by
the Department of the Treasury. Services
provided by a tax professional, financial
institution, payroll service, or other third party
may have a fee.
For more information about EFTPS or to
enroll in EFTPS, visit www.eftps.gov, or call
1-800-555-4477.

Depositing on time. For any deposit made
by EFTPS to be on time, the FSC must
submit the deposit by 8 p.m. Eastern time the
day before the date the deposit is due. If the
FSC uses a third party to make deposits on
its behalf, the third party may have different
cutoff times.
Same-day wire payment option. If the
FSC fails to submit a deposit transaction on
EFTPS by 8 p.m. Eastern time the day
before the date a deposit is due, it can still
make the deposit on time by using the
Federal Tax Collection Service (FTCS). To
use the same-day wire payment option, the
FSC will need to make arrangements with its
financial institution ahead of time regarding
availability, deadlines, and costs. Financial
institutions may charge a fee for payments
made this way. To learn more about the
information the FSC will need to provide to
its financial institution to make a same‐day
wire payment, visit the IRS website at
www.irs.gov/payments and click on
“Same-day wire.”

Estimated Tax Payments

Generally, the following rules apply to the
FSC's payments of estimated tax.
The FSC must make installment
payments of estimated tax if it expects its

total tax for the year (less applicable credits)
to be $500 or more.
The installments are due by the 15th day
of the 4th, 6th, 9th, and 12th months of the
tax year. If any date falls on a Saturday,
Sunday, or legal holiday, the installment is
due on the next regular business day.
Use Form 1120-W, Estimated Tax for
Corporations, as a worksheet to compute
estimated tax.
If the FSC maintains an office or place of
business in the United States, it must use
electronic funds transfers to make
installment payments of estimated tax.
If the FSC does not maintain an office or
place of business in the United States, it can
pay the estimated tax by EFTPS providing it
has a U.S. bank account. The FSC can also
arrange for its financial institution to submit a
same-day wire payment on its behalf or can
arrange for its qualified intermediary, tax
professional, payroll service, or other trusted
third party to make a deposit on its behalf
using a master account. In addition, the FSC
still has the option to pay the estimated tax
due by check or money order. See Form
1120-W for additional payment information.
If the FSC overpaid estimated tax, it may
be able to get a quick refund by filing Form
4466, Corporation Application for Quick
Refund of Overpayment of Estimated Tax.
For information on penalties that apply if
the FSC fails to make required payments,
see Line 3, Estimated tax penalty, later.

Interest and Penalties
Interest. Interest is charged on taxes paid
late even if an extension of time to file is
granted. Interest is also charged on penalties
imposed for failure to file, negligence, fraud,
substantial valuation misstatements,
substantial understatements of tax, and
reportable transaction understatements from
the due date (including extensions) to the
date of payment. The interest charge is
figured at a rate determined under section
6621.
Penalty for late filing of return. A FSC
that does not file its tax return by the due
date, including extensions, may be penalized
5% of the unpaid tax for each month or part
of a month the return is late, up to a
maximum of 25% of the unpaid tax. The
minimum penalty for a return that is over 60
days late is the smaller of the tax due or
$205. The penalty will not be imposed if the
FSC can show that the failure to file on time
was due to reasonable cause.
If you believe that reasonable cause
exists, do not attach an explanation
CAUTION when you file Form 1120‐FSC.
Instead, if the FSC receives a penalty notice
after the return is filed, send the IRS an
explanation at that time and the IRS will
determine if the FSC meets reasonable
cause criteria.

!

Penalty for late payment of tax. A FSC
that does not pay the tax when due generally
may be penalized 1 2 of 1% of the unpaid tax
for each month or part of a month the tax is

not paid, up to a maximum of 25% of the
unpaid tax. The penalty will not be imposed if
the FSC can show that the failure to pay on
time was due to reasonable cause. However,
see Caution above.
Trust fund recovery penalty. This penalty
may apply if certain income, social security,
and Medicare taxes that must be collected or
withheld are not collected or withheld, or
these taxes are not paid. These taxes are
generally reported on Form 941, Employer's
QUARTERLY Federal Tax Return, or Form
945, Annual Return of Withheld Federal
Income Tax.
The trust fund recovery penalty may be
imposed on all persons who are determined
by the IRS to have been responsible for
collecting, accounting for, or paying over
these taxes, and who acted willfully in not
doing so. The penalty is equal to the full
amount of the unpaid trust fund tax. See
Pub. 15 (Circular E), Employer's Tax Guide,
for details, including the definition of
responsible persons.
Other penalties. Other penalties may be
imposed for negligence, substantial
understatement of tax, reportable transaction
understatements, and fraud. See sections
6662, 6662A, and 6663.
A FSC may also be subject to a penalty
(under section 6686) of:
$100 for each failure to supply
information, up to $25,000 during the
calendar year.
$1,000 for not filing a return.
These penalties will not apply if the FSC
can show that the failure to furnish the
required information was due to reasonable
cause. However, see Caution above.

Specific Instructions
Period covered. Enter the FSC ‘s tax year
in the space provided at the top of the form.
See Accounting Period, earlier.
Name. Print or type the FSC's true name (as
set forth in the charter or other legal
document creating it).
Address. Enter the U.S. address where the
FSC maintains the records required under
section 6001. Include the suite, room, or
other unit number after the street address. If
the post office does not deliver mail to the
street address and the FSC has a P.O. box,
show the box number instead.
If the FSC receives its mail in care of a
third party (such as an accountant or an
attorney), enter on the street address line
“C/O” followed by the third party's name and
street address or P.O. box.
Item A. Foreign country or U.S. possession of incorporation. See Definition of a
Foreign Sales Corporation (FSC), earlier.
Item E. Total assets. Enter the FSC's total
assets (as determined by the accounting
method regularly used in keeping the FSC's
books and records) at the end of the tax year
from page 6, Schedule L, column (d), line 15.
-6-

If there are no assets at the end of the tax
year, enter -0-.
Item F. Final return, name change, address change, or amended return.
If this is the FSC's final return and it will no
longer exist, check the “Final return” box.
If the FSC changed its name since it last
filed a return, check the box for “Name
change.” Generally, a FSC also must have
amended its articles of incorporation and
filed the amendment with the jurisdiction in
which it was incorporated.
If the FSC has changed its address since
it last filed a return (including a change to an
“in care of” address), check the box for
“Address change.”
Note. If a change of address or responsible
party occurs after the return is filed, use
Form 8822-B, Change of Address or
Responsible Party - Business, to notify the
IRS. See the instructions for Form 8822-B for
details.
If the FSC is amending its return, check
the box for “Amended return.”

