U. S. Business Income Tax Return

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2025

Instructions for Schedule H
(Form 1120-F)
Deductions Allocated to Effectively Connected Income Under Regulations Section
1.861-8
Section references are to the Internal Revenue Code
unless otherwise noted.

line 26; and, for banks only, on Schedule M-3 (Form
1120-F), Part III, line 31.

Future Developments

Who Must File

For the latest information about developments related to
Schedule H (Form 1120-F) and its instructions, such as
legislation enacted after they were published, go to
IRS.gov/Form1120F.

Regulations section 1.861-8. Under section 882(c), a
foreign corporation’s expenses are deductible against its
U.S. taxable income only if they are connected with
income effectively connected with the conduct of a trade
or business in the United States (“ECI”). The proper
allocation and apportionment of deductions for this
purpose is generally determined under the provisions of
Regulations section 1.861-8 and Temporary Regulations
section 1.861-8T, with special rules for the allocation and
apportionment of research and experimentation expenses
at Regulations section 1.861-17. Under Regulations
section 1.861-8, a taxpayer must allocate deductions to
the class of gross income to which the deduction is
definitely related and then, if necessary, apportion
deductions among the groups of income included in the
class.
Generally, deductions are allocated and apportioned on
the basis of the factual relationship between the deduction
and gross income (under section 882(c)(1)(B), charitable
contributions that are deductible under section 170 reduce
ECI whether or not connected with such income). Use
Schedule H (Form 1120-F) to report expenses, other than
interest expense and bad debt expense, allocated and
apportioned to ECI and non-ECI. Interest expense of a
foreign corporation is allocated to ECI exclusively (except
to the extent provided in certain tax treaties) under the
rules provided in Regulations section 1.882-5 and is
reported on Schedule I (Form 1120-F). See Regulations
section 1.882-5(a)(2). Bad debt expense allocated to ECI
is reported directly on Form 1120-F, Section II, line 15.

Purpose of Schedule

Schedule H (Form 1120-F) is used by a foreign
corporation that files Form 1120-F to report the amount of
the foreign corporation's deductible expenses that are
allocated and apportioned under Regulations sections
1.861-8 and 1.861-17 and Temporary Regulations section
1.861-8T between ECI and non-ECI. The results reported
on Schedule H are included on Form 1120-F, Section II,

Oct 6, 2025

Protective returns. If the foreign corporation files a
protective Form 1120-F under Regulations section
1.882-4(a)(3)(vi), Schedule H need not be completed or
attached to the protective Form 1120-F.
Treaty-based return reporting of business profits attributable to a U.S. permanent establishment. Do not
complete Schedule H if the corporation files Form 1120-F
pursuant to an income tax treaty to report business profits
attributable to a U.S. permanent establishment and
applies OECD Transfer Pricing Guidelines in lieu of the
ECI and expense allocation and apportionment rules of
section 882(c) and Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations section 1.861-8T.
This treaty-based reporting is permitted only if the
applicable income tax treaty and accompanying
documents (such as Exchange of Notes) expressly
provide that attribution of business profits to a U.S.
permanent establishment is determined under OECD
Transfer Pricing Guidelines applied by analogy. See the
Instructions for Schedule M-3 (Form 1120-F) for the
reporting of book-tax differences in Parts II and III of that
schedule under a treaty-based return position pursuant to
OECD Transfer Pricing Guidelines. See also Form 8833,
Treaty-Based Return Position Disclosure Under Section
6114 or 7701(b).
Reporting Foreign Tax Information From Partnerships. If you received a Schedule K-3 (Form 1065) from a
partnership that includes foreign tax information, see the
instructions for Schedule K-3 (Form 1065), Part X, Section
2 and Section 3, for specific instructions for reporting
expenses on Schedule H (Form 1120-F).

Instructions for Schedule H (Form 1120-F) (2025) Catalog Number 50605P
Department of the Treasury Internal Revenue Service www.irs.gov

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General Instructions

Any foreign corporation that is required to file Form 1120-F
and is (or is treated as) engaged in a trade or business
within the United States at any time during the tax year
must complete Schedule H and attach it to its Form
1120-F. Also, any foreign corporation that is a partner in a
partnership that has deductions allocated to ECI under
Regulations section 1.861-8 must also complete
Schedule H and attach it to its Form 1120-F.

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Specific Instructions

Part I is used to identify the total expenses, including
interest expense and bad debt expense, recorded on the
corporation’s home office books; to report adjustments
made to determine the amounts that are deductible for
U.S. tax purposes; and to report the portion of the
adjusted expenses that are definitely related to ECI and
non-ECI. To the extent included in the home office records
used to report total home office expenses, interest
expense and bad debt expense are also identified on
Schedule H and removed from expenses allocated and
apportioned under Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations section 1.861-8T.
Deductions reported on home office books may include
expenses incurred outside the foreign corporation's home
country (other than in the United States). Home office
deductions do not include deductions that are reported on
books and records used to complete Form 1120-F,
Schedule L (“Schedule L books”). Schedule L books are
the set or sets of books of the corporation's U.S. trade or
business or books of its U.S. branch (whether maintained
within or outside the United States) as defined in
Regulations section 1.882-5(d)(2).
Part I may be completed in U.S. dollars or in the foreign
corporation's functional currency. If the corporation
completes Part I in U.S. dollars, check the box in the Part I
heading. If the corporation completes Part I in a functional
currency other than U.S. dollars, specify the currency in
the space provided in the Part I heading.
Line 1a. Enter on line 1a the total expenses recorded on
the non-Schedule L books of the home office (including
books and records maintained in locations outside the
United States other than in the corporation's home
country). The books and records may be home office
records (for example, management cost accounting
reports) that identify only the expenses included in the
corporation's financial statements for the tax year. It is not
necessary that the home office records or reports used
also include items of income, gain or loss (including bad
debt charge-offs), or financial transaction expenses such
as interest expense and periodic notional principal
contract expense.
Alternatively, the expenses reported on line 1a may be
derived from audited or unaudited financial statements.
The home office books may be books recorded under the
Generally Accepted Accounting Principles (GAAP), or
other applicable accounting standards, including
International Financial Reporting Standards, applicable to
the corporation's local accounting practices or under U.S.
GAAP, at the corporation's choosing. Expenses of other
includible entities (that is, disregarded entities) are
included in home office expenses reported on line 1a only
if the expenses of such other entities are recorded on the
home office's books. However, if the home office's books
and records are maintained as part of a foreign
consolidated financial statement, the consolidated group's
2

Line 1b. To indicate the accounting conversion that is
used to compute the amount on line 1a, check the
applicable box provided.
Line 2. Enter on line 2 the total of the adjustments
necessary to conform the amounts on line 1a to the
amounts that are deductible for U.S. tax purposes. These
adjustments include temporary and permanent
differences of the type applicable in determining the
deductions of U.S. corporations that file their income tax
returns on Form 1120 (for example, adjustments
eliminating any line 1a expenses of entities whose
expenses are includible in the corporation’s expenses f or
book purposes but not for U.S. tax purposes). In addition,
include adjustments to loan losses and loss reserves
included in line 1a expenses to reflect the amount of bad
debt expense that is deductible for U.S. tax purposes.
Such adjustments include any amount of bad debt
expense included on line 1a that is treated as an
involuntary charge-off under Regulations section
1.166-2(d)(2). The deductible amount of bad debt
expense remaining after any adjustments on line 