A Change To Note

For transactions after September 30, 2000, if you had operations in or related to a country associated with carrying out an international boycott or you participated in or cooperated with an international boycott, your foreign trade income qualifying for the extraterritorial income exclusion may be reduced. The reduction is computed on Schedule C (Form 5713) using the international boycott factor from Schedule A (Form 5713).

General Instructions

Purpose of Form

Use Form 5713 to report:

• Operations in or related to boycotting countries (see list on page 2) and
• The receipt of boycott requests and boycott agreements made.

Who Must File

You must file Form 5713 if you are a U.S. person (defined in section 7701(a)(30)) that has operations (defined on page 2) in or related to a boycotting country, or with the government, a company, or a national of a boycotting country.

The following U.S. persons also must file Form 5713:

• A member of a controlled group (as defined in section 993(a)(3)), a member of which has operations;
• A U.S. shareholder (within the meaning of section 951(b)) of a foreign corporation that has operations (but only if you own (within the meaning of section 958(a)) stock of that foreign corporation);
• A partner in a partnership that has operations; or
• A person treated (under section 671) as the owner of a trust that has operations.

Ban on importing or exporting.   Although you may comply with a ban on importing or exporting of products described in sections 999(b)(4)(B) and (C) without incurring the loss of tax benefits, you must report the boycott operations from such agreements on Form 5713.

Exceptions From Filing

Foreign person.   A foreign person is not required to file Form 5713 unless that person:

1. Claims the benefits of the foreign tax credit,
2. Owns stock in an interest charge domestic international sales corporation (IC-DISC),
3. Is a foreign sales corporation (FSC) that has exempt foreign trade income, or
4. Has extraterritorial income (defined in section 114(e)) excluded from gross income.

Members of a controlled group.   A corporation that is a member of a controlled group (as defined in section 1563) is not required to file Form 5713 if all members of the controlled group joined in the filing of a consolidated income tax return and the common parent files Form 5713 on behalf of all members of the controlled group.

If all members of a controlled group did not join in the filing of a consolidated income tax return, each member of the controlled group must file Form 5713 separately.

A member of a controlled group (as defined in section 993(a)(3)) is not required to file Form 5713 if all of the following conditions apply:

• The member has no operations in or related to a boycotting country (or with the government, a company, or a national of a boycotting country);
• The member did not own stock, directly or indirectly, in any corporation having such operations;
• The member did not receive any boycott requests;
• The member did not own stock, directly or indirectly, of any corporation receiving a request;
• The member is not entitled to (or forfeits) the benefits of the foreign tax credit, the deferral of earnings of a controlled foreign corporation (CFC), IC-DISC benefits, FSC benefits, or the extraterritorial income exclusion; and
• The member attaches to its tax return a certificate stating that Form 5713 was filed on the member's behalf. This certificate must be signed by a person authorized to sign the income tax return of the common parent of the group.

Partners.   A partner is not required to file Form 5713 if:

• That partner has no boycott operations that are independent of the partnership,
• The partnership files Form 5713 with Form 1065, and
• The partnership did not cooperate with or participate in an international boycott.

U.S. approved boycotts.   You may comply with an international boycott imposed by a foreign country if the boycott is approved by United States law, regulations, or an Executive order. Do not report U.S. approved boycotts on Form 5713.

Unsolicited invitation to bid.   If you receive an unsolicited invitation to bid for a contract that contains a request to participate in or cooperate with an international boycott, you are required to file Form 5713 only if you accept the invitation.

Foreign corporation with U.S. subsidiary or sister corporation.   A U.S. corporation that is a subsidiary or sister corporation of a foreign corporation may waive the requirement to report boycott operations of its foreign parent or sister corporation if the following conditions are met.

• The foreign corporation is not required to file Form 5713 independent of its relationship with the U.S. subsidiary or sister corporation.
• The U.S. subsidiary or sister corporation agrees to forfeit the benefits of the foreign tax credit, deferral of taxation of earnings of a CFC, IC-DISC benefits, FSC benefits, and the extraterritorial income exclusion.

Foreign corporation with U.S. branch.   A foreign corporation engaged in a U.S. trade or business through a U.S. branch generally is required to file Form 5713 to report the boycott activities of its controlled group, including the U.S. branch. When reporting for the U.S. branch, report all information related to the U.S. branch's boycott activities, including the boycott activities that do not relate to the U.S. trade or business.