FSC Information
Line 1. Principal shareholder. Complete
lines 1a through 1h for the shareholder
(individual, corporation, partnership, trust, or
estate) that was the principal shareholder at
the beginning of the FSC's tax year. See the
Note on page 4 under Accounting Period.
Foreign address. Enter the information
in the following order: city or town, state or
province, country, and foreign postal code.
Follow the country's practice for entering the
name of the state or province and postal
code. Do not abbreviate the country name.
Line 2. Parent-subsidiary controlled
group. If the FSC is a subsidiary in a
parent-subsidiary controlled group and the
principal shareholder is not the common
parent of the group, complete lines 2a
through 2g for the common parent. Enter the
consolidated total assets on line 2d for a
group that files a consolidated return;
otherwise, enter only the common parent's
total assets.
Note. Check the “Yes” box on line 2 if the
FSC is a subsidiary in a parent-subsidiary
controlled group. This applies even if the
FSC is a subsidiary member of one group
and the parent corporation of another.
The term “parent-subsidiary controlled
group” means one or more chains of
corporations connected through stock
ownership (sections 927(d)(4) and 1563(a)
(1)). Both of the following requirements must
be met:
1. More than 50% of the total combined
voting power of all classes of stock entitled to
vote or more than 50% of the total value of all
classes of stock of each corporation in the
group (except the parent) must be owned by
one or more of the other corporations in the
group.
2. The common parent must own more
than 50% of the total combined voting power

Instructions for Form 1120-FSC (Rev. 12-2016)

of all classes of stock entitled to vote or more
than 50% of the total value of all classes of
stock of at least one of the other corporations
in the group.
Stock owned directly by other members
of the group is not counted when computing
the voting power or value.
See sections 927(d)(4) and 1563(d)(1) for
the definition of “stock” for purposes of
determining stock ownership above.

Tax and Payments
Line 2h. Backup withholding. If the FSC
had income tax withheld from any payments
it received due to backup withholding,
include the amount withheld in the total for
line 2h. Show the amount withheld in the
blank space in the right-hand column
between lines 1 and 2h, and write “backup
withholding.”
Note. Do not include backup withholding
amounts on line 2g. Include on line 2g only
amounts withheld under Chapter 3 of the
Code.
Line 3. Estimated tax penalty. A FSC that
does not make estimated tax payments
when due may be subject to an
underpayment penalty for the period of
underpayment. Generally, a FSC is subject
to the penalty if its tax liability is $500 or
more and it did not timely pay at least the
smaller of:
Its current year tax liability or
Its prior year's tax.
Use Form 2220, Underpayment of
Estimated Tax by Corporations, to see if the
FSC owes the penalty and to figure the
amount of the penalty. Generally, the FSC
does not have to file this form because the
IRS can figure the amount of any penalty and
bill the FSC for it. However, even if the FSC
does not owe the penalty, complete and
attach Form 2220 if:
The annualized income or adjusted
seasonal installment method is used or
The FSC is a large corporation computing
its first required installment based on the
prior year's tax. (See the Form 2220
instructions for the definition of a large
corporation.)
If Form 2220 is attached, check the box
on line 3 and enter the amount of any penalty
on this line.

Schedule A

Complete Schedule A only for the cost of
goods sold deduction related to foreign
trading gross receipts reported on lines 1
through 5 of Schedule B.
Complete column (a) to show the cost of
goods sold for inventory acquired in
transactions using the administrative pricing
rules. Complete column (b) to show the cost
of goods sold for inventory acquired in
transactions that did not use the
administrative pricing rules. For details on
the administrative pricing rules, see the
Instructions for Schedule P (Form
1120-FSC).

If the FSC acts as another person's
commission agent on a sale, do not enter
any amount on Schedule A for the sale.
Small FSCs will have to make two
separate computations for cost of goods sold
if their foreign trading gross receipts exceed
the limitation amount on line 6e of
Schedule B. In this case, a deduction for cost
of goods sold will be figured separately for
the income on line 6h of Schedule B, and
separately for the income on line 7 of
Schedule F.
Generally, inventories are required at the
beginning and end of each tax year if the
purchase or sale of merchandise is an
income-producing factor.
However, if the FSC is a qualifying
taxpayer or a qualifying small business
taxpayer, it may adopt or change its
accounting method to account for
inventoriable items in the same manner as
materials and supplies that are not
incidental.
A qualifying taxpayer is a taxpayer (a)
that for each prior tax year ending after
December 16, 1998, has average annual
gross receipts of $1 million or less for the 3
prior years and (b) whose business is not a
tax shelter (as defined in section 448(d)(3)).
See Rev. Proc. 2001-10, 2001-2 I.R.B. 272.
A qualifying small business taxpayer is a
taxpayer that (a) each prior tax year ending
on or after December 31, 2000, has average
annual gross receipts of $10 million or less
for the 3 prior tax years, (b) whose principal
business activity is not an ineligible activity,
and (c) whose business is not a tax shelter
(as defined in section 448(d)(3)). See Rev.
Proc. 2002-28, 2002-18 I.R.B. 815.
Under this accounting method, inventory
costs for merchandise purchased for resale
are deductible in the year the merchandise is
sold (but not before the year the FSC paid for
the merchandise, if it is also using the cash
method). For additional guidance on this
method of accounting for inventoriable items,
see Pub. 538, and the Instructions for Form
3115.
Enter amounts paid for merchandise
during the tax year on line 2. The amount the
FSC may deduct for the tax year is figured
on line 8.
All FSCs not using the cash method of
accounting should see Section 263A uniform
capitalization rules in the instructions for
Schedule G on page 9. See those
instructions before completing Schedule A.
If the FSC uses intercompany pricing
rules (for purchases from a related supplier),
use the transfer price figured in Part II of
Schedule P (Form 1120-FSC).
Line 1. Inventory at beginning of year. If
the FSC is changing its method of
accounting for the current tax year, it must
refigure last year's closing inventory using its
new method of accounting and enter the
result on line 1. If there is a difference
between last year's closing inventory and the

