U.S. Income Tax Return of a Foreign Corporation

Changes To Note

• For tax years ending on or after December 31, 2001, certain corporations with average annual gross receipts of more than $1 million but less than or equal to $10 million may be able to adopt or change to the cash method of accounting for eligible trades or businesses. This rule does not apply to corporations prohibited from using the cash method under section 448. For more details, including change in accounting method requirements, see Notice 2001-76, 2001-52 I.R.B. 614.
• The corporation may request that the IRS deposit its income tax refund of $1 million or more directly into its checking or savings account at any U.S. bank or other financial institution that accepts direct deposits. For details, see the instructions for line 10 on page 8 and Form 8302, Direct Deposit of Tax Refund of $1 Million or More.
• If the corporation wants to allow the IRS to discuss its 2001 tax return with the paid preparer who signed it, check the Yes box in the area where the officer of the corporation signed the return. See page 3 for details.

Photographs of Missing Children

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in instructions 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.

Unresolved Tax Issues

If the corporation has attempted to deal with an IRS problem unsuccessfully, it should contact the Taxpayer Advocate. The Taxpayer Advocate independently represents the corporation's interests and concerns within the IRS by protecting its rights and resolving problems that have not been fixed through normal channels.

While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that the corporation's case is given a complete and impartial review.

The corporation's assigned personal advocate will listen to its point of view and will work with the corporation to address its concerns. The corporation can expect the advocate to provide:

• A fresh look at a new or on-going problem.
• Timely acknowledgment.
• The name and phone number of the individual assigned to its case.
• Updates on progress.
• Timeframes for action.
• Speedy resolution.
• Courteous service.

When contacting the Taxpayer Advocate, the corporation should provide the following information:

• The corporation's name, address, and employer identification number (EIN).
• The name and telephone number of an authorized contact person and the hours he or she can be reached.
• The type of tax return and year(s) involved.
• A detailed description of the problem.
• Previous attempts to solve the problem and the office that had been contacted.
• A description of the hardship the corporation is facing (if applicable).

The corporation may contact a Taxpayer Advocate by calling 1-877-777-4778 (toll free). Persons who have access to TTY/TDD equipment may call 1-800-829-4059 and ask for Taxpayer Advocate assistance. If the corporation prefers, it may call, write, or fax the Taxpayer Advocate office in its area. See Pub. 1546, The Taxpayer Advocate Service of the IRS, for a list of addresses and fax numbers.

How To Get Forms and Publications

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You can also reach us using file transfer protocol at ftp.irs.gov.

CD-ROM. Order Pub. 1796, Federal Tax Products on CD-ROM, and get:

• Current year forms, instructions, and publications.
• Prior year forms, instructions, and publications.
• Frequently requested tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping.
• The Internal Revenue Bulletin.

Buy the CD-ROM on the Internet at www.irs.gov/cdorders from the National Technical Information Service (NTIS) for $21 (no handling fee), or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD-ROM for $21 (plus a $5 handling fee).

By phone and in person. You can order forms and publications 24 hours a day, 7 days a week, by calling 1-800-TAX-FORM (1-800-829-3676). You can also get most forms and publications at your local IRS office.

Purpose of Form

Use Form 1120-F to report the income, gains, losses, deductions, credits, and to figure the U.S. income tax liability of a foreign corporation. Also, use Form 1120-F to claim any refund that is due.

Who Must File

Unless one of the exceptions under Exceptions From Filing below applies or a special return is required (see Special Returns for Certain Organizations below), a foreign corporation must file Form 1120-F if, during the tax year, the corporation:

• Overpaid income tax that it wants refunded.
• Engaged in a trade or business in the United States, whether or not it had income from that trade or business.
• Had income, gains, or losses treated as if they were effectively connected with that U.S. trade or business. (See Section II on page 10.)
• Had income from any U.S. source (even if its income is tax exempt under an income tax treaty or code section).

Others that must file Form 1120-F include:

• A Mexican or Canadian branch of a U.S. mutual life insurance company. The branch must file Form 1120-F on the same basis as a foreign corporation if the U.S. company elects to exclude the branch's income and expenses from its own gross income.
• A receiver, assignee, or trustee in dissolution or bankruptcy, if that person has or holds title to virtually all of a foreign corporation's property or business. Form 1120-F is due whether or not the property or business is being operated.
• An agent in the United States, if the foreign corporation has no office or place of business in the United States when the return is due.

Treaty exemption. If the corporation does not owe any tax because it is claiming a treaty exemption and there was no withholding at source, it must still file Form 1120-F to show that the income was exempted by treaty. In this case, the corporation should only complete the identifying information at the top of page 1 and Item W at the bottom of page 5.

If the corporation does not owe any tax and there was withholding at source, see Claim for Refund or Credit below.

Note: An exemption from tax under Section II based on the permanent establishment article of an income tax treaty does not necessarily exempt the corporation from the branch profits tax.

