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                                                                                                       Department of the Treasury
                                                                                                       Internal Revenue Service
2023

Instructions for Schedule I

(Form 1120-F)

Interest Expense Allocation Under Regulations Section 1.882-5

Section references are to the Internal Revenue allocation rules of Regulations section    Treaty-based return positions.     If the 
Code unless otherwise noted.                   1.882-5 are the exclusive rules for        corporation determines its interest 
                                               allocating interest expense under          expense attributable to its business 
Future Developments                            section 882(c) to ECI and for attributing  profits of a U.S. permanent 
                                               interest expense to business profits of a  establishment pursuant to the express 
For the latest information about               U.S. permanent establishment under all     provisions and accompanying 
developments related to Schedule I             income tax treaties other than treaties    documents of an applicable treaty, then 
(Form 1120-F) and its instructions, such       that, pursuant to their express            Schedule I still must be completed 
as legislation enacted after they were         provisions and accompanying                based on the treaty method used 
published, go to IRS.gov/Form1120F.            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 
identifies the various elections the           section 882(c) must complete               A foreign corporation is not required to 
taxpayer uses under Regulations                Schedule I to report this allocation,      file Schedule I if it (a) does not have a 
sections 1.882-5(a)(7) and (d)(5), and         regardless of whether the amount           trade or business within the United 
under the branch profits tax rules of          allocable under Regulations section        States, (b) has no worldwide interest 
Regulations section 1.884-1(e)(3).             1.882-5 is deductible in the current year, expense for the tax year to allocate 
                                               or is otherwise deferred or permanently    under Regulations section 1.882-5, or 
Note. The tax election under                   disallowed under other sections of the     (c) conducts limited activities in the 
Regulations section 1.884-1(e)(3) is not       Internal Revenue Code (for example,        United States for the tax year that it 
effectuated under the regulations by its       sections 163(e), 163(j), 263A, 265(a),     determines do not give rise to ECI or do 
identification on Schedule I (Form             and 267(a)(3)). The information            not give rise to a U.S. permanent 
1120-F). See Regulations section               reported on Schedule I is also needed      establishment to which business profits 
1.884-1(e)(3)(iv) for the time, place, and     to complete Form 1120-F, Section III       are attributable, and the corporation files 
manner for making the liability reduction      (the determination of the branch-level     a protective income tax return under 
election and the separate disclosures          interest tax under section 884(f)).        Regulations section 1.882-4(a)(3)(vi).
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           Form 1120-F must complete Schedule I       original due date (including extensions) 
effectively connected) with the conduct        and attach it to Form 1120-F.              of the corporation's Form 1120-F. The 
of a trade or business within the United                                                  protective elections are not effective if 
States is the sum of the interest              Reporting corporation. A reporting 
expense allocable by the foreign               corporation is any foreign corporation     filed during the additional extended 
corporation under the three-step               that is engaged in a trade or business or  period described under Regulations 
process set forth in Regulations               treated as engaged in a trade or           section 1.882-4(a)(3). The foreign 
sections 1.882-5(b), (c), and (d) or (e),      business within the United States          corporation need only complete the 
and the directly allocated interest            directly or indirectly at any time during  relevant portions of Schedule I that 
expense determined under Regulations           the tax year.                              identify its right to use the following 
                                                                                          elections:
section 1.882-5(a)(1)(ii). The interest 

Dec 6, 2023                                             Cat. No. 50606A

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

2                                                                                Instructions for Schedule I (Form 1120-F) (2023)

