Additional Information

Line 2. Show any tax-exempt interest received or accrued. Include any exempt-interest dividends received as a shareholder in a mutual fund or other regulated investment company.

Line 4. See section 542 for the definition of personal holding company and section 552 for the definition of foreign personal holding company. Also, see Personal Holding Companies and Foreign Personal Holding Companies on page 5 for information and other details if the FSC meets the definition of either.

Line 6. If the FSC owned at least a 10% interest, directly or indirectly, in any foreign partnership, attach a statement listing the following information for each foreign partnership.

1. Name and EIN (if any) of the foreign partnership;
2. Identify which, if any, of the following forms the foreign partnership filed for its tax year ending with or within the FSC's tax year: Form 1042, 1065 or 1065-B, or 8804;
3. Name of the tax matters partner (if any); and
4. Beginning and ending dates of the foreign partnership's tax year.

Line 7. Check the box on line 7 if the FSC elects under section 172(b)(3) to forego the carryback period for a net operating loss (NOL). To be valid, the election must be made by the due date (including extensions) for filing Form 1120-FSC. If the box is checked, do not attach the statement described in Temporary Regulations section 301.9100-12T(d).

Line 8. Enter the amount of the NOL carryover to the tax year from prior years, even if some of the loss is used to offset income on this return. The amount to enter is the total of all NOLs generated in prior years but not used to offset income (either as a carryback or carryover) to a tax year prior to 2001. Do not reduce the amount by any NOL deduction reported on line 19a, Part II of Schedule B.

Lines 9c and 10b(2). See Definition of a Foreign Sales Corporation (FSC) on page 2 of the instructions for definitions of qualifying foreign country and U.S. possession.

Line 10. All FSCs (except small FSCs) must answer these questions. For more information, see Foreign Management Rules on page 3 of the instructions.

Line 11. All FSCs (except small FSCs) must answer line 11b. Indicate how they met the foreign direct costs requirement of section 924(d) for all transactions that generated foreign trading gross receipts reported on lines 1 through 5 of Schedule B. Also, answer line 11a and/or line 11d to make an election to use either of the annual grouping election(s) indicated. See the instructions for Foreign Economic Process Rules on page 3 for details.

Schedule B

Taxable Income or (Loss)

Use Schedule B to compute taxable income from all sources.

Part I

Use Part I to compute net income attributable to nonexempt foreign trade income. Income and expenses on lines 1 through 15 are reported in column (a) if the administrative pricing rules were used in the transaction that produced the income.

Report in column (b) all foreign trade income from all transactions in which the administrative pricing rules were not used. Attach a schedule that shows the computation of the taxable and nontaxable income included on line 15, column (b). Include only the taxable amount on line 16.

Lines 1 through 5. Enter foreign trading gross receipts identified on lines 1 through 5. See section 924(a) and Foreign Trading Gross Receipts on page 3 of these instructions for receipts that are excluded and other details. Report commission income on line 1 or line 2 based on the sale, lease, or rental of property on which that commission arose.

Line 5. If the 50% gross receipts test of section 924(a)(5) is not met, report the FSC's gross receipts that would have otherwise qualified under that section on line 16, Schedule F, instead of line 5, Schedule B.

Lines 6b through 6h. See section 924(b)(2)(B) for the rules regarding the limitation on the amount of foreign trading gross receipts that a small FSC may take into account in determining its exempt foreign trade income.

Line 6d. Temporary Regulations section 1.921-1T(b)(5) indicates that, in the case of a small FSC having a short tax year, the dollar limitation reported on line 6b or 6c is to be prorated on a daily basis. A small FSC having a short tax year must divide the number of days in its short tax year by the number of days that would have made up a full tax year and enter the resulting fraction on line 6d as a decimal less than 1.00000.

Example. For its 2001 calendar year tax year, a small FSC has a short tax year of 73 days. The FSC enters 0.200 (73/365) on line 6d.