Consolidated returns. A foreign corporation cannot belong to an affiliated group of corporations that files a consolidated return unless it is a Canadian or Mexican corporation maintained solely for complying with the laws of Canada or Mexico for title and operation of property.

Exceptions From Filing

A foreign corporation does not have to file Form 1120-F if any of the following apply.

• It did not engage in a U.S. trade or business during the year, and its full U.S. tax was withheld at source.
• Its only income is not subject to U.S. taxation under section 881(d).
• It is a beneficiary of an estate or trust engaged in a U.S. trade or business, but would itself otherwise not need to file.

Special Returns for Certain Organizations

Instead of filing Form 1120-F, certain foreign organizations must file special returns.

• Form 1120-L, U.S. Life Insurance Company Income Tax Return, as a foreign life insurance company.
• Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return, as a foreign property and casualty insurance company.
• Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation, if the corporation elected to be treated as a FSC and the election is still in effect.

Claim for Refund or Credit

If the corporation is filing Form 1120-F only as a claim for refund or credit of tax paid or withheld at source, the simplified procedure described below can be used. This procedure can be used only if the foreign corporation meets all of the following conditions for the tax year.

• It was not engaged in a trade or business in the United States.
• It did not have a permanent establishment in the United States.
• It had no income effectively connected with the conduct of a U.S. trade or business.
• It's U.S. income tax liability was fully satisfied through withholding of tax at source and the corporation owes no additional U.S. income tax.

Simplified Procedure for Claiming a Refund of U.S. Tax Withheld at Source

To make a claim for a refund, complete Form 1120-F as follows.

Page 1. Enter the complete name, address, and employer identification number of the corporation. Check the applicable box to indicate the type of filing. Provide all the information required in items A through L.

Refund amount. Enter on lines 1 and 5, page 1, the amounts from line 11, page 2. Enter on lines 6h and 6i the amount from line 12, page 2. Enter the excess of line 6i over line 5 on lines 9 and 10. This is the amount to be refunded to you.

Signature. An authorized officer of the corporation must sign and date the return.

Page 2. Enter in column (b) the gross amount of each type of income received that was subject to withholding at source. Include income from foreign sources that was subject to backup withholding. Do not include income from which no U.S. tax was withheld. If the corporation is subject to backup withholding on gross proceeds from sales of securities or transactions in regulated futures contracts, enter the gross proceeds on line 10.

Enter in columns (c) and (d), respectively, the correct rate and amount of U.S. income tax liability for each type of income reported in column (b). If the corporation is claiming a refund of U.S. tax withheld in excess of the rate provided in a tax treaty with the United States, enter the applicable treaty rate in column (c) and figure the correct U.S. income tax liability on the gross income reported in column (b).

Enter in column (e) the U.S. tax actually withheld at source (and not refunded by the payor or the withholding agent) from each type of income reported.

Enter on line 11 the total U.S. tax liability for the reported income.

Enter on line 12 the total U.S. tax actually withheld from such income.

Additional information. Complete all items at the bottom of page 2 and 5 that apply to the corporation.

Additional Documentation Required

The corporation must attach to Form 1120-F the following:

1. Proof of the withholding (e.g. Form 1042-S),
2. A statement that describes the basis for the claim for refund,
3. Any required tax certifications (e.g., Form W-8BEN), and
4. Any additional documentation to support the claim.

Refund of backup withholding tax. If the corporation is claiming a refund of backup withholding tax based on its status as a non-U.S. resident, it must:

• Provide a copy of the Form 1099 that shows the amount of reportable payment and backup withholding and
• Attach a statement, signed under penalties of perjury, that the corporation is exempt from backup withholding because it is not a U.S. corporation or other U.S. resident (e.g. Form W-8BEN).

Refunds of U.S. withholding. If any of the following apply, attach the information requested.

• If claiming a refund of U.S. withholding tax on U.S. source income, provide a copy of the Form 1042-S that shows the income and actual amount of U.S. tax withheld.
• If claiming a refund of U.S. tax withheld from portfolio interest, include a description of the relevant debt obligation, including the name of the issuer, CUSIP number (if any), interest rate, scheduled maturity date, and the date the debt was issued. Also include a statement, signed under penalties of perjury, that the corporation is the beneficial owner of the interest income and not a U.S. corporation or other U.S. resident (e.g., Form W-8BEN).
• If claiming a reduced rate of, or exemption from, tax based on a tax treaty, provide a certificate of entitlement to treaty benefits (e.g. Form 1001 or Form W-8BEN). A separate statement should be provided that contains any additional representations necessary to explain the basis for the claim.

  Note: To claim a reduced rate of, or exemption from, tax based on a tax treaty, the corporation must generally be a resident of the particular treaty country within the meaning of the treaty and cannot have a permanent establishment or fixed base in the United States.