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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 determining the U.S.-booked liabilities of
formula under Regulations section Line 22. Direct interest banks under Regulations section
1.882-5. On page 1, the corporation is allocations. Interest expense that is 1.882-5(d)(2)(iii) requires that the
required to complete Step 1 (lines 1 directly allocable under Regulations corporation meet the section 585(a)(2)
through 5) to determine its average U.S. section 1.882-5(a)(1)(ii) in accordance regulated banking requirements in its
assets, Step 2 (lines 6 through 7c) to with the rules of Temporary Regulations trade or business within the United
determine its U.S.-connected liabilities, section 1.861-10T(b) or (c) is reported States. The section 585(a)(2) standard
and Step 3 (lines 8 and 9) to determine on line 22. 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 Foreign Corporations
calculation of the corporation's and reportable on line 22. The resulting
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 Determination of Total Value of
Regulations section 1.884-4(a)(2). on Form 1120-F, Section III, Part II, U.S. Assets
Line 8, column (c), and line 9, column line 7c (branch-level interest tax). Assets includible on lines 1 through 5
(c) are also included in the interest
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 Frequency of averaging. The average
regardless of whether the corporation interest deduction in whole or in part. value of assets for this step is to be
allocates interest expense under the See Regulations section 1.882-5(a)(5). computed at the most frequent, regular
AUSBL or Separate Currency Pools
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 Line 1. Under section 864(e)(2), the
corporation's required banking activities
to the general 5-year minimum period foreign corporation must value its U.S.
are effectively connected with its trade
election rules of Regulations section assets on lines 2 through 5, using the
or business within the United States.
1.882-5(a)(7). adjusted basis method as described in
The required banking activities need
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 Line 2, column (a). Total assets per
lines 1 through 15 and lines 21 through expense allocation purposes, the books. Enter the total average assets
25. Do not complete lines 16a through foreign corporation must be subject to derived from the combined set(s) of
20. bank regulatory supervision and books that are reportable on
examination in its home country of a Schedule L. The total average assets
Separate currency pools method type similar to that required of domestic include interbranch balances with other
filers. Separate Currency Pools banks by a State or Federal authority set(s) of books of the corporation that
method filers complete all columns on having supervision over banking are not reportable on Schedule L.
lines 1 through 9 and lines 16a through institutions, and a substantial amount of
25. Do not complete lines 10 through the corporation's business must consist Line 3a, column (a). Total inter-
15. of receiving deposits and making loans branch assets. Enter on line 3a,
Lines 21 through 25. Summary – In- and discounts, or of exercising fiduciary column (a), the total of the corporation's
terest expense allocation and de- powers similar to those permitted to average interbranch assets included on
national banks under authority of the line 2, column (a). The average

Instructions for Schedule I (Form 1120-F) (2023) 3

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

4                                                                            Instructions for Schedule I (Form 1120-F) (2023)

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

Instructions for Schedule I (Form 1120-F) (2023)                                                                                   5

