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Department of the Treasury
Instructions for Form 5735 Internal Revenue Service

(Rev. January 2013)
American Samoa Economic Development Credit

Section references are to the Internal Revenue Code unless Alternative Minimum Tax
otherwise noted. Income eligible for the American Samoa economic development
credit is not taxed under the alternative minimum tax rules. See
What's New
Form 4626, Alternative Minimum Tax—Corporations.
Section 330 of the American Taxpayer Relief Act of 2012 has
modified and expanded the American Samoa economic Source of Gross Income, etc.
development credit for tax years beginning after December 31,
2011. This revision reflects those changes. For information on See sections 638, 861-864, and 936 to determine if the source
the credit for tax years beginning before January 1, 2012, see of gross income, deductions, and taxable income is in or outside
the March 2007 revision of Form 5735 and the separate American Samoa. Amounts received in American Samoa may
instructions. be considered sourced outside American Samoa if they are from
sources outside American Samoa and received from an
unrelated person in the active conduct of a trade or business.
General Instructions See section 936(b).

Purpose of Form Qualified Production
Form 5735 is used to figure the American Samoa economic Activities Income (QPAI)
development credit under section 30A. The credit is generally Note. For tax years beginning in 2012, the corporation does not
allowed against income tax imposed by Chapter 1 (see report its QPAI on Form 5735. However, the corporation must
Restrictions below for exceptions). have positive QPAI in order to qualify for the American Samoa
economic development credit. For tax years beginning in 2012,
Who Must File corporations should calculate their QPAI and keep it for their
A domestic corporation (other than an S corporation) must records in order to prove to the IRS (in the case of an audit) that
complete Form 5735 for each year the American Samoa they qualify for the credit.
economic development credit election is in effect. Figuring QPAI. QPAI is the excess (if any) of:
Where To File 1. Domestic production gross receipts (DPGR), over
Attach Form 5735 to the corporation's income tax return and file 2. The sum of:
the return with the Internal Revenue Service, P.O. Box 409101, a. Cost of goods sold allocable to DPGR, and
Ogden, UT 84409. b. Other expenses, losses, or deductions which are properly
allocable to DPGR.
Qualifying for the Credit
To qualify for the American Samoa economic development Oil-related qualified production activities income.
credit, a corporation must meet the qualified production activities Oil-related qualified production activities income is QPAI
income (QPAI) requirement. A corporation meets this attributable to the production, refining, processing,
requirement if it has qualified production activities income transportation, or distribution of oil or gas, or any primary product
(defined below). from oil or gas (section 927(a)(2)(C), as in effect before its
The corporation does not qualify for the American repeal).
Primary products from oil. Primary products from oil are
! Samoa economic development credit unless it has a crude oil and all products derived from the destructive distillation
CAUTION positive QPAI.
of crude oil, including volatile products, light oils such as motor
fuel and kerosene, distillates such as naphtha, lubricating oils,
Restrictions greases and waxes, and residues such as fuel oil.
The credit is not allowed against the following taxes: A product or commodity derived from shale oil, which would
1. Tax on accumulated earnings (section 531). be a primary product from oil if derived from crude oil, is
2. Personal holding company tax (section 541). considered a primary product from oil.
3. Additional tax for recovery of foreign expropriation losses Primary products from gas. Primary products from gas are
(section 1351). all gas and associated hydrocarbon components from gas or oil
wells, whether recovered at the lease or upon further
4. Recapture of investment credit (section 50). processing, including natural gas, condensates, liquefied
5. Recapture of low-income housing credit petroleum gases such as ethane, propane, and butane, and
(section 42(j)(4)(D)). liquid products such as natural gasoline.
6. Recapture of Indian employment credit See Temporary Regulations section 1.927(a)-1T(g)(2) for
(section 45A). additional information.

IC-DISC or FSC Domestic Production Gross Receipts (DPGR)
A corporation cannot take the American Samoa economic Generally, your gross receipts (defined later) derived from the
development credit for any tax year it is an IC-DISC or former following activities are DPGR.
