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and that qualify for the 80% deduction

Two situations in which the

Interest expense paid or incurred

under section 245(a).

dividends-received deduction will not be

during the production period of

allowed on any share of stock are:

designated property must be capitalized

•

If the FSC held the stock less than

and is governed by special rules. For

Line 8, Column (c)

46 days during the 90-day period

more details, see Regulations sections

Limitation on dividends-received

beginning 45 days before the stock

1.263A-8 through 1.263A-15.

deduction. Generally, line 8, column (c),

became ex-dividend with respect to the

The costs required to be capitalized

may not exceed the amount on line 10 of

dividend (see section 246(c)(1)(A)) or

under section 263A are not deductible

•

the worksheet below. However, in a year

To the extent the FSC is under an

until the property (to which the costs

in which an NOL occurs, this limitation

obligation to make related payments for

relate) is sold, used, or otherwise

does not apply even if the loss is created

substantially similar or related property.

disposed of by the FSC.

by the dividends-received deduction. See

5. Any other taxable dividend income

Exceptions. Section 263A does not

sections 172(d) and 246(b).

not properly reported above (including

apply to:

distributions under section 936(h)(4)).

•

Personal property acquired for resale if

1. Refigure line 18, Part II, Schedule

If patronage dividends or per-unit

B (page 3 of Form 1120-FSC)

the FSC’s average annual gross receipts

retain allocations are included on line 11,

without any adjustment under

for the 3 prior tax years were $10 million

identify the total of these amounts in a

section 1059 and without any

or less.

capital loss carryback to the tax

•

schedule attached to Form 1120-FSC.

Inventoriable items accounted for in the

year under section 1212(a)(1) . . .

same manner as materials and supplies

2. Multiply line 1 by 80% . . . . . . . .

that are not incidental. See Schedule A

Schedule G

on page 8 for details.

3. Add lines 2, 5, and 7, column (c),

Deductions Allocated or

and the part of the deduction on

For more details on the uniform

line 3, column (c), that is

Apportioned to Foreign Trade

capitalization rules, see Regulations

attributable to dividends from

Income Other Than Foreign

sections 1.263A-1 through 1.263A-3.

20%-or-more-owned corporations

Trade Income Reported on

Transactions between related

4. Enter the smaller of line 2 or 3. If

Schedule F

taxpayers. Generally, an accrual basis

line 3 is greater than line 2, stop

taxpayer may only deduct business

here; enter the amount from line 4

Limitations on Deductions

expenses and interest owed to a related

on line 8, column (c), and do not

party in the year the payment is included

complete lines 5-10 below . . . . .

Section 263A uniform capitalization

in the income of the related party. See

5. Enter the total amount of dividends

rules. The uniform capitalization rules of

sections 163(e)(3), 163(j), and 267 for

from 20%-or-more-owned

section 263A require FSCs to capitalize,

limitations on deductions for unpaid

corporations that are included on

or include in inventory, certain costs

interest and expenses.

lines 2, 3, 5, and 7, column (a) . .

incurred in connection with:

•

Golden parachute payments. A portion

6. Subtract line 5 from line 1 . . . . . .

Personal property (tangible and certain

of the payments made by a FSC to key

intangible property) acquired for resale.

7. Multiply line 6 by 70% . . . . . . . .

•

personnel that exceeds their usual

The production of real property and

8. Subtract line 3 above from line 8,

compensation may not be deductible.

tangible personal property by a FSC for

column (c) . . . . . . . . . . . . . . .

This occurs when the FSC has an

use in its trade or business or in an

agreement (golden parachute) with these

9. Enter the smaller of line 7 or

activity engaged in for profit.

key employees to pay them these excess

line 8 . . . . . . . . . . . . . . . . . . .

Tangible personal property

amounts if control of the FSC changes.

10. Dividends-received deduction

produced by a FSC includes a film, sound

See section 280G.

after limitation (sec. 246(b)). Add

recording, videotape, book, or similar

lines 4 and 9. Enter the result here

Business startup expenses. Business

property.

and on line 8, column (c) . . . . . . 10.

startup expenses must be capitalized

FSCs subject to the section 263A

unless an election is made to amortize

uniform capitalization rules are required to

them over a period of 60 months. See

Line 10, Column (a)

capitalize:

section 195 and Regulations section

If the FSC claims the foreign tax credit,

1.195-1.

1. Direct costs and

enter the tax that is deemed paid under

2. An allocable part of most indirect

Line 1. Enter only foreign direct costs on

sections 902 and 960. See sections 78

costs (including taxes) that (a) benefit the

lines 1a through 1e. See section 924(e)

and 906(b)(4).

assets produced or acquired for resale or

and Regulations sections 1.924(e)-1(a)

(b) are incurred by reason of the

through (e) for definitions and rules on

Line 11, Column (a)

performance of production or resale

direct activity costs related to foreign

Include the following:

activities.

trade income.

1. Dividends (other than capital gain

Line 4. Depreciation. Besides

distributions reported on Schedule D

For inventory, some of the indirect

depreciation, include on line 4 the part of

(Form 1120) and exempt-interest

expenses that must be capitalized are:

the cost that the FSC elected to expense

•

dividends) that are received from RICs

Administration expenses.

under section 179 for certain property

•

and that are not subject to the 70%

Taxes.

placed in service during tax year 2003 or

•

deduction.

Depreciation.

carried over from 2002. See Form 4562,

•

Insurance.

2. Dividends from tax-exempt

Depreciation and Amortization, and its

•

Compensation paid to officers

organizations.

instructions.

attributable to services.

3. Dividends (other than capital gain

Line 5. Salaries and wages. Enter the

•

Rework labor.

distributions) received from a real estate

amount of salaries and wages paid for the

•

Contributions to pension, stock bonus,

investment trust that, for the tax year of

tax year. Do not include salaries and

and certain profit-sharing, annuity, or

the trust in which the dividends are paid,

wages deductible elsewhere on the

deferred compensation plans.

qualifies under sections 856 through 860.

return, such as amounts included in cost

4. Dividends not eligible for a

Regulations section 1.263A-1(e)(3)

of goods sold, elective contributions to a

dividends-received deduction because of

specifies other indirect costs that relate to

section 401(k) cash or deferred

the holding period of the stock or an

production or resale activities that must

arrangement, or amounts contributed

obligation to make corresponding

be capitalized and those that may be

under a salary reduction SEP agreement

payments with respect to similar stock.

currently deductible.

or a SIMPLE IRA plan.

-12-

Instructions For Form 1120-Fsc - U.s. Income Tax Return Of A Foreign Sales Corporation - 2003 Page 12

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