Line 6f. If commission income is reported in the total for line 6a of Schedule B, total receipts for purposes of line 6f are figured as follows:

1.	Enter total of columns (a) and (b), line 6a, Schedule B	1.	__________
2.	Enter total commission income reported on line 1 or line 2, Schedule B	2.	__________
3.	Subtract line 2 from line 1	3.	__________
4.	With respect to the commission income reported on line 2 above, enter total gross receipts on the sale, lease, or rental of property on which the commission income arose (section 927(b)(2))	4.	__________
5.	Add lines 3 and 4. Enter here and on line 6f, Schedule B	5.	__________

Line 6h. When making the line 6h allocation, allocate only the commission income from the gross receipts on line 4 above. If the small FSC's foreign trading gross receipts for the tax year (line 6f, Schedule B) exceed its allowable limitation (line 6e, Schedule B), the small FSC may select the gross receipts to which the limitation is allocated. In such a case, allocate the amount on line 6g between columns (a) and (b) on line 6h based on whether the administrative pricing rules were used for the gross receipts selected. See Regulations section 1.921-2(b) Q&A-4.

Part II

Line 19a. Net operating loss deduction. A FSC may use the net operating loss (NOL) incurred in one tax year to reduce its taxable income in another tax year. Generally, a FSC may carry an NOL back to each of the 2 years preceding the year of the loss and then carry any remaining amount over to each of the 20 years (15 years for NOLs incurred in tax years beginning before August 6, 1997) following the year of the loss (but see Waiving the carryback period below). For exceptions to the general rule, see Special carryback periods for certain losses below.

Enter on line 19a the total NOL carryovers from prior tax years, but do not enter more than the FSC's taxable income (after special deductions). An NOL deduction cannot be taken in a year in which the FSC has a negative taxable income. Attach a schedule showing the computation of the NOL deduction. Also complete line 8 in Additional Information on page 2 of the form.

For more information about NOLs and the NOL deduction, see Pub. 542, Corporations.

Carryback and carryover rules. To carry back the loss and obtain a quick refund of taxes, use Form 1139, Corporation Application for Tentative Refund. Form 1139 must be filed within 12 months after the close of the tax year of the loss. See section 6411 for details.

For carryback claims filed later than 12 months after the close of the tax year of the loss, file an amended Form 1120-FSC instead of Form 1139.

After the FSC applies the NOL to the first tax year to which it may be carried, the taxable income of that year is modified (as described in section 172(b)) to determine how much of the remaining loss may be carried to other years. See section 172(b) and the related regulations for details.

Special NOL rules apply when:

• An ownership change occurs (i.e., the amount of the taxable income of a loss corporation that can be offset by pre-change NOL carryovers is limited). See section 382 and the related regulations. Also see Temporary Regulations section 1.382-2T(a)(2)(ii), which requires that a loss corporation file an information statement with its income tax return for each tax year that it is a loss corporation and certain shifts in ownership occurred. See Regulations section 1.382-6(b) for details on how to make the closing-of-the-books election.
• A FSC acquires control of another corporation (or acquires its assets in a reorganization) and the amount of pre-acquisition losses that may offset recognized built-in gains is limited. See section 384.

Waiving the carryback period. A FSC may make an irrevocable election to forego the carryback period and instead carry the NOL forward to years following the year of the loss. To make this election, check the box on line 7 in Additional Information on page 2 of the form. To be valid, the election must be made by the due date (including extensions) for filing Form 1120-FSC.

Special carryback periods for certain losses. The regular 2-year carryback period generally does not apply to the following losses.

• Specified liability losses, including a product liability loss. The part of an NOL that is attributable to a specified liability loss may be carried back 10 years. The FSC may, however, elect to treat such a loss as if it were not a specified liability loss. If the FSC makes this election, the loss carryback period will be 2, 3, or 5 years, whichever applies. Make the election by attaching a statement to a timely filed return (including extensions, however, see Exception below). Also see section 172(b)(1)(C).

  Exception. If the FSC timely filed its return for the loss year without making the election for Specified liability losses above, the FSC may still make the election by filing an amended return within 6 months of the due date of the loss year return (excluding extensions). Attach the election to the amended return and write Filed pursuant to section 301.9100-2 on the election statement. File the amended return at the same address the original return was filed. Once made, the election is irrevocable.

• Eligible losses. The part of an NOL that is attributable to an eligible loss may be carried back 3 years. An eligible loss is an NOL attributable to a Presidentially declared disaster if, for the tax year in which the NOL arose, the FSC was a small business that met the gross receipts test of section 448(c). An eligible loss does not include any specified liability loss described above.

