Instructions For Schedule H (Form 1120-F) - 2009 (Page 2 of 6) in pdf

set or sets of books of the

entity must be included in line 1 in

If the corporation is a foreign bank

corporation’s U.S. trade or business

that charges its U.S. branch office

either U.S. dollars or the home

or books of its U.S. branch (whether

office’s functional currency even if the

cost reimbursements for services and

maintained within or outside the

audited third-country GAAP (or other

overhead which are booked by the

United States) as defined in

applicable accounting standards)

branch in the third party category of

Regulations section 1.882-5(d)(2).

expense actually incurred rather than

statements are in another non-dollar

as a lump sum interbranch amount,

functional currency.

Part I may be completed in U.S.

list the adjustment for each third party

dollars or in the foreign corporation’s

Line 2. Enter on line 2 the total of

category expense separately on the

functional currency. If the corporation

the adjustments necessary to

attachment for permanent

completes Part I in U.S. dollars,

conform the amounts on line 1 to the

differences.

check the box in the Part I heading. If

amounts that are deductible for U.S.

Line 3. Combine lines 1 and 2 and

the corporation completes Part I in its

tax purposes. These adjustments

enter the result on line 3. The amount

foreign functional currency, specify

include temporary and permanent

reported on line 3 is the total amount

the currency in the space provided in

differences of the type applicable in

of deductible expenses (determined

the Part I heading.

determining the deductions of U.S.

under U.S. tax principles before

corporations that file their income tax

Line 1. Enter on line 1 the total

apportionment between ECI and

returns on Form 1120 (e.g.,

expenses recorded on the

non-ECI) of the foreign corporation

adjustments eliminating any line 1

non-Schedule L books and records of

that files Form 1120-F, other than

expenses of entities whose expenses

the home office (including books and

those that are included on the

are includible in the corporation’s

records maintained in locations

corporation’s Schedule L books.

expenses for book purposes but not

outside the United States other than

Line 4. Enter on line 4 the total

for U.S. tax purposes). In addition,

in the corporation’s home country).

amount of interest expense (including

include adjustments to loan losses

The books and records may be home

interbranch interest), if any, recorded

and loss reserves included in line 1

office records (e.g., management cost

on the home office books that is

expenses to reflect the amount of bad

accounting reports) that identify only

included on line 3.

debt expense that is deductible for

the expenses included in the

U.S. tax purposes. Such adjustments

corporation’s financial statements for

Line 5. Enter on line 5 the bad debt

include any amount of bad debt

the tax year. It is not necessary that

expense, if any, that is included on

expense included in line 1 that is

the home office records or reports

line 3. Any portion of the amount

treated as an involuntary charge-off

used also include items of income,

included on line 5 that is allocable to

under Regulations section

gain or loss (including bad debt

ECI is reported directly on Form

1.166-2(d)(2). The deductible amount

charge-offs), or financial transaction

1120-F, Section II, line 15.

of bad debt expense remaining after

expenses such as interest expense

Line 7. Subtract line 6 from line 3

any adjustments on line 2 is

and periodic notional principal

and enter the difference on line 7.

eliminated from Schedule H

contract expense. Alternatively, the

This is the total amount of the

expenses on line 5.

expenses reported on line 1 may be

corporation’s home office deductions

derived from audited or unaudited

which are allocated and apportioned

Do not allocate and apportion

financial statements. The home office

between ECI and non-ECI in Parts I

expenses to ECI and non-ECI on

books may be books recorded under

and II of Schedule H.

line 2. In addition, do not make

the Generally Accepted Accounting

adjustments on line 2 to reflect

Lines 8 through 10. The amounts

Principles (“GAAP”), or other

book-to-tax adjustments for any home

reported on lines 8 through 10 are

applicable accounting standards,

office interest expense (including

deductions that are definitely related

including International Financial

interbranch interest expense)

to non-ECI under Regulations

Reporting Standards, applicable to

included on line 1. Interest expense

sections 1.861-8 and 1.861-17 and

the corporation’s local accounting

included on line 1 is adjusted on line

Temporary Regulations section

practices or under U.S. GAAP, at the

4. The allocation of deductible

1.861-8T. If the corporation has

corporation’s choosing. Expenses of

interest expense to ECI is reported on

deductions included in line 7 that are

other includible entities (i.e.,

Schedule I (Form 1120-F). Attach a

definitely related and allocable to ECI

disregarded entities) are included in

schedule listing the amount of the

that is exempt from tax under the

home office expenses reported on

adjustment for each of the following

Code or an income tax treaty, the

line 1 only if the expenses of such

categories:

deductions should be treated as

other entities are recorded on the

allocable to non-ECI for purposes of

1. Expenses included on line 1 of

home office’s books. Expenses

Schedule H and included in the

entities whose expenses are not

recorded on non-Schedule L books of

amounts reported on lines 8 through

includible in the corporation’s

disregarded entities (and not on the

10.

expenses for U.S. tax purposes.

home office books) that are allocated

2. Temporary differences (e.g.,

and apportioned to ECI are reported

Line 8. Enter on line 8 deductions

costs capitalized under section 263A,

on line 19. If the corporation uses

included on line 7 that are definitely

carrying charges under section

management cost accounting

related to non-ECI received from

263(g), depreciation and

statements for its home office books

subsidiaries (other than disregarded

amortization, general loan loss

that include expenses of one or more

entities whose income and

reserves).

disregarded entities, and also

deductions are treated as income and

3. Permanent differences (e.g.,

maintains certified audited

deductions of the corporation filing

interbranch transactions other than

third-country GAAP (or other

Form 1120-F). See, for example,

applicable accounting standards)

interest, non-deductible meals and

Temporary Regulations section

statements for a disregarded entity,

entertainment and executive salary

1.861-8T(e)(4)(ii) and Regulations

compensation).

the expenses of the disregarded

section 1.861-17 (relating to

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Instructions for Schedule H (Form 1120-F)

Instructions For Schedule H (Form 1120-F) - 2009 Page 2

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