Instructions for Form

Instructions for Form

1120-FSC

(Rev. December 2025)

(Use with the December 2025 revision of Form 1120-FSC, and the September 2017

revision of separate Schedule P.)

U.S. Income Tax Return of a Foreign Sales Corporation

Section references are to the Internal Revenue Code

unless otherwise noted.

at the photographs and calling 1-800-THE-LOST

(1-800-843-5678) if you recognize a child.

Future Developments

The Taxpayer Advocate Service

For the latest information about developments related to

Form 1120-FSC and its instructions, such as legislation

enacted after they were published, go to IRS.gov/

Form1120FSC.

What’s New

Increase in penalty for failure to file. For tax returns

required to be filed in 2026, the minimum penalty for

failure to file a return that is more than 60 days late has

increased to the smaller of the tax due or $525. See

Penalty for late filing of return, later.

Electronic payments. If the corporation has access to

U.S. banking services or electronic payment systems, it

should use direct deposit for any refunds and pay

electronically for any payments, whenever possible.

Direct deposit. Direct deposit fields have been added

on page 1 of Form 1120-FSC (see lines 6c, 6d, and 6e). If

there is an overpayment on line 5, enter the amount the

corporation wants refunded on line 6b and complete the

direct deposit information on lines 6c, 6d, and 6e. Instead

of a direct deposit of the corporation’s refund, it can still

choose to have all or part of the overpayment credited to

next year’s estimated tax by completing line 6a. See

Line 5 Overpayment, later, for more information.

Making a payment. If there is a balance due on line 4,

go to IRS.gov/Payments for information on how to make a

payment. See Line 4 Payment of Tax Due, later, for more

details.

Reminders

Corporate alternative minimum tax (CAMT). For tax

years beginning after 2022, certain corporations must

determine whether they are subject to the new CAMT and

calculate CAMT if applicable. See the instructions for

Schedule J, line 4.

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Feb 6, 2026

The Taxpayer Advocate Service (TAS) is an independent

organization within the IRS that helps taxpayers and

protects taxpayer rights. TAS’s job is to ensure that every

taxpayer is treated fairly and knows and understands their

rights under the Taxpayer Bill of Rights.

As a taxpayer, the corporation has rights that the IRS

must abide by in its dealings with the corporation. TAS can

help the corporation if:

• A problem is causing financial difficulty for the business;

• The business is facing an immediate threat of adverse

action; or

• The corporation has tried repeatedly to contact the IRS

but no one has responded, or the IRS hasn’t responded

by the date promised.

TAS has offices in every state, the District of Columbia,

and Puerto Rico. Local advocates’ numbers are in their

local directories and at TaxpayerAdvocate.IRS.gov. The

corporation can also call TAS at 877-777-4778.

TAS also works to resolve large-scale or systemic

problems that affect many taxpayers. If the corporation

knows of one of these broad issues, please report it to

TAS through the Systemic Advocacy Management

System at IRS.gov/SAMS.

For more information, go to IRS.gov/Advocate.

General Instructions

Purpose of Form

Use Form 1120-FSC to report the income, gains, losses,

deductions, credits, and to figure the income tax liability

for a FSC.

FSC Repeal and Extraterritorial

Income Exclusion

In general, the FSC Repeal and Extraterritorial Income

Exclusion Act of 2000:

• Repealed the FSC rules;

• Provided taxpayers with an exclusion, which is figured

on Form 8873, Extraterritorial Income Exclusion, and;

• Provided transition rules for existing FSCs. These rules

are included in Rules for Existing FSCs, below.

Note: The American Jobs Creation Act of 2004 repealed

the extraterritorial income exclusion provisions generally

Instructions for Form 1120-FSC (Rev. 12-2025) Catalog Number 11532V

Department of the Treasury Internal Revenue Service www.irs.gov

for transactions after 2004, subject to a transition rule. See

the Instructions for Form 8873 for more information.

The Tax Increase Prevention and Reconciliation Act of

2005 repealed the FSC binding contract exception. See

Binding contract exception below for details.

Rules for Existing FSCs

In general, a FSC that was in existence on September 30,

2000, and at all times thereafter may continue to use the

FSC rules for any transaction in the ordinary course of

business that is (a) before January 1, 2002, or (b) after

December 31, 2001, if such transaction is pursuant to a

binding contract that meets the requirements described in

Binding contract exception below.

Binding contract exception. The binding contract

exception has been repealed for tax years beginning after

May 17, 2006.

For tax years beginning before May 18, 2006, the

following rules apply: The transaction must be pursuant to

a binding contract between the FSC (or a person related

to the FSC) and a person other than a related person if

that binding contract was in effect on September 30, 2000,

and has remained in effect.

A binding contract includes a purchase, renewal, or

replacement option that is enforceable against a lessor or

seller (provided the option is part of a contract that is

binding and in effect on September 30, 2000, and has

remained in effect).

The mere entering into of a single transaction, such as

a lease, would not, in and of itself, prevent the transaction

from being in the ordinary course of business.

Election To Apply Exclusion Rules

Taxpayers may elect to apply the extraterritorial income

exclusion rules instead of the FSC rules for transactions

occurring during the transition period. The election is:

• Made by checking the box on line 2 of Form 8873,

• Made on a transaction-by-transaction basis,

• Effective for the tax year for which it is made and for all

subsequent tax years, and

• Revocable only with the consent of the IRS.

Taxpayers use Form 8873 to determine their

extraterritorial income exclusion.

Election To Be Treated as a Domestic

Corporation

A FSC that was in existence on September 30, 2000, and

at all times thereafter may elect to be treated as a

domestic corporation if substantially all of its gross

receipts are foreign trading gross receipts. A FSC that

elects to be treated as a domestic corporation ceases to

be a FSC for any tax year for which the election applies

(and for any subsequent tax year).

The election is made by checking the box on line 3 of

Form 8873. An electing corporation files Form 1120, U.S.

Corporation Income Tax Return. Once made, the election

applies to the tax year for which it is made and remains in

effect for all subsequent years unless the election is

revoked or terminated. If the election is revoked or

2

terminated, the corporation would be a foreign corporation

that files Form 1120-F, U.S. Income Tax Return of a

Foreign Corporation. Furthermore, the foreign corporation

would not be eligible to reelect to be treated as a domestic

corporation for 5 tax years beginning with the first tax year

for which the original election is not in effect as a result of

the revocation or termination.

Effect of election. For purposes of section 367, a foreign

corporation that has elected to be a domestic corporation

is generally treated as transferring, as of the first day of

the first tax year to which the election applies, all of its

assets to a domestic corporation in an exchange under

section 354.

FSC Election

No corporation may elect to be a FSC or a small FSC

(defined below) after September 30, 2000.

Termination of Inactive FSCs

If a FSC has no foreign trade income (see definition under

Tax Treatment of a FSC, later) for any 5 consecutive tax

years beginning after December 31, 2001, the FSC will no

longer be treated as a FSC for any tax year beginning

after that 5-year period.

Additional Information

For additional information regarding the rules discussed

above, see Rev. Proc. 2001-37, 2001-1 C.B. 1327.

Pre-Repeal FSC Rules

Definition of a Foreign Sales Corporation (FSC)

Under section 922(a), a FSC is defined as a corporation

that has met all of the following rules:

1. It must be a corporation created or organized under

the laws of a qualifying foreign country or any U.S. territory

other than Puerto Rico.

Qualifying U.S. territories include Guam, American

Samoa, the Commonwealth of the Northern Mariana

Islands, and the U.S. Virgin Islands.

A qualifying foreign country is a foreign country that

meets the exchange of information rules of section 927(e)

(3)(A) or (B). All U.S. territories other than Puerto Rico are

also certified to have met these rules.

The following countries are qualifying foreign countries

that have met the exchange of information rules of section

927(e)(3)(A) or 927(e)(3)(B): Australia, Austria, Barbados,

Belgium, Bermuda, Canada, Costa Rica, Cyprus,

Denmark, Dominica, the Dominican Republic, Egypt,

Finland, France, Germany, Grenada, Guyana, Honduras,

Iceland, Ireland, Jamaica, Malta, the Marshall Islands,

Mexico, Morocco, the Netherlands, New Zealand, Norway,

Pakistan, Peru, the Philippines, St. Lucia, South Korea,

Sweden, and Trinidad and Tobago.

2. It had no more than 25 shareholders at any time

during the tax year.

3. It had no preferred stock outstanding at any time

during the tax year.

4. During the tax year, the FSC must maintain:

• An office in one of the qualifying foreign countries or

U.S. territories listed above;

Instructions for Form 1120-FSC (Rev. 12-2025)

• A set of permanent books of account (including

invoices) at that office; and

• The books and records required under section 6001 at

a U.S. location to sufficiently establish the amount of gross

income, deductions, credits, or other matters required to

be shown on its tax return.

5. It must have at least one director, at all times during

the tax year, who is not a resident of the United States.

6. It must not be a member, at any time during the tax

year, of a controlled group of which a DISC is a member.

7. It must have elected to be a FSC or small FSC, and

the election must have been in effect for the tax year.

• Receipts attributable to property excluded from export

property under section 927(a)(2),

• Investment income (defined in section 927(c)), and

• Carrying charges (defined in section 927(d)(1)).

Small FSC. Section 922(b) defines a small FSC as a

corporation that:

• Elected small FSC status and has kept the election in

effect for the tax year; and

• Is not a member, at any time during the tax year, of a

controlled group that includes a FSC (unless that other

FSC is also a small FSC).

A small FSC is exempt from the foreign management

and foreign economic process requirements outlined on

this page.

$5 million limit. Generally, any foreign trading gross

receipts of a small FSC for the tax year that exceed $5

million are not to be considered in determining its exempt

foreign trade income. The $5 million limit is reduced if the

small FSC has a short tax year. It may also be reduced if

the small FSC is a member of a controlled group that

contains other small FSCs. See Regulations section

1.921-2(b) for more information.