IC-DISC, or for any tax year in which it owns stock in an IC-DISC 1. Construction of real property you perform in American
or FSC, or former IC-DISC or former FSC (section 936(f)). Samoa in your construction trade or business.

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2. Engineering or architectural services you perform in than natural gas), chemical, and similar property, such as steam,
American Samoa in your engineering or architectural services oxygen, hydrogen, or nitrogen.
trade or business for the construction of real property in Machinery, printing presses, transportation and office
American Samoa. equipment, refrigerators, grocery counters, testing equipment,
3. Any lease, rental, license, sale, exchange, or other display racks and shelves, and neon and other signs that are
disposition of the following. contained in or attached to a building constitute tangible
a. Qualifying production property you manufacture, produce, personal property.
grow or extract in whole or in significant part in American
Samoa. See Qualifying Production Property and Manufacturing, Note. Local law does not control whether property is tangible
Producing, Growing, or Extracting, below, for details. personal property.
b. Any qualified film you produce. See Regulations section 1.199-3(j)(2) for more information.
c. Electricity, natural gas, or potable water you produce in Computer software. In general, computer software includes
American Samoa. the following:
Any program, routine, or sequence of machine-readable code
In general, gross receipts derived from the following activities that is designed to cause a computer to perform a desired
are not DPGR. function or set of functions, and the documentation required to
Activities not attributable to the actual conduct of a trade or describe or maintain that program or routine. An electronic book
business. online or for download does not constitute computer software.
The sale of food and beverages you prepare at a retail Machine-readable code for (a) video games or similar
establishment. programs, (b) equipment that is an integral part of other property,
The lease, rental, or license of property between certain and (c) typewriters, calculators, adding and accounting
persons treated as a single employer. machines, copiers, duplicating equipment, and similar
The lease, rental, license, sale, exchange, or other disposition equipment, even if the program is not designed to operate on a
of land. computer as defined in section 168(i)(2)(B).
The transmission or distribution of electricity, natural gas, or Computer programs including, but not limited to, operating
potable water. systems, executive systems, monitors, compilers and
Advertising and product-placement; however, see translators, assembly routines, utility programs, and application
Regulations section 1.199-3(i)(5)(ii) for exceptions. programs.
Customer and technical support, telephone and other Any incidental and ancillary rights that are necessary for the
telecommunications services, online services (including Internet acquisition of the title to, the ownership of, or the right to use
access services, online banking services, providing access to computer software, and that are used only in connection with
online electronic books, newspapers, and journals) and other that specific software. These incidental and ancillary rights are
similar services; however, see Regulations section 1.199-3(i)(6) not included in the definition of a trademark or trade name under
(iii) for exceptions. Regulations section 1.197-2(b)(10)(i).
Gross receipts. Gross receipts include the following amounts Exception. Computer software does not include any data or
from your trade or business activities. information base unless the data or information base is in the
Total sales (net of returns and allowances). public domain and is incidental to a computer program.
Amounts received for services, not including wages received Example. If a word processing program includes a dictionary
as an employee. feature that may be used to spell-check a document, then the
Income from incidental or outside sources (including sales of entire program (including the dictionary feature) is a computer
business property). software program regardless of the form in which the dictionary
feature is maintained or stored.
Gross receipts are generally not reduced by the:
Cost of goods sold, or See Regulations section 1.199-3(j)(3) for more information.
Adjusted basis of property (other than capital assets) sold or Sound Recordings. Sound recordings include any works that
otherwise disposed of, if such property is described in section result from the fixation of a series of musical, spoken, or other
1221(a)(1) through (5). sounds. The definition of sound recordings is limited to the
master copy of the recordings (or other copy from which the
Allocation of gross receipts. You generally must allocate your holder is licensed to make and produce copies), and if the
gross receipts between DPGR and non-DPGR. Allocate gross medium (such as compact discs, tapes, or other
receipts using a reasonable method that accurately identifies phonorecordings) in which the sounds may be embodied is
gross receipts that are DPGR. However, if less than 5% of your tangible, then the medium is considered tangible personal
gross receipts are non-DPGR, you can treat all of your gross property.
receipts as DPGR. Also, if less than 5% of your gross receipts
are DPGR, you can treat all of your gross receipts as non-DPGR. Exception. Sound recordings do not include the creation of
copy-righted material in a form other than a sound recording,
For details, see Regulations section 1.199-1(d). such as lyrics or music composition.