Line 19b. Dividends-received deduction. A FSC may be entitled to a deduction for dividends it receives from other corporations. Complete the worksheet below using the instructions on this page. Attach the completed worksheet to Form 1120-FSC.

Schedule E

Exemption Percentages Used in Figuring Exempt Foreign Trade Income

For purposes of the Note at the top of Schedule E, a C corporation is a corporation other than an S corporation. Shareholders, other than C corporations, are individuals, partnerships, S corporations, trusts, and estates.

Use lines 2a through 2d to figure the exemption percentage for foreign trade income determined by not using the administrative pricing rules. See section 923(a)(2).

Use lines 3a through 3d to figure the exemption percentage for foreign trade income that was determined by using the administrative pricing rules (see section 923(a)(3)). If a qualified cooperative is a shareholder of the FSC, see section 923(a)(4).

Schedule F

Net Income From Nonexempt Foreign Trade Income and Taxable Nonforeign Trade Income

Part I

Enter net income from nonexempt foreign trade income and related expenses in Part I.

Line 2. Enter FSC income that resulted from the FSC's cooperation with an international boycott. See section 927(e)(2) and Form 5713 and related schedules and instructions.

Line 3. Enter the amount, if any, paid for illegal payments, bribes, or kickbacks that the FSC paid, directly or indirectly, to government officials, employees, or agents. See section 927(e)(2).

Line 5. See the instructions for Schedule A before completing this line.

Part II

Enter the taxable portion of gross income of the FSC that was not derived from foreign trading gross receipts. This type of income includes:

• Small FSCs only. Amounts specifically excluded from foreign trade income because of the small FSC limitation (the amount by which line 6f of Schedule B exceeds line 6e of Schedule B). (Enter the excess, if any, on line 7 of Schedule F.)
• Investment type income. (Enter on lines 8 through 12 of Schedule F.)
• Income from property that is subsidized, deemed in short supply, or destined for use in the United States. (Enter on lines 13 and 14 of Schedule F.)
• Amounts from transactions that did not meet the foreign economic process requirements. (Enter on line 15 of Schedule F.)
• Other nonforeign trade income. (Enter on line 16 of Schedule F.)

For more details, see sections 924(f) and 927(a)(2) and (3).

Line 9. Complete the worksheet below to figure the total dividends to report on line 9. Attach the completed worksheet to Form 1120-FSC.

Line 18. Enter the deductions allocated or apportioned to income on line 17. Attach to Form 1120-FSC a schedule listing each type of deduction. Show deductions related to cost of goods sold separately. See the instructions for Schedule A on page 8 before completing this line.

Passive activity limitations. Section 469 generally limits the deduction of passive activity losses for closely held FSCs and FSCs that are personal service corporations. See section 469 and the Instructions for Form 8810 for details.

Instructions for Dividends and Dividends-Received Deduction Worksheet

Dividends and Dividends-Received Deduction Worksheet. Spans all 3 columns at the bottom of the next page.

For purposes of the 20% ownership test on lines 1 through 7, the percentage of stock owned by the FSC is based on voting power and the value of the stock. Preferred stock described in section 1504(a)(4) is not taken into account.

Line 1, Column (a)

Enter dividends (except those received on debt-financed stock acquired after July 18, 1984 - see section 246A) that:

• Are received from less-than-20%-owned domestic corporations subject to income tax and
• Qualify for the 70% deduction under section 243(a)(1).

Also include on line 1 dividends (except those received on debt-financed stock acquired after July 18, 1984) from a regulated investment company (RIC). The amount of dividends eligible for the dividends-received deduction under section 243 is limited by section 854(b). The FSC should receive a notice from the RIC specifying the amount of dividends that qualify for the deduction.

Report so-called dividends or earnings received from mutual savings banks, etc., as interest. Do not treat them as dividends.

Line 2, Column (a)

Enter dividends (except those received on debt-financed stock acquired after July 18, 1984) that are received from 20%-or-more-owned domestic corporations subject to income tax and that are subject to the 80% deduction under section 243(c).

Line 3, Column (a)

Enter dividends that are:

• Received on debt-financed stock acquired after July 18, 1984, from domestic and foreign corporations subject to income tax that would otherwise be subject to the dividends-received deduction under section 243(a)(1), 243(c), or 245(a). Generally, debt-financed stock is stock that the FSC acquired by incurring a debt (e.g., it borrowed money to buy the stock).
• Received from a RIC on debt-financed stock. The amount of dividends eligible for the dividends-received deduction is limited by section 854(b). The FSC should receive a notice from the RIC specifying the amount of dividends that qualify for the deduction.