A FSC (other than a small FSC) is treated as having

foreign trading gross receipts for the tax year only if the

management of the FSC during the year takes place

outside the United States. These management activities

include:

• Meetings of the board of directors and meetings of the

shareholders;

• Disbursing cash, dividends, legal and accounting fees,

salaries of officers, and salaries or fees of directors from

the principal bank account (see below); and

• Maintaining the principal bank account at all times

during the tax year.

Tax Treatment of a FSC

A FSC is not taxed on its exempt foreign trade income.

Section 923 defines foreign trade income as the gross

income of a FSC attributable to foreign trading gross

receipts (defined below).

The percentage of foreign trade income exempt from

tax is figured differently for income determined under the

administrative pricing rules (for details, see the

Instructions for Schedule P (Form 1120-FSC)) and income

determined without regard to the administrative pricing

rules. These percentages are computed on Schedule E,

page 4, Form 1120-FSC, and carried over to lines 9a and

9b of Schedule B, page 3, Form 1120-FSC, to figure

taxable income or (loss).

See section 923(a)(4) for a special rule for foreign trade

income allocable to a cooperative. See section 923(a)(5)

for a special rule for military property.

Tax treaty benefits. A FSC may not claim any benefits

under any income tax treaty between the United States

and any foreign country.

Foreign Trading Gross Receipts

A FSC is treated as having foreign trading gross receipts

(defined in section 924) only if it has met certain foreign

management and foreign economic process

requirements.

Foreign trading gross receipts do not include:

Note: Computer software licensed for reproduction

abroad is not excluded from export property under section

927(a)(2). Therefore, receipts attributable to the sale,

lease, or rental of computer software and services related

and subsidiary to such transactions qualify as foreign

trading gross receipts.

Foreign Management Rules

Meetings of directors and meetings of the shareholders. All meetings of the board of directors of the FSC and

all meetings of the shareholders of the FSC that take

place during the tax year must take place outside the

United States.

In addition, all such meetings must comply with the

local laws of the foreign country or U.S. territory in which

the FSC was created or organized. The local laws

determine whether a meeting must be held, when and

where it must be held (if it is held at all), who must be

present, quorum requirements, use of proxies, etc.

Principal bank accounts. See Regulations section

1.924(c)-1(c) for information regarding principal bank

accounts.

Foreign Economic Process Rules

A FSC (other than a small FSC) has foreign trading gross

receipts from any transaction only if certain economic

processes for the transaction take place outside the

United States. Section 924(d) and Regulations section

1.924(d)-1 set forth the rules for determining whether a

sufficient amount of the economic processes of a

transaction takes place outside the United States.

Generally, a transaction will qualify if the FSC satisfies

two requirements:

• Participation outside the United States in the sales

portion of the transaction and

• Satisfaction of either the 50% or the 85% foreign direct

cost test.

The activities comprising these economic processes

may be performed by the FSC or by any other person

acting under contract with the FSC.

• Certain excluded receipts (defined in section 924(f)),

Instructions for Form 1120-FSC (Rev. 12-2025)

3

Participation outside the United States in the sales

portion of the transaction. Generally, the requirement

of section 924(d)(1)(A) is met for the gross receipts of a

FSC derived from any transaction if the FSC has

participated outside the United States in the following

sales activities relating to the transaction: (1) solicitation

(other than advertising), (2) negotiation, and (3) making a

contract.

1. Solicitation (other than advertising) is any

communication (including, but not limited to, telephone,

telegraph, mail, or in person) by the FSC, to a specific,

targeted customer or potential customer.

2. Negotiation is any communication by the FSC to a

customer or potential customer aimed at an agreement on

one or more of the terms of a transaction, including, but

not limited to, price, credit terms, quantity, or time or

manner of delivery.

3. Making a contract refers to performance by the FSC

of any of the elements necessary to complete a sale, such

as making or accepting an offer.

Grouping transactions. Generally, the sales activities

described above are to be applied on a

transaction-by-transaction basis. However, a FSC may

make an annual election to apply any of the sales

activities on the basis of a group. To make the election,

check the applicable box on line 10a, Additional

Information, on page 2 of Form 1120-FSC. See

Regulations section 1.924(d)-1(c)(5) for details.

Satisfaction of either the 50% or 85% foreign direct

cost test. To qualify as foreign trading gross receipts, the

foreign direct costs incurred by the FSC attributable to the

transaction must equal or exceed 50% of the total direct

costs incurred by the FSC attributable to the transaction.

Instead of satisfying the 50% foreign direct cost test,

the FSC may incur foreign direct costs attributable to

activities described in each of two of the section 924(e)

categories. The costs must equal or exceed 85% of the

total direct costs incurred by the FSC attributable to the

activity described in each of the two categories. If no

direct costs are incurred by the FSC in a particular

category, that category is not taken into account for

purposes of determining whether the FSC has met either

the 50% or 85% foreign direct cost test.

Direct costs are costs that:

• Are incident to and necessary for the performance of

any activity described in section 924(e);

• Include the cost of materials consumed in the

performance of the activity and the cost of labor that can

be identified or associated directly with the performance

of the activity (but only to the extent of wages, salaries,

fees for professional services, and other amounts paid for

services actually rendered, such as bonuses or

compensation paid for services on the basis of a

percentage of profits); and

• Include the allowable depreciation deduction for

equipment or facilities (or the rental cost for its use) that

can be specifically identified or associated with the

activity, as well as the contract price of an activity

performed on behalf of the FSC by a contractor.

4

Total direct costs means all of the direct costs of any

transaction attributable to activities described in any

paragraph of section 924(e). For purposes of the 50% test

of section 924(d)(1)(B), total direct costs are based on the

direct costs of all activities described in all paragraphs of

section 924(e). For purposes of the 85% test of section

924(d)(2), however, the total direct costs are determined

separately for each paragraph of section 924(e).

Foreign direct costs means the portion of the total

direct costs of any transaction attributable to activities

performed outside the United States. For purposes of the

50% test, foreign direct costs are based on the direct

costs of all activities described in all paragraphs of section

924(e). For purposes of the 85% test, however, foreign

direct costs are determined separately for each paragraph

of section 924(e).

For more details, see Regulations section

1.924(d)-1(d).

Check the applicable box(es) on line 10b, Additional

Information, on page 2 of the form, to indicate how the

FSC met the foreign direct costs requirement.

Grouping transactions. Generally, the foreign direct

cost tests under Regulations section 1.924(d)-1(d) are

applied on a transaction-by-transaction basis. However,

the FSC may make an annual election (on line 10d,

Additional Information, on page 2 of the form) to apply the

foreign direct cost tests on a customer, contract, or

product or product line grouping basis. Any grouping used

must be supported by adequate documentation of

performance of activities and costs of activities relating to

the grouping used. See Regulations section 1.924(d)-1(e)

for details.

Exception for foreign military property. The economic

process rules do not apply to any activities performed in

connection with foreign military sales except those

activities described in section 924(e). See Regulations

section 1.924(d)-1(f) for details.

Section 925(c) Rule

To use the administrative pricing rules to determine the

FSC's (or small FSC's) profit on a transaction or group of

transactions, the FSC must perform (or contract with

another person to perform) all of the economic process

activities relating to the transaction or group of

transactions. All of the direct and indirect expenses

relating to the performance of those activities must be

reflected on the books of the FSC and on Form 1120-FSC.

Under Temporary Regulations section 1.925(a)-1T(b)

(2)(ii), an election may be made to include on the FSC's

books all expenses, other than cost of goods sold, that are

necessary to figure combined taxable income for the

transaction or group of transactions. The expenses must

be identified on Schedule G on the applicable line.

Who Must File

File Form 1120-FSC if the corporation elected to be

treated as a FSC or small FSC, and the election is still in

effect.

Note: A FSC that elects to be treated as a domestic

corporation under section 943(e)(1) does not file Form

1120-FSC. Instead, it files Form 1120.

Instructions for Form 1120-FSC (Rev. 12-2025)

When To File

• Sign the return in the space provided for the preparer's

signature,

• Include their Preparer Tax Identification Number (PTIN),

and

• Give a copy of the return to the taxpayer.

However, a FSC with a fiscal tax year ending June 30

must file by the 15th day of the 3rd month after the end of

its tax year. A FSC with a short tax year ending anytime in

June will be treated as if the short year ended on June 30,

and must file by the 15th day of the 3rd month after the

end of its tax year.

Note: A paid preparer may sign original or amended

returns by rubber stamp, mechanical device, or computer

software program.

Generally, a corporation must file Form 1120-FSC by the

15th day of the 4th month after the end of its tax year. A

FSC that has dissolved must generally file by the 15th day

of the 4th month after the date it dissolved.

If the due date falls on a Saturday, Sunday, or legal

holiday, the corporation can file on the next business day.

Private delivery services. FSCs can use certain private

delivery services (PDS) designated by the IRS to meet the

“timely mailing as timely filing” rule for tax returns. Go to

IRS.gov/PDS. The PDS can tell you how to get written

proof of the mailing date.

For the IRS mailing address to use if you’re using PDS,

go to IRS.gov/PDSstreetAddresses.

Note: Private delivery services cannot deliver items to

P.O. boxes. You must use the U.S. Postal Service to mail

any item to an IRS P.O. box address.

Extension of time to file. A FSC must File Form 7004,

Application for Automatic Extension of Time To File

Certain Business Income Tax, Information, and Other

Returns, by the return due date specified earlier, to

request an extension of time to file. See the Instructions

for Form 7004, and Get an extension to file your tax return

for additional information.

Where To File

File Form 1120-FSC with the:

Internal Revenue Service Center

P.O. Box 409101

Ogden, UT 84409

Who Must Sign

The return must be signed and dated by:

• The president, vice president, treasurer, assistant

treasurer, chief accounting officer; or

• Any other corporate officer (such as tax officer)

authorized to sign.

If a return is filed on behalf of a FSC by a receiver,

trustee, or assignee, the fiduciary must sign the return

instead of the corporate officer. Returns and forms signed

by a receiver or trustee in bankruptcy on behalf of a FSC

must be accompanied by a copy of the order or

instructions of the court authorizing signing of the return or

form.