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Note. A liability reduction election may    dealing regulations (for example,             Line 9. U.S.-Booked Interest 
be made only to the extent needed to        mark-to-market valuations of dealer           Expense
reduce a dividend equivalent amount         derivative securities may constitute 
under section 884(b) to zero. See           liabilities that are treated as               Line 9, column (a). Schedule L 
Regulations section 1.884-1(e)(3)(iv) for   U.S.-booked liabilities includible on         booked interest expense. Enter the 
the time, place, and manner for making      line 8, column (a)). Do not include           amount of third-party interest expense 
the liability reduction election and the    liability amounts on line 8a to the extent    from the Schedule L set(s) of books with 
separate disclosures required to be         they give rise to directly allocable          respect to liabilities reported on line 8, 
attached to Form 1120-F for each            interest under Regulations section            column (a). Do not include interest 
liability reduction election made.          1.882-5(a)(1)(ii) or are partnership          expense that is directly allocable under 
  If the corporation uses the Separate      liabilities includible in column (b).         Regulations section 1.882-5(a)(1)(ii), 
Currency Pools method for Step 3 (lines     • Corporations other than banks.              including the corporation's distributive 
16a through 20), the amount included        The definition of U.S.-booked liability for   share of direct interest expense 
on line 7b must also be allocated to        a foreign corporation other than a bank       allocations from partnerships otherwise 
determine the U.S.-connected liabilities    is described in Regulations section           reportable in column (b). All direct 
for each currency. See the instructions     1.882-5(d)(2)(ii). Liabilities reflected on   interest expense allocations to ECI are 
for lines 7c below and line 17b later. If   the Schedule L books must be recorded         reported on line 22.
no liability reduction election is made for on such books reasonably                      Line 9, column (b). U.S.-booked in-
the tax year, enter -0- on line 7b.         contemporaneous to the time the liability     terest expense from partnerships. 
                                            is incurred.                                  Enter on line 9, column (b), the portion 
Line 7c. U.S.-connected liabilities.        • Foreign banks. The liability recorded       of the amount from Schedule P (Form 
Subtract line 7b from line 7a and enter     on the set(s) of Schedule L books must        1120-F), line 8 (“Total” column) that is 
the amount on line 7c. The amount           be that of a foreign bank that conducts       interest expense on U.S.-booked 
entered is the amount of                    regulated banking operations in the           liabilities. Do not include interest 
U.S.-connected liabilities for purposes     United States as described in section         expense that is directly allocable under 
of determining the amount of interest       585(a)(2)(B). Note: This requirement          Regulations section 1.882-5(a)(1)(ii) 
expense allocable to ECI in Step 3. If      applies only for the determination of         from the corporation's distributive share 
the corporation uses the Separate           U.S.-booked liabilities and                   of a partnership's direct interest 
Currency Pools method for Step 3, the       corresponding U.S.-booked interest            expense allocations. All direct interest 
sum of all U.S.-connected liabilities       expense. It does not apply for other          expense allocations to ECI are reported 
shown on line 17b (including any            purposes such as determining the              on line 22.
statements for lines 16a through 19 for     eligibility for the fixed ratio under Step 2, 
additional separate currency pool           reportable on line 6d. The liability must     Line 9, column (c). Total U.S.-booked 
computations) must equal the amount         be recorded on the Schedule L books           interest expense.   Add the amounts on 
shown on line 7c after the liability        before the close of the day on which the      line 9, column (a), and line 9, column 
reduction election has been taken into      liability is incurred unless an inadvertent   (b), and enter the result on line 9, 
account.                                    error is shown under the facts and            column (c). This result is also required 
Lines 8 and 9. Step 3: Interest             circumstances. See the definition and         to be reported on Form 1120-F, 
                                            requirements for U.S.-booked liabilities      Section III, line 8. This amount plus 
Expense Allocation (Including               of foreign banks under Regulations            line 22 is the corporation’s tentative 
U.S.-Booked Liabilities and                 section 1.882-5(d)(2)(iii). Note: The         branch interest for purposes of the 
U.S.-Booked Interest Expense                section 585(a)(2)(B) standard also            branch level interest tax under 
Included in the Determination               applies for eligibility to reduce excess      Regulations section 1.884-4(b). See the 
of Branch Interest)                         interest using the deposit liability safe     instructions for Form 1120-F, Section III, 
                                            harbor under the branch-level interest        Part II, line 8.
Line 8. Average Third Party                 tax on excess interest under 
U.S.-Booked Liabilities                     Regulations section 1.884-4(a)(2)(iii).       Lines 10 Through 15. Step 
Line 8, column (a). Schedule L              Line 8, column (b). U.S.-booked lia-          3: Adjusted U.S.-Booked 
U.S.-booked liabilities. Enter on           bilities of partnership interests.            Liabilities Method
line 8, column (a), the average amount      Enter on line 8, column (b), the portion      If the amount on line 7c exceeds the 
of third-party U.S.-booked liabilities from of the amount from Sched ule P, line 11       amount on line 8, column (c), the 
the set(s) of books reportable on           (“Total” column) that constitutes U.S.        corporation has “excess interest” as 
Schedule L using the most frequent          booked liabilities under Regulations          defined in section 884(f)(1)(B). 
averaging period available but not less     section 1.882-5(d)(2). This amount is         Complete lines 10 through 13, and skip 
frequently than the minimum averaging       the corporation's average U.S.-booked         lines 14a and 14b. If the amount on 
periods required for U.S. assets            liabilities with respect to its distributive  line 7c is less than or equal to the 
reported on line 5. The average             share of liabilities during the averaging     amount on line 8, column (c), skip lines 
U.S.-booked liabilities include all         period from partnerships engaged in a         10 through 13, and complete the 
third-party liabilities on the set(s) of    trade or business or treated as engaged       determination of the scaling ratio on 
Schedule L books whether interest           in a trade or business within the United      lines 14a and 14b.
bearing or not. Exclude interbranch         States. The amount reportable on line 8, 
liabilities shown on the Schedule L         column (b), is the corporation's share of 
books unless such amounts are treated       partnership liabilities for which it is 
as allocations of third-party amounts       allocated a distributive share of interest 
with respect to a global dealing            expense. See Regulations section 
operation under the proposed global         1.884-1(d)(3)(vi).

