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                                                                                                       Department of the Treasury
                                                                                                       Internal Revenue Service
2024

Instructions for Schedule I

(Form 1120-F)

Interest Expense Allocation Under Regulations Section 1.882-5

Section references are to the Internal Revenue effectively connected) with the conduct    Form 1120-F must complete Schedule I 
Code unless otherwise noted.                   of a trade or business within the United   and attach it to Form 1120-F.
                                               States is the sum of the interest 
                                                                                          Reporting corporation. A reporting 
Future Developments                            expense allocable by the foreign 
                                                                                          corporation is any foreign corporation 
                                               corporation under the three-step 
                                                                                          that is engaged in a trade or business or 
For the latest information about               process set forth in Regulations 
                                                                                          treated as engaged in a trade or 
developments related to Schedule I             sections 1.882-5(b), (c), and (d) or (e), 
                                                                                          business within the United States 
(Form 1120-F) and its instructions, such       and the directly allocated interest 
                                                                                          directly or indirectly at any time during 
as legislation enacted after they were         expense determined under Regulations 
                                                                                          the tax year.
published, go to IRS.gov/Form1120F.            section 1.882-5(a)(1)(ii). The interest 
                                               allocation rules of Regulations section    Treaty-based return positions.     If the 
What’s New                                     1.882-5 are the exclusive rules for        corporation determines its interest 
                                               allocating interest expense under          expense attributable to its business 
On page 7, the "Note" that was                 section 882(c) to ECI and for attributing  profits of a U.S. permanent 
previously included in the line 10             interest expense to business profits of a  establishment pursuant to the express 
instructions has been deleted because          U.S. permanent establishment under all     provisions and accompanying 
the "Note" only applied to tax years that      income tax treaties other than treaties    documents of an applicable treaty, then 
included June 30, 2023 (see                    that, pursuant to their express            Schedule I still must be completed 
Regulations section 1.882-5(d)(5)(ii)          provisions and accompanying                based on the treaty method used 
(B)).                                          documents, permit attribution of           (substituting the amount of assets, 
                                               business profits to a U.S. permanent       liabilities, and interest expense 
General Instructions                           establishment under application of the     determined under the treaty method for 
                                               OECD Transfer Pricing Guidelines, by       the amounts that would have been 
Purpose of Schedule                            analogy. If the foreign corporation files  reported under Regulations section 
Schedule I (Form 1120-F) is used to            its tax return using a treaty-based        1.882-5) and attached to Form 1120-F. 
report the amount of interest expense          method of the type provided in these       The corporation is also required to 
allocable to effectively connected             treaties, see Treaty-based return          complete and attach Form 8833, 
income (“ECI”) and the deductible              positions below for reporting              Treaty-Based Return Position 
amount of such allocation for the tax          requirements.                              Disclosure.
year under section 882(c) and 
Regulations section 1.882-5. The               Who Must File                              Exceptions From Filing 
schedule discloses the basic                   All foreign corporations that have         Schedule I
calculations for the year and also             interest expense allocable to ECI under    A foreign corporation is not required to 
identifies the various elections the           section 882(c) must complete               file Schedule I if it (a) does not have a 
taxpayer uses under Regulations                Schedule I to report this allocation,      trade or business within the United 
sections 1.882-5(a)(7) and (d)(5), and         regardless of whether the amount           States, (b) has no worldwide interest 
under the branch profits tax rules of          allocable under Regulations section        expense for the tax year to allocate 
Regulations section 1.884-1(e)(3).             1.882-5 is deductible in the current year, under Regulations section 1.882-5, or 
                                               or is otherwise deferred or permanently    (c) conducts limited activities in the 
Note. The tax election under                   disallowed under other sections of the     United States for the tax year that it 
Regulations section 1.884-1(e)(3) is not       Internal Revenue Code (for example,        determines do not give rise to ECI or do 
effectuated under the regulations by its       sections 163(e), 163(j), 263A, 265(a),     not give rise to a U.S. permanent 
identification on Schedule I (Form             and 267(a)(3)). The information            establishment to which business profits 
1120-F). See Regulations section               reported on Schedule I is also needed      are attributable, and the corporation files 
1.884-1(e)(3)(iv) for the time, place, and     to complete Form 1120-F, Section III       a protective income tax return under 
manner for making the liability reduction      (the determination of the branch-level     Regulations section 1.882-4(a)(3)(vi).
election and the separate disclosures          interest tax under section 884(f)). 
required to be attached to Form 1120-F         Interest expense that is treated as        Protective elections on protective re-
for each liability reduction election          “branch interest” under Regulations        turns. A corporation that files a 
made.                                          section 1.884-4(b) may be subject to       protective tax return on Form 1120-F 
                                               information reporting under section        under Regulations section 1.882-4(a)(3)
Under Regulations section 1.882-5,             1461 or section 6049 and potential         (vi) may voluntarily file Schedule I with 
the amount of interest expense of a            withholding under sections 1441 and        the protective return to preserve timely 
foreign corporation that is allocable          1442. A foreign corporation that is a      elections under Regulations section 
under section 882(c) to income which is        reporting corporation and required to file 1.882-5(a)(7) if the return is filed by the 
effectively connected (or treated as 