Paid Preparer Use Only section. If an employee of the

FSC completes Form 1120-FSC, the paid preparer

section should remain blank. Anyone who prepares Form

1120-FSC but does not charge the FSC should not

complete that section. Generally, anyone who is paid to

prepare the return must sign and complete the section.

The paid preparer must complete the required preparer

information and:

Instructions for Form 1120-FSC (Rev. 12-2025)

Paid Preparer Authorization

If the FSC wants to allow the IRS to discuss its tax return

with the paid preparer who signed it, check the “Yes” box

in the signature area of the return. This authorization

applies only to the individual whose signature appears in

the “Paid Preparer Use Only” section of the return. It does

not apply to the firm, if any, shown in that section.

If the “Yes” box is checked, the FSC is authorizing the

IRS to call the paid preparer to answer any questions that

may arise during the processing of its return. The FSC is

also authorizing the paid preparer to:

• Give the IRS any information that is missing from the

return,

• Call the IRS for information about the processing of the

return or the status of any related refund or payment(s),

and

• Respond to certain IRS notices about math errors,

offsets, and return preparation.

The FSC is not authorizing the paid preparer to receive

any refund check, bind the FSC to anything (including any

additional tax liability), or otherwise represent the FSC

before the IRS.

The authorization will automatically end no later than

the due date (excluding extensions) for filing the FSC's tax

return. If the FSC wants to expand the paid preparer's

authorization or revoke the authorization before it ends,

see Pub. 947, Practice Before the IRS and Power of

Attorney.

Other Forms That May Be Required

The FSC may have to file some of the following forms.

Form 5471. Information Return of U.S. Persons With

Respect to Certain Foreign Corporations, is filed by

certain U.S. officers, directors, or shareholders of a FSC to

report changes in ownership (see section 6046 and the

related regulations).

If a Form 1120-FSC is filed, Form 5471 is not required

to be filed to satisfy the requirements of section 6038 (see

Temporary Regulations section 1.921-1T(b)(3)). However,

certain U.S. shareholders may be required to file Form

5471 and the applicable schedules to report subpart F

income.

See the Instructions for Form 5471 for more

information.

Form 5472. Information Return of a 25% Foreign-Owned

U.S. Corporation or a Foreign Corporation Engaged in a

U.S. Trade or Business, is filed by or for a foreign

corporation engaged in a U.S. trade or business that had

reportable transactions with a related party. See the

Instructions for Form 5472 for filing instructions and

information about penalties.

5

Form 5713. International Boycott Report, is filed by FSCs

that had operations in, or related to, certain “boycotting”

countries.

Form 8275. Disclosure Statement, and Form 8275-R,

Regulation Disclosure Statement, are used to disclose

items or positions taken on a tax return that are not

otherwise adequately disclosed on a tax return or that are

contrary to Treasury regulations (to avoid parts of the

accuracy-related penalty or certain preparer penalties).

Form 8300. Report of Cash Payments Over $10,000

Received in a Trade or Business, is used to report the

receipt of more than $10,000 in cash or foreign currency in

one transaction or a series of related transactions.

For a list of additional forms the FSC may need to file

(most notably, forms pertaining to the reporting of various

types of income, and any related withholding, to U.S.

persons, foreign persons, and the IRS), see Pub. 542,

Corporations.

Assembling the Return

To ensure that the FSC's tax return is correctly processed,

attach all schedules and other forms after page 6 of Form

1120-FSC, in the following order:

1. Form 4136, Credit For Federal Tax Paid On Fuels.

2. Additional schedules in alphabetical order.

3. Additional forms in numerical order.

4. Supporting statements and attachments.

Complete every applicable entry space on Form

1120-FSC. Do not enter “See Attached” or “Available

Upon Request” instead of completing the entry spaces. If

more space is needed on the forms or schedules, attach

separate sheets using the same size and format as the

printed forms.

If there are supporting statements and attachments,

arrange them in the same order as the schedules or forms

they support and attach them last. Show the totals on the

printed forms. Enter the FSC's name and EIN on each

supporting statement or attachment.

Accounting Methods

In general, compute taxable income using the method of

accounting used in keeping the FSC's books and records.

In all cases, the method used must clearly show taxable

income. Permissible overall methods of accounting

include cash, accrual, or any other method authorized by

the Internal Revenue Code.

Generally, the following rules apply. For more

information, see Publication 538, Accounting Periods and

Methods.

• A FSC cannot use the cash method of accounting

unless it is a small business taxpayer (defined later). A tax

shelter (defined in section 448(d)(3)) may never use the

cash method. See sections 448(a)(1) through (a)(3).

However, see Nonaccrual experience method for service

providers, later.

• Unless it is a small business taxpayer (defined below), a

FSC must use an accrual method for sales and purchases

of inventory items. See the instructions for Form 1125-A.

6

• A corporation engaged in farming must use an accrual

method. For exceptions, see section 447 and Publication

225, Farmer’s Tax Guide.

• Special rules apply to long-term contracts. See section

460.

Small business taxpayer. For tax years beginning in

2025, an FSC qualifies as a small business taxpayer if (a)

it has average annual gross receipts of $31 million or less

for the 3 prior tax years, and (b) it is not a tax shelter as

defined in section 448(d)(3). For subsequent tax years,

see the section 448(c) gross receipts test amount in the

applicable revenue procedure at IRS.gov/

InflationAdjustment.

A small business taxpayer can account for inventory by

(a) treating the inventory as non-incidental materials and

supplies, or (b) conforming to its treatment of inventory in

an applicable financial statement (as defined in section

451(b)(3)). If it does not have an applicable financial

statement, it can use the method of accounting used in its

books and records prepared according to its accounting

procedures.

Change in accounting method. Generally, a FSC must

get IRS consent to change either an overall method of

accounting or the accounting treatment of any material

item for income tax purposes. To obtain consent, the

corporation must generally file Form 3115, Application for

Change in Accounting Method, during the tax year for

which the change is requested. See the Instructions for

Form 3115 and Pub. 538 for more information and

exceptions. Also see the Instructions for Form 3115 for

procedures that may apply for obtaining automatic

consent to change certain methods of accounting,

non-automatic change procedures, and reduced Form

3115 filing requirements.

Section 481(a) adjustment. If the FSC’s taxable

income for the current tax year is figured under a method

of accounting different from the method used in the

preceding tax year, the FSC may have to make an

adjustment under section 481(a) to prevent amounts of

income or expense from being duplicated or omitted. The

section 481(a) adjustment period is generally 1 year for a

net negative adjustment and 4 years for a net positive

adjustment. See the Instructions for Form 3115.

Exceptions to the general section 481(a) adjustment

period may apply. Also, in some cases, a corporation can

elect to modify the section 481(a) adjustment period. The

corporation may have to complete the appropriate lines of

Form 3115 to make an election. See the Instructions for

Form 3115 for more information and exceptions.

If the net section 481(a) adjustment is positive, report

the ratable portion on Form 1120-FSC, page 4,

Schedule F, line 16, as other income. If the net section

481(a) adjustment is negative, report the ratable portion

on Form 1120-FSC, page 4, Schedule F, line 18, as a

deduction.

Accounting Period

A FSC must figure its taxable income on the basis of a tax

year. A tax year is the annual accounting period a FSC

uses to keep its records and report its income and

expenses. Generally, FSCs may use a calendar year or a

Instructions for Form 1120-FSC (Rev. 12-2025)

fiscal year. Personal service corporations, however, must

generally use a calendar year.

Note: The tax year of a FSC must be the same as the tax

year of the principal shareholder which, at the beginning

of the FSC tax year, has the highest percentage of voting

power. If two or more shareholders have the highest

percentage of voting power, the FSC must have a tax year

that conforms to the tax year of any such shareholder. See

section 441(h).

Rounding Off to Whole Dollars

The FSC may enter decimal points and cents when

completing its return. However, the corporation should

round off cents to whole dollars on its return, forms, and

schedules to make completing its return easier. The

corporation must either round off all amounts on its return

to whole dollars or use cents for all amounts. To round,

drop amounts under 50 cents and increase amounts from

50 to 99 cents to the next dollar. For example, $8.40

rounds to $8 and $8.50 rounds to $9.

If two or more amounts must be added to figure the

amount to enter on a line, include cents when adding the

amounts and round off only the total.

Recordkeeping

Keep the FSC's records for as long as they may be

needed for the administration of any provision of the

Internal Revenue Code. Usually, records that support an

item of income, deduction, or credit on the return must be

kept for 3 years from the date the return is due or filed,

whichever is later. Keep records that verify the FSC's

basis in property for as long as they are needed to figure

the basis of the original or replacement property.

The FSC should keep copies of all filed returns. They

help in preparing future and amended returns and in the

calculation of earnings and profits.

Tax Payments

The FSC must pay any tax due in full no later than the due

date for filing Form 1120-FSC (not including extensions).

See When To File, earlier, for this due date. The method

for payment of the tax due depends upon whether the

FSC has an office or place of business in the United

States.

FSCs that do not maintain an office or place of

business in the United States can use the Electronic

Federal Tax Payment System (EFTPS) to pay the tax due

provided the FSC has a U.S. bank account. If the FSC

does not have a U.S. bank account, it may arrange for a

financial institution to initiate a same-day payment on its

behalf or it can arrange for a qualified intermediary, tax

professional, payroll service, or other trusted third party to

make a deposit on its behalf using a master account. In

addition, the FSC still has the option to pay by check or

money order, payable to “United States Treasury.” To help

ensure proper crediting, write the FSC's EIN, “Form

1120-FSC,” and the tax period to which the payment

applies on the check or money order. Enclose the

payment when Form 1120-FSC is filed.

FSCs that do maintain an office or place of business in

the United States must pay the tax due by electronic funds

Instructions for Form 1120-FSC (Rev. 12-2025)

transfer. The FSC can pay the tax using EFTPS or it can

arrange for its tax professional, financial institution, payroll

service, or other trusted third party to make deposits on its

behalf. In addition, the FSC also has the option to arrange

for its financial institution to initiate a same-day payment.

Note: If the due date falls on a Saturday, Sunday, or legal

holiday, the payment is due on the next day that isn't a

Saturday, Sunday, or legal holiday.

