Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.
Table of Contents
What is Form 1120-F?
Form 1120-F is a tax form that foreign companies use to report income they earn from US sources.
This form is essential for businesses based outside the US that have income connected to activities in the US.
Why do foreign companies need to file This Form?
By submitting this form, companies can accurately report their US-sourced income and claim any deductions or tax credits that can reduce their tax bill.
Not filing could lead to penalties, interest charges, or other issues with the IRS.
When should a foreign company file Form 1120-F?
Foreign companies must file Form 1120-F if they:
- Do Business in the US: If the company regularly sells products, provides services, or carries out any business activities in the US.
- Earn US-Connected Income: If the company earns income related to its US operations, like rent from US property or income from US partnerships.
What does the filing process look like?
- Header Information: Enter the company’s name, address, and Employer Identification Number (EIN). State the tax year.
- Part I – Income: Report all US income, like sales revenue or interest earned.
- Part II – Deductions: List business expenses, such as rent and salaries, that can be deducted.
- Part III – Tax and Payments: Calculate how much tax is owed after applying credits or payments.
- Part IV – Additional Information: Answer questions about the company’s US activities.
When is Form 1120-F’s filing deadline?
If the company follows a calendar year, the form is due by April 15th of the following year.
For companies that follow a fiscal year, the deadline is the 15th day of the fourth month after the fiscal year ends.
Can You Get an Extension?
Yes, if a company needs more time to file, it can request a six-month extension by submitting Form 7004.
What happens if you file Form 1120-F late?
If a company files late and owes taxes, it may face penalties. The typical penalty is 5% of the unpaid tax for each month the return is late, up to a maximum of 25% of the unpaid tax.
Where do you send Form 1120-F?
The form can be mailed to the Department of the Treasury, Internal Revenue Service Center, Ogden, UT 84201, USA.
If you’re using FedEx or UPS, send it to the Internal Revenue Service, 1973 Rulon White Blvd., Ogden, UT 84201, USA.
Can a foreign corporation file Form 1120-F electronically?
Yes, foreign corporations can file Form 1120-F online. Here’s a simple way to do it:
- Find an Authorized Provider: You need to use an IRS-approved e-file provider.
- Prepare the Form: Use tax software that supports Form 1120-F to complete it.
- Seek Help if Needed: A tax professional can guide you through the process.
- Submit Electronically: Follow the steps provided by the e-file provider to submit your form online.
What is ECI, and how does it relate to Form 1120-F?
Effectively Connected Income (ECI) is money a foreign corporation earns from its business activities in the United States.
This is important because if a foreign company has ECI, it must report this income using Form 1120-F and pay taxes.
How do you determine if a foreign corporation has ECI?
A foreign corporation has ECI if it:
- Does Business in the US: If it regularly sells products or services or operates within the US.
- Earns US-Based Income: This includes revenue from sales, services, or rents in the US.
- Meets Specific Tests: For example, the asset-use test or the business-activities test determines whether the income is connected to US business activities.
What deductions and credits are available for foreign corporations on Form 1120-F?
Deductions
Business Costs: These include salaries, rent, utilities, and office supplies.
- Depreciation: Writing off the cost of property used in the US over time.
- Interest: Deducting interest paid on loans used for the business.
- Taxes: State and local taxes related to US operations.
Credits
- Foreign Tax Credit: To avoid double taxation, this credit offsets US taxes with taxes paid to foreign countries.
- General Business Credits: These could include credits for research and development (R&D).
- Withholding Tax Credit: This reduces US tax by the amount withheld on US-sourced income.