Instructions for Form 1120-FSC (Rev. 12-2016)

-7-

refigured amount, attach an explanation and
take it into account when figuring the FSC's
section 481(a) adjustment (explained
earlier).
Line 4. Additional section 263A costs. An
entry is required on this line only for FSCs
that have elected a simplified method of
accounting.
If the FSC elected the simplified
production method, additional section 263A
costs are generally those costs, other than
interest, that were not capitalized under the
FSC's method of accounting immediately
prior to the effective date of section 263A,
but are now required to be capitalized under
section 263A. For details, see Regulations
section 1.263A-2(b).
For FSCs that have elected the simplified
resale method, additional section 263A costs
are generally those costs incurred with
respect to the following categories:
Off-site storage or warehousing.
Purchasing.
Handling, such as processing,
assembling, repackaging, and transporting.
General and administrative costs (mixed
service costs).
For details, see Regulations section
1.263A-3(d).
Enter on line 4 the balance of section
263A costs paid or incurred during the tax
year not includible on lines 2, 3, and 5.
Line 5. Other costs. Enter on line 5 any
costs paid or incurred during the tax year not
entered on lines 2 through 4. Attach a
statement listing details of the costs.
Line 7. Inventory at end of year. See
Regulations sections 1.263A-1 through
1.263A-3 for details on figuring the amount of
additional section 263A costs to be included
in ending inventory. If the FSC accounts for
inventoriable items in the same manner as
materials and supplies that are not
incidental, enter on line 7 the portion of its
merchandise purchased for resale that is
included on line 6 and was not sold during
the year.
Lines 9a through 9f. Inventory valuation
methods. Inventories may be valued at:
Cost,
Cost or market value (whichever is lower),
or
Any other method approved by the IRS
that conforms to the requirements of the
applicable regulations cited below.
However, if the FSC is using the cash
method of accounting, it is required to use
cost.
Generally, a rolling average method that
is used to value inventories for financial
accounting purposes does not clearly reflect
income for federal income tax purposes.
However, if a FSC uses the average cost
method for financial accounting purposes,
there are safe harbors under which this
method will be deemed to clearly reflect
income for federal purposes. See Rev. Proc.
2008-43, 2008-30 I.R.B. 186, as modified by
Rev. Proc. 2008-52, 2008-36 I.R.B. 587, as

modified by Rev. Proc. 2011-14, 2011-4
I.R.B. 330, or a successor.
FSCs that use erroneous valuation
methods must change to a method permitted
for Federal income tax purposes. To make
this change, use Form 3115.
On line 9a, check the method(s) used for
valuing inventories. Under lower of cost or
market, the term “market” (for normal goods)
means the current bid price prevailing on the
inventory valuation date for the particular
merchandise in the volume usually
purchased by the taxpayer. If section 263A
applies to the taxpayer, the basic elements
of cost must reflect the current bid price of all
direct costs and all indirect costs properly
allocable to goods on hand at the inventory
date.
Inventory may be valued below cost when
the merchandise is unsalable at normal
prices or unusable in the normal way
because the goods are subnormal due to
damage, imperfections, shop wear, etc. The
goods may be valued at the current bona
fide selling price, minus direct cost of
disposition (but not less than scrap value).
Bona fide selling price means actual offering
of goods during a period ending not later
than 30 days after inventory date.
If this is the first year the Last-in, First-out
(LIFO) inventory method was either adopted
or extended to inventory goods not
previously valued under the LIFO method
provided in section 472, attach Form 970,
Application To Use LIFO Inventory Method,
or a statement with the information required
by Form 970. Also check the LIFO box on
line 9c. On line 9d, enter the amount of total
closing inventories computed under section
472. Estimates are acceptable.
If the FSC changed or extended its
inventory method to LIFO and had to write up
the opening inventory to cost in the year of
election, report the effect of the write-up as
other income (as appropriate on Schedule F,
line 16), proportionately over a 3-year period
that begins with the year of the LIFO
election.
For more information on inventory
valuation methods, see Pub. 538. For more
information on changes in the method of
accounting for inventory, see Form 3115 and
the Instructions for Form 3115.

Additional Information
Line 2. Enter any tax-exempt interest
received or accrued. Include any
exempt-interest dividends received as a
shareholder in a mutual fund or other
regulated investment company. Also include
this amount on Schedule M-1, line 7a.
Line 5. If the FSC owned at least a 10%
interest, directly or indirectly, in any foreign
partnership, attach a statement listing the
following information for each foreign
partnership. For this purpose, a foreign
partnership includes an entity treated as a
foreign partnership under Regulations
section 301.7701-2 or 301.7701-3.