Electronic Deposit Requirement

FSCs with an office or place of business in the United

States must use electronic funds transfers to make all

federal tax deposits (such as deposits of employment and

corporate income tax). Generally, electronic funds

transfers are made using EFTPS. However, if the

corporation does not want to use EFTPS, it can arrange

for its tax professional, financial institution, payroll service,

or other trusted third party to make deposits on its behalf.

Also, it can arrange for its financial institution to submit a

same-day payment (discussed below) on its behalf.

EFTPS is a free service provided by the Department of the

Treasury. Services provided by a tax professional,

financial institution, payroll service, or other third party

may have a fee.

For more information about EFTPS or to enroll in

EFTPS, visit EFTPS.gov, or call 1-800-555-4477

(TTY/TDD 1-800-733-4829).

Depositing on time. EFTPS accepts same day

payments of $1 million or less if the payment is submitted

before 3:00 p.m. Eastern time on a business day. If the

corporation’s payment is more than $1 million, the FSC

must submit the deposit by 8 p.m. Eastern time the day

before the date the deposit is due. If the FSC uses a third

party to make deposits on its behalf, they may have

different cutoff times.

Same-day wire payment option. If the FSC fails to

submit a timely deposit transaction on EFTPS it can still

make the deposit on time by using the Federal Tax

Collection Service (FTCS). To use the same-day wire

payment option, the FSC will need to make arrangements

with its financial institution ahead of time regarding

availability, deadlines, and costs. Financial institutions

may charge a fee for payments made this way. To learn

more about the information the FSC will need to provide to

its financial institution to make a same-day wire payment,

go to IRS.gov/SameDayWire.

Estimated Tax Payments

Generally, the following rules apply to the FSC's payments

of estimated tax.

• The FSC must make installment payments of estimated

tax if it expects its total tax for the year (less applicable

credits) to be $500 or more.

• The installments are due by the 15th day of the 4th, 6th,

9th, and 12th months of the tax year. If any date falls on a

Saturday, Sunday, or legal holiday, the installment is due

on the next regular business day.

• If the FSC maintains an office or place of business in

the United States, it must use electronic funds transfer to

make installment payments of estimated tax.

7

• If the FSC does not maintain an office or place of

business in the United States, it can pay the estimated tax

by EFTPS, providing it has a U.S. bank account. The FSC

can also arrange for its financial institution to submit a

same-day payment on its behalf or can arrange for its

qualified intermediary, tax professional, payroll service, or

other trusted third party to make a deposit on its behalf

using a master account. In addition, the FSC still has the

option to pay the estimated tax due by check or money

order.

• Penalties may apply if the corporation does not make

required estimated tax payment deposits. See line 3,

Estimated tax penalty, later.

• If the FSC overpaid estimated tax, it may be able to get

a quick refund by filing Form 4466, Corporation

Application for Quick Refund of Overpayment of

Estimated Tax.

See section 6655 for more information on how to figure

estimated taxes.

Interest and Penalties

Interest. Interest is charged on taxes paid late even if an

extension of time to file is granted. Interest is also charged

on penalties imposed for failure to file, negligence, fraud,

substantial valuation misstatements, substantial

understatements of tax, and reportable transaction

understatements from the due date (including extensions)

to the date of payment. The interest charge is figured at a

rate determined under section 6621.

Penalty for late filing of return. A FSC that does not file

its tax return by the due date, including extensions, may

be penalized 5% of the unpaid tax for each month or part

of a month the return is late, up to a maximum of 25% of

the unpaid tax. The minimum penalty for a tax return

required to be filed in 2026 that is more than 60 days late

is the smaller of the tax due or $525. For subsequent tax

years, see the section 6651(a) penalty dollar amount in

the applicable revenue procedure at IRS.gov/

InflationAdjustment.

The penalty will not be imposed if the FSC can show

that the failure to file on time was due to reasonable

cause.

Note: If you believe that reasonable cause exists, do not

attach an explanation when you file Form 1120-FSC.

Instead, if the FSC receives a penalty notice after the

return is filed, send the IRS an explanation at that time and

the IRS will determine if the FSC meets reasonable-cause

criteria.

Penalty for late payment of tax. A FSC that does not

pay the tax when due may generally be penalized 1/2 of

1% of the unpaid tax for each month or part of a month the

tax is not paid, up to a maximum of 25% of the unpaid tax.

The penalty will not be imposed if the FSC can show that

the failure to pay on time was due to reasonable cause.

See Note, above.

Trust fund recovery penalty. This penalty may apply if

certain income, social security, and Medicare taxes that

must be collected or withheld are not collected or

withheld, or these taxes are not paid. These taxes are

generally reported on Form 941, Employer's QUARTERLY

8

Federal Tax Return, or Form 945, Annual Return of

Withheld Federal Income Tax.

The trust fund recovery penalty may be imposed on all

persons who are determined by the IRS to have been

responsible for collecting, accounting for, or paying over

these taxes, and who acted willfully in not doing so. The

penalty is equal to the full amount of the unpaid trust fund

tax. See Publication 15 (Circular E), Employer's Tax

Guide, for details, including the definition of responsible

persons.

Other penalties. Other penalties may be imposed for

negligence, substantial understatement of tax, reportable

transaction understatements, and fraud. See sections

6662, 6662A, and 6663.

A FSC may also be subject to a penalty (under section

6686) of:

• $100 for each failure to supply information, up to

$25,000 during the calendar year, and

• $1,000 for not filing a return.

The section 6686 penalties will not apply if the FSC can

show that the failure was due to reasonable cause. See

Note, above.

Specific Instructions

Entity Information

Period covered. Enter the FSC‘s tax year in the space

provided at the top of the form. See Accounting Period,

earlier.

Name. Print or type the FSC's true name (as set forth in

the charter or other legal document creating it).

Address. Enter the U.S. address where the FSC

maintains the records required under section 6001.

Include the suite, room, or other unit number after the

street address. If the post office does not deliver mail to

the street address and the FSC has a P.O. box, show the

box number instead.

If the FSC receives its mail in care of a third party (such

as an accountant or an attorney), enter “C/O” on the street

address line followed by the third party's name and street

address or P.O. box.

Item A. Foreign country or U.S. possession of incorporation. See Definition of a Foreign Sales Corporation

(FSC), earlier.

Item E. Total assets. Enter the FSC's total assets (as

determined by the accounting method regularly used in

keeping the FSC's books and records) at the end of the

tax year from Form 1120-FSC, page 6, Schedule L,

column (d), line 15. If there are no assets at the end of the

tax year, enter -0-.

Item F. Final return, name change, address change,

or amended return.

• If this is the FSC's final return and it will no longer exist,

check the “Final return” box.

• If the FSC changed its name since it last filed a return,

check the box for “Name change.” Generally, a FSC must

also have amended its articles of incorporation and filed

the amendment with the jurisdiction in which it was

incorporated.

Instructions for Form 1120-FSC (Rev. 12-2025)

• If the FSC has changed its address since it last filed a

return (including a change to an “in care of” address),

check the box for “Address change.”

Note: Do not include backup withholding amounts on

line 2g. Include on line 2g only amounts withheld under

Chapter 3 or 4 of the Code.

Note: If a change of address or responsible party occurs

after the return is filed, use Form 8822-B, Change of

Address or Responsible Party - Business, to notify the

IRS. See the instructions for Form 8822-B for details.

Line 3. Estimated tax penalty. A FSC that does not

make estimated tax payments when due may be subject

to an underpayment penalty for the period of

underpayment. Generally, a FSC is subject to the penalty

if its tax liability is $500 or more and it did not timely pay at

least the smaller of:

• Its tax liability for the current year, or

• Its prior year's tax.

Use Form 2220, Underpayment of Estimated Tax by

Corporations, to see if the FSC owes a penalty and to

figure the amount of the penalty. If Form 2220 is

completed, enter the penalty on Form 1120-FSC, page 1,

line 3, Estimated tax penalty.

• If the FSC is amending its return, check the box for

“Amended return.”

FSC Information

Line 1. Principal shareholder. Complete lines 1a

through 1h for the shareholder (individual, corporation,

partnership, trust, or estate) that was the principal

shareholder at the beginning of the FSC's tax year. See

the Note under Accounting Period, earlier.

Foreign address. Enter the information in the following

order: city or town, state or province, country, and foreign

postal code. Follow the country's practice for entering the

name of the state or province and postal code. Do not

abbreviate the country name.

Line 2. Parent-subsidiary controlled group. If the FSC

is a subsidiary in a parent-subsidiary controlled group and

the principal shareholder is not the common parent of the

group, complete lines 2a through 2g for the common

parent. Enter the consolidated total assets on line 2d for a

group that files a consolidated return; otherwise, enter

only the common parent's total assets.

Note: Check the “Yes” box on line 2 if the FSC is a

subsidiary in a parent-subsidiary controlled group. This

applies even if the FSC is a subsidiary member of one

group and the parent corporation of another.

A “parent-subsidiary controlled group” is one or more

chains of corporations connected through stock

ownership (sections 927(d)(4) and 1563(a)(1)). Both of

the following requirements must be met:

1. More than 50% of the total combined voting power

of all classes of stock entitled to vote or more than 50% of

the total value of all classes of stock of each corporation in

the group (except the parent) must be owned by one or

more of the other corporations in the group.

2. The common parent must own more than 50% of

the total combined voting power of all classes of stock

entitled to vote or more than 50% of the total value of all

classes of stock of at least one of the other corporations in

the group.

Stock owned directly by other members of the group is

not counted when computing the voting power or value.

See sections 927(d)(4) and 1563(d)(1) for the definition

of “stock” for purposes of determining stock ownership

above.

Tax and Payments

Line 2h. Backup withholding. If the FSC had income

tax withheld from any payments it received due to backup

withholding, include the amount withheld in the total for

line 2h. Show the amount withheld in the blank space in

the right-hand column between lines 1 and 2h, and write

“backup withholding.”