6                                                                                 Instructions for Schedule I (Form 1120-F) (2023)

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Lines 10 Through 13. See Regulations section 1.882-5(d)(5) Lines 14a Through 15.
Computation of AUSBL Method (ii). Computation of AUSBL Method
Allocation With Excess Interest Line 10e. If the amount on line 10b is Allocation Under the
zero and the foreign corporation does Scale-Down Ratio
Line 10. Published rate election for not properly make or is not eligible to
banks. If the corporation is a foreign make the published rate election, enter If U.S.-connected liabilities on line 7c
bank that elects to compute excess on line 10e an interest rate that is are less than U.S.-booked liabilities on
interest under the AUSBL method using reasonable under the facts and line 8, column (c), the AUSBL method
the average published one-month Term circumstances. One reasonable allocation is subject to a “scale-down” of
Secured Overnight Financing Rate approach in determining such interest the U.S.-booked interest expense
published by the Chicago Mercantile rate would include using an interest rate reported on line 9, column (c). Complete
Exchange Group Benchmark that: lines 14a and 14b in lieu of lines 10
Administration, Ltd. (or any successor through 13. If line 7c exceeds line 8,
administrator) (“Term SOFR”) for the • Approximates the foreign column (c), leave lines 14a and 14b
taxable year, plus a static spread corporation's actual average U.S.-dollar blank.
adjustment of 0.11448% for the tax year borrowing rate with respect to
(or the transitional rate as explained in interest-bearing U.S.-dollar Line 14b. Scaled-down U.S. book in-
the "Note" below), check the box on denominated liabilities, and terest. Multiply the amount of U.S.
line 10 and skip lines 10a through 10c. • Is consistently applied by the foreign booked interest on line 9, column (c), by
Enter the published rate on line 10d. corporation from year to year. the scale-down ratio on line 14a, and
enter the result on line 14b. The
See Regulations section 1.882-5(d)(5) Examples of interest rates that would allocated amount is the total amount of
(ii)(B) for additional information. The generally be considered reasonable the AUSBL method allocation under
published rate election does not apply include the actual average interest rate Regulations section 1.882-5(d)(4). The
to corporations other than foreign on interest-bearing U.S.-dollar amount on line 14b does not include any
banks. For this purpose, the corporation denominated liabilities that are amount directly allocable to ECI under
is eligible to make the published rate U.S.-booked liabilities or an average Regulations section 1.882-5(a)(1)(ii).
election under the same standard that arm's length rate of interest that would
qualifies the corporation as a bank be charged to the foreign corporation on Hedging amounts. If the
eligible to make the 95% fixed ratio its interest-bearing U.S.-dollar corporation has income, expense, gain,
election in Regulations section denominated liabilities. A U.S.-dollar or loss from a hedging transaction of a
1.882-5(c)(4). The published rate borrowing rate of zero would generally U.S.-booked liability that gives rise to
election is an annual election. not be considered reasonable. interest expense subject to the
scale-down ratio, such hedging income,
Note. For a taxable year that includes If the rules set forth above apply to expense, gain, or loss amount is also
June 30, 2023, a taxpayer that makes the foreign corporation, attach a subject to reduction under the same
the annual published rate election must statement to Schedule I (Form 1120-F) scaling ratio reported on line 14a. See
compute the interest expense explaining how the interest rate entered Regulations section 1.882-5(d)(4) and
attributable to excess U.S.-connected on line 10e was derived. Proposed Regulations section
liabilities by ratably using the average 1.882-5(d)(2)(vi). Do not report such
30-day U.S. dollar London Interbank Line 12. Excess interest. Multiply the scale-down reductions of hedging
Offered Rate for the portion of its rate on line 10e by the amount of excess income, expense, gains, or losses on
taxable year ending on June 30, 2023, U.S.-connected liabilities on line 11 and line 14b. The ratio reported on line 14a
and the average one-month Term enter the result on line 12. This amount shall be applied to each type of item in
SOFR, plus a static spread adjustment is the corporation's excess interest accordance with its characterization and
of 0.11448%, for the portion of its expense portion of its overall the scaled down hedging income,
taxable year beginning on July 1, 2023. Regulations section 1.882-5 allocation expense, gain, or loss is reported on
that is allocable to ECI under the AUSBL Form 1120-F, Section II, in the
Lines 10a Through 10c. Excess method in Regulations section appropriate category to which the
Interest – Average Actual U.S. 1.882-5(d)(5). The amount on line 12 hedging item is characterized. For
Dollar Rate also constitutes the corporation's instance, periodic expense from an
excess interest under section 884(f)(1) interest rate notional principal contract
Line 10a. Actual U.S. dollar interest. (B). See Regulations section 1.884-4(a) hedging transaction that is recorded on
If the corporation does not properly (2). the set(s) of books reportable on
make or is not eligible to make a
published rate election for the tax year, Line 13. Interest expense allocation. Schedule L, and that is subject to the
enter the interest expense paid or Add the amount reported on line 12 and scaling ratio, is reported on Form
accrued by the corporation for the tax the amount of U.S.-booked interest 1120-F, Section II, line 27. Such amount
year on its average worldwide U.S. expense from line 9, column (c) and is also subject to reporting on
dollar liabilities, excluding U.S.-booked enter the result on line 13. This amount Schedule H (Form 1120-F), line 38a, as
liabilities included on line 8, column (c). is the corporation's total amount of allocable in part to ECI and in part to
interest expense allocable under the non-ECI in accordance with the scaling
Line 10b. Enter on line 10b the average three-step formula when ratio of line 14a.
worldwide U.S. dollar denominated U.S.-connected liabilities exceed
liabilities (whether or not interest U.S.-booked liabilities under the AUSBL
bearing) that are not U.S.-booked method. It does not include any
liabilities included on line 8, column (c). amounts directly allocable to ECI under
Regulations section 1.882-5(a)(1)(ii).