The foreign corporation may, however, waive the requirements to report information about its U.S. branch if it does not claim or forfeits the benefits of the foreign tax credit, deferral of taxation of earnings of a CFC, IC-DISC benefits, and FSC benefits. This waiver does not relieve the foreign corporation of reporting boycott activities of all U.S. corporations that are members of the same controlled group of which the foreign corporation is a member.

When and Where To File

File Form 5713 (and Schedules A, B, and C, if applicable) in duplicate by the due date of your income tax return, including extensions. Send one copy to the Internal Revenue Service Center, Philadelphia, PA 19255. Attach the other copy to your income tax return. Do not sign the copy that is attached to your income tax return.

Penalties

Willful failure to file Form 5713 may result in:

• A $25,000 fine,
• Imprisonment for no more than 1 year, or
• Both.

Tax Benefits That May Be Lost

If you cooperate with or participate in an international boycott, you may lose a portion of the following:

• The foreign tax credit (section 908(a)),
• Deferral of taxation of earnings of a CFC (section 952(a)(3)),
• Deferral of taxation of IC-DISC income (section 995(b)(1)(F)(ii)),
• Exemption of foreign trade income of a FSC (section 927(e)(2), as in effect before its repeal), and
• Exclusion of extraterritorial income from gross income (section 941(a)(5)).

Schedules A, B, and C

Figure the loss of tax benefits on Schedules A and C or Schedules B and C (Form 5713). You must use the international boycott factor (Schedule A) to figure the reduction to foreign trade income qualifying for the extraterritorial income exclusion. To figure the loss of all other tax benefits, you may use either the international boycott factor (Schedule A) or determine taxes and income specifically attributable to boycott operations (Schedule B).

Note:   The reduction in qualifying foreign trade income eligible for the extraterritorial income exclusion must be figured using the international boycott factor on Schedule A.

Compute the loss of tax benefits on Schedule C. See the instructions for these separate schedules for more details.

Complete Schedule C if you are a partner. Partnerships do not complete Schedule C. But partnerships must complete parts of both Schedules A and B. However, if all partners figure the loss of their tax benefits using the boycott factor exclusively, or specifically identifiable taxes and income attributable to boycott operations exclusively, then the partnership is only required to complete parts of Schedule A or parts of Schedule B.

Report the appropriate amounts from Schedule C on the following forms.

Form 1116,   Foreign Tax Credit (Individual, Estate, Trust, or Nonresident Alien Individual).

Form 1118,   Foreign Tax Credit - Corporations.

Form 5471,   Information Return of U.S. Persons With Respect To Certain Foreign Corporations.

Form 1120-IC-DISC,   Interest Charge Domestic International Sales Corporation Return.

Form 1120-FSC,   U.S. Income Tax Return of a Foreign Sales Corporation.

Form 8873,   Extraterritorial Income Exclusion.

Definitions

Boycotting Countries

A boycotting country is:

• Any country that is on the list maintained by the Secretary under section 999(a)(3). The current list (as of September 2001) includes Bahrain, Iraq, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates, and the Republic of Yemen.
• Any other country in which you (or a member of the controlled group of which you are a member) have operations and of which you know (or have reason to know) requires any person to cooperate with or participate in an international boycott. However, see Exceptions From Filing on page 1.

Boycott Request

A boycott request is any request to enter into an agreement that would constitute cooperation with or participation in an international boycott.

Operations

The term operations means all forms of business or commercial activities and transactions (or parts of transactions), whether or not productive of income, including, but not limited to: selling; purchasing; leasing; licensing; banking, financing and similar activities; extracting; processing; manufacturing; producing; constructing; transporting; performing activities related to the activities above (e.g., contract negotiating, advertising, site selecting, etc.); and performing services, whether or not related to the activities above.

Operations in a boycotting country.   You are considered to have operations in a boycotting country if you have an operation that is carried out, in whole or in part, in a boycotting country, either for or with the government, a company, or a national of a boycotting country.

Operations with the government, a company, or a national of a boycotting country.   You are considered to have operations with the government, a company, or a national of a boycotting country if you have an operation that is carried on outside a boycotting country either for or with the government, a company, or a national of a boycotting country.