Instructions for Form 1120-FSC (Rev. 12-2025)

Note: For tax years beginning in 2025, the IRS will

continue to waive the penalty imposed under section 6655

for failure to make estimated tax payments attributable to

a CAMT liability. Corporations seeking this relief (affected

corporations) must still file the 2025 Form 2220, even if

they owe no estimated tax penalty. However, affected

corporations may exclude the CAMT tax liability when

calculating the required annual payment on Form 2220.

Affected corporations must also include an amount of

estimated tax penalty on Form 1120-FSC, page 1, line 3,

even if that amount is zero. Failure to follow these

instructions could result in affected corporations receiving

a penalty notice that will require an abatement request to

apply the relief. See Notice 2025-27, 2025-26 I.R.B. 1611.

Also, see the instructions for Form 2220, Part I, line 1.

Line 4. Tax Due. Generally, the FSC must pay any tax

due in full no later than the due date for filing its tax return

(excluding extensions). Payment of the tax due must be

made electronically. See Electronic Deposit Requirement,

earlier, for the payment options for the FSC. Also, go to

IRS.gov/Payments for more detailed information.

Line 5. Overpayment. If there is an overpayment on

line 5, enter the amount the FSC wants refunded on

line 6b. See the instructions for Line 6b. Refunded, later.

The FSC can also choose to have all or part of the

overpayment credited to next year’s estimated tax by

completing line 6a. See the instructions for line 6a, next.

Line 6a. Credited to Estimated Tax. The FSC can elect

to apply all or part of the FSC’s overpayment to next year’s

estimated taxes.

Enter the amount of any overpayment from line 6a that

should be applied to next year’s estimated tax.

This election to apply some or all of the overpayment

amount to the FSC’s next year estimated tax cannot be

changed at a later date.

Line 6b. Refunded. Enter the amount to be refunded to

the FSC on line 6b. If the FSC has access to U.S. banking

services, it should use direct deposit for any refunds,

whenever possible.

The benefits of a direct deposit include a faster refund,

the added security of a paperless payment, and the

savings of tax dollars associated with the reduced

processing costs.

9

Direct deposit of refund. If the FSC wants its refund

directly deposited into its checking or savings account at

any U.S. bank or other financial institution, complete lines

6c through 6e. See the instructions for lines 6c, 6d, and

6e, later.

The FSC is not eligible to request a direct deposit if:

• The receiving financial institution is a foreign bank or a

foreign branch of a U.S. bank, or

• The FSC has applied for an EIN but is filing its tax return

before receiving one.

Line 6c. Routing Number. The routing number must be

nine digits. The first two digits must be between 01 and 12

or 21 through 32. Ask the FSC’s financial institution for the

correct routing number to enter on line 6c if:

• The routing number on a deposit slip is different from

the routing number on the FSC’s checks.

• The deposit is to a savings account that does not allow

the FSC to write checks, or

• The FSC’s checks state that they are payable through a

financial institution different from the one at which the FSC

has its checking account.

Line 6d. Type of Account. Check the appropriate box

for the type of account. Do not check more than one box.

The FSC must check the correct box to ensure the deposit

is accepted.

Line 6e. Account Number The account number can be

up to 17 characters (both numbers and letters). Include

hyphens but omit spaces and special symbols. Enter the

number from left to right and leave any unused boxes

blank. Don’t include the check number.

If the direct deposit to the FSC’s account is different

from the amount it expected, the FSC will receive an

explanation in the mail about 2 weeks after the refund is

deposited.

Conditions Resulting in a Refund by Check. If the

IRS is unable to process the request for a direct deposit, a

refund by check will be generated instead. Reasons for

not processing a request include.

• The name of the FSC on the tax return does not match

the name on the account.

• The financial institution rejects the direct deposit

because of an incorrect routing or account number.

• The FSC fails to indicate the type of account the deposit

is to be made to (that is, checking or savings).

Note: The IRS isn’t responsible for a lost refund if the

FSC enters the wrong account information. Check with the

FSC’s financial institution to get the correct routing and

account numbers and to make sure the direct deposit will

be accepted.

Schedule A—Cost of Goods Sold

Related to Foreign Trading Gross

Receipts

Complete Schedule A only for the cost of goods sold

deduction related to foreign trading gross receipts

reported on lines 1 through 5 of Schedule B.

Complete column (a) to show the cost of goods sold for

inventory acquired in transactions using the administrative

pricing rules. Complete column (b) to show the cost of

10

goods sold for inventory acquired in transactions that did

not use the administrative pricing rules. For details on the

administrative pricing rules, see the Instructions for

Schedule P (Form 1120-FSC).

If the FSC acts as another person's commission agent

on a sale, do not enter any amount on Schedule A for the

sale.

Small FSCs will have to make two separate

computations for cost of goods sold if their foreign trading

gross receipts exceed the limitation amount on line 6e of

Schedule B. In this case, a deduction for cost of goods

sold will be figured separately for the income on line 6h of

Schedule B, and separately for the income on line 7 of

Schedule F.

Inventories

Generally, unless you are a small business taxpayer,

inventories are required at the beginning and end of each

tax year if the purchase or sale of merchandise is an

income-producing factor. See Regulations section

1.471-1. Additionally, if inventories are required, you

generally must use an overall accrual method of

accounting.

If a FSC is a small business taxpayer (defined below), it

may adopt or change its accounting method to account for

inventories in the same manner as materials and supplies

that are non-incidental, or conform to the FSC's treatment

of inventories in an applicable financial statement (as

defined in section 451(b)(3)), or if the FSC does not have

an applicable financial statement, the method of

accounting used in the FSC's books and records prepared

in accordance with the FSC's accounting procedures.

Changing an accounting method generally requires IRS

consent. See the Change in accounting method section,

earlier.

Small business taxpayer. See Small business

taxpayer, earlier, for the definition of a small business

taxpayer.

All FSCs should see Section 263A uniform

capitalization rules in the instructions for Schedule G,

later. See those instructions before completing

Schedule A.

If the FSC uses intercompany pricing rules (for

purchases from a related supplier), use the transfer price

figured in Part II of Schedule P (Form 1120-FSC).

Line 1. Inventory at beginning of year. If the FSC is

changing its method of accounting for the current tax year,

it must refigure last year's closing inventory using its new

method of accounting and enter the result on line 1. If

there is a difference between last year's closing inventory

and the refigured amount, attach an explanation and take

it into account when figuring the FSC's section 481(a)

adjustment (explained earlier).

Line 4. Additional section 263A costs. If the FSC has

elected a simplified method of accounting, enter on line 4

the balance of section 263A costs paid or incurred during

the tax year not includible on lines 2, 3, and 5.

Line 5. Other costs. Enter on line 5 any costs paid or

incurred during the tax year not entered on lines 2 through

4. Attach a statement listing details of the costs.

Instructions for Form 1120-FSC (Rev. 12-2025)

Line 7. Inventory at end of year. See Regulations

sections 1.263A-1 through 1.263A-3 for details on

determining the amount of additional section 263A costs

to be included in ending inventory.

Lines 9a through 9f. Inventory valuation methods.

Inventories may be valued at:

• Cost,

• Cost or market value (whichever is lower), or

• Any other method approved by the IRS that conforms to

the requirements of the applicable regulations.

FSCs that use erroneous valuation methods must

change to a method permitted for federal income tax

purposes. To make this change, use Form 3115. See the

Instructions for Form 3115. Also see Pub. 538.

Line 9a. Method of valuing closing inventory. On

line 9a, check the method(s) used for valuing inventories.

Under lower of cost or market, the term “market” (for

normal goods) means the current bid price prevailing on

the inventory valuation date for the particular merchandise

in the volume usually purchased by the taxpayer. If section

263A applies to the taxpayer, the basic elements of cost

must reflect the current bid price of all direct costs and all

indirect costs properly allocable to goods on hand at the

inventory date.

Inventory may be valued below cost when the

merchandise is unsalable at normal prices or unusable in

the normal way because the goods are subnormal due to

damage, imperfections, shop wear, etc. The goods may

be valued at the bona fide selling price, minus direct cost

of disposition (but not less than scrap value). Bona fide

selling price means actual offering of goods during a

period ending not later than 30 days after inventory date.

Lines 9c and 9d. LIFO method. If this is the first year

the Last-in, First-out (LIFO) inventory method was either

adopted or extended to inventory goods not previously

valued under the LIFO method provided in section 472,

attach Form 970, Application To Use LIFO Inventory

Method, or a statement with the information required by

Form 970. Also check the LIFO box on line 9c. On line 9d,

enter the amount of total closing inventories computed

under section 472. Estimates are acceptable.

If the FSC changed or extended its inventory method to

LIFO and had to write up the opening inventory to cost in

the year of election, report the effect of the write-up as

other income (as appropriate on Form 1120-FSC,

Schedule F, line 16), proportionately over a 3-year period

that begins with the year of the LIFO election.

For more information on inventory valuation methods,

see Pub. 538. For more information on changes in the

method of accounting for inventory, see Form 3115 and

the Instructions for Form 3115.

Additional Information

Line 2. Tax exempt interest. Enter any tax-exempt

interest received or accrued. Include any exempt-interest

dividends received as a shareholder in a mutual fund or

other regulated investment company. Also include this

amount on Schedule M-1, line 7a.

listing the following information for each foreign

partnership. For this purpose, a foreign partnership

includes an entity treated as a foreign partnership under

Regulations section 301.7701-2 or 301.7701-3.

1. Name and EIN (if any) of the foreign partnership;

2. Identify which, if any, of the following forms the

foreign partnership filed for its tax year ending with or

within the FSC's tax year: Form 1042, 1065, or 8804;

3. Name of the partnership representative (if any); and

4. Beginning and ending dates of the foreign

partnership's tax year.

Line 6. Generally, if the FSC has a net operating loss

(NOL) for the current tax year, it can elect to waive the

entire carryback period for the NOL and instead carry the

NOL forward to future tax years. To do so, check the box

on line 6 and file Form 1120–FSC by its due date,

including extensions. Do not attach the statement

described in Temporary Regulations section

301.9100-12T. Generally once made, the election is

irrevocable.

If the FSC timely filed its return for the loss year without

making the election, it can make the election on an

amended return filed within 6 months of the due date of

the loss year return (excluding extensions). Attach the

election to the amended return and write "Filed pursuant

to section 301.9100-2" on the election statement. See the

Instructions for Form 1139.

