What is Form 1120-F?
Form 1120 F is known as Foreign Corporation Income Tax Return that is used mostly by corporates to file tax forms that require complex details such as disclosure of income, credits, gains, deductions, losses, and refundable credits. A foreign corporation bearing effective connections with the conduct of US trade or business has to pay its income tax by filing the IRS form 1120 F, these income taxes are paid following the foreign corporate income rate rather than the individual tax rate.
Furthermore, it involves examining and handling all the schedules that require entailed details like dividends, inclusions, calculation of tax liability, preparation of balance sheet, etc. Foreign corporations are subject to US taxation under the Effectively Connected Income (“ECI”) regulation of the Internal Revenue Code.
The foreign corporations can use this form to claim any refund that remains due, to transmit other forms related to foreign taxing, and to calculate any other foreign corporation’s branch profits, check their tax liability or tax excesses on interests under different sections.
Who needs to file Form 1120-F?
The parties who are required to file the Form 1120-F:
Corporations effectively engaged with a trade or business in the United States regardless of whether or not this connection gained any source of income from that trade or business or whether that income earned is exempted from US tax under a tax treaty.
- An entity that was not engaged in a connection with any trade or business in the US, but had earned an income from a U.S. source.
- A branch executive of QDD.
- A foreign corporation claiming for refund on an overpayment of tax for the fiscal year.
- A foreign corporation that claims the benefit of any deductions or credits made to the corporation.
- A foreign corporation that claims an overruled income treaty or modified provisions of the Internal Revenue Code concerning the income gained by the foreign corporation disclosed on the form 8833.
When to file Form 1120-F?
A foreign corporation with a business that is effectively engaged with the U.S., has to file Form 1120-F by the 15th of March that is the 15th day of the 4th month after the tax year. However, an extension can be granted to file the return for six months through the form 7004 extension request form. A foreign corporation that has no connection or fixed place of business in the U.S., must file by the 15th of June, the grant of extension can be requested through form 7004.
Where to file Form 1120-F?
Option for e-filing is available.
OR
The foreign corporation can file the form 1120-F through the following address:
Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409.
Why does the foreign corporation need to comply?
In any case, if the corporation fails to file the form 1120-F, the corporation will face heavy penalties. The regulation for penalties is the same as the form 1120-C. An accurate disclosure of the statement is a must to comply with these regulations to avoid the chance of the IRS rejecting the tax return.
Requirements to file the form 1120-F:
- The foreign corporation must fulfill the requirement of the Form 1120-F:
- Documental proof of withholding tax (Form 1042-S).
- On what ground was the refund claimed.
- Important tax certifications (Form W-8BEN-E).
- Any additional documentation to support the claim.
- Refund of backup of withholding tax.
- Refunds of US withholding.
Exception made by the IRS:
- A foreign corporation is exempted from filing the Form 1120-F only if the foreign corporation and its branches were not a QDD.
- The foreign corporation was not engaged in a U.S. trade or business during the year.
- The US tax amount was withheld at the source.
- U.S. source income of that foreign corporation is exempted from U.S. taxation as stated under section 881(c) or (d).
- Owns a beneficiary of an estate, has a trust engaged in a U.S. trade or business. However, this may not require the taxpayer to file the form.
Although, the extension warrants some time for the foreign corporations to file their taxes. However, Form 1120-F must be filed before the deadline and in an accurate and well-documented manner for a foreign corporation to claim deductions and credits against its ECI. Therefore, Form 1120-F is generally advised to be timely filed. An exception may only be provided to foreign corporations that have not yet filed the Form 1120-F for the coming tax year.