Oct 16, 2024                                            Cat. No. 50606A

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original due date (including extensions)     because Regulations section 1.882-5 is      Schedule M-3 (Form 1120-F), Part III, 
of the corporation's Form 1120-F. The        not applicable to the corporation until     line 26b, columns (d) and (e). The 
protective elections are not effective if    such second year. The elections used        amounts subject to deferral and 
filed during the additional extended         by a taxpayer for all years in which it     disallowance on Schedule I, lines 24a 
period described under Regulations           files Form 1120-F and reports ECI must      through 24f are reportable on 
section 1.882-4(a)(3). The foreign           be shown on Schedule I, including years     Schedule M-3 (Form 1120-F), Part III, 
corporation need only complete the           subsequent to the year in which an          line 26c, columns (b), (c), and (e).
relevant portions of Schedule I that         election under Regulations section 
                                                                                         Schedule P (Form 1120-F).       Enter 
identify its right to use the following      1.882-5(a)(7) is made.
                                                                                         amounts from Schedule P (Form 
elections:                                   A corporation that files a protective       1120-F), lines 13, 11, 8, and 7 on 
• The Adjusted U.S.-Booked Liability         return under Regulations section            Schedule I, line 5, column (b); line 8, 
(“AUSBL”) method or Separate Currency        1.882-4(a)(3)(vi) need not enter            column (b); line 9, column (b), and 
Pools method (item B checkboxes);            amounts on Schedule I in order to           line 22; respectively, making any 
• The actual or fixed ratio in Step 2        preserve an allocation method. If a         necessary adjustments to comply with 
(line 6 checkboxes);                         taxpayer files a protective return under    the rules in Regulations section 1.882-5.
• The published rate election for banks      Regulations section 1.882-4(a)(3)(vi) 
under the AUSBL method in Step 3             and does not file Schedule I to identify    Form 8990, Limitation on Business 
(line 10 checkbox); and                      the relevant elections under Regulations    Interest Expense Under Section 
• The de minimis foreign currency            section 1.882-5 for an applicable year,     163(j). Business interest expense 
election under the Separate Currency         then the Director of Field Operations is    includes any interest paid or accrued on 
Pools method in Step 3 (line 16b             authorized to make all applicable           indebtedness properly allocable to a 
checkbox).                                   allocation method elections on behalf of    trade or business. Business interest 
  The corporation need only identify         the corporation for such applicable year    expense is generally limited to the sum 
the protective election in the first year it if it is later determined that the taxpayer of business interest income, 30% of the 
is required to be made under                 was engaged in a trade or business or       adjusted taxable income, and floor plan 
Regulations section 1.882-5(a)(7) or in      treated as engaged in a trade or            financing interest. Form 8990 is 
any year a taxpayer is eligible to adopt     business within the United States and       required, unless an exception for filing is 
or change an election and chooses to         had ECI during the year.                    met. For more information, see section 
do so for that year. For example, an                                                     163(j), Form 8990, and the Instructions 
election to use the AUSBL method or          Note. Under Regulations section             for Form 8990.
the Separate Currency Pools method is        1.882-5(a)(7), no interest expense          Assets and Liabilities Based on 
an election that must generally be           allocation elections may be made on an 
maintained for a minimum 5-year period.      amended return. In addition, the relief     Schedule L Set(s) of Books and 
However, the election available to           for late tax elections provided under the   Records
foreign banks to use a published rate        rules of Regulations section 301.9100-1     Generally, the assets and liabilities 
under the AUSBL method in Step 3             (and any guidance promulgated               required to be reported on Schedule L 
must be made each year. If a                 thereunder) is not available.               are the total assets and liabilities 
                                                                                         reflected on the set(s) of books of the 
corporation is subject to Regulations        Other Forms and Schedules 
section 1.882-5 for the first time, the                                                  foreign corporation that give rise to 
election is due with an original timely      Related to Schedule I                       income effectively connected with the 
filed return (excluding the additional       Form 1120-F, Schedule L, and                corporation's trade or business within 
extended period provided by                  Schedule M-3 (Form 1120-F).       The       the United States and to U.S.-booked 
Regulations section 1.882-4(a)(3))           set(s) of books that give rise to           liabilities (as defined in Regulations 
whether or not the taxpayer files a          U.S.-booked liabilities under               section 1.882-5(d)(2)). The total assets 
protective return under Regulations          Regulations section 1.882-5(d)(2) are       and liabilities reflected on such books 
section 1.882-4(a)(3)(vi). The protective    the same set(s) of books and records        include the third party U.S. assets (as 
election need not be filed with              that are reportable as of the tax year      defined in Regulations section 
subsequent protective returns filed          end on Form 1120-F, Schedule L. They        1.884-1(d)) and third party liabilities 
under Regulations section 1.882-4(a)(3)      are also the same set(s) of books and       (whether with related or unrelated 
(vi) for any subsequent year to which the    records that are used by foreign banks      parties), as well as the interbranch 
minimum 5-year period applies.               to report income and expenses on            assets and liabilities and assets that 
However, the indication of the election      Schedule M-3 (Form 1120-F).                 give rise to noneffectively connected 
with a protective return is only effective                                               income in whole or in part. Such books 
for a year that the corporation is           Form 1120-F, Section III, Part II           reflect the assets of the foreign 
engaged in a trade or business or            (branch-level interest tax).  The           corporation located in the United States 
treated as engaged in a trade or             amount of interest expense from             and all other of its assets used in its 
business within the United States.           Schedule I, line 24g is reportable on       trade or business within the United 
Accordingly, if a protective election is     Form 1120-F, Section III, Part II, line 7b. States (other than its assets giving rise 
made for a first year protective return      The amount of the allocation under          to ECI under sections 864(c)(6) or (7)), 
and in fact the taxpayer is not engaged      Regulations section 1.882-5 reportable      as authorized under Regulations section 
in a trade or business or treated as         on Schedule I, line 23 is reportable on     1.6012-2(g)(1)(iii). A foreign corporation 
engaged in a trade or business until the     Form 1120-F, Section III, Part II, line 7c. may instead report its worldwide assets, 
second year of activity within the United    Schedule M-3 (Form 1120-F), Part III,       liabilities, and equity on Schedule L.
States, the protective election made in      lines 26b and 26c. The amount of            If the foreign corporation has more 
the first year is not effective for the      interest expense allocation reportable      than one set of books and records 
corporation's second year of activity        on Schedule I, line 23 is includible on     relating to assets located in the United 

2                                                                              Instructions for Schedule I (Form 1120-F) (2024)