Instructions for Schedule I (Form 1120-F) (2023) 7

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Lines 16a Through 20. A transaction that hedges a U.S. allocation is made in additional
asset is taken into account for purposes columns. See Regulations section
Step 3: Separate Currency of determining the currency 1.882-5(e)(2). The worldwide interest
Pools Method denomination and the value of the U.S. expense in each currency pool includes
Corporations that allocate interest asset. See Regulations section interest expense in each currency that is
expense under a Separate Currency 1.882-5(e)(1)(i). recorded on the Schedule L books and
reportable on Schedule I, line 9, column
Pools election report the allocations Line 17b. U.S.-connected liabilities
(c).
under a three-step method for each per currency. Complete line 17b as
currency in which the corporation has follows: Line 18b. Worldwide average liabili-
U.S. assets (as defined in Regulations ties in each separate currency pool.
section 1.884-1(d)), on Schedule I, lines Determination of U.S.-connected Enter on line 18b the average liabilities
16a through 20. The amount of the liabilities if no U.S. liability reduction (whether or not interest bearing)
interest expense allocation is the sum of election is made. For each applicable denominated in each separate currency
the separate interest expense column, multiply the U.S. assets on pool. In column (a), enter the average
allocations in each currency. If the line 16a by the U.S.-connected liability worldwide liabilities (whether or not
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
Schedule I accommodates reporting Determination of U.S.-connected column other than column (a). In
of the interest expense allocations in liabilities if a U.S. liability reduction determining the average worldwide
four currencies (including the U.S. dollar election is made. If the corporation borrowing rate, the liabilities in each
and the foreign corporation's functional makes one or more U.S. liability currency pool include the amounts
currency). If the foreign corporation has reduction elections for the tax year recorded on the set(s) of books
U.S. assets in more than four currencies under Regulations section 1.884-1(e) reportable on Schedule L and included
that are not subject to a 3% currency (3), the total amount of the liability on Schedule I, line 8, column (c).
election, attach separate sheets using reduction shown on line 7b must be Determine the average third-party
the same size and format as shown on allocated to each of the separate liabilities using the most frequent
the schedule and provide the currency pools in proportion to the U.S. averaging period for which data is
information requested on lines 16a assets in each pool. The amount reasonably available in accordance with
through 19 on the attached sheets for all entered on line 17b for each column is the principles of Regulations sections
such additional currencies. Report on computed as: 1.882-5(b)(3) and (c)(2)(iv).
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
additional line 19 amounts shown on reduction election entered on line 7b each separate currency pool.
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
additional currencies). Enter in column computation and the allocation of the separate currency pool.
(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-
U.S. assets for which a 3% currency Line 18a. Worldwide book interest rency pools method. On line 20, enter
election is applicable for the tax year. In expense for each separate currency the sum of the amounts in each column
column (b), enter the average U.S. pool. Enter for each column on line 18a on line 19 (including amounts from
dollar value of U.S. assets denominated the corporation's worldwide interest line 19 of attached statement, if any).
in the corporation's home country expense paid or accrued for the tax year The amount on line 20 is the total
functional currency. Enter the average in the separate currency pool. In column amount of interest expense allocable to
U.S. assets of all other currency pools (a), enter the worldwide U.S. dollar ECI under the Separate Currency Pools
beginning with column (c). interest paid or accrued. For all other method. The amount on line 20 does
separate currency pools, enter the not include any amount of interest
Note. The sum of all U.S. assets in worldwide interest expense in the expense directly allocable under
columns (a) through (d) (and in any functional currency of the currency pool. Regulations section 1.882-5(a)(1)(ii).
columns shown on any attached Do not enter the U.S. dollar value of the
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
column (d). for which a separate currency pool