Line 7. Net operating loss (NOL) carryover. Enter the

amount of the NOL carryover to the tax year from prior

years, even if some of the loss is used to offset income on

this return. The amount to enter is the total of all NOLs

generated in prior years but not used to offset income

(either as a carryback or carryover) to a tax year prior to

the current tax year. Do not reduce the amount by any

NOL deduction reported on line 19a, Part II, of

Schedule B.

Lines 8c and 9b(2). See Definition of a Foreign Sales

Corporation (FSC), earlier, for definitions of qualifying

foreign country and U.S. possession.

Line 9. Foreign management rules. All FSCs (except

small FSCs) must answer these questions. For more

information, see Foreign Management Rules, earlier.

Line 10. Foreign economic process rules. All FSCs

(except small FSCs) must answer these questions. On

line 10b, indicate how the FSC met the foreign direct costs

requirement of section 924(d) for all transactions that

generated foreign trading gross receipts reported on lines

1 through 5 of Schedule B. Also, complete line 10a

and/or line 10d to make an election to use either of the

annual grouping election(s) indicated. See Foreign

Economic Process Rules, earlier, for details.

Schedule B—Taxable Income or

(Loss)

Use Schedule B to compute taxable income from all

sources.

Line 5. If the FSC owned at least a 10% interest, directly

or indirectly, in any foreign partnership, attach a statement

Instructions for Form 1120-FSC (Rev. 12-2025)

11

Part I—Net Income Attributable to Nonexempt

Foreign Trade Income

Use Part I to compute net income attributable to

nonexempt foreign trade income. Income and expenses

on lines 1 through 15 are reported in column (a) if the

administrative pricing rules were used in the transaction

that produced the income.

Report in column (b) all foreign trade income from all

transactions in which the administrative pricing rules were

not used. Attach a statement that shows the computation

of the taxable and nontaxable income included on line 15,

column (b). Include only the taxable amount on line 16.

Nonaccrual experience method for service providers.

Accrual method FSCs are not required to accrue certain

amounts to be received from the performance of services

that, based on their experience, will not be collected, if:

• The services are in the fields of health, law,

engineering, architecture, accounting, actuarial science,

performing arts, or consulting; or

• The FSC meets the section 448(c) gross receipts test

for all prior years.

This provision does not apply to any amount if interest

is required to be paid on the amount or if there is any

penalty for failure to timely pay the amount. See

Regulations section 1.448-3 for more information on the

nonaccrual experience method, including information on

safe harbor methods.

FSCs that qualify to use the nonaccrual experience

method should attach a statement showing total gross

receipts, the amount not accrued because of the

application of section 448(d)(5), and the net amount

accrued. Enter the net amount on the applicable line of

Schedule B.

Lines 1 through 5. Enter the foreign trading gross

receipts requested on lines 1 through 5. See section 924

and Foreign Trading Gross Receipts, earlier, for receipts

that are excluded and other details. Report commission

income on line 1 or line 2 based on the sale, lease, or

rental of property on which that commission arose.

Line 5. Managerial services for an unrelated FSC or

IC-DISC. If the 50% gross receipts test of section 924(a)

(5) is not met, report the FSC's gross receipts that would

have otherwise qualified under that section on line 16,

Schedule F, instead of line 5, Schedule B.

Lines 6b through 6h. See section 924(b)(2)(B) for the

rules regarding the limitation on the amount of foreign

trading gross receipts that a small FSC can take into

account in determining its exempt foreign trade income.

Line 6d. Temporary Regulations section 1.921-1T(b)(5)

indicates that, in the case of a small FSC having a short

tax year, the dollar limitation reported on line 6b or 6c is to

be prorated on a daily basis. A small FSC having a short

tax year must divide the number of days in its short tax

year by the number of days that would have made up a full

tax year and enter the resulting fraction on line 6d as a

decimal less than 1.00000.

Example. For its 2025 calendar year tax year, a small

FSC has a short tax year of 73 days. The FSC enters 0.20

(73/365) on line 6d.

12

Line 6f. If commission income is reported in the total for

line 6a of Schedule B, total receipts for purposes of line 6f

are figured as follows:

1. Enter total of columns (a) and (b), line 6a,

Schedule B . . . . . . . . . . . . . . . . . . . . . . .

1.

2. Enter total commission income reported on line 1 and

line 2, Schedule B . . . . . . . . . . . . . . . . . . .

2.

3. Subtract line 2 from line 1 . . . . . . . . . . . . . . .

3.

4. With respect to the commission income reported on

line 2 above, enter total gross receipts on the sale,

lease, or rental of property on which the commission

income arose (section 927(b)(2)) . . . . . . . . . .

4.

5. Add lines 3 and 4. Enter here and on line 6f,

Schedule B . . . . . . . . . . . . . . . . . . . . . . .

5.

Line 6h. When making the line 6h allocation, allocate

only the commission income from the gross receipts on

line 4 above. If the small FSC's foreign trading gross

receipts for the tax year (line 6f, Schedule B) exceed its

allowable limitation (line 6e, Schedule B), the small FSC

may select the gross receipts to which the limitation is

allocated. In such a case, allocate the amount on line 6g

between columns (a) and (b) on line 6h based on whether

the administrative pricing rules were used for the gross

receipts selected. See Regulations section 1.921-2(b),

Q&A-4.

Part II—Taxable Income or (Loss)

Line 19a. Net operating loss deduction. A FSC may

use the NOL incurred in one tax year to reduce its taxable

income in another tax year. Enter on line 19a the total

NOL carryovers from other tax years, but do not enter

more than the FSC's taxable income (after the

dividends-received deduction). Attach a statement

showing the computation of the NOL deduction. Also

complete line 7 in Additional Information on page 2 of the

form.

For more details on the NOL deduction, see section

172 and the Instructions for Form 1139.

Line 19b. Dividends-received deduction. A FSC may

be entitled to a deduction for dividends it receives from

other corporations. Complete the worksheet, later, using

the Instructions for Dividends and Dividends-Received

Deduction Worksheet, later. Attach the completed

worksheet to Form 1120-FSC.

Line 20. Taxable income or (loss). If line 20 is zero or

less, the FSC may have an NOL that may be carried back

or forward as a deduction to other tax years.

Only farming losses can be carried back. The

carryback period for these losses is 2 years. For NOLs

that can be carried back, the FSC can elect to waive the

carryback period and instead carry the NOL forward to

future tax years.

See the instructions for Additional Information, line 6,

earlier, for information on making the election to waive the

entire carryback period for farming losses. See the

Instructions for Form 1139 for other special rules and

elections.

See section 172 for additional information.

Instructions for Form 1120-FSC (Rev. 12-2025)

Schedule E—Exemption Percentages

Used in Figuring Exempt Foreign

Trade Income

For purposes of the Note at the top of Schedule E, a C

corporation is a corporation other than an S corporation.

Shareholders, other than C corporations, are individuals,

partnerships, S corporations, trusts, and estates.

Use lines 2a through 2d to figure the exemption

percentage for foreign trade income determined by not

using the administrative pricing rules. See section 923(a)

(2).

Use lines 3a through 3d to figure the exemption

percentage for foreign trade income that was determined

by using the administrative pricing rules (see section

923(a)(3)). If a qualified cooperative is a shareholder of

the FSC, see section 923(a)(4).

Schedule F—Net Income From

Nonexempt Foreign Trade Income and

Taxable Nonforeign Trade Income

Part I—Net Income From Nonexempt Foreign

Trade Income

Enter net income from nonexempt foreign trade income

and related expenses in Part I.

Line 2. International boycott income. Enter FSC

income that resulted from the FSC's cooperation with an

international boycott. See section 927(e)(2) and Form

5713 and related schedules and instructions.

Line 3. Illegal bribes and other payments. Enter the

amount, if any, of illegal payments, bribes, or kickbacks

that the FSC paid, directly or indirectly, to government

officials, employees, or agents. See section 927(e)(2).

Line 5. Cost of goods sold and other costs related to

above income. See the instructions for Schedule A

before completing this line.

Part II—Taxable Nonforeign Trade Income

Enter the taxable portion of gross income of the FSC that

was not derived from foreign trading gross receipts. This

type of income includes:

• Small FSCs only. Amounts specifically excluded from

foreign trade income because of the small FSC limitation

(the amount by which line 6f of Schedule B exceeds

line 6e of Schedule B). (Enter the excess, if any, on line 7

of Schedule F.)

• Investment type income. (Enter on lines 8 through 12 of

Schedule F.)

• Income from property that is subsidized, deemed in

short supply, or destined for use in the United States.

(Enter on lines 13 and 14 of Schedule F.)

• Amounts from transactions that did not meet the foreign

economic process requirements. (Enter on line 15 of

Schedule F.)

• Other nonforeign trade income. (Enter on line 16 of

Schedule F.)

For more details, see sections 924(f) and 927(a)(2) and

(3).

Instructions for Form 1120-FSC (Rev. 12-2025)

Line 9. Dividends. See the Dividends and

Dividends-Received Deduction Worksheet, later, to figure

the total dividends to report on line 9. Attach the

completed worksheet to Form 1120-FSC.

Instructions for Dividends and

Dividends-Received Deduction Worksheet

For purposes of the 20% ownership test on lines 1 through

7, the percentage of stock owned by the FSC is based on

voting power and value of the stock.

Line 1, Column (a). Enter dividends (except those

received on certain debt-financed stock acquired after

July 18, 1984–see section 246A) that:

• Are received from less-than-20%-owned domestic

corporations subject to income tax, and

• Qualify for the 50% deduction under section 243(a)(1).

Also include on line 1 dividends (except those received

on certain debt-financed stock acquired after July 18,

1984) from a regulated investment company (RIC). The

amount of dividends eligible for the dividends-received

deduction under section 243 is limited by section 854(b).

The FSC should receive a notice from the RIC specifying

the amount of dividends that qualify for the deduction.

Report so-called dividends or earnings received from

mutual savings banks, etc., as interest. Do not treat them

as dividends.