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States or assets used in a trade or method filers complete all columns on having supervision over banking
business conducted in the United lines 1 through 9 and lines 16a through institutions, and a substantial amount of
States, it must report the combined 25. Do not complete lines 10 through the corporation's business must consist
amounts on Schedule L and must 15. of receiving deposits and making loans
eliminate asset and liability amounts and discounts, or of exercising fiduciary
Lines 21 through 25. Summary – In-
recorded between these books. powers similar to those permitted to
terest expense allocation and de-
national banks under authority of the
Required Reporting on duction under Regulations section
Comptroller of the Currency. See
Schedule I 1.882-5. All corporations required to file
sections 581 and 585(a)(2).
Schedule I must report the summary
Lines 1 through 9. Schedule I requires amounts requested on lines 21 through Note. The reference to the definition of
disclosure of data and interest allocation 25. the term “bank” for purposes of
elections for all parts of the three-step
formula under Regulations section Line 22. Direct interest determining the U.S.-booked liabilities of
1.882-5. On page 1, the corporation is allocations. Interest expense that is banks under Regulations section
required to complete Step 1 (lines 1 directly allocable under Regulations 1.882-5(d)(2)(iii) requires that the
through 5) to determine its average U.S. section 1.882-5(a)(1)(ii) in accordance corporation meet the section 585(a)(2)
assets, Step 2 (lines 6 through 7c) to with the rules of Temporary Regulations regulated banking requirements in its
determine its U.S.-connected liabilities, section 1.861-10T(b) or (c) is reported trade or business within the United
and Step 3 (lines 8 and 9) to determine on line 22. States. The section 585(a)(2) standard
must also be satisfied at the
its U.S.-booked liabilities under Line 23. Summary of Regulations corporation's U.S. trade or business
Regulations section 1.882-5(d)(2) and section 1.882-5 allocation. The level for purposes of electing the deposit
its related U.S.-booked interest amount of interest expense allocable to liability safe harbor applicable to the
expense. The total on line 9, column (c) ECI under Regulations section 1.882-5 reduction of excess interest under
is also used for purposes of determining is the sum of the amount allocated Regulations section 1.884-4(a)(2)(iii).
the corporation's branch interest under under either the AUSBL or Separate
section 884(f)(1)(A) and Regulations Currency Pools method on line 15 or 20, Lines 1 Through 9: All
section 1.884-4(b), and in the and the amount directly allocated to ECI
calculation of the corporation's and reportable on line 22. The resulting Foreign Corporations
branch-level interest tax on excess amount allocable and reported on Lines 1 Through 5. Step 1:
interest under section 884(f)(1)(B) and line 23 is also reconciled and reported
Regulations section 1.884-4(a)(2). on Form 1120-F, Section III, Part II, Determination of Total Value of
Line 8, column (c), and line 9, column line 7c (branch-level interest tax). U.S. Assets
(c) are also included in the interest Assets includible on lines 1 through 5
expense allocation computation in Step Line 24. Deferrals and are the U.S. assets of the corporation as
3 of the AUSBL method if elected by the disallowances under other Code defined in Regulations sections
corporation. sections. The interest expense 1.882-5(b) and 1.884-1(d). The U.S.
allocation reportable on line 23 is assets are valued on an average basis
Lines 1 through 9 must be determined under Regulations section for interest expense allocation
! completed by all corporations 1.882-5 before application of other purposes.
CAUTION required to file Schedule I,
Code sections that defer or disallow the
regardless of whether the corporation interest deduction in whole or in part. Frequency of averaging. The average
allocates interest expense under the See Regulations section 1.882-5(a)(5). value of assets for this step is to be
AUSBL or Separate Currency Pools computed at the most frequent, regular
method for the applicable year. intervals for which data is reasonably
Specific Instructions available. For large banks (as defined in
Lines 10 through 20. Allocations, di- section 585(c)(2)) and dealers in
Item A. Foreign banks. Check the box
rect interest allocations, deferrals, securities (within the meaning of section
in item A if the foreign corporation is a
and other disallowances. Step 3 of 475) the minimum averaging period is
bank as defined in Regulations section
the AUSBL method is provided on lines monthly (beginning of tax year and
1.882-5(c)(4). The term “bank” is
10 through 15. Step 3 of the Separate monthly thereafter). For any other
defined in the regulation as a bank that
Currency Pools method is provided on taxpayer, the minimum averaging period
meets the statutory definition applicable
lines 16a through 20. These Step 3 is semi-annually (beginning, middle, and
to domestic banks (except for the fact
methods are mutually exclusive and end of the tax year). See Regulations
that the corporation is foreign) and
cannot both apply to the corporation in section 1.882-5(b)(3).
without regard to whether the
the same year. The methods are subject
corporation's required banking activities
to the general 5-year minimum period Line 1. Under section 864(e)(2), the
are effectively connected with its trade
election rules of Regulations section foreign corporation must value its U.S.
or business within the United States.
1.882-5(a)(7). assets on lines 2 through 5, using the
The required banking activities need adjusted basis method as described in
AUSBL method filers. AUSBL only be conducted on a worldwide Regulations section 1.882-5(b)(2)(i).
method filers complete all columns on basis. To qualify as a bank for interest
lines 1 through 15 and lines 21 through expense allocation purposes, the Line 2, column (a). Total assets per
25. Do not complete lines 16a through foreign corporation must be subject to books. Enter the total average assets
20. bank regulatory supervision and derived from the combined set(s) of
examination in its home country of a books that are reportable on
Separate currency pools method type similar to that required of domestic Schedule L. The total average assets
filers. Separate Currency Pools banks by a State or Federal authority include interbranch balances with other

Instructions for Schedule I (Form 1120-F) (2024) 3

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set(s) of books of the corporation that    Line 3c, column (a). Total other             reflects an investment in a disregarded 
are not reportable on Schedule L.          non-ECI assets. Enter on line 3c,            entity whose books are not reportable 
Line 3a, column (a). Total inter-          column (a), all other assets (or portion     on Schedule L, then the assets of the 
branch assets. Enter on line 3a,           thereof) included on line 2, column (a),     disregarded entity are not reported on 
column (a), the total of the corporation's that give rise to domestic or foreign        line 2, column (a). The amount of the 
average interbranch assets included on     source non-ECI. If income from a             investment in the disregarded entity that 
line 2, column (a). The average            security is treated as partially ECI and     is included in the total assets reported 
interbranch assets recorded on the         partially non-ECI under Regulations          on line 2, column (a), must be reversed 
set(s) of Schedule L books do not          section 1.864-4(c)(5)(ii), enter the         on line 3d, column (a), to reflect its 
create U.S. assets under Regulations       amount of the asset on line 3c, column       disregarded treatment in Regulations 
section 1.882-5(b)(1)(iv) and are          (a), in the proportion that the income,      section 1.882-5.
disregarded for purposes of the interest   gain, or loss from such asset that is        Line 3e, column (a). Adjustments for 
expense allocation rules.                  treated as non-ECI bears to the total        assets that give rise to direct inter-
                                           income, gain, or loss from such asset.       est expense allocations under Regu-
Note. If under Proposed Regulations        Do the same for the non-ECI portion of       lations section 1.882-5(a)(1)(ii). 
section 1.863-3(h) ("the proposed          any asset whose income is allocated          Enter on line 3e, column (a), the 
global dealing regulations"), which        under the proposed global dealing            average value of the portion of all assets 
references the Proposed Regulations        regulations or under an Advance Pricing      included on line 2 that give rise to direct 
section 1.482-8 principles), the           Agreement pursuant to a competent            interest expense allocations under 
corporation recognizes an amount           authority agreement. See Proposed            Regulations section 1.882-5(a)(1)(ii) in 
recorded as an interbranch asset, such     Regulations sections 1.884-1(d)(2)(vii)      accordance with the requirements of 
amount is treated as the allocation and    and 1.884-1(d)(2)(xi), Example 8. Attach     Temporary Regulations section 
source of third-party securities dealing   a statement which describes each type        1.861-10T(b) or (c), and Temporary 
income and is not eliminated from U.S.     of “other” non-ECI asset included on         Regulations section 1.861-10T(d). A 
assets on line 3a, column (a). Such        line 3c. For each type, show the             foreign corporation that allocates its 
interbranch assets are eliminated only     calculation of the amount included on        interest expense under the direct 
to the extent they are allocated under     line 3c for that type, including a total for allocation rules shall reduce the basis of 
the proposed global dealing regulations    each type.                                   the asset that meets the requirements of 
to foreign source non-ECI. The allocable   Line 3d, column (a). Adjustments for         Temporary Regulations section 
amount to non-ECI is eliminated from       amounts from partnerships and cer-           1.861-10T (b) or (c) by the principal 
U.S. assets on line 3c, column (a) (total  tain disregarded entities included on        amount of the indebtedness that meets 
other non-ECI assets).                     line 2, column (a). With respect to          the requirements of Temporary 
Line 3b, column (a). Total non-ECI         amounts from partnerships included on        Regulations section 1.861-10T (b) or 
assets under section 864(c)(4)(D).         line 2, column (a), all such amounts         (c). The amount of directly allocable 
Enter on line 3b, column (a), the          must be “backed out” on this line 3d,        interest under Regulations section 
average assets included on line 2,         column (a). Enter on line 3d, column (a),    1.882-5(a)(1)(ii) is reported on line 22.
column (a) that give rise to non-ECI       all amounts on the Schedule L books for      Line 3f, column (a). Other adjust-
received from foreign related              investments in partnerships (whether         ments to average assets included on 
corporations under section 864(c)(4)       recorded as an investment in the             line 2. Enter on line 3f, column (a), the 
(D). Such amounts include assets from      partnership interest or in the partnership   average asset balances for any other 
transactions with foreign related          assets) included on line 2, column (a).      amounts included on line 2, column (a), 
corporations that give rise to foreign                                                  that do not constitute U.S. assets as 
source dividends, interest, rents, or      Note. Partnership interests are              defined in Regulations section 
royalties, whether or not such amounts     reported in Step 1 as follows: The           1.884-1(d). Assets includible on this line 
are attributable to a U.S. office of the   corporation's adjusted outside basis in a    may include, for example, amounts with 
corporation under section 864(c)(5). A     partnership (from Schedule P (Form           respect to securities that are 
foreign related corporation is a foreign   1120-F), line 13, “Total” column) that is    marked-to-market for tax purposes 
corporation the taxpayer owns (under       treated as a U.S. asset under                under section 475 that are not 
section 958(a)) or is treated as owning    Regulations sections 1.882-5 and             marked-to-market on the set(s) of books 
(under section 958(b)) more than 50%       1.884-1(d)(3) is generally entered on        reported on line 2, column (a). If the 
of the total combined voting power of all  Schedule I (Form 1120-F), line 5,            mark-to-market amount includible for tax 
classes of stock entitled to vote. Enter   column (b).                                  purposes is an increase to the basis of 
the average asset number for assets        With respect to amounts from                 the assets included on line 2, column 
described in section 864(c)(4)(D) on       disregarded entities included on line 2,     (a), include such increase as a negative 
line 3b, column (a), regardless of         column (a), enter on line 3d, column (a),    number on line 3f, column (a). Similarly, 
whether such assets give rise to           any adjustment needed to reflect the         if the mark-to-market amount decreases 
non-ECI under another Code section or      following: Investments in disregarded        the basis of the assets included on 
regulation. For example, report income     entities should not be included on line 2,   line 2, column (a), include such 
that is non-ECI under section 864(c)(4)    column (a) if the set(s) of books are        decrease as a positive number on 
(D) on line 3b, column (a) even if such    reportable on Schedule L. Instead, the       line 3f, column (a). Other adjustments 
income is also not attributable to a U.S.  total assets of such disregarded entity's    for book-to-tax differences with respect 
office of a banking, financing, or similar Schedule L books should be combined          to asset values on line 2, column (a), 
business under Regulations section         on line 2, column (a), with all other        such as depreciation and amortization, 
1.864-6(b)(2)(ii)(b) and the principles of set(s) of books reportable on                are also reportable on line 3f, column 
Regulations section 1.864-4(c)(5)(ii).     Schedule L. If another Schedule L book       (a). Enter an aggregate net increase as 

