Preparing Form 1120-F for Foreign Corporations: 2021 Revisions, ECI, Protective Claims, and Branch Profits Tax

Foreign corporations may have a U.S. tax return filing obligation based on their activities conducted in the United States. For example, if a foreign corporation is engaged in a U.S. trade or business, the foreign corporation generally should file Form 1120-F, U.S. Income Tax Return of a Foreign Corporation. Also, a foreign corporation should consider filing a U.S. tax return to preserve the right to claim deductions against effectively connected income or claim certain benefits under an income tax treaty. Various rules and exceptions apply in determining whether a foreign corporation has a U.S. tax return filing obligation.

In addition, foreign corporations engaged in a U.S. trade or business are also generally subject to the Branch Profits Tax. The Branch Profits Tax generally imposes a 30% tax on branch earnings that are deemed to be repatriated back to the foreign corporation’s home office and such tax is reported on the foreign corporation’s U.S. tax return. Income tax treaties may provide a lower tax rate or an exemption.

If a foreign corporation is entitled to benefits under an income tax treaty, the foreign corporation may need to file a U.S. tax return to claim benefits under the tax treaty. A foreign corporation is generally required to file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b) if the foreign corporation takes a treaty-based position unless reporting is specifically waived.

Unless an exception applies, foreign corporations that have certain related party transactions also may need to report such information on Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. The Tax Cuts and Jobs Act also expanded the information that needs to be reported on the Form 5472.

Listen as our authoritative panel of international tax experts detail who should file, how to prepare Form 1120-F and its auxiliary forms and schedules, how to calculate the branch profits tax, and how to reduce overall taxation of foreign corporations.

1. Who should file Form 1120-F
   1. Protective Returns
   2. Treas. Reg. Sec. 1.882-4 along with Adams Challenge (UK) Ltd v. Commissioner and Swallows Holdings, Ltd. v. Commissioner
2. Section I - Income From U.S. Sources Not Effectively Connected With the Conduct of a Trade or Business in the United States
   1. FDAP withholding and when FDAP income reporting is required
3. Section II - Income Effectively Connected With the Conduct of a Trade or Business in the United States
   1. Engaged in a U.S. trade or business
      1. Activities conducted by a foreign corporation through a U.S. partnership
   2. Income effectively connected to a U.S. trade or business
4. Section III – Branch Profits Tax and Tax on Excess Interest
   1. Calculating and reporting the Branch Profits Tax
5. Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)
   1. When treaty-based return position disclosure is required and certain key exceptions to reporting
   2. Limitations on Benefits Article
6. Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business
   1. Information generally required
   2. Exceptions from filing
   3. Filing obligation for Foreign-Owned U.S. Disregarded Entities

The panel will review these and other key issues:

• Who is required to file Form 1120-F?
• When should an entity file an 1120-F protective claim, even though not subject to tax and possibly not required to file?
• What methods are used to allocate and apportion ECI and non-ECI expenses on Schedule H?
• What are examples of treaty-based positions that might require filing Form 8833, Treaty-Based Return Position Disclosure?

Learning Objectives

After completing this course, you will be able to:

• Determine who is required to file Form 1120-F.
• Recognize when an entity should file a protective claim, even though not subject to tax and possibly not required to file form 1120-F.
• Understand the impact of protective claims.
• Verify that Form 8833 is accurately completed.
• Recognize reportable transactions with related parties that must be reported on Form 5472.
• Identify available exemptions and penalty abatement provisions for failure to file Form 5472 or maintain records.
  

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years + business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules, supervising other preparers/accountants. Specific knowledge and understanding of foreign corporation taxation, effectively-connected income, protective claims, the branch profits tax, and treaty-based return positions; familiarity with Form 5472 and 8833.

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).