See Regulations section 1.199-3(j)(4) for more information.
Qualifying Production Property
Qualified film. A qualified film is any motion picture film, video
The following are qualifying production property. tape, or live or delayed television programming, for which 50%
Tangible personal property. or more of the total compensation required to produce the film is
Computer software. paid for services performed by actors, production personnel,
Sound recordings. directors, and producers in American Samoa.
Tangible personal property. Tangible personal property A qualified film includes the copyrights, trademarks, or other
includes any tangible property other than land, buildings intangibles related to the film. Also, QPAI includes gross receipts
(including structural components), computer software, sound from the production of a qualified film regardless of the methods
recordings, qualified films, electricity, natural gas, or potable and means by which the film is distributed.
water. Tangible personal property also includes any gas (other

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See section 199(c)(6) and Regulations section 1.199-3(k) for You are engaged in the trade or business of farming and are
more information. not required to use the accrual method of accounting (see
section 447).
Manufacturing, Producing, Growing, or Extracting Your average annual gross receipts (defined below) are $5
million or less.
Manufacturing, producing, growing, and extracting (MPGE) You are eligible to use the cash method of accounting under
generally include the following trade or business activities. Rev. Proc. 2002-28. You can find Rev. Proc. 2002-28 on
Activities related to manufacturing, producing, growing, page 815 of I.R.B. 2002-18 at www.irs.gov/pub/irs-irbs/
extracting, installing, developing, improving, and creating irb02-18.pdf.
qualifying production property.
Making qualifying production property out of scrap, salvage, Under the small business simplified overall method, your total
or junk material, or from new or raw material by processing, cost of goods sold and other deductions, expenses, and losses
manipulating, refining, or changing the form of an article, or by are ratably apportioned between DPGR and non-DPGR based
combining or assembling two or more articles. on relative gross receipts.
Cultivating soil, raising livestock, fishing, and mining minerals.
Example. Your total cost of goods sold and other trade or
Storage, handling, or other processing activities (other than business deductions, expenses, or losses are $400 and do not
transportation activities) in American Samoa related to the sale, include a net operating loss deduction. You have $1,000 total
exchange, or other disposition of agricultural products, provided gross receipts and $750 DPGR. Your DPGR equal 75% of your
the products are consumed in connection with, or incorporated total gross receipts. Under the small business simplified overall
into, manufacturing, producing, growing, or extracting qualifying method, you subtract $300 ($400 × .75) of your total cost of
production property whether or not by the taxpayer. goods sold and other trade or business deductions, expenses,
For details, see Regulations section 1.199-3(e). or losses from your DPGR to figure your QPAI, which is $450
($750 minus $300).
Cost of Goods Sold Average annual gross receipts. For this purpose, your
Cost of goods sold is a component of QPAI and it includes the: average annual gross receipts are your average annual gross
Cost of goods sold to customers, and receipts for the preceding 3 tax years. If your business has not
Adjusted basis of non-inventory property you sold or been in existence for 3 tax years, base your average on the
otherwise disposed of in your trade or business. period it has existed. Include any short tax years by annualizing
the short tax year's gross receipts by (a) multiplying the gross
Allocation of cost of goods sold. Generally, you must receipts for the short period by 12 and (b) dividing the result by
allocate your cost of goods sold between DPGR and non-DPGR the number of months in the short period.
using a reasonable method. If you use a method to allocate
gross receipts between DPGR and non-DPGR, the use of a Oil-related production activities. If you have oil-related
different method to allocate cost of goods sold will not be qualified production activities income and you choose to use the
considered reasonable, unless it is more accurate. However, if small business simplified overall method, you must allocate part
you qualify to use the small business simplified overall method, of these costs to DPGR from oil-related production activities to
you can use it to apportion both cost of goods sold and other determine oil-related QPAI.
deductions, expenses, and losses between DPGR and
non-DPGR. Simplified Deduction Method
For details, see Regulations section 1.199-4. You generally can use the simplified deduction method to
Form W-2 wages. To determine the amount of Form W-2 apportion other deductions, expenses, and losses (but not cost
wages to include in cost of goods sold, see Wage expense of goods sold) between DPGR and non-DPGR if you meet either
included in cost of goods sold, later. of the following tests.