4                                                                            Instructions for Schedule I (Form 1120-F) (2024)

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a negative number. Enter an aggregate       ECI under section 864(c)(6) or section       banks and insurance companies, the 
net decrease as a positive number.          864(c)(7). However, not all assets that      fixed ratio is 50%.
                                            give rise to ECI, including ECI 
Line 4, column (a). Combine lines 3a 
                                            recognized under section 864(c)(7), 
through 3f and enter the result on line 4,                                               Actual Ratio Filers — Regulations 
                                            constitute U.S. assets under 
column (a). The result on line 4, column                                                 Section 1.882-5(c)
                                            Regulations section 1.884-1(d). See 
(a), constitutes the total net adjustment 
                                            Regulations section 1.884-1(d)(2)(xi), 
to the average book assets from the                                                      Line 6a. Average worldwide liabili-
                                            Example 5, and Regulations section 
Schedule L set(s) of books reported on                                                   ties. Enter on line 6a the average 
                                            1.884-1(d)(5).
line 2, column (a).                                                                      worldwide liabilities as adjusted for U.S. 
                                            Line 5, column (d). Total average val-       tax principles for the year. The 
Line 5. Total Value of U.S. Assets          ue of U.S. assets included in Step 1.        corporation's worldwide liabilities 
for the Tax Year                            Combine the amounts on line 5,               include the liabilities of only the 
                                            columns (a), (b), and (c), and enter the     corporation filing the Form 1120-F, plus 
Line 5, column (a). Average U.S. as-        amount on line 5, column (d). This           the corporation's share of partnership 
sets on set(s) of Schedule L books.         amount is the total average value of the     liabilities and any liabilities of any 
Subtract the amount on line 4, column       corporation's U.S. assets included in        disregarded entities that are treated as 
(a), from line 2, column (a), and enter     Step 1 of the Regulations section            liabilities of the foreign corporation 
the amount on line 5, column (a). The       1.882-5 formula. If the corporation uses     under U.S. tax principles. The books of 
resulting amount is the total average       the Separate Currency Pools method to        the foreign corporation and any such 
value of U.S. assets under Regulations      allocate interest expense in Step 3 of       disregarded entities must be combined, 
section 1.884-1(d) included on the          the Regulations section 1.882-5              with applicable eliminating entries for 
Schedule L set(s) of books, excluding       formula, see the instructions for            transactions between them. See 
any partnership interests included on       line 16a, later. The amount on line 5,       Regulations section 1.882-5(c)(2)(viii). 
line 2.                                     column (d), is also reportable on            The classification of the worldwide 
                                            Schedule H (Form 1120-F), line 22a.          liabilities is determined under U.S. tax 
Line 5, column (b). Average value of                                                     principles. See Regulations section 
partnership interests that is a U.S.        Lines 6 Through 7c. Step 2:                  1.882-5(c)(2)(ii). The value of the 
asset.  Enter on line 5, column (b), the    Determination of                             worldwide liabilities must be determined 
amount from Schedule P (Form                                                             substantially in accordance with U.S. tax 
                                            U.S.-Connected Liabilities – 
1120-F), line 13 (“Total” column) that is                                                principles. Large banks (as defined in 
treated as a U.S. asset under               Regulations Section 1.882-5(c)               section 585(c)(2)) must average the 
Regulations sections 1.882-5 and            Line 6. Actual ratio or fixed ratio          worldwide liabilities using the beginning, 
1.884-1(d)(3). This amount is the sum of    method. Check the applicable box to          middle, and end of year values. 
the corporation's outside basis in          specify whether the corporation uses         Corporations other than large banks 
partnership interests as adjusted under     the actual ratio or the fixed ratio method   must average the worldwide liabilities 
Regulations section 1.884-1(d)(3). The      for the tax year to determine its            using the year-to-year values of its 
amount entered from Schedule P,             U.S.-connected liabilities in Step 2 of      liabilities.
line 13, may include the corporation's      the allocation formula. The amount of        Line 6b. Average worldwide assets. 
outside basis in partnerships whose         U.S.-connected liabilities is the total      Enter the average worldwide assets as 
book value is included on line 2, column    value of U.S. assets for the tax year        adjusted for U.S. tax principles on 
(a), as well as partnership interests       (line 5, column (d)) multiplied by the       line 6b, using the same nonconsolidated 
whose book value is not recorded on the     actual ratio or the applicable fixed ratio   books for reporting average worldwide 
Schedule L books and is not included        the corporation has timely elected and is    liabilities on line 6a. Transactions with 
on line 2, column (a).                      eligible to use for the tax year. The        disregarded entities included in the 
Line 5, column (c). Average U.S. as-        actual ratio or fixed ratio election must    actual ratio computation constitute 
sets not includible in set(s) of            be made on an original timely filed tax      interbranch transactions under U.S. tax 
Schedule L books reported on line 5,        return for the first year the corporation is principles and must be eliminated. See 
column (a), or from partnerships re-        subject to Regulations section 1.882-5       Regulations section 1.882-5(c)(2)(viii). 
ported on line 5, column (b).  Enter        and is subject to the minimum 5-year         Use the same averaging period 
on line 5, column (c), the average value    period under Regulations section             applicable to worldwide liabilities. If the 
of U.S. assets (other than the              1.882-5(a)(7). An election to change the     corporation uses the actual ratio 
corporation's outside basis in              method after such minimum 5-year             method, the amount entered on line 6b 
partnership interests that is a U.S.        period is also subject to the minimum        is also reported on Schedule H (Form 
asset) from set(s) of books that are not    5-year period.                               1120-F), line 22b.
reportable on Schedule L. Such assets       Actual ratio information. If the 
may generally include certain securities    corporation uses the actual ratio,           Fixed Ratio Filers — Regulations 
attributable to a U.S. office of a banking, complete lines 6a through 6c, and skip       Section 1.882-5(c)(4)
financing, or similar business under        line 6d.
Regulations section 1.864-4(c)(5)(iii)                                                   Line 7a. U.S.-connected liabilities be-
that are booked in a foreign bank's         Fixed ratio information. If the 
                                                                                         fore Regulations section 1.884-1(e)
home office or other foreign location.      corporation uses the fixed ratio, skip 
                                                                                         (3) election(s). Multiply the average 
Other assets reportable on line 5,          lines 6a through 6c, and enter the 
                                                                                         U.S. assets from line 5, column (d), by 
column (c), may generally also include      applicable fixed ratio on line 6d. For 
                                                                                         the ratio entered on line 6e and enter 
assets that are no longer held in           foreign banks (described in Regulations 
                                                                                         the result on line 7a. The result is the 
connection with a trade or business         section 1.882-5(c)(4)), the fixed ratio is 
                                                                                         amount of U.S.-connected liabilities 
within the United States that give rise to  95%. For corporations other than foreign 
                                                                                         determined before the application of any 