1. Name and EIN (if any) of the foreign
partnership;
2. Identify which, if any, of the following
forms the foreign partnership filed for its tax
year ending with or within the FSC's tax year:
Form 1042, 1065 or 1065-B, or 8804;
3. Name of the tax matters partner (if
any) and
4. Beginning and ending dates of the
foreign partnership's tax year.
Line 6. If the FSC has a net operating loss
(NOL) for its current tax year, it generally can
elect to waive the entire carryback period for
the NOL and instead carry the NOL forward
to future tax years. To do so, check the box
on line 6 and file the tax return by its due
date, including extensions (do not attach the
statement described in Temporary
Regulations section 301.9100-12T). Once
made, the election is irrevocable. See Form
1139, Corporation Application for Tentative
Refund, for more details.
Line 7. Enter the amount of the NOL
carryover to the tax year from prior years,
even if some of the loss is used to offset
income on this return. The amount to enter is
the total of all NOLs generated in prior years
but not used to offset income (either as a
carryback or carryover) to a tax year prior to
the current tax year. Do not reduce the
amount by any NOL deduction reported on
line 19a, Part II of Schedule B.
Lines 8c and 9b(2). See Definition of a
Foreign Sales Corporation (FSC), earlier, for
definitions of qualifying foreign country and
U.S. possession.
Line 9. All FSCs (except small FSCs) must
answer these questions. For more
information, see Foreign Management
Rules, earlier.
Line 10. All FSCs (except small FSCs) must
answer these questions. On line 10b,
indicate how the FSC met the foreign direct
costs requirement of section 924(d) for all
transactions that generated foreign trading
gross receipts reported on lines 1 through 5
of Schedule B. Also, complete line 10a
and/or line 10d to make an election to use
either of the annual grouping election(s)
indicated. See Foreign Economic Process
Rules, earlier, for details.

Schedule B

Use Schedule B to compute taxable income
from all sources.

Part I

Use Part I to compute net income attributable
to nonexempt foreign trade income. Income
and expenses on lines 1 through 15 are
reported in column (a) if the administrative
pricing rules were used in the transaction
that produced the income.
Report in column (b) all foreign trade
income from all transactions in which the
administrative pricing rules were not used.
Attach a statement that shows the
computation of the taxable and nontaxable
-8-

income included on line 15, column (b).
Include only the taxable amount on line 16.
Nonaccrual experience method for service providers. Accrual method FSCs are
not required to accrue certain amounts to be
received from the performance of certain
services that, on the basis of their
experience, will not be collected, if;
The services are in the fields of health,
law, engineering, architecture, accounting,
actuarial science, performing arts, or
consulting, or
The corporation's average annual gross
receipts have not exceeded $5 million for
any prior 3-tax-year period. For more details,
see Regulations sections 1.448-2(a)(2) and
1.448-1T(f)(2).
This provision does not apply to any
amount if interest is required to be paid on
the amount or if there is any penalty for
failure to timely pay the amount. For more
information, see Regulations section
1.448-2.
Corporations that qualify to use the
nonaccrual experience method should attach
a statement showing total gross receipts, the
amount not accrued as a result of the
application of section 448(d)(5), and the net
amount accrued. Enter the net amount on
the applicable line of
Schedule B.
Lines 1 through 5. Enter the foreign trading
gross receipts requested on lines 1 through
5. See section 924 and Foreign Trading
Gross Receipts on page 2 of these
instructions for receipts that are excluded
and other details. Report commission
income on line 1 or line 2 based on the sale,
lease, or rental of property on which that
commission arose.
Line 5. If the 50% gross receipts test of
section 924(a)(5) is not met, report the FSC's
gross receipts that would have otherwise
qualified under that section on line 16,
Schedule F, instead of line 5,
Schedule B.
Lines 6b through 6h. See section 924(b)
(2)(B) for the rules regarding the limitation on
the amount of foreign trading gross receipts
that a small FSC can take into account in
determining its exempt foreign trade income.
Line 6d. Temporary Regulations section
1.921-1T(b)(5) indicates that, in the case of a
small FSC having a short tax year, the dollar
limitation reported on line 6b or 6c is to be
prorated on a daily basis. A small FSC
having a short tax year must divide the
number of days in its short tax year by the
number of days that would have made up a
full tax year and enter the resulting fraction
on line 6d as a decimal less than 1.00000.
Example. For its 2017 calendar year tax
year, a small FSC has a short tax year of 73
days. The FSC enters 0.20 (73/365) on
line 6d.
Line 6f. If commission income is reported in
the total for line 6a of Schedule B, total
receipts for purposes of line 6f are figured as
follows:

Instructions for Form 1120-FSC (Rev. 12-2016)

1. Enter total of columns (a) and
(b), line 6a, Schedule B . . . .

1.

2. Enter total commission income
reported on line 1 and line 2,
Schedule B . . . . . . . . . . .

2.

3. Subtract line 2 from line 1

3.

. . .

4. With respect to the commission
income reported on line 2 above,
enter total gross receipts on the
sale, lease, or rental of property
on which the commission income
arose (section 927(b)(2)) . . .

4.

5. Add lines 3 and 4. Enter here
and on line 6f, Schedule B .

5.

.

Line 6h. When making the line 6h
allocation, allocate only the commission
income from the gross receipts on line 4
above. If the small FSC's foreign trading
gross receipts for the tax year (line 6f,
Schedule B) exceed its allowable limitation
(line 6e, Schedule B), the small FSC may
select the gross receipts to which the
limitation is allocated. In such a case,
allocate the amount on line 6g between
columns (a) and (b) on line 6h based on
whether the administrative pricing rules were
used for the gross receipts selected. See
Regulations section 1.921-2(b), Q&A-4.

Part II
Line 19a. Net operating loss deduction.
A FSC may use the NOL incurred in one tax
year to reduce its taxable income in another
tax year. Enter on line 19a the total NOL
carryovers from other tax years, but do not
enter more than the FSC's taxable income
(after the dividends-received deduction).
Attach a statement showing the computation
of the NOL deduction. Also complete line 7
in Additional Information on page 2 of the
form.
For more details on the NOL deduction,
see section 172 and the Instructions for
Form 1139.
Line 19b. Dividends-received deduction.
A FSC may be entitled to a deduction for
dividends it receives from other corporations.
Complete the worksheet on page 11 using
the Instructions for Dividends and
Dividends-Received Deduction Worksheet,
later. Attach the completed worksheet to
Form 1120-FSC.
Line 20. Taxable income or (loss). If
line 20 is zero or less, the FSC may have an
NOL that may be carried back or forward as
a deduction to other tax years. Generally, a
FSC first carries back an NOL 2 tax years.
However, the FSC may elect to waive the
carryback period and instead carry the NOL
forward to future tax years. See the
instructions for Additional Information, line 6,
earlier.
Special rules and exceptions to the
2-year carryback period apply to certain
NOLs. See the Instructions for Form 1139 for
details on these special rules and other
elections that may be available.