Operations related to a boycotting country.   You are considered to have operations related to a boycotting country if you have an operation that is carried on outside a boycotting country for the government, a company, or a national of a nonboycotting country if you know or have reason to know that specific goods or services produced by the operation are intended for use in a boycotting country, or for use by or for the benefit of the government, a company, or a national of a boycotting country, or for use in forwarding or transporting to a boycotting country.

Specific Instructions

Address

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 filer has a P.O. box, show the box number instead.

Lines 1 Through 6

Note:   On lines 1 through 6, all line references are to 2001 forms unless otherwise noted.

Line 1 - Individuals

Enter your adjusted gross income (from Form 1040, line 33).

Line 2c - Partnerships and Corporations

Enter your principal business activity code number and description from the list beginning on page 5. Enter the code number for the specific industry group from which the largest percentage of total receipts was derived. Total receipts are defined in the instructions for the Codes for Principal Business Activity located at the end of the instructions for partnership and corporate returns.

Line 2d - IC-DISCs

Enter on line 2d the major product code number for the major product or service (as measured by export gross receipts) sold or provided by the IC-DISC (line 1a of Form 1120-IC-DISC, Schedule N).

Line 3a

Enter the total assets of the partnership (Form 1065 and Form 1065-B, line 14, column (d) of Schedule L).

Line 3b

Enter the partnership's ordinary income (Form 1065, page 1, line 22). For electing large partnerships, enter the portion of taxable income (Form 1065-B, page 1, line 25) that is attributable to trade or business activities.

Line 4b - Common Tax Year Election

The common tax year of a controlled group is generally the tax year of the common parent. The members of the controlled group may, however, elect the tax year of any member of the group as the common tax year. This election is made by entering the name, tax year, and employer identification number (EIN) of the designated corporation on line 4b.

All members of a controlled group must consent, in writing, to the common tax year election. A common parent may consent to the common tax year election on behalf of all members of the controlled group that joined with the common parent in filing a consolidated return. Foreign corporations that are members of a controlled group should not sign the consent if they are not required to file Form 5713. However, if a foreign corporation subsequently becomes liable to file Form 5713, then it is bound by the common tax year election previously made by the group. A copy of the consent must be attached to each member's Form 5713 filed for the first tax year of such member to which the common tax year election applies. If no common parent exists or no agreement is reached by the members of the controlled group, the common tax year of the group will be the tax year of the member of the controlled group whose tax year ends in the latest month of the calendar year. The common tax year election is a binding election and can be changed only with the approval of the Secretary.

Line 4c(1) - Corporations

Enter the amount of total assets as follows.

Form 1120.   Schedule L, line 15, column (d).

Form 1120-F.   Schedule L, line 15, column (d).

Form 1120-FSC.   Schedule L, line 15, column (d).

Form 1120-IC-DISC.   Schedule L, line 3, column (b).

Form 1120-L.   Schedule L, Part I, line 6, column (b).

Form 1120-PC.   Schedule L, line 15, column (d).

Form 1120S.   Schedule L, line 15, column (d).

Line 4c(2) - Corporations

Enter the amount of taxable income before net operating loss and special deductions as follows.

Form 1120.   Page 1, line 28.

Form 1120-F.   Page 3, line 29.

Form 1120-FSC.   Page 3, line 18, Schedule B.

Form 1120-IC-DISC.   Page 1, line 5.

Form 1120-L.   Page 1, line 24, plus lines 19 and 20.

Form 1120-PC.   Page 2, line 35, Schedule A.

Form 1120S.   Page 1, line 21 (ordinary income).

Line 6

Line 6a.   Enter on line 6a, the foreign tax credit before adjustment from Form 1116 (Part IV, line 31) or Form 1118, Schedule B, Part III, line 11.

Line 6b.   Enter on line 6b, the pro rata share of total earnings from controlled foreign corporations from Form 5471, Schedule C, line 21.

Line 6c. Shareholder that is not a C corporation.   Enter on line 6c,your pro rata share of the section 995(b)(1)(F)(ii) amount (pro rata share of line 8, Part I, Schedule J of Form 1120-IC-DISC).

Line 6c. Shareholder that is a C corporation.   Enter on line 6c, your pro rata share of the section 995(b)(1)(F)(i) amount multiplied by 16/17 (16/17 times your pro rata share of line 8, Part I, Schedule J of Form 1120-IC-DISC).