Line 2, Column (a). Enter dividends (except those

received on certain debt-financed stock acquired after

July 18, 1984) that are received from 20%-or-more-owned

domestic corporations subject to income tax and that are

subject to the 65% deduction under section 243(c).

Line 3, Column (a). Enter the following:

• Dividends received on certain debt-financed stock

acquired after July 18, 1984, from domestic and foreign

corporations subject to income tax that would otherwise

be subject to the dividends-received deduction under

section 243(a)(1), 243(c), or 245(a). Generally,

debt-financed stock is stock that the FSC acquired by

incurring a debt (for example, it borrowed money to buy

the stock).

• Dividends received from a RIC on debt-financed stock.

The amount of dividends eligible for the

dividends-received deduction is limited by section 854(b).

The FSC should receive a notice from the RIC specifying

the amount of dividends that qualify for the deduction.

Line 3, Columns (b) and (c). Dividends received on

certain debt-financed stock acquired after July 18, 1984,

are not entitled to the full 50% or 65% dividends-received

deduction under section 243 or 245(a). The 50% or 65%

deduction is reduced by a percentage that is related to the

amount of debt incurred to acquire the stock. See section

246A. Also, see section 245(a) before making this

computation for an additional limitation that applies to

certain dividends received from foreign corporations.

Attach a statement to Form 1120-FSC showing how the

amount on line 3, column (c), was computed.

Line 4, Column (a). Enter dividends received on the

preferred stock of a less-than-20%-owned public utility

that is subject to income tax and is allowed the 23.3%

deduction provided in sections 244 and 247 (as affected

13

by P.L. 113-295, Div. A, section 221(a)(41)(A), Dec. 19,

2014, 128 Stat. 4043) for dividends paid.

Line 5, Column (a). Enter dividends received on

preferred stock of a 20%-or-more-owned public utility that

is subject to income tax and is allowed the 26.7%

deduction provided in sections 244 and 247 (as affected

by P.L. 113-295, Div. A, section 221(a)(41)(A), Dec. 19,

2014, 128 Stat. 4043) for dividends paid.

Line 6, Column (a). Enter the U.S.-source portion of

dividends that:

• Are received from less-than-20%-owned foreign

corporations, and

• Qualify for the 50% deduction under section 245(a). To

qualify for the 50% deduction, the FSC must own at least

10% of the stock of the foreign corporation by vote and

value.

Line 7, Column (a). Enter the U.S.-source portion of

dividends that are received from 20%-or-more-owned

foreign corporations and that qualify for the 65%

deduction under sections 243 and 245(a).

Line 8, Column (c). Limitation on dividends-received

deduction.

Generally, line 8, column (c), may not exceed the

amount on line 10 of the worksheet below. However, in a

year in which an NOL occurs, the limitation in section

246(b)(1) does not apply, even if the loss is created by the

dividends-received deduction. See sections 172(c),

172(d), and 246(b).

1. Refigure line 18, Part II, Schedule B (page 3 of Form

1120-FSC) without any adjustment under section

1059 and without any capital loss carryback to the

tax year under section 1212(a)(1) . . . . . . . . .

1.

2. Multiply line 1 by 65% (0.65)

2.

. . . . . . . . . . . .

3. Add lines 2, 5, and 7, column (c), and the part of the

deduction on line 3, column (c), that is attributable to

dividends from 20%-or-more-owned

corporations . . . . . . . . . . . . . . . . . . . . .

3.

4. Enter the smaller of line 2 or line 3. If line 3 is greater

than line 2, stop here; enter the amount from line 4

on line 8, column (c), and do not complete lines 5–

10 below . . . . . . . . . . . . . . . . . . . . . . .

4.

5. Enter the total amount of dividends from

20%-or-more-owned corporations that are included

on lines 2, 3, 5, and 7, column (a) . . . . . . . . .

5.

6. Subtract line 5 from line 1 . . . . . . . . . . . . . .

6.

7. Multiply line 6 by 50% (0.50)

. . . . . . . . . . . .

7.

8. Subtract line 3 above from line 8, column (c) . . .

8.

9. Enter the smaller of line 7 or line 8 . . . . . . . . .

9.

10. Dividends-received deduction after limitation

(sec. 246(b)). Add lines 4 and 9. Enter the result

here and on line 8, column (c) . . . . . . . . . . .

10.

Line 10, Column (a). Include the following:

1. Dividends (other than capital gain distributions

reported on Schedule D (Form 1120) and exempt-interest

dividends) that are received from RICs and that are not

subject to the 50% deduction.

2. Dividends from tax-exempt organizations.

14

3. Dividends (other than capital gain distributions)

received from a real estate investment trust that, for the

tax year of the trust in which the dividends are paid,

qualifies under sections 856 through 860.

4. Dividends not eligible for a dividends-received

deduction, which include the following.

a. Dividends received on any share of stock held for

less than 46 days during the 91-day period beginning 45

days before the ex-dividend date. When counting the

number of days the FSC held the stock, you may not count

certain days during which the FSC's risk of loss was

diminished. See section 246(c)(4) and Regulations

section 1.246-5 for more details.

b. Dividends received on any share of preferred stock

that are attributable to periods totaling more than 366 days

if such stock was held for less than 91 days during the

181-day period that began 90 days before the ex-dividend

date. When counting the number of days the FSC held the

stock, you may not count certain days during which the

FSC's risk of loss was diminished. See section 246(c)(4)

and Regulations section 1.246-5 for more details.

Preferred dividends attributable to periods totaling less

than 367 days are subject to the 46-day holding period

rule discussed above.

c. Dividends on any share of stock to the extent the

FSC is under an obligation (including a short sale) to

make related payments with respect to positions in

substantially similar or related property.

5. Any other taxable dividend income not properly

reported elsewhere on the Dividends and

Dividends-Received Deduction Worksheet.

If patronage dividends or per-unit retain allocations are

included on line 10, identify the total of these amounts in a

statement attached to Form 1120-FSC.

Line 18. Deductions allocated or apportioned to

line 17 income. Enter the deductions allocated or

apportioned to line 17 income. Attach to Form 1120-FSC

a statement listing each type of deduction. Show

deductions related to cost of goods sold separately. See

the instructions for Schedule A, earlier, before completing

this line.

Passive activity limitations. Section 469 generally

limits the deduction of passive activity losses for closely

held FSCs and FSCs that are personal service

corporations. See section 469 and the Instructions for

Form 8810, Corporate Passive Activity Loss and Credit

Limitations, for details.

Schedule G—Deductions Allocated or

Apportioned to Foreign Trade Income

Other Than Foreign Trade Income

Reported on Schedule F

Limitations on Deductions

Section 263A uniform capitalization rules. The

uniform capitalization rules of section 263A require FSCs

to capitalize certain costs to inventory or other property.

In general, FSCs subject to the section 263A uniform

capitalization rules are required to capitalize:

Instructions for Form 1120-FSC (Rev. 12-2025)

1. Direct costs of property produced or acquired for

resale, and

2. Certain indirect costs (including taxes) that are

properly allocable to property produced or property

acquired for resale.

Indirect costs properly allocable to property acquired

for resale are generally those costs in the following

categories:

• Off-site storage or warehousing.

• Purchasing.

• Handling, such as processing, assembling,

repackaging, and transporting.

• General and administrative costs (mixed service costs).

For details, see Regulations section 1.263A-3(d).

In general, the FSC cannot deduct the costs required to

be capitalized under section 263A until it sells, uses, or

otherwise disposes of the property (to which the costs

relate). The FSC recovers these costs through

depreciation, amortization, or costs of goods sold.

A Small business taxpayer, defined earlier, is not

required to capitalize costs under section 263A. A small

business taxpayer that wants to discontinue capitalizing

costs under section 263A must change its method of

accounting. See section 263A(i) and Regulations section

1.263A-1(j). Also, see the Instructions for Form 3115.

For more information on the uniform capitalization rules,

see Pub. 538. Also, see Regulations sections 1.263A-1

through 1.263A-3.

Transactions between related taxpayers. Generally,

an accrual basis taxpayer may only deduct business

expenses and interest owed to a related party in the year

the payment is included in the income of the related party.

See sections 163(e)(3) and 267(a)(2) for limitations on

deductions for unpaid interest and expenses.

Limitations on business interest expense. Business

interest expense may be limited. See section 163(j) and

Form 8990, Limitation on Business Interest Expense

Under Section 163(j).

Line 1. Foreign direct costs described in section

924(e). Enter only foreign direct costs on lines 1a through

1e. See section 924(e) and Regulations sections

Instructions for Form 1120-FSC (Rev. 12-2025)

1.924(e)-1(a) through (e) for definitions and rules on direct

activity costs related to foreign trade income.

Line 5. Salaries and wages. Enter the total salaries and

wages paid for the tax year. Do not include salaries and

wages deductible elsewhere on the return, such as

amounts included in officers' compensation, cost of goods

sold, elective contributions to a section 401(k) cash or

deferred arrangement, or amounts contributed under a

salary reduction SEP agreement or a SIMPLE IRA plan.

Line 10. Compensation of officers. Enter deductible

officers' compensation on line 10. Do not include

compensation deductible elsewhere on the return, such

as amounts included in cost of goods sold, elective

contributions to a section 401(k) cash or deferred

arrangement, or amounts contributed under a salary

reduction SEP agreement or a SIMPLE IRA plan. See the

Instructions for Form 1125-E, Compensation of Officers,

for more information on officers' compensation, including

any special rules and limitations that may apply. You are

not required to complete Form 1125-E or attach it to Form

1120-FSC.

Line 14. Other deductions. Attach a statement, listing

by type and amount, all allowable deductions that are not

deductible elsewhere on Form 1120-FSC. Enter the total

on line 14.

Examples of other deductions include:

• Amortization. See Part VI of Form 4562.

• Insurance premiums.

• Legal and professional fees.

• Supplies used and consumed in the business.

• Utilities.

Do not deduct:

• Amounts paid or incurred to, or at the direction of, a

government or governmental entity for the violation, or

investigation or inquiry into the potential violation, of a law.

However, see section 162(f) for exceptions to the general

rule.