• If claiming an exemption from withholding on a distribution from a U.S. corporation with respect to its stock because the corporation has insufficient earnings and profits to support ordinary dividend treatment, provide a statement that identifies the distributing corporation and provides the basis for the claim.
• If claiming an exemption from withholding on a distribution from a mutual fund or a real estate investment trust (REIT) with respect to its stock because the distribution was designated as long-term capital gain or a return of capital, provide a statement that identifies the mutual fund or REIT and provide the basis for the claim.
• If claiming an exemption from withholding on a distribution from a U.S. corporation with respect to its stock because, in the foreign corporation's particular circumstances, the transaction qualifies as a redemption of stock under section 302, provide a statement that describes the transaction and presents the facts necessary to establish that the payment was (a) a complete redemption, (b) a disproportionate redemption, or (c) not essentially equivalent to a dividend.

Use of foreign nominees. If the corporation received income through a foreign intermediary or nominee acting on its behalf (and a Form 1042-S or 1099 is not received), the corporation may substitute a statement from the intermediary or nominee. The statement should include the following information:

• The gross amount(s) and type(s) of income subject to withholding,
• The name(s) and address(es) of the U.S. withholding agent(s),
• The U.S. taxpayer identification number of the U.S. withholding agent or payor, and
• The name in which the tax was withheld, if different from the name of the beneficial owner claiming the refund.

When To File

Foreign Corporation With An Office in the U.S.

A foreign corporation that maintains an office or place of business in the United States must either:

1. File Form 1120-F by the 15th day of the 3rd month after the end of its tax year or
2. Get an extension of time to file.

Extension. To get an extension, the corporation may either:

1. File Form 7004, Application for Automatic Extension of Time To File Corporation Income Tax Return, by the 15th day of the 3rd month after the end of its tax year to request a 6-month extension.

   Note: The extension granted by the timely filing of Form 7004 does not extend the time for payment of the tax. If the tax is paid after the 15th day of the 3rd month following the close of the corporation's tax year, the corporation must pay interest on the late payment and is subject to the penalty for late payment of tax.

2. Get a 3-month extension by attaching to Form 1120-F the statement described in Regulations section 1.6081-5. If additional time is needed beyond the 3 month extension, then file Form 7004 before the end of the 3-month extension period to obtain up to an additional 3 months to file. If Form 7004 is not filed by the expiration of the 3-month extension period, and the corporation files its income tax return after such period, it may be liable for the penalty for late filing of return described on page 7. In no event may the total extension period exceed 6 months from the original due date of the return (i.e., the return must be filed by the 15th day of the 9th month after the end of its tax year). See Rev. Rul. 93-85, 1993-2 C.B. 297.

Note: The corporation is still required to pay the tax due by the 15th day of the 3rd month after the end of its tax year. If it does not, the corporation must pay the interest on the late payment but is not subject to the penalty for late payment of tax if it pays the tax due by the 15th day of the 6th month after the end of its tax year.

The options described in 1 and 2 above are mutually exclusive. If a corporation chooses the option described in 1 to extend the time to file, it may not later choose the option described in 2.

Foreign Corporation With No Office or Place of Business in the U.S.

If the foreign corporation does not maintain an office or place of business in the United States it must:

• File Form 1120-F by the 15th day of the 6th month after the end of its tax year or
• File Form 7004 to request a 6-month extension of time to file.

Note: The extension does not extend the time for payment of tax. If the tax is paid after the 15th day of the 6th month after the end of its tax year, the corporation must pay interest on the late payment and a penalty for late payment of tax may apply. See Interest and Penalties on page 7.

Other Filing Requirements

• A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends.
• A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved.
• If the due date of any filing falls on a Saturday, Sunday, or legal holiday, the corporation may file on the next business day.
• Form 1120-F must be filed on a timely basis and in a true and accurate manner in order for a foreign corporation to take deductions and credits against its effectively connected income. For these purposes, Form 1120-F is generally considered to be timely filed if it is filed no later than 18 months after the due date of the current year's return. An exception may apply to foreign corporations that have yet to file Form 1120-F for the preceding tax year.

A foreign corporation is allowed the following deductions and credits regardless of whether Form 1120-F is timely filed.

1. The charitable contributions deduction (page 3, Section II, line 19).
2. The credit from Form 2439 (page 1, line 6f).
3. The credit for Federal tax on fuels (page 1, line 6g).
4. U.S. income tax paid or withheld at source (page 1, line 6h).

See Regulations section 1.882-4 for details.

Private Delivery Services

Corporations can use certain private delivery services designated by the IRS to meet the timely mailing as timely filing/paying rule for tax returns and payments. The most recent list of designated private delivery services was published by the IRS in October 2001.

The list includes only the following:

• Airborne Express (Airborne): Overnight Air Express Service, Next Afternoon Service, Second Day Service.
• DHL Worldwide Express (DHL): DHL Same Day Service, DHL USA Overnight.
• Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day.
• United Parcel Service (UPS): 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.

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