Line 6d.   Enter on line 6d, the total exempt foreign trade income (the total of columns (a) and (b), line 10, Schedule B of Form 1120-FSC).

Line 6e.   Enter on line 6e, your foreign trade income that otherwise qualifies for the extraterritorial income exclusion (line 49 of Part IV of Form 8873).

Lines 8 Through 13

Filers that are not members of a controlled group.   If you are not a member of a controlled group, report on lines 8 through 13 your own boycott operations, requests, participation, or cooperation, and the boycott operations, requests, participation, or cooperation of:

• Any foreign corporation in which you are a U.S. shareholder,
• Any partnership in which you are a partner, or
• Any trust in which you are treated as owner under section 671.

When reporting on behalf of a foreign corporation, partnership, or trust, report the boycott activities for the tax year of the foreign corporation, partnership, or trust that ends with or within your tax year.

Members of a controlled group of corporations.   If you are a member of a controlled group of corporations, the answers to the questions on lines 8 through 13 for your tax year must reflect:

• Your operations, boycott requests, and boycott participation or cooperation (and those of any trust of which you are treated as the owner under section 671) for your tax year that ends with or within the common tax year that ends with or within your tax year (see instruction for line 4b).
• The operations, boycott requests, and boycott participation or cooperation of each other member of the controlled group (and those of any trust of which a member of the controlled group is treated as the owner under section 671) for each member's tax year that ends with or within the common tax year that ends with or within your tax year.
• The operations, boycott requests, and boycott participation or cooperation of each foreign corporation or partnership on whose behalf you are reporting as a U.S. shareholder or as a partner, for the tax year of the foreign corporation or the partnership that ends with or within your tax year that ends with or within the common tax year that ends with or within your tax year.
• The operations, boycott requests, and boycott participation or cooperation of each foreign corporation or partnership on whose behalf a member (other than you) of the controlled group is reporting as a U.S. shareholder or as a partner, for the tax year of the foreign corporation or the partnership that ends with or within such member's tax year that ends with or within the common tax year that ends with or within your tax year.

The effect of these reporting requirements is that the answers to the questions on lines 8 through 13 generally are identical for each member of the controlled group and should only be updated on a group basis once a year. The information is updated at the close of the common tax year, and is reported by each member of the group for its tax year that ends with or after the common tax year. If the tax years of all members, foreign corporations, and partnerships are the same as the common tax year, then all information is reported on a current basis.

If all tax years are different, then all or some of the information reported will reflect a time period that is different from the reporter's tax year.

Example.   Assume that Corporations A, B, C, and D are all members of a controlled group. Corporation A is the common parent and no common tax year election is made. Corporations A, B, and C report on the basis of a calendar year. Corporation D reports on the basis of July 1-June 30 tax year. Corporation C owns 15% of Foreign Corporation X. Corporation X reports on the basis of an April 1- March 31 tax year. Corporations A, B, C, D, and X have operations in boycotting countries. The answers to the questions on lines 8 through 13 on the Forms 5713 filed by Corporations A, B, and C for their 2001 tax years will reflect the operations of Corporations A, B, and C for the 2001 tax year, the operations of Corporation D for the period July 1, 2000-June 30, 2001 and the operations of Corporation X for the period April 1, 2000 to March 31, 2001. The answers to the questions on lines 8 through 13 on the Form 5713 filed by Corporation D for its tax year ending June 30, 2002, will be identical to those on Forms 5713 filed by Corporations A, B, and C for their tax years ending December 31, 2001. The answers on lines 8 through 13 on the Form 5713 filed by Corporation D for its tax year ending June 30, 2002, will not reflect any of Corporation D's operations for its July 1, 2001-June 30, 2002 tax year.

Part I - Operations in or Related to a Boycotting Country

Line 8 - Boycott of Israel

The question on line 8 concerns operations in or related to countries on the Secretary's list of countries associated in the boycott of Israel. Use a separate line for each country or each person having operations in that country. Do not use separate lines for separate operations by the same person in the same country.

Column (2).   Enter the identifying number of each person having operations in or related to any of the listed countries. Include the identifying number of all members of your controlled group that have operations in or related to the listed countries.

If you or a member of your controlled group is the U.S. shareholder of a foreign corporation which has operations in or related to the listed countries (or with the governments, companies, or nationals of those countries), enter your identifying number or the identifying number of the member of your group who is the U.S. shareholder. Then, in parentheses, enter the name and EIN, if available, of the foreign corporation having the operation in or related to the listed countries.