Schedule E

For purposes of the Note at the top of
Schedule E, a C corporation is a corporation
other than an S corporation. Shareholders,
other than C corporations, are individuals,
partnerships, S corporations, trusts, and
estates.
Use lines 2a through 2d to figure the
exemption percentage for foreign trade
income determined by not using the
administrative pricing rules. See section
923(a)(2).
Use lines 3a through 3d to figure the
exemption percentage for foreign trade
income that was determined by using the
administrative pricing rules (see section
923(a)(3)). If a qualified cooperative is a
shareholder of the FSC, see section 923(a)
(4).

Schedule F

Form 1120-FSC a statement listing each
type of deduction. Show deductions related
to cost of goods sold separately. See the
instructions for Schedule A, earlier, before
completing this line.
Passive activity limitations. Section 469
generally limits the deduction of passive
activity losses for closely held FSCs and
FSCs that are personal service corporations.
See section 469 and the Instructions for
Form 8810 for details.

Instructions for Dividends
and Dividends-Received
Deduction Worksheet

For purposes of the 20% ownership test on
lines 1 through 7, the percentage of stock
owned by the FSC is based on voting power
and value of the stock. Preferred stock
described in section 1504(a)(4) is not taken
into account.

Part I

Line 1, Column (a)

Line 2. Enter FSC income that resulted from
the FSC's cooperation with an international
boycott. See section 927(e)(2) and Form
5713 and related schedules and instructions.

Enter dividends (except those received on
debt-financed stock acquired after July 18,
1984–see section 246A) that:
Are received from less-than-20%-owned
domestic corporations subject to income tax
and
Qualify for the 70% deduction under
section 243(a)(1).

Enter net income from nonexempt foreign
trade income and related expenses in Part I.

Line 3. Enter the amount, if any, of illegal
payments, bribes, or kickbacks that the FSC
paid, directly or indirectly, to government
officials, employees, or agents. See section
927(e)(2).
Line 5. See the instructions for Schedule A
before completing this line.

Part II

Enter the taxable portion of gross income of
the FSC that was not derived from foreign
trading gross receipts. This type of income
includes:
Small FSCs only. Amounts specifically
excluded from foreign trade income because
of the small FSC limitation (the amount by
which line 6f of Schedule B exceeds line 6e
of Schedule B). (Enter the excess, if any, on
line 7 of Schedule F.)
Investment type income. (Enter on lines 8
through 12 of Schedule F.)
Income from property that is subsidized,
deemed in short supply, or destined for use
in the United States. (Enter on lines 13 and
14 of Schedule F.)
Amounts from transactions that did not
meet the foreign economic process
requirements. (Enter on line 15 of
Schedule F.)
Other nonforeign trade income. (Enter on
line 16 of Schedule F.)
For more details, see sections 924(f) and
927(a)(2) and (3).
Line 9. Complete the Dividends and
Dividends-Received Deduction Worksheet,
later, to figure the total dividends to report on
line 9. Attach the completed worksheet to
Form 1120-FSC.
Line 18. Enter the deductions allocated or
apportioned to line 17 income. Attach to

Instructions for Form 1120-FSC (Rev. 12-2016)

-9-

Also include on line 1 dividends (except
those received on debt-financed stock
acquired after July 18, 1984) from a
regulated investment company (RIC). The
amount of dividends eligible for the
dividends-received deduction under section
243 is limited by section 854(b). The FSC
should receive a notice from the RIC
specifying the amount of dividends that
qualify for the deduction.
Report so-called dividends or earnings
received from mutual savings banks, etc., as
interest. Do not treat them as dividends.

Line 2, Column (a)
Enter dividends (except those received on
debt-financed stock acquired after July 18,
1984) that are received from
20%-or-more-owned domestic corporations
subject to income tax and that are subject to
the 80% deduction under section 243(c).

Line 3, Column (a)
Enter the following.
Dividends received on debt-financed
stock acquired after July 18, 1984, from
domestic and foreign corporations subject to
income tax that would otherwise be subject
to the dividends-received deduction under
section 243(a)(1), 243(c), or 245(a).
Generally, debt-financed stock is stock that
the FSC acquired by incurring a debt (for
example, it borrowed money to buy the
stock).
Dividends received from a RIC on
debt-financed stock. The amount of
dividends eligible for the dividends-received

deduction is limited by section 854(b). The
FSC should receive a notice from the RIC
specifying the amount of dividends that
qualify for the deduction.

Line 3, Columns (b) and (c)
Dividends received on debt-financed stock
acquired after July 18, 1984, are not entitled
to the full 70% or 80% dividends-received
deduction. The 70% or 80% deduction is
reduced by a percentage that is related to
the amount of debt incurred to acquire the
stock. See section 246A. Also, see section
245(a) before making this computation for an
additional limitation that applies to dividends
received from foreign corporations. Attach a
statement to Form 1120-FSC showing how
the amount on line 3, column (c), was
figured.

1. Refigure line 18, Part II,
Schedule B (page 3 of Form
1120-FSC) without any
adjustment under section 1059
and without any capital loss
carryback to the tax year under
section 1212(a)(1) . . . . . . .

1.

2. Multiply line 1 by 80%
(0.80) . . . . . . . . .

2.

. . . . .

