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PAGER/SGML Fileid:I5735.SGM ( 3-Apr-2007) (Init. & date)

Page 1 of 2 Instructions for Form 5735 16:13 - 3-APR-2007

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Department of the Treasury
Internal Revenue Service
Instructions for Form 5735

(Rev. March 2007)
American Samoa Economic Development Credit

Section references are to the Internal Revenue Code unless 2. Elected the benefits of the possessions credit,
otherwise noted. effective for its taxable year that includes Oct. 13, 1995.
What’s New
A corporation that acquires all of the assets of a trade
The American Samoa economic development credit has or business of an existing credit claimant will qualify as
replaced the possessions corporation tax credit for tax an existing credit claimant.
years beginning after December 31, 2005. For
information on the possessions corporation tax credit for Binding contract exception. For purposes of these
tax years beginning before January 1, 2006, see the rules, a corporation is treated as engaged in the active
April 2003 revision of Form 5735 and the Instructions for conduct of a trade or business within American Samoa
Form 5735. on October 13, 1995, if the corporation had in effect on
that date, and at all times thereafter, a binding contract
General Instructions for the acquisition of assets to be used in, or the sale of
property to be produced from, that trade or business.
Purpose of Form Substantial new line of business. A corporation that
Form 5735 is used to figure the American Samoa adds a substantial new line of business or that has a new
economic development credit under section 30A. The line of business that becomes substantial ceases to be
credit is generally allowed against income tax imposed by an existing credit claimant at the beginning of the tax
Chapter 1 (see Restrictions below for exceptions). year in which (a) it added the new line of business or (b)
the new line of business becomes substantial. For more
Who Must File information, see Regulations section 1.936-11.
A domestic corporation (other than an S corporation) that
is an existing credit claimant with respect to American Restrictions
Samoa must complete Form 5735 for each year the
American Samoa economic development credit election The credit is not allowed against the following taxes:
is in effect. 1. Tax on accumulated earnings (section 531).
2. Personal holding company tax (section 541).
3. Additional tax for recovery of foreign expropriation
Where To File
losses (section 1351).
Attach Form 5735 to the corporation’s income tax return 4. Recapture of investment credit (section 50).
and file the return with the Internal Revenue Service,
P.O. Box 409101, Ogden, UT 84409. 5. Recapture of low-income housing credit
(section 42(j)(4)(D)).
6. Recapture of Indian employment credit
Qualifying for the Credit (section 45A).
To qualify for the American Samoa economic
development credit, a corporation must meet all four of
the following requirements. IC-DISC or FSC
1. The corporation must have been an existing credit A corporation cannot take the American Samoa
claimant with respect to American Samoa. economic development credit for any tax year it is an
IC-DISC or former IC-DISC, or for any tax year in which it
2. The corporation must have elected the application
owns stock in an IC-DISC or FSC, or former IC-DISC or
of section 936 for its last tax year beginning before
former FSC (section 936(f)).
January 1, 2006.
3. The corporation must have derived 80% or more of
its gross income from sources in American Samoa during Alternative Minimum Tax
the applicable period (defined in the instructions for Income eligible for the American Samoa economic
Part I) immediately before the tax year ended. development credit is not taxed under the alternative
4. The corporation must have derived 75% or more of minimum tax rules. See Form 4626, Alternative Minimum
its gross income from the active conduct of a trade or Tax—Corporations.
business in American Samoa during the applicable
period (defined in the instructions for Part I) immediately
before the tax year ended. Source of Gross Income, etc.
See sections 638, 861-864, and 936 to determine if the
source of gross income, deductions, and taxable income
Existing Credit Claimant is in or outside the United States or American Samoa.
A corporation is an existing credit claimant with respect toAmounts received in the United States may be
American Samoa if the corporation: considered sourced outside the United States if they are
1. Was engaged in the active conduct of a trade or from sources outside the United States and received
business within American Samoa on October 13, 1995, from an unrelated person in the active conduct of a trade
and or business. See section 936(b).
Cat. No. 20920T

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Page 2 of 2 Instructions for Form 5735 16:13 - 3-APR-2007