Instructions for Schedule I (Form 1120-F) (2024)                                                                                   5

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liability reduction election(s) made        reported on line 5. The average               share of liabilities during the averaging 
under Regulations section 1.884-1(e)        U.S.-booked liabilities include all           period from partnerships engaged in a 
(3).                                        third-party liabilities on the set(s) of      trade or business or treated as engaged 
                                            Schedule L books whether interest             in a trade or business within the United 
Line 7b. U.S. liability reduction elec-
                                            bearing or not. Exclude interbranch           States. The amount reportable on line 8, 
tion amount. Enter the total amount of 
                                            liabilities shown on the Schedule L           column (b), is the corporation's share of 
U.S. liability reductions made under 
                                            books unless such amounts are treated         partnership liabilities for which it is 
Regulations section 1.884-1(e)(3) for 
                                            as allocations of third-party amounts         allocated a distributive share of interest 
the current year.
                                            with respect to a global dealing              expense. See Regulations section 
Note. A liability reduction election may    operation under the proposed global           1.884-1(d)(3)(vi).
be made only to the extent needed to        dealing regulations (for example, 
reduce a dividend equivalent amount         mark-to-market valuations of dealer           Line 9. U.S.-Booked Interest 
under section 884(b) to zero. See           derivative securities may constitute          Expense
Regulations section 1.884-1(e)(3)(iv) for   liabilities that are treated as 
the time, place, and manner for making      U.S.-booked liabilities includible on         Line 9, column (a). Schedule L 
the liability reduction election and the    line 8, column (a)). Do not include           booked interest expense. Enter the 
separate disclosures required to be         liability amounts on line 8a to the extent    amount of third-party interest expense 
attached to Form 1120-F for each            they give rise to directly allocable          from the Schedule L set(s) of books with 
liability reduction election made.          interest under Regulations section            respect to liabilities reported on line 8, 
                                            1.882-5(a)(1)(ii) or are partnership          column (a). Do not include interest 
  If the corporation uses the Separate      liabilities includible in column (b).         expense that is directly allocable under 
                                            •
Currency Pools method for Step 3 (lines       Corporations other than banks.              Regulations section 1.882-5(a)(1)(ii), 
16a through 20), the amount included        The definition of U.S.-booked liability for   including the corporation's distributive 
on line 7b must also be allocated to        a foreign corporation other than a bank       share of direct interest expense 
determine the U.S.-connected liabilities    is described in Regulations section           allocations from partnerships otherwise 
for each currency. See the instructions     1.882-5(d)(2)(ii). Liabilities reflected on   reportable in column (b). All direct 
for lines 7c below and line 17b later. If   the Schedule L books must be recorded         interest expense allocations to ECI are 
no liability reduction election is made for on such books reasonably                      reported on line 22.
the tax year, enter -0- on line 7b.         contemporaneous to the time the liability 
Line 7c. U.S.-connected liabilities.        is incurred.                                  Line 9, column (b). U.S.-booked in-
Subtract line 7b from line 7a and enter     • Foreign banks. The liability recorded       terest expense from partnerships. 
the amount on line 7c. The amount           on the set(s) of Schedule L books must        Enter on line 9, column (b), the portion 
entered is the amount of                    be that of a foreign bank that conducts       of the amount from Schedule P (Form 
U.S.-connected liabilities for purposes     regulated banking operations in the           1120-F), line 8 (“Total” column) that is 
of determining the amount of interest       United States as described in section         interest expense on U.S.-booked 
expense allocable to ECI in Step 3. If      585(a)(2)(B). Note: This requirement          liabilities. Do not include interest 
the corporation uses the Separate           applies only for the determination of         expense that is directly allocable under 
Currency Pools method for Step 3, the       U.S.-booked liabilities and                   Regulations section 1.882-5(a)(1)(ii) 
sum of all U.S.-connected liabilities       corresponding U.S.-booked interest            from the corporation's distributive share 
shown on line 17b (including any            expense. It does not apply for other          of a partnership's direct interest 
statements for lines 16a through 19 for     purposes such as determining the              expense allocations. All direct interest 
additional separate currency pool           eligibility for the fixed ratio under Step 2, expense allocations to ECI are reported 
computations) must equal the amount         reportable on line 6d. The liability must     on line 22.
shown on line 7c after the liability        be recorded on the Schedule L books           Line 9, column (c). Total U.S.-booked 
reduction election has been taken into      before the close of the day on which the      interest expense.   Add the amounts on 
account.                                    liability is incurred unless an inadvertent   line 9, column (a), and line 9, column 
                                            error is shown under the facts and            (b), and enter the result on line 9, 
Lines 8 and 9. Step 3: Interest             circumstances. See the definition and         column (c). This result is also required 
Expense Allocation (Including               requirements for U.S.-booked liabilities      to be reported on Form 1120-F, 
U.S.-Booked Liabilities and                 of foreign banks under Regulations            Section III, line 8. This amount plus 
U.S.-Booked Interest Expense                section 1.882-5(d)(2)(iii). Note: The         line 22 is the corporation’s tentative 
                                            section 585(a)(2)(B) standard also            branch interest for purposes of the 
Included in the Determination               applies for eligibility to reduce excess      branch level interest tax under 
of Branch Interest)                         interest using the deposit liability safe     Regulations section 1.884-4(b). See the 
Line 8. Average Third Party                 harbor under the branch-level interest        instructions for Form 1120-F, Section III, 
U.S.-Booked Liabilities                     tax on excess interest under                  Part II, line 8.
                                            Regulations section 1.884-4(a)(2)(iii).
Line 8, column (a). Schedule L              Line 8, column (b). U.S.-booked lia-          Lines 10 Through 15. Step 
U.S.-booked liabilities. Enter on           bilities of partnership interests.            3: Adjusted U.S.-Booked 
line 8, column (a), the average amount      Enter on line 8, column (b), the portion      Liabilities Method
of third-party U.S.-booked liabilities from of the amount from Schedule P, line 11        If the amount on line 7c exceeds the 
the set(s) of books reportable on           (“Total” column) that constitutes U.S.        amount on line 8, column (c), the 
Schedule L using the most frequent          booked liabilities under Regulations          corporation has “excess interest” as 
averaging period available but not less     section 1.882-5(d)(2). This amount is         defined in section 884(f)(1)(B). 
frequently than the minimum averaging       the corporation's average U.S.-booked         Complete lines 10 through 13, and skip 
periods required for U.S. assets            liabilities with respect to its distributive 