Your total trade or business assets at the end of your tax year
Other Deductions, Expenses, or Losses are $10 million or less.
Other deductions, expenses, or losses include all deductions, Your average annual gross receipts (defined above) are $100
expenses, or losses (other than cost of goods sold and million or less.
employee business expenses) from a trade or business. Under the simplified deduction method, your other trade or
Allocation and apportionment of other deductions, expen- business deductions, expenses, or losses are ratably
ses, or losses. You can generally use one of the following apportioned between DPGR and non-DPGR based on relative
three methods to allocate and apportion other trade or business gross receipts.
deductions, expenses, or losses between DPGR and Example. Your total other trade or business deductions,
non-DPGR. expenses, or losses are $400 and do not include a net operating
Small business simplified overall method. loss. You have $240 of cost of goods sold allocable to DPGR.
Simplified deduction method. You have $1,000 total gross receipts and $600 DPGR. Your
Section 861 method. DPGR equal 60% of your total gross receipts. Under the
However, do not allocate and apportion a net operating loss simplified deduction method, you subtract $240 ($400 × .60) of
deduction or deductions not attributable to the conduct of a trade your total other trade or business deductions, expenses, or
or business to DPGR under any of the methods. losses from your DPGR to figure your QPAI, which is $120 ($600
minus $240 minus $240).
Small Business Simplified Overall Method Oil-related production activities. If you have oil-related
You generally can use the small business simplified overall qualified production activities income and you choose to use the
method to apportion cost of goods sold and other deductions, simplified deduction method, you must allocate part of these
expenses, and losses between DPGR and non-DPGR if you costs to DPGR from oil-related production activities to determine
meet any of the following tests. oil-related QPAI.

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Section 861 Method b. Supplemental unemployment compensation benefits.
You do not have to meet any tests to use the section 861 c. Sick pay or annuity payments from which the recipient
method. Under the section 861 method, you generally must requested federal income tax withholding.
apply the rules of the section 861 regulations to allocate and 3. Subtract (2) from (1).
apportion other trade or business deductions, expenses, or 4. Add together any amounts reported in box 12 of the
losses between DPGR and non-DPGR. Section 199 is treated relevant Forms W-2 that are properly coded D, E, F, G, or S.
as an “operative section” described in Regulations section
1.861-8(f). 5. Add (3) and (4).
Tracking wages method. Under the tracking wages method,
For details, see Regulations section 1.199-4(d). Form W-2 wages are figured as follows.
For guidance on automatic approval to change certain 1. Add the amounts reported in box 1 of the relevant Forms
elections relating to the apportionment of interest expense and W-2 that are also wages for federal income tax withholding
research and experimentation expenditures, see Rev. Proc. purposes.
2006-42. You can find Rev. Proc. 2006-42 on page 931 of I.R.B. 2. Add any amounts reported in box 1 of the relevant Forms
2006-47 at www.irs.gov/pub/irs-irbs/irb06-47.pdf. W-2 that are both:
Oil-related production activities. If you have oil-related a. Wages for federal income tax withholding purposes, and
qualified production activities income, apply the rules of section b. Supplemental unemployment compensation benefits.
861 to determine the amount of other trade or business 3. Subtract (2) from (1).
deductions, expenses, or losses to deduct for purposes of
determining oil-related QPAI. 4. Add together any amounts reported in box 12 of the
relevant Forms W-2 that are properly coded D, E, F, G, or S.
Figuring Form W-2 Wages 5. Add (3) and (4).
You figure Form W-2 wages in two steps. First, you must Form W-2 wages paid to produce a qualified film. Form W-2
determine the amount of wages to classify as Form W-2 wages wages include compensation for services performed in
under Regulations section 1.199-2(e)(1). Second, you must American Samoa by actors, production personnel, directors, and
figure Form W-2 wages that are properly allocable to DPGR. producers to produce a qualified film. See Qualified film, earlier,
You can figure Form W-2 wages that are properly allocable to for more information.