• Any amount that is allocable to a class of exempt

income. See section 265(b) for exceptions.

See Pub. 542 and the Instructions for Form 1120 for

details on other deductions that may apply to

corporations.

15

Keep for Your Records

Dividends and Dividends-Received Deduction Worksheet

(See Instructions for Dividends and Dividends-Received Deduction Worksheet, earlier.)

(a) Dividends

received

(b) %

1 Dividends from less-than-20%-owned domestic corporations (other than

debt-financed stock) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50

2 Dividends from 20%-or-more-owned domestic corporations (other than

debt-financed stock) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

65

3 Dividends on certain debt-financed stock of domestic and foreign corporations

(section 246A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

See Inst.

4 Dividends on certain preferred stock of less-than-20%-owned public

utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23.3

5 Dividends on certain preferred stock of 20%-or-more-owned public

utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26.7

6 Dividends from less-than-20%-owned foreign corporations . . . . . . . . . . . . . . . .

50

7 Dividends from 20%-or-more-owned foreign corporations

65

................

8 Total dividends-received deduction. Add lines 1 through 7. See instructions for

limitation. Enter here and on Schedule B, line 19b . . . . . . . . . . . . . . . . . . . . . .

(c)

Dividends-received

deduction: (a) x (b)

▶

9 Other dividends from foreign corporations not included on line 3, 6, or 7 . . . . . . .

10 Other dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11 Total dividends. Add lines 1 through 10. Enter here and on

Schedule F, line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Schedule J—Tax Computation

Line 1. If the FSC is a member of a controlled group, as

defined in section 927(d)(4), it must check the box on

line 1 and complete Schedule O (Form 1120),Consent

Plan and Apportionment Schedule for a Controlled Group.

See Schedule O and the Instructions for Schedule O for

more information.

Line 2. Income tax. FSCs, including FSCs that are

qualified personal service corporations (as defined in

section 448(d)(2)), figure their tax by multiplying taxable

income (Schedule B, line 20) by 21%. Enter this amount

on line 2.

Line 3. Base erosion minimum tax amount. If the

corporation had gross receipts of at least $500 million in

any 1 of the 3 tax years preceding the current tax year,

complete and attach Form 8991. Enter on line 3 the base

erosion minimum tax from Form 8991, Part IV, line 5e. See

section 59A and the Instructions for Form 8991, Tax on

Base Erosion Payments of Taxpayers with Substantial

Gross Receipts.

Line 4. A FSC generally enters on line 4 the sum of

Schedule J, lines 2 and 3. However, if the FSC is an

applicable corporation under section 59(k) and is subject

to the corporate alternative minimum tax (CAMT),

complete Form 4626, Alternative Minimum Tax Corporations, and attach it to Form 1120-FSC. Enter on

line 4 the sum of (a) the amount from Form 1120-FSC,

Schedule J, lines 2 and 3, and (b) the amount from Form

4626, Part II, line 13.

Line 5. Foreign tax credit. Generally, a FSC may not

claim a foreign tax credit. It may, however, claim a foreign

tax credit for any foreign taxes imposed on foreign source

taxable nonforeign trade income (Schedule F, Part II) that

16

▶

is treated as effectively connected with a U.S. trade or

business. See Temporary Regulations section

1.921-3T(d)(2) for more details.

Schedule L—Balance Sheets per

Books

The balance sheets should agree with the FSC's books

and records. Include certificates of deposit as cash on

line 1, Schedule L.

Line 5. Tax-exempt securities. Include on this line:

• State and local government obligations, the interest on

which is excludible from gross income under section

103(a), and

• Stock in a mutual fund or other regulated investment

company that distributed exempt-interest dividends during

the tax year of the FSC.

Line 27. Adjustments to shareholders' equity. Some

examples of adjustments to report on this line include:

• Foreign currency translation adjustments.

• The excess of additional pension liability over

unrecognized prior service cost.

If the total adjustment to be entered on line 27 is a

negative amount, enter the amount in parentheses.

Schedule M-1—Reconciliation of

Income (Loss) per Books With

Income per Return

Line 5c. Travel and entertainment. Include on line 5c

any of the following.

• Entertainment expenses not deductible under section

274(a).

• Meal expenses not deductible under section 274(n).

Instructions for Form 1120-FSC (Rev. 12-2025)

• Qualified transportation fringes not deductible under

section 274(a)(4).

• Expenses for the use of an entertainment facility.

• The part of business gifts over $25.

• Expenses of an individual over $2,000, that are

allocable to conventions on cruise ships.

• Employee achievement awards of nontangible property

or of tangible property if the value is over $400 ($1,600 if

part of a qualified plan).

• The cost of skyboxes.

• Nondeductible club dues.

• The part of luxury water travel expenses not deductible

under section 274(m).

Instructions for Form 1120-FSC (Rev. 12-2025)

• Expenses for travel as a form of education.

• Other nondeductible travel and entertainment

expenses.

Line 7a. Tax-exempt interest. Report any tax-exempt

interest received or accrued, including any

exempt-interest dividends received as a shareholder in a

mutual fund or other regulated investment company. Also

report this same amount on line 2, Additional Information,

on page 2 of the form.

17

Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the

United States. You are required to give us the information. We need it to ensure that you are complying with these laws

and to allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act

unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be

retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax

returns and return information are confidential, as required by Internal Revenue Code section 6103.

The estimated burden for taxpayers filing this form is approved under OMB control number 1545-0123.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form and

related schedule simpler, we would be happy to hear from you. You can send us comments through IRS.gov/

FormComments. Or you can write to the Internal Revenue Service, Tax Forms and Publications Division, 1111

Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the tax form to this address. Instead, see Where To

File, earlier, near the beginning of the instructions.

18

Instructions for Form 1120-FSC (Rev. 12-2025)

Form 1120-FSC

Principal Business Activity Codes

This list of principal business activities and their

associated codes is designed to classify an

enterprise by the type of activity in which it is

engaged to facilitate the administration of the

Internal Revenue Code. These principal business

activity codes are based on the North American

Industry Classification System.

Wholesale Trade

Merchant Wholesalers, Durable

Goods

423100 Motor Vehicle & Motor Vehicle

Parts & Supplies

423200 Furniture & Home Furnishings

423300 Lumber & Other Construction

Materials

423400 Professional & Commercial

Equipment & Supplies

423500 Metal & Mineral (except

Petroleum)

423600 Household Appliances and

Electrical & Electronic Goods

423700 Hardware & Plumbing &

Heating Equipment &

Supplies

423800 Machinery, Equipment, &

Supplies

423910 Sporting & Recreational

Goods & Supplies

423920 Toy & Hobby Goods &

Supplies

423930 Recyclable Materials

423940 Jewelry, Watch, Precious

Stone, & Precious Metals

423990 Other Miscellaneous Durable

Goods

Merchant Wholesalers, Nondurable

Goods

424100 Paper & Paper Products

424210 Drugs & Druggists' Sundries

424300 Apparel, Piece Goods, &

Notions

Using the list of activities and codes below,

determine from which activity the FSC derives the

largest percentage of its “total receipts.” Total

receipts is defined as the sum of the foreign

trading gross receipts on Form 1120-FSC, page 3,

Schedule B, line 6a, and the total income on

page 4, Schedule F, lines 4 and 17. If the FSC's

largest percentage of its total receipts is derived

from the wholesale trading of durable goods, the

FSC must use one of the corresponding codes

from the list below (423100-423990).

424400 Grocery & Related Products

424500 Farm Product Raw Materials

424600 Chemical & Allied Products

424700 Petroleum & Petroleum

Products

424800 Beer, Wine, & Distilled

Alcoholic Beverages

424910 Farm Supplies

424920 Book, Periodical, &

Newspapers

424930 Flowers, Nursery Stock, &

Florists' Supplies

424940 Tobacco Products &

Electronic Cigarettes

424950 Paint, Varnish, & Supplies

424990 Other Miscellaneous

Nondurable Goods

Wholesale Electronic Markets and

Agents and Brokers

425120 Wholesale Trade Agents &

Brokers

Information

Publishing Industries (except

Internet)

513110 Newspaper Publishers

513120 Periodical Publishers

513130 Book Publishers

513140 Directory & Mailing List

Publishers

513190 Other Publishers

513210 Software Publishers

Once the principal business activity is

determined, entries must be made on Form

1120-FSC, page 2, Additional Information, lines

1a, 1b, and 1c. For the business activity code

number, enter the six digit code selected from the

list below. On line 1b, enter a brief description of

the FSC's business activity. Finally, enter a

description of the principal product or service of

the FSC on line 1c.

Motion Picture and Sound

Recording Industries

512100 Motion Picture & Video

Industries (except video

rental)

512200 Sound Recording Industries

Broadcasting, Content Providers,

and Telecommunications

516100 Radio & Television

Broadcasting

516210 Media Streaming, Social

Networks, & Other Content

Providers

517000 Telecommunications

(including Wired, Wireless,

Satellite, Cable & Other

Program Distribution,

Resellers, Agents, Other

Telecommunications, &

Internet Service Providers)

Data Processing Services

518210 Computing Infrastructure

Providers, Data Processing,

Web Hosting, & Related

Services

519200 Web Search, Rentals,

Libraries, Archives, & Other

Info. Services

Rental and Leasing

Rental and Leasing Services

532100 Automotive Equipment Rental

& Leasing

532210 Consumer Electronics &

Appliances Rental

532281 Formal Wear & Costume

Rental

532282 Video Tape & Disc Rental

532283 Home Health Equipment

Rental

532284 Recreational Goods Rental

532289 All Other Consumer Goods

Rental

532310 General Rental Centers

532400 Commercial & Industrial

Machinery & Equipment

Rental & Leasing

Professional Services

Architectural, Engineering, and

Related Services

541310 Architectural Services

541320 Landscape Architecture

Services

541330 Engineering Services

541340 Drafting Services

541350 Building Inspection Services

541360 Geophysical Surveying &

Mapping Services

541370 Surveying & Mapping (except

Geophysical) Services

541380 Testing Laboratories

Other Professional Services

541600 Management, Scientific, &

Technical Consulting

Services

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