6                                                                                 Instructions for Schedule I (Form 1120-F) (2024)

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lines 14a and 14b. If the amount on rate would include using an interest rate lines 14a and 14b in lieu of lines 10
line 7c is less than or equal to the that: through 13. If line 7c exceeds line 8,
amount on line 8, column (c), skip lines • Approximates the foreign column (c), leave lines 14a and 14b
10 through 13, and complete the corporation's actual average U.S.-dollar blank.
determination of the scaling ratio on borrowing rate with respect to Line 14b. Scaled-down U.S. book in-
lines 14a and 14b. interest-bearing U.S.-dollar terest. Multiply the amount of U.S.
Lines 10 Through 13. denominated liabilities, and booked interest on line 9, column (c), by
• Is consistently applied by the foreign the scale-down ratio on line 14a, and
Computation of AUSBL Method corporation from year to year. enter the result on line 14b. The
Allocation With Excess Interest allocated amount is the total amount of
Examples of interest rates that would
Line 10. Published rate election for generally be considered reasonable the AUSBL method allocation under
banks. If the corporation is a foreign include the actual average interest rate Regulations section 1.882-5(d)(4). The
bank that elects to compute excess on interest-bearing U.S.-dollar amount on line 14b does not include any
interest under the AUSBL method using denominated liabilities that are amount directly allocable to ECI under
the average published one-month Term U.S.-booked liabilities or an average Regulations section 1.882-5(a)(1)(ii).
Secured Overnight Financing Rate arm's length rate of interest that would Hedging amounts. If the
published by the Chicago Mercantile be charged to the foreign corporation on corporation has income, expense, gain,
Exchange Group Benchmark its interest-bearing U.S.-dollar or loss from a hedging transaction of a
Administration, Ltd. (or any successor denominated liabilities. A U.S.-dollar U.S.-booked liability that gives rise to
administrator) (“Term SOFR”) for the borrowing rate of zero would generally interest expense subject to the
taxable year, plus a static spread not be considered reasonable. scale-down ratio, such hedging income,
adjustment of 0.11448% for the tax year,
check the box on line 10 and skip lines If the rules set forth above apply to expense, gain, or loss amount is also
10a through 10c. Enter the published the foreign corporation, attach a subject to reduction under the same
rate on line 10d. See Regulations statement to Schedule I (Form 1120-F) scaling ratio reported on line 14a. See
section 1.882-5(d)(5)(ii)(B) for additional explaining how the interest rate entered Regulations section 1.882-5(d)(4) and
information. The published rate election on line 10e was derived. Proposed Regulations section
1.882-5(d)(2)(vi). Do not report such
does not apply to corporations other Line 12. Excess interest. Multiply the scale-down reductions of hedging
than foreign banks. For this purpose, the rate on line 10e by the amount of excess income, expense, gains, or losses on
corporation is eligible to make the U.S.-connected liabilities on line 11 and line 14b. The ratio reported on line 14a
published rate election under the same enter the result on line 12. This amount shall be applied to each type of item in
standard that qualifies the corporation is the corporation's excess interest accordance with its characterization and
as a bank eligible to make the 95% fixed expense portion of its overall the scaled down hedging income,
ratio election in Regulations section Regulations section 1.882-5 allocation expense, gain, or loss is reported on
1.882-5(c)(4). The published rate that is allocable to ECI under the AUSBL Form 1120-F, Section II, in the
election is an annual election. method in Regulations section appropriate category to which the
Lines 10a Through 10c. Excess 1.882-5(d)(5). The amount on line 12 hedging item is characterized. For
also constitutes the corporation's
Interest – Average Actual U.S. instance, periodic expense from an
excess interest under section 884(f)(1) interest rate notional principal contract
Dollar Rate (B). See Regulations section 1.884-4(a) hedging transaction that is recorded on
Line 10a. Actual U.S. dollar interest. (2). the set(s) of books reportable on
If the corporation does not properly Line 13. Interest expense allocation. Schedule L, and that is subject to the
make or is not eligible to make a Add the amount reported on line 12 and scaling ratio, is reported on Form
published rate election for the tax year, the amount of U.S.-booked interest 1120-F, Section II, line 27. Such amount
enter the interest expense paid or expense from line 9, column (c) and is also subject to reporting on
accrued by the corporation for the tax enter the result on line 13. This amount Schedule H (Form 1120-F), line 38a, as
year on its average worldwide U.S. is the corporation's total amount of allocable in part to ECI and in part to
dollar liabilities, excluding U.S.-booked interest expense allocable under the non-ECI in accordance with the scaling
liabilities included on line 8, column (c). three-step formula when ratio of line 14a.
Line 10b. Enter on line 10b the average U.S.-connected liabilities exceed
worldwide U.S. dollar denominated U.S.-booked liabilities under the AUSBL Lines 16a Through 20.
liabilities (whether or not interest method. It does not include any Step 3: Separate Currency
bearing) that are not U.S.-booked amounts directly allocable to ECI under
Pools Method
liabilities included on line 8, column (c). Regulations section 1.882-5(a)(1)(ii).
Corporations that allocate interest
See Regulations section 1.882-5(d)(5) Lines 14a Through 15. expense under a Separate Currency
(ii). Pools election report the allocations
Computation of AUSBL Method
under a three-step method for each
Line 10e. If the amount on line 10b is Allocation Under the
zero and the foreign corporation does currency in which the corporation has
not properly make or is not eligible to Scale-Down Ratio U.S. assets (as defined in Regulations
make the published rate election, enter If U.S.-connected liabilities on line 7c section 1.884-1(d)), on Schedule I, lines
on line 10e an interest rate that is are less than U.S.-booked liabilities on 16a through 20. The amount of the
reasonable under the facts and line 8, column (c), the AUSBL method interest expense allocation is the sum of
circumstances. One reasonable allocation is subject to a “scale-down” of the separate interest expense
approach in determining such interest the U.S.-booked interest expense allocations in each currency. If the
reported on line 9, column (c). Complete