DPGR using one of the safe harbor methods discussed under
Form W-2 Wages Allocable to DPGR, below. Also, you can use Form W-2 Wages
any reasonable method based on all the facts and Allocable to DPGR
circumstances.
After you calculate Form W-2 wages, as discussed above, you
You can use one of the following three methods to determine must figure Form W-2 wages that are properly allocable to
the amount of wages to classify as Form W-2 wages under DPGR.
Regulations section 1.199-2(e)(1).
Unmodified box method. You can figure Form W-2 wages that are properly allocable to
Modified box 1 method. DPGR under one of the following methods.
Tracking wages method. Small business simplified overall method safe harbor.
Wage expense safe harbor.
Relevant Forms W-2. To figure your Form W-2 wages, Any other reasonable method based on all the facts and
generally use the sum of the amounts you properly report for circumstances.
each employee on Form W-2, Wage and Tax Statement, for the
calendar year ending with or within your tax year. However, do Small business simplified overall method safe harbor. If
not use any amounts reported on a Form W-2 filed with the you use the small business simplified overall method to allocate
Social Security Administration more than 60 days after its due costs between DPGR and non-DPGR (see Small Business
date (including extensions). Simplified Overall Method, earlier), you can use the small
business simplified overall method safe harbor to determine the
Non-duplication rule. Amounts that are treated as Form W-2 amount of Form W-2 wages allocable to DPGR. Under this safe
wages for a tax year under any method cannot be treated as harbor method, the amount of Form W-2 wages that is properly
Form W-2 wages for any other tax year. Also, an amount cannot allocable to DPGR equals the proportion of DPGR to total gross
be treated as Form W-2 wages by more than one taxpayer. receipts.
Unmodified box method. Under the unmodified box method, Wage expense safe harbor. If you are using either the section
Form W-2 wages are the smaller of: 861 method of cost allocation under Regulations section
1. The sum of the amounts reported in box 1 of the relevant 1.199-4(d) or the simplified deduction method under Regulations
Forms W-2, or section 1.199-4(e), you determine the amount of wages properly
2. The sum of the amounts reported in box 5 of the relevant allocable to DPGR by multiplying the amount of wages for the
Forms W-2. tax year by the ratio of your wage expense included in
calculating QPAI for the tax year to your total wage expense
Modified box 1 method. Under the modified box 1 method, used in calculating your taxable income (or adjusted gross
Form W-2 wages are figured as follows. income) for the tax year without regard to any wage expenses
1. Add the amounts reported in box 1 of the relevant Forms disallowed by sections 465, 469, 704(d), or 1366(d).
W-2. If you use the section 861 method or the simplified deduction
2. Add all the amounts described below and included in method, you must use the same expense allocation and
box 1 of the relevant Forms W-2. apportionment methods that you use to determine QPAI to
allocate and apportion wage expense for purposes of the safe
a. Amounts not considered wages for federal income tax harbor.
withholding purposes.

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Wage expense included in cost of goods sold. After you The amount of allocable employee fringe benefit expenses
determine the amount of wages under the wage expense safe for a tax year is equal to the total amount of employee fringe
harbor, discussed earlier, you can allocate a portion of those benefit expenses (defined above) multiplied by a fraction. The
wages to cost of goods sold by any reasonable method based fraction consists of the corporation's qualified wages (defined
on the facts and circumstances. For example, you can include above) for the tax year, divided by the aggregate amount of
wage expense in cost of goods sold in proportion to (a) the wages paid or incurred by the corporation during the tax year.
amount of direct labor included in cost of goods sold, or (b) The allocable employee fringe benefit expenses cannot
section 263A labor costs (as defined in Regulations section exceed 15% of the corporation's qualified wages for the tax year.
1.263A-1(h) (4)(ii)) included in cost of goods sold. See
Regulations section 1.199-2(e)(2)(ii)(B) for more information. For more information, see section 936(i)(2).