8 Instructions for Schedule I (Form 1120-F) (2023)

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Lines 21 Through 25. amount of interest expense taken into The amount reportable on line 24a is
account for branch-level interest tax included on Schedule M-3 (Form
Summary – Interest purposes under section 884(f)(1)(B) and 1120-F), Part III, line 26c, column (c).
Expense Allocation and Regulations section 1.884-4(a),
Deduction Under regardless of whether the deductibility Line 24b. Deferred interest
of such amount is temporarily deferred expense. Enter on line 24b the amount
Regulations Section or disallowed for allocation to of allocable interest expense on line 23
1.882-5 tax-exempt income (including treaty that is deferred as a deduction in the
Line 22. Interest expense directly al- exempt income). The amount reportable current tax year by a provision of the
locable under Regulations section on line 23 is reconciled and reported on Internal Revenue Code other than
1.882-5(a)(1)(ii). Enter the amount of Form 1120-F, Section III, line 7c, and on section 163(j) (for example, section
interest expense directly allocable to Schedule M-3 (Form 1120-F), Part III, 163(e) or section 267(a)(3)) but may be
ECI under Regulations section line 26b, columns (d) and (e). allowed as a deduction in a subsequent
tax year. Attach a statement indicating
1.882-5(a)(1)(ii), including such Line 24. Tax-exempt allocations, dis- the amount of current year deferral for
amounts from Schedule P (Form allowances, deferrals, and capitaliza- each applicable provision.
1120-F), line 7. A foreign corporation tion of interest expense allocation
that has a U.S. asset and indebtedness from line 23. The amount of interest Note. Enter all amounts on line 24b as
that meet the requirements of expense allocable to ECI entered on a negative amount. These line 24b
Temporary Regulations section line 23 is subject to additional rules that amounts are a reduction of the
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
The amount entered on line 23 is the deductible in the current tax year that

Instructions for Schedule I (Form 1120-F) (2023) 9

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was deferred in a prior tax year under a deductible in the current tax year that line 24g is also reported and reconciled
provision of the Internal Revenue Code was disallowed in a prior tax year under for its temporary and permanent
other than section 163(j) (for example, section 163(j). Attach Form 8990. differences on Schedule M-3 (Form
section 163(e) or section 267(a)(3)). 1120-F), Part III, line 26c, columns (b)
Attach a statement indicating the Note. Enter all amounts on lines 24e and (c). See the Instructions for
amount of current year deduction of a and 24f as positive amounts. These Schedule M-3 (Form 1120-F), Part III,
prior year deferral for each applicable amounts are treated as an increase to line 26c.
provision. the deductible interest expense for the
The amount reportable on line 24e is year. Line 25. Amount of allocation deduc-
tible on Form 1120-F, Section II,
included on Schedule M-3 (Form The amount reportable on line 24f is line 18. Combine lines 23 and 24g and
1120-F), Part III, line 26c, column (b). included on Schedule M-3 (Form enter the result on line 25. The result is
1120-F), Part III, line 26c, column (b).
Line 24f. Current year deduction the corporation's deductible amount of
of business interest expense Line 24g. Total deferrals and interest expense allocation for the tax
disallowed in a prior year under disallowances. Combine lines 24a year and is reportable on Form 1120-F,
section 163(j). Enter on line 24f the through 24f and enter the result on Section II, line 18.
amount of business interest expense line 24g. The amount entered on

10 Instructions for Schedule I (Form 1120-F) (2023)

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