3. Add lines 2, 5, and 7, column
(c), and the part of the deduction
on line 3, column (c), that is
attributable to dividends from
20%-or-more-owned
corporations . . . . . . . . . .

3.

Line 4, Column (a)

4. Enter the smaller of line 2 or 3. If
line 3 is greater than line 2, stop
here; enter the amount from
line 4 on line 8, column (c), and
do not complete lines 5–10
below . . . . . . . . . . . . . .

4.

Enter dividends received on the preferred
stock of a less-than-20%-owned public utility
that is subject to income tax and is allowed
the deduction provided in section 247 (as
affected by P.L. 113-295, Div A, section
221(a)(41)(A), Dec. 19, 2014, 128 Stat.
4043) for dividends paid.

5. Enter the total amount of
dividends from
20%-or-more-owned
corporations that are included
on lines 2, 3, 5, and 7, column
(a) . . . . . . . . . . . . . . . .

5.

6. Subtract line 5 from line 1

. . .

6.

. . . . .

7.

Line 5, Column (a)
Enter dividends received on preferred stock
of a 20%-or-more-owned public utility that is
subject to income tax and is allowed the
deduction provided in section 247 (as
affected by P.L. 113-295, Div A, section
221(a)(41)(A), Dec. 19, 2014, 128 Stat.
4043) for dividends paid.

Line 6, Column (a)
Enter the U.S.-source portion of dividends
that:
Are received from less-than-20%-owned
foreign corporations and
Qualify for the 70% deduction under
section 245(a). To qualify for the 70%
deduction, the FSC must own at least 10% of
the stock of the foreign corporation by vote
and value.

Line 7, Column (a)
Enter the U.S.-source portion of dividends
that are received from 20%-or-more-owned
foreign corporations and that qualify for the
80% deduction under section 245(a).

Line 8, Column (c)
Limitation on dividends-received deduction. Generally, line 8, column (c), may not
exceed the amount on line 10 of the
worksheet below. However, in a year in
which an NOL occurs, this limitation does not
apply, even if the loss is created by the
dividends-received deduction. See sections
172(d) and 246(b).

7. Multiply line 6 by 70%
(0.70) . . . . . . . . .

8. Subtract line 3 above from line 8,
column (c) . . . . . . . . . . .

8.

9. Enter the smaller of line 7 or
line 8 . . . . . . . . . . . . . .

9.

.

91-day period beginning 45 days before the
ex-dividend date. When counting the number
of days the FSC held the stock, you may not
count certain days during which the FSC's
risk of loss was diminished. See section
246(c)(4) and Regulations section 1.246-5
for more details.
b. Dividends attributable to periods
totaling more than 366 days that the FSC
received on any share of preferred stock
held for less than 91 days during the 181-day
period that began 90 days before the
ex-dividend date. When counting the number
of days the FSC held the stock, you may not
count certain days during which the FSC's
risk of loss was diminished. See section
246(c)(4) and Regulations section 1.246-5
for more details. Preferred dividends
attributable to periods totaling less than 367
days are subject to the 46-day holding period
rule above.
c. Dividends on any share of stock to
the extent the FSC is under an obligation
(including a short sale) to make related
payments with respect to positions in
substantially similar or related property.
5. Any other taxable dividend income
not properly reported elsewhere on the
Dividends and Dividends-Received
Deduction Worksheet.
If patronage dividends or per-unit retain
allocations are included on line 11, identify
the total of these amounts in a statement
attached to Form 1120-FSC.

Schedule G

10. Dividends-received deduction
after limitation (sec. 246(b)).
Add lines 4 and 9. Enter the
result here and on line 8, column
(c) . . . . . . . . . . . . . . . .
10.

Limitations on Deductions

Line 10, Column (a)
If the FSC claims the foreign tax credit,
include the tax that is deemed paid under
sections 902 and 960. See sections 78 and
906(b)(4).

Line 11, Column (a)
Include the following:
1. Dividends (other than capital gain
distributions reported on Schedule D (Form
1120) and exempt-interest dividends) that
are received from RICs and that are not
subject to the 70% deduction.
2. Dividends from tax-exempt
organizations.
3. Dividends (other than capital gain
distributions) received from a real estate
investment trust that, for the tax year of the
trust in which the dividends are paid,
qualifies under sections 856 through 860.
4. Dividends not eligible for a
dividends-received deduction, which include
the following:
a. Dividends received on any share of
stock held for less than 46 days during the
-10-

Section 263A uniform capitalization
rules. The uniform capitalization rules of
section 263A require FSCs to capitalize, or
include in inventory, certain costs.
FSCs subject to the section 263A uniform
capitalization rules are required to capitalize:
1. Direct costs of assets acquired for
resale, and
2. An allocable part of most indirect
costs (including taxes) that are properly
allocable to property acquired for resale.
The costs required to be capitalized
under section 263A are not deductible until
the property (to which the costs relate) is
sold, used, or otherwise disposed of by the
FSC. You recover these costs through
depreciation, amortization, or costs of goods
sold.
For more details, including exception to
the uniform capitalization rules, see Pub.
538. Also, see Regulations sections
1.263A-1 through 1.263A-3.
Transactions between related taxpayers.
Generally, an accrual basis taxpayer may
only deduct business expenses and interest
owed to a related party in the year the
payment is included in the income of the
related party. See sections 163(e)(3), 163(j),
and 267 for limitations on deductions for
unpaid interest and expenses.