Instructions for Schedule I (Form 1120-F) (2024) 7

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corporation makes a 3% currency ratio on line 17a and enter the amount interest bearing) denominated in U.S.
election under Regulations section on line 17b. The resulting amount dollars. For all other separate currency
1.882-5(e)(1)(i), check the box on constitutes the U.S.-connected liabilities pools, enter the average amount of
line 16b and include the U.S. dollar for each currency pool when the liabilities (whether or not interest
value of all currencies for which the 3% corporation does not make a U.S. bearing) denominated in the currency of
currency election applies in the U.S. liability reduction election under the currency pool. Do not enter the U.S.
dollar denominated column on line 16a. Regulations section 1.884-1(e)(3). dollar value of the currency pool for any
column other than column (a). In
Schedule I accommodates reporting Determination of U.S.-connected determining the average worldwide
of the interest expense allocations in liabilities if a U.S. liability reduction borrowing rate, the liabilities in each
four currencies (including the U.S. dollar election is made. If the corporation currency pool include the amounts
and the foreign corporation's functional makes one or more U.S. liability recorded on the set(s) of books
currency). If the foreign corporation has reduction elections for the tax year reportable on Schedule L and included
U.S. assets in more than four currencies under Regulations section 1.884-1(e) on Schedule I, line 8, column (c).
that are not subject to a 3% currency (3), the total amount of the liability Determine the average third-party
election, attach separate sheets using reduction shown on line 7b must be liabilities using the most frequent
the same size and format as shown on allocated to each of the separate averaging period for which data is
the schedule and provide the currency pools in proportion to the U.S. reasonably available in accordance with
information requested on lines 16a assets in each pool. The amount the principles of Regulations sections
through 19 on the attached sheets for all entered on line 17b for each column is 1.882-5(b)(3) and (c)(2)(iv).
such additional currencies. Report on computed as:
Schedule I, line 20, column (d), the total 1. The amount on line 16a multiplied Line 18c. Borrowing rate. Divide
results for all separate currency by the ratio on line 17a, less line 18a by line 18b. The result is the
allocations shown on line 19 for average worldwide borrowing rate for
columns (a) through (d), plus any 2. The amount of the liability each separate currency pool.
additional line 19 amounts shown on reduction election entered on line 7b
attached separate sheets (if any). multiplied by the proportion that the Line 19. Interest expense allocation
average U.S. assets in the separate by separate currency pool. For each
Line 16a. U.S. Assets — U.S. dollar currency pool bears to all of the U.S. column, multiply the amount on line 17b
value denominated in currency. assets in all separate currencies (that is, by the borrowing rate on line 18c and
Enter the U.S. dollar value of the the total average U.S. assets entered on enter the result on line 19. The amount
average amount of U.S. assets in the line 5, column (d)). on line 19 is the amount of interest
appropriate column (a) through (d) (or expense allocable to ECI in each
on the attached separate sheets for Attach a statement showing the separate currency pool.
additional currencies). Enter in column computation and the allocation of the
(a) the U.S. dollar denominated U.S. liability reduction election to each Line 20. Total interest expense allo-
assets, plus the U.S. dollar value of any separate currency pool. cable to ECI under the separate cur-
rency pools method. On line 20, enter
U.S. assets for which a 3% currency Line 18a. Worldwide book interest the sum of the amounts in each column
election is applicable for the tax year. In expense for each separate currency on line 19 (including amounts from
column (b), enter the average U.S. pool. Enter for each column on line 18a line 19 of attached statement, if any).
dollar value of U.S. assets denominated the corporation's worldwide interest The amount on line 20 is the total
in the corporation's home country expense paid or accrued for the tax year amount of interest expense allocable to
functional currency. Enter the average in the separate currency pool. In column ECI under the Separate Currency Pools
U.S. assets of all other currency pools (a), enter the worldwide U.S. dollar method. The amount on line 20 does
beginning with column (c). interest paid or accrued. For all other not include any amount of interest
separate currency pools, enter the expense directly allocable under
Note. The sum of all U.S. assets in worldwide interest expense in the Regulations section 1.882-5(a)(1)(ii).
columns (a) through (d) (and in any functional currency of the currency pool.
columns shown on any attached Do not enter the U.S. dollar value of the Lines 21 Through 25.
separate sheets) must equal the total functional currency pool in column (b) or
average U.S. assets entered on line 5, for any other non-U.S. dollar currencies Summary – Interest
column (d). for which a separate currency pool Expense Allocation and
A transaction that hedges a U.S. allocation is made in additional Deduction Under
asset is taken into account for purposes columns. See Regulations section
of determining the currency 1.882-5(e)(2). The worldwide interest Regulations Section
denomination and the value of the U.S. expense in each currency pool includes 1.882-5
asset. See Regulations section interest expense in each currency that is Line 22. Interest expense directly al-
1.882-5(e)(1)(i). recorded on the Schedule L books and locable under Regulations section
reportable on Schedule I, line 9, column
Line 17b. U.S.-connected liabilities 1.882-5(a)(1)(ii). Enter the amount of
(c).
per currency. Complete line 17b as interest expense directly allocable to
follows: Line 18b. Worldwide average liabili- ECI under Regulations section
ties in each separate currency pool. 1.882-5(a)(1)(ii), including such
Determination of U.S.-connected Enter on line 18b the average liabilities amounts from Schedule P (Form
liabilities if no U.S. liability reduction (whether or not interest bearing) 1120-F), line 7. A foreign corporation
election is made. For each applicable denominated in each separate currency that has a U.S. asset and indebtedness
column, multiply the U.S. assets on pool. In column (a), enter the average that meet the requirements of
line 16a by the U.S.-connected liability worldwide liabilities (whether or not Temporary Regulations section