More information. For more information on figuring your Form Lines 2–4
W-2 wages, see Regulations section 1.199-2 and Rev. Proc. Qualified tangible property means any tangible property used
2006-47. You can find Rev. Proc. 2006-47 on page 869 of I.R.B. by the corporation in the active conduct of a trade or business
2006-45 at www.irs.gov/pub/irs-irbs/irb06-45.pdf. within American Samoa.
For more information on figuring Form W-2 wages properly
allocable to DPGR, see Regulations section 1.199-2(e)(2). Short-life qualified tangible property is qualified tangible
property that is 3-year or 5-year property under section 168.
Specific Instructions Medium-life qualified tangible property is qualified tangible
property that is 7-year or 10-year property under section 168.
Note. Any wages or other expenses taken into account in
determining the American Samoa economic development credit Long-life qualified tangible property is qualified tangible
may not be taken into account in determining the research credit property that is not short-life or medium-life qualified tangible
under section 41. property.
For more information, see section 936(i)(4).
Line 1
Enter 60% of the sum of: Note. In the case of any qualified tangible property to which
The aggregate amount of the corporation's qualified wages for section 168 (as in effect before the date of enactment of the Tax
the tax year and Reform Act of 1986) applies, any references above to section
The allocable employee fringe benefit expenses of the 168 are to that Code section as then in effect.
corporation for the tax year.
For more information on depreciation, see the Instructions for
Qualified wages. Qualified wages are wages paid or incurred Form 4562 and Publication 946.
by the corporation during the tax year in connection with the
active conduct of a trade or business in American Samoa to an Line 7
employee for services performed in American Samoa, but only if Include the line 7 credit on your income tax return on the same
the services are performed while the employee's principal place line on which the qualified electric vehicle (QEV) credit is
of employment is in American Samoa. reported. Enter “Form 5735” and the amount next to the entry
The term “wages” generally means wages as defined in space for that line. On the 2012 Form 1120, the QEV is reported
section 3306(b), but without regard to any dollar limitation on Schedule J, line 5b. The credit must also be included on the
contained in that section. For this purpose, section 3306(b) is QEV line of the following forms as applicable: Form 3800, Form
applied as if the term “United States” includes American Samoa. 6478, Form 8835, Form 8860, Form 8910, Form 8911, and Form
See section 936(i)(1)(D)(ii) for a special rule for agricultural labor 8912.
and railway labor.
The wages that are taken into account for the tax year for any Paperwork Reduction Act Notice. We ask for the information
employee are limited to 85% of the old-age, survivors, and on this form to carry out the Internal Revenue laws of the United
disability insurance (OASDI) contribution and benefit base for States. You are required to give us the information. We need it to
the calendar year in which that tax year begins. The OASDI ensure that you are complying with these laws and to allow us to
contribution and benefit base for 2012 is $110,100 and for 2013 figure and collect the right amount of tax.
is $113,700.
You are not required to provide the information requested on
Special rules apply to part-time employees and employees a form that is subject to the Paperwork Reduction Act unless the
whose principal place of employment with the corporation is not form displays a valid OMB control number. Books or records
within American Samoa at all times during the tax year. relating to a form or its instructions must be retained as long as
For more information, see section 936(i)(1). their contents may become material in the administration of any
Internal Revenue law. Generally, tax returns are confidential, as
Allocable employee fringe benefit expenses. The total required by section 6103.
amount of employee fringe benefit expenses taken into account
in figuring the economic-activity limitation is the amount The time needed to complete and file this form will vary
deductible by the corporation in the tax year for: depending on individual circumstances. The estimated average
Employer contributions to stock bonus, pensions, time is: Recordkeeping, 7 hr., 53 min.; Learning about the
profit-sharing, or annuity plans, law or the form, 2 hr., 17 min.; and Preparing, copying,
Employer-provided health or accident plan coverage for the assembling, and sending the form to the IRS, 2 hr., 32 min.
employees, and
The cost of life or disability insurance provided to employees. If you have comments concerning the accuracy of these time
estimates or suggestions for making this form simpler, we would
Note. Any amount treated as qualified wages may not be be happy to hear from you. See the instructions for the tax return
treated as an employee fringe benefit expense. with which this form is filed.

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