Instructions for Form 1120-FSC (Rev. 12-2016)

Corporations use Form 8926, Disqualified
Corporate Interest Expense Disallowed
Under Section 163(j) and Related
Information, to figure the amount of any
corporate interest expense disallowed by
section 163(j).
Golden parachute payments. A portion of
the payments made by a FSC to key
personnel that exceeds their usual
compensation may not be deductible. This
occurs when the FSC has an agreement
(golden parachute) with these key
employees to pay them these excess
amounts if control of the FSC changes. See
section 280G and Regulations section
1.280G-1. Also, see the instructions for
line 10.
Line 1. Enter only foreign direct costs on
lines 1a through 1e. See section 924(e) and
Regulations sections 1.924(e)-1(a) through
(e) for definitions and rules on direct activity
costs related to foreign trade income.
Line 5. Salaries and wages. Enter the total
salaries and wages paid for the tax year. Do
not include salaries and wages deductible
elsewhere on the return, such as amounts
included in officers' compensation, cost of
goods sold, elective contributions to a
section 401(k) cash or deferred
arrangement, or amounts contributed under
a salary reduction SEP agreement or a
SIMPLE IRA plan.
Line 10. Compensation of officers. Enter
deductible officers' compensation on line 10.
Do not include compensation deductible
elsewhere on the return, such as amounts
included in cost of goods sold, elective
contributions to a section 401(k) cash or
deferred arrangement, or amounts
contributed under a salary reduction SEP
agreement or a SIMPLE IRA plan. See the
Instructions for Form 1125-E for more
information on officers' compensation,
including any special rules and limitations
that may apply. You are not required to
complete Form 1125-E or attach it to Form
1120-FSC.
Line 14. Other deductions. Attach a
statement, listing by type and amount, all
allowable deductions that are not deductible
elsewhere on Form 1120-FSC. Enter the
total on line 14.

Examples of other deductions include:
Amortization (see Form 4562).
Insurance premiums.
Legal and professional fees.
Supplies used and consumed in the
business.
Utilities.
Do not deduct:
Fines or penalties paid to a government
for violating any law.
Any amount that is allocable to a class of
exempt income. See section 265(b) for
exceptions.
See Pub. 535 and Pub. 542 for details on
other deductions that may apply to
corporations. Also, see the Instructions for
Form 1120.

Schedule J
Line 1

If the FSC is a member of a controlled group,
as defined in section 927(d)(4), it must check
the box on line 1 and complete Schedule O
(Form 1120). Members of a controlled group
must use Schedule O (Form 1120) to figure
the tax for the group. See Schedule O and its
instructions for more information.

Line 2

Most FSCs should figure their tax using the
Tax Rate Schedule below. Qualified
personal service corporations should see the
instructions below.

Tax Rate Schedule
If taxable income (Schedule B, line 20) is:

Over—

But not
over—

Tax is:

Of the
amount
over—

$0
$50,000
15%
$0
50,000
75,000 $ 7,500 + 25%
50,000
75,000
100,000
13,750 + 34%
75,000
100,000
335,000
22,250 + 39% 100,000
335,000 10,000,000 113,900 + 34% 335,000
10,000,000 15,000,000 3,400,000 + 35%10,000,000
15,000,000 18,333,333 5,150,000 + 38%15,000,000
18,333,333
----35%
0

Qualified personal service corporations.
A qualified personal service corporation is

Instructions for Form 1120-FSC (Rev. 12-2016)

-11-

taxed at a flat rate of 35% on its taxable
income. A FSC is a qualified personal
service corporation if it meets both of the
following tests:
Substantially all of the FSC's activities
involve the performance of services in the
fields of engineering, architecture, or
management consulting and
At least 95% of the corporation's stock, by
value, is owned, directly or indirectly, by (1)
employees performing the services, (2)
retired employees who had performed the
services listed above, (3) any estate of the
employee or retiree described above, or (4)
any person who acquired the stock of the
FSC as a result of the death of an employee
or retiree (but only for the 2-year period
beginning on the date of the employee's or
retiree's death).
Note. If the FSC meets these tests, check
the box on line 2.

Line 3
Alternative minimum tax (AMT). Unless
the FSC is treated as a small corporation
exempt from the AMT, it may owe the AMT if
it has any of the adjustments and tax
preference items listed on Form 4626,
Alternative Minimum Tax—Corporations.
The FSC must file Form 4626 if its taxable
income (or loss) before the NOL deduction,
combined with these adjustments and tax
preference items is more than the smaller of
$40,000 or the FSC's allowable exemption
amount (from Form 4626). For this purpose,
taxable income does not include the NOL
deduction.
See the Instructions for Form 4626 for
definitions and details on how to figure the
tax.

Line 5
Foreign tax credit. Generally, a FSC may
not claim a foreign tax credit. It may,
however, claim a foreign tax credit for any
foreign taxes imposed on foreign source
taxable nonforeign trade income
(Schedule F, Part II) that is treated as
effectively connected with a U.S. trade or
business. See Temporary Regulations
section 1.921-3T(d)(2) for more details.

Keep for Your Records

Dividends and Dividends-Received Deduction Worksheet
(See instructions that begin on page 9)

(a) Dividends
received

(b) %

1 Dividends from less-than-20%-owned domestic corporations that are subject to
the 70% deduction (other than debt-financed stock) . . . . . . . . . . . . . . . . . . . . .

70

2 Dividends from 20%-or-more-owned domestic corporations that are subject to the
80% deduction (other than debt-financed stock) . . . . . . . . . . . . . . . . . . . . . . .

80

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

See Inst.

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

42

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

48

6 Dividends from less-than-20%-owned foreign corporations that are subject to the
70% deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

70

7 Dividends from 20%-or-more-owned foreign corporations that are subject to the
80% deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

80

8 Total dividends-received deduction. Add lines 1 through 7. See instructions for
limitation. Enter here and on line 19b, Schedule B . . . . . . . . . . . . . . . . . . . . . .

(c)
Dividends-received
deduction: (a) x (b)

▶

9 Other dividends from foreign corporations not included on line 3, 6, or 7 . . . . . . .
10 Foreign dividend gross up (section 78) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11 Other dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12 Total dividends. Add lines 1 through 11. Enter here and on
line 9, Schedule F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Schedule L

The balance sheet should agree with the
FSC's books and records. Include
certificates of deposit as cash on line 1,
Schedule L.
Line 5. Tax-exempt securities. Include on
this line:
State and local government obligations,
the interest on which is excludible from gross
income under section 103(a) and
Stock in a mutual fund or other regulated
investment company that distributed
exempt-interest dividends during the tax year
of the FSC.
Line 27. Adjustments to shareholders'
equity. Some examples of adjustments to
report on this line include:
Foreign currency translation adjustments.
The excess of additional pension liability
over unrecognized prior service cost.