Line 3, Columns (b) and (c)

Dividends received on debt-financed stock acquired after July 18, 1984, are not entitled to the full 70% or 80% dividends-received deduction. The 70% or 80% deduction is reduced by a percentage that is related to the amount of debt incurred to acquire the stock. See section 246A. Also, see section 245(a) before making this computation for an additional limitation that applies to dividends received from foreign corporations. Attach a schedule to Form 1120-FSC showing how the amount on line 3, column (c), was figured.

Line 4, Column (a)

Enter dividends received on the preferred stock of a less-than-20%-owned public utility that is subject to income tax and is allowed the deduction provided in section 247 for dividends paid.

Line 5, Column (a)

Enter dividends received on preferred stock of a 20%-or-more-owned public utility that is subject to income tax and is allowed the deduction provided in section 247 for dividends paid.

Line 6, Column (a)

Enter the U.S.-source portion of dividends that:

• Are received from less-than-20%-owned foreign corporations and
• Qualify for the 70% deduction under section 245(a). To qualify for the 70% deduction, the FSC must own at least 10% of the stock of the foreign corporation by vote and value.

Line 7, Column (a)

Enter the U.S.-source portion of dividends that are received from 20%-or-more-owned foreign corporations and that qualify for the 80% deduction under section 245(a).

Line 8, Column (c)

Limitation on dividends-received deduction. Generally, line 8 of column (c) may not exceed the amount on line 10 of the worksheet below. However, in a year in which an NOL occurs, this limitation does not apply even if the loss is created by the dividends-received deduction. See sections 172(d) and 246(b).

1.	Refigure line 18, Part II, Schedule B (page 3 of Form 1120-FSC) without any adjustment under section 1059 and without any capital loss carryback to the tax year under section 1212(a)(1)	1.	__________
2.	Multiply line 1 by 80%	2.	__________
3.	Add lines 2, 5, and 7, column (c), and the part of the deduction on line 3, column (c), that is attributable to dividends from 20%-or-more-owned corporations	3.	__________
4.	Enter the smaller of line 2 or 3. If line 3 is greater than line 2, stop here; enter the amount from line 4 on line 8, column (c), and do not complete lines 5-10 below	4.	__________
5.	Enter the total amount of dividends from 20%-or-more-owned corporations that are included on lines 2, 3, 5, and 7, column (a)	5.	__________
6.	Subtract line 5 from line 1	6.	__________
7.	Multiply line 6 by 70%	7.	__________
8.	Subtract line 3 above from line 8 of column (c)	8.	__________
9.	Enter the smaller of line 7 or line 8	9.	__________
10.	Dividends-received deduction after limitation (sec. 246(b)). Add lines 4 and 9. Enter the result here and on line 8, column (c)	10.	__________

Line 10, Column (a)

If the FSC claims the foreign tax credit, enter the tax that is deemed paid under sections 902 and 960. See sections 78 and 906(b)(4).

Line 11, Column (a)

Include the following:

1. Dividends (other than capital gain distributions reported on Schedule D (Form 1120) and exempt-interest dividends) that are received from RICs and that are not subject to the 70% deduction.
2. Dividends from tax-exempt organizations.
3. Dividends (other than capital gain distributions) received from a real estate investment trust that, for the tax year of the trust in which the dividends are paid, qualifies under sections 856 through 860.
4. Dividends not eligible for a dividends-received deduction because of the holding period of the stock or an obligation to make corresponding payments with respect to similar stock.

   Two situations in which the dividends-received deduction will not be allowed on any share of stock are:

   • If the FSC held the stock less than 46 days during the 90-day period beginning 45 days before the stock became ex-dividend with respect to the dividend (see section 246(c)(1)(A)) or
   • To the extent the FSC is under an obligation to make related payments for substantially similar or related property.
5. Any other taxable dividend income not properly reported above (including distributions under section 936(h)(4)).

   If patronage dividends or per-unit retain allocations are included on line 11, identify the total of these amounts in a schedule attached to Form 1120-FSC.

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