8 Instructions for Schedule I (Form 1120-F) (2024)

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1.861-10T(b) or (c), as limited by may defer or disallow deductibility in allocation in determining the deductible
Temporary Regulations section whole or in part. interest expense for the year.
1.861-10T(d)(1), shall directly allocate The amount reportable on line 24b is
interest expense from such Line 24a. Tax-exempt allocations
indebtedness to income from such and other permanently disallowed included on Schedule M-3 (Form
asset in the manner and to the extent interest expense. Enter on line 24a 1120-F), Part III, line 26c, column (b).
provided in Temporary Regulations the amount of allocable interest Line 24c. Disallowed business
section 1.861-10T. expense on line 23 that is subject to interest expense under section
further allocation and apportionment to 163(j). Enter on line 24c the amount of
Note. See Temporary Regulations tax-exempt income under section 265 or allocable interest expense on line 23
section 1.861-10T(d) for rules requiring under the provisions of an applicable that cannot be deducted in the current
reductions in basis to assets required by income tax treaty. Attach a statement year because it is disallowed business
the direct interest allocation rules in showing how such allocation between interest expense under section 163(j).
Temporary Regulations section exempt and non-exempt ECI has been Attach Form 8990, Limitation on
1.861-10T(b) or (c). The rules of made. See Regulations section Business Interest Expense Under
Temporary Regulations section 1.882-5(a)(5) and Regulations section Section 163(j).
1.861-10T(c) apply only to non-financial 1.882-5(a)(8), examples (3) and (4).
institutions. Financial institutions are Treaty-exempt income may include Note. Enter all amounts on line 24c as
permitted to directly allocate interest income that is ECI under the force of a negative amount. These line 24c
expense only under the non-recourse attraction principle of section 864(c)(3) amounts are a reduction of the
indebtedness rules described in but which is business profits not allocation in determining the deductible
Temporary Regulations section attributable to a U.S. permanent interest expense for the year.
1.861-10T(b). establishment of the corporation under The amount reportable on line 24c is
an applicable treaty to which included on Schedule M-3 (Form
Line 23. Total interest expense allo- Regulations section 1.882-5 applies in 1120-F), Part III, line 26c, column (b).
cable to ECI under Regulations sec- determining the attributable business
tion 1.882-5. Add lines 21 and 22 and profits. For such treaties, the amount Line 24d. Capitalized interest
enter the result on line 23. This result is allocable to ECI reported on line 23 expense. Enter on line 24d the amount
the total amount of interest expense requires additional allocation and of allocable interest expense on line 23
allocable to ECI, including directly apportionment between taxable ECI and that is capitalizable (for example, under
allocated interest. This allocable amount treaty-exempt ECI under Regulations section 263A). Attach a statement
may not exceed the total interest section 1.882-5(a)(5). Also include on describing how such allocation has
expense paid or accrued by the line 24a any other interest expense that been made.
corporation. See Regulations section is permanently disallowed by a section
1.882-5(a)(3). The amount on line 23 of the Internal Revenue Code (for Note. Enter all amounts on line 24d as
does not include any interest expense example, section 163(f)(2)) or an a negative amount. These amounts are
that was allocable to ECI under income tax treaty. Include in the treated as a reduction of the allocation
Regulations section 1.882-5 in a attached statement the amount of in determining the deductible interest
previous tax year and was subject to interest expense disallowed for each expense for the year.
limitation and deferral by another applicable provision or income tax The amount reportable on line 24d is
section of the Internal Revenue Code in treaty. included on Schedule M-3 (Form
that previous tax year but deductible in 1120-F), Part III, line 26c, column (c).
the current tax year. If the corporation's Note. Enter all amounts on line 24a as
total interest expense paid or accrued is a negative amount. These line 24a Line 24e. Current year deduction
less than the amount of allocation that amounts are a reduction of the of interest expense deferred in a
would result by adding lines 21 and 22, allocation in determining the deductible prior year. Enter on line 24e the
enter such lesser amount on line 23. interest expense for the year. amount of allocable interest expense
deductible in the current tax year that
The amount entered on line 23 is the The amount reportable on line 24a is
was deferred in a prior tax year under a
amount of interest expense taken into included on Schedule M-3 (Form
provision of the Internal Revenue Code
account for branch-level interest tax 1120-F), Part III, line 26c, column (c).
purposes under section 884(f)(1)(B) and other than section 163(j) (for example,
Regulations section 1.884-4(a), Line 24b. Deferred interest section 163(e) or section 267(a)(3)).
regardless of whether the deductibility expense. Enter on line 24b the amount Attach a statement indicating the
of such amount is temporarily deferred of allocable interest expense on line 23 amount of current year deduction of a
or disallowed for allocation to that is deferred as a deduction in the prior year deferral for each applicable
tax-exempt income (including treaty current tax year by a provision of the provision.
exempt income). The amount reportable Internal Revenue Code other than The amount reportable on line 24e is
on line 23 is reconciled and reported on section 163(j) (for example, section included on Schedule M-3 (Form
Form 1120-F, Section III, line 7c, and on 163(e) or section 267(a)(3)) but may be 1120-F), Part III, line 26c, column (b).
Schedule M-3 (Form 1120-F), Part III, allowed as a deduction in a subsequent
line 26b, columns (d) and (e). tax year. Attach a statement indicating Line 24f. Current year deduction
the amount of current year deferral for of business interest expense
Line 24. Tax-exempt allocations, dis- disallowed in a prior year under
each applicable provision.
allowances, deferrals, and capitaliza- section 163(j). Enter on line 24f the
tion of interest expense allocation Note. Enter all amounts on line 24b as amount of business interest expense
from line 23. The amount of interest a negative amount. These line 24b deductible in the current tax year that
expense allocable to ECI entered on amounts are a reduction of the
line 23 is subject to additional rules that

Instructions for Schedule I (Form 1120-F) (2024) 9

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was disallowed in a prior tax year under Line 24g. Total deferrals and Line 25. Amount of allocation deduc-
section 163(j). Attach Form 8990. disallowances. Combine lines 24a tible on Form 1120-F, Section II,
through 24f and enter the result on line 18. Combine lines 23 and 24g and
Note. Enter all amounts on lines 24e line 24g. The amount entered on enter the result on line 25. The result is
and 24f as positive amounts. These line 24g is also reported and reconciled the corporation's deductible amount of
amounts are treated as an increase to for its temporary and permanent interest expense allocation for the tax
the deductible interest expense for the differences on Schedule M-3 (Form year and is reportable on Form 1120-F,
year. 1120-F), Part III, line 26c, columns (b) Section II, line 18.
The amount reportable on line 24f is and (c). See the Instructions for
included on Schedule M-3 (Form Schedule M-3 (Form 1120-F), Part III,
1120-F), Part III, line 26c, column (b). line 26c.

10 Instructions for Schedule I (Form 1120-F) (2024)

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