▶

If the total adjustment to be entered on
line 27 is a negative amount, enter the
amount in parentheses.

Schedule M-1
Line 5c. Travel and entertainment.
Include on line 5c any of the following:
Meal and entertainment expenses not
deductible under section 274(n).
Expenses for the use of an entertainment
facility.
The part of business gifts over $25.
Expenses of an individual over $2,000,
which are allocable to conventions on cruise
ships.
Employee achievement awards over
$400.
The cost of entertainment tickets over
face value (also subject to 50% limit under
section 274(n)).

-12-

The cost of skyboxes over the face value
of nonluxury box seat tickets.
The part of luxury water travel expenses
not deductible under section 274(m).
Expenses for travel as a form of
education.
Other nondeductible travel and
entertainment expenses.
For more information, see Pub. 542.
Line 7a. Tax-exempt interest. Report any
tax-exempt interest received or accrued,
including any exempt-interest dividends
received as a shareholder in a mutual fund or
other regulated investment company. Also
report this amount on line 2, Additional
Information, on page 2 of the form.

Instructions for Form 1120-FSC (Rev. 12-2016)

Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You
are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the
right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form
displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may
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If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related schedule simpler,
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Washington, DC 20224. Do not send the tax form to this office. Instead, see Where To File, earlier.

Instructions for Form 1120-FSC (Rev. 12-2016)

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Forms 1120-FSC

Principal Business Activity Codes
This list of principal business activities and their associated
codes is designed to classify an enterprise by the type of
activity in which it is engaged to facilitate the administration
of the Internal Revenue Code. These principal business
activity codes are based on the North American Industry
Classification System.

Wholesale Trade
Merchant Wholesalers, Durable Goods
423100 Motor Vehicle & Motor Vehicle
Parts & Supplies
423200 Furniture & Home Furnishings
423300 Lumber & Other Construction
Materials
423400 Professional & Commercial
Equipment & Supplies
423500 Metal & Mineral (except
Petroleum)
423600 Electrical & Electronic Goods
423700 Hardware, & Plumbing & Heating
Equipment & Supplies
423800 Machinery, Equipment, & Supplies
423910 Sporting & Recreational Goods &
Supplies
423920 Toy & Hobby Goods & Supplies
423930 Recyclable Materials
423940 Jewelry, Watch, Precious Stone, &
Precious Metals
423990 Other Miscellaneous Durable
Goods
Merchant Wholesalers, Nondurable
Goods
424100 Paper & Paper Products
424210 Drugs & Druggists' Sundries

Using the list of activities and codes below, determine
from which activity the FSC derives the largest percentage
of its “total receipts.” Total receipts is defined as the sum of
the foreign trading gross receipts on Form 1120-FSC,
page 3, Schedule B, line 6a, and the total income on
page 4, Schedule F, lines 4 and 17. If the FSC's largest
percentage of its total receipts is derived from the
wholesale trading of durable goods, the FSC must use one
of the corresponding codes from the list below
(423100-423990).

424300
424400
424500
424600
424700
424800

Apparel, Piece Goods, & Notions
Grocery & Related Products
Farm Product Raw Materials
Chemical & Allied Products
Petroleum & Petroleum Products
Beer, Wine, & Distilled Alcoholic
Beverages
424910 Farm Supplies
424920 Book, Periodical, & Newspapers
424930 Flower, Nursery Stock, & Florists'
Supplies
424940 Tobacco & Tobacco Products
424950 Paint, Varnish, & Supplies
424990 Other Miscellaneous Nondurable
Goods
Wholesale Electronic Markets and Agents
and Brokers
425110 Business to Business Electronic
Markets
425120 Wholesale Trade Agents & Brokers

Information

Publishing Industries (except Internet)
511110 Newspaper Publishers
511120 Periodical Publishers
511130 Book Publishers
511140 Directory & Mailing List Publishers

Once the principal business activity is determined,
entries must be made on Form 1120-FSC, page 2,
Additional Information, lines 1a, 1b, and 1c. For the
business activity code number, enter the six digit code
selected from the list below. On line 1b, enter a brief
description of the FSC's business activity. Finally, enter a
description of the principal product or service of the FSC on
line 1c.

511190 Other Publishers
511210 Software Publishers
Motion Picture and Sound Recording
Industries
512100 Motion Picture & Video Industries
(except video rental)
512200 Sound Recording Industries
Broadcasting (except Internet)
515100 Radio & Television Broadcasting
515210 Cable & Other Subscription
Programming
Telecommunications
517000 Telecommunications (including
paging, cellular, satellite, cable &
other program distribution,
resellers, other
telecommunications & internet
service providers)
Data Processing Services
518210 Data Processing, Hosting, &
Related Services
Other Information Services
519100 Other Information Services
(including news syndicates,
libraries, internet publishing &
broadcasting)

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Rental and Leasing
Rental and Leasing Services
532100 Automotive Equipment Rental &
Leasing
532210 Consumer Electronics &
Appliances Rental
532220 Formal Wear & Costume Rental
532230 Video Tape & Disc Rental
532290 Other Consumer Goods Rental
532310 General Rental Centers
532400 Commercial & Industrial Machinery
& Equipment Rental & Leasing

Professional Services

Architectural, Engineering, and Related
Services
541310 Architectural Services
541320 Landscape Architecture Services
541330 Engineering Services
541340 Drafting Services
541350 Building Inspection Services
541360 Geophysical Surveying & Mapping
Services
541370 Surveying & Mapping (except
Geophysical) Services
541380 Testing Laboratories
Other Professional Services
541600 Management Consulting Services