Columns (3) and (4).   Enter in column (3) the principal business activity code number (see the list beginning on page 5) of the person that has the boycott operation. Enter a brief description of the principal business activity in column (4).

Column (5).   IC-DISCs, enter the product code from line 1a, Schedule N, of Form 1120-IC-DISC.

Line 9 - Nonlisted Countries Boycotting Israel

If the answer to the question on line 9 is Yes, use the same procedure outlined in the instructions for line 8 for any nonlisted countries which you know or have reason to know require participation in or cooperation with the international boycott of Israel.

Line 10 - Boycotts of Countries Other Than Israel

If the answer to the question on line 10 is Yes, use the same procedure outlined in the instructions for line 8 for an international boycott other than the boycott of Israel.

Line 11 - Boycott Requests

If you receive a substantial number of similar requests, you may attach a copy of one of these requests and a statement showing the number and nature of all other similar requests received.

Line 12 - Boycott Agreements

If a substantial number of boycott agreements were entered into or were effective for the period covered by the report, and the boycott clauses are similar, you may attach a sample boycott clause and a statement showing the number and general nature of all other boycott clauses and agreements entered into. An agreement to participate in or cooperate with an international boycott continues for the entire period that it is in effect and must be reported each year that it is in effect.

Part II - Requests for and Acts of Participation in or Cooperation With an International Boycott

Line 13a(1) and 13a(2)

Check Yes for any requests or agreements entered into or continuing in effect during the period covered by the report for any international boycott not excluded under U.S. approved boycotts on page 1. Also see Unsolicited invitation to bid on page 1. If no requests were received and no agreements were entered into or were not in effect, enter No.

Line 13b

Use a separate line for each country, person, and type of participation or cooperation. Do not use separate lines for similar types of participation or cooperation by the same person in the same country.

Column (2).   Enter the identifying number of the person receiving the request or having the agreement.

Columns (3) and (4).   Enter in column (3) the principal business activity code number (see the list beginning on page 5) of the person receiving the request or the person who has the agreement. Enter in column (4) a brief description of the principal business activity of that person.

Column (5).   IC-DISCs, enter the product code from line 1a, Schedule N, Form 1120-IC-DISC.

Columns (6) and (8).   Enter in column (6) the total number of requests of the same type that were received by the same person in the same country. Enter in column (8) the total number of agreements of the same type that were entered into by the same person in the same country.

Columns (7) and (9).   Enter in column (7) the code number listed below that indicates the type of participation or cooperation requested. Enter in column (9) the code number listed below that indicates the type of participation or cooperation agreed to.

Code Number	Type of Cooperation or Participation Requested or Agreed to
01	Refrain from doing business with or in a country that is the object of the boycott or with the government, companies, or nationals of that country.
02	Refrain from doing business with any U.S. person engaged in trade in a country that is the object of the boycott or with the government, companies, or nationals of that country.
03	Refrain from doing business with any company whose ownership or management is made up, in whole or in part, of individuals of a particular nationality, race, or religion, or to remove (or refrain from selecting) corporate directors who are individuals of a particular nationality, race, or religion.
04	Refrain from employing individuals of a particular nationality, race, or religion.
05	As a condition of the sale of a product to the government, a company, or a national of a country, to refrain from shipping or insuring products on a carrier owned, leased, or operated by a person who does not participate in or cooperate with an international boycott.

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 become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.

The time needed to complete and file this form and related schedules will vary depending on individual circumstances. The estimated average times are:

Form	Recordkeeping	Learning about the law or the form	Preparing and sending the form to the IRS
5713	22 hr., 0 min.	2 hr., 21 min.	4 hr.,1 min.
Sch. A (5713)	3 hr., 6 min.	12 min.	15 min.
Sch. B (5713)	3 hr., 21 min.	1 hr., 59 min.	2 hr., 7 min.
Sch. C (5713)	5 hr., 15 min.	1hr., 47 min.	1 hr., 57 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related schedules simpler, we would be happy to hear from you. You can write to the Tax Forms Committee, Western Area Distribution Center, Rancho Cordova, CA 95743-0001. Do not send the tax form to this office. Instead, see When and Where To File on page 1.

Codes for Principles Business Activity

First

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