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year, divided by the aggregate amount of wages paid or
Specific Instructions incurred by the corporation during the tax year.
The allocable employee fringe benefit expenses
Part I. Gross Income in Applicable cannot exceed 15% of the corporation’s qualified wages
for the tax year.
Period For more information, see section 936(i)(2).
Applicable period. The “applicable period” is generally
Lines 7–9
the shorter of 36 months or the period when the
corporation actively conducted a trade or business in Qualified tangible property means any tangible
American Samoa. property used by the corporation in the active conduct of
a trade or business within American Samoa.
Part II. American Samoa Economic Short-life qualified tangible property is qualified
tangible property that is 3-year or 5-year property under
Development Credit section 168.
Note.Any wages or other expenses taken into account Medium-life qualified tangible property is qualified
in determining the American Samoa economic tangible property that is 7-year or 10-year property under
development credit may not be taken into account in section 168.
determining the research credit under section 41. Long-life qualified tangible property is qualified
Line 6 tangible property that is not short-life or medium-life
qualified tangible property.
Enter 60% of the sum of:
•The aggregate amount of the corporation’s qualified For more information, see section 936(i)(4).
wages for the tax year and Note. In the case of any qualified tangible property to
•The allocable employee fringe benefit expenses of the which section 168 (as in effect before the date of
corporation for the tax year. enactment of the Tax Reform Act of 1986) applies, any
Qualified wages.Qualified wages are wages paid or references above to section 168 are to that Code section
incurred by the corporation during the tax year in as then in effect.
connection with the active conduct of a trade or business For more information on depreciation, see the
in American Samoa to an employee for services Instructions for Form 4562 and Publication 946.
performed in American Samoa, but only if the services
are performed while the employee’s principal place of Line 12
employment is in American Samoa. Include the line 12 credit on your income tax return on
The term “wages” generally means wages as defined the same line on which the qualified electric vehicle
in section 3306(b), but without regard to any dollar (QEV) credit is reported. Enter “Form 5735” and the
limitation contained in that section. For this purpose, amount next to the entry space for that line. On the 2006
section 3306(b) is applied as if the term “United States” Form 1120, the QEV is reported on Schedule J, line 5b.
includes American Samoa. See section 936(i)(1)(D)(ii) for The credit must also be included on the QEV line of the
a special rule for agricultural labor and railway labor. following forms as applicable: Form 3800, Form 6478,
Form 8835, Form 8860, Form 8910, Form 8911, and
The wages that are taken into account for the tax year Form 8912.
for any employee are limited to 85% of the old-age,
survivors, and disability insurance (OASDI) contribution Paperwork Reduction Act Notice.We ask for the
and benefit base for the calendar year in which that tax information on this form to carry out the Internal Revenue
year begins. The OASDI contribution and benefit base for laws of the United States. You are required to give us the
2006 is $94,200 and for 2007 is $97,500. information. We need it to ensure that you are complying
Special rules apply to part-time employees and with these laws and to allow us to figure and collect the
employees whose principal place of employment with the right amount of tax.
corporation is not within American Samoa at all times You are not required to provide the information
during the tax year. requested on a form that is subject to the Paperwork
For more information, see section 936(i)(1). Reduction Act unless the form displays a valid OMB
Allocable employee fringe benefit expenses. The total control number. Books or records relating to a form or its
amount of employee fringe benefit expenses taken into instructions must be retained as long as their contents
account in figuring the economic-activity limitation is the may become material in the administration of any Internal
amount deductible by the corporation in the tax year for: Revenue law. Generally, tax returns are confidential, as
•Employer contributions to stock bonus, pensions, required by section 6103.
profit-sharing, or annuity plans, The time needed to complete and file this form will
•Employer-provided health or accident plan coverage vary depending on individual circumstances. The
for the employees, and estimated average time is: Recordkeeping, 7 hr., 53
•The cost of life or disability insurance provided to min.; Learning about the law or the form, 2 hr., 17
employees. min.; and Preparing, copying, assembling, and
Note.Any amount treated as qualified wages may not be sending the form to the IRS, 2 hr., 32 min.
treated as an employee fringe benefit expense. If you have comments concerning the accuracy of
The amount of allocable employee fringe benefit these time estimates or suggestions for making this form
expenses for a tax year is equal to the total amount of simpler, we would be happy to hear from you. See the
employee fringe benefit expenses (defined above) instructions for the tax return with which this form is filed.
multiplied by a fraction. The fraction consists of the
corporation’s qualified wages (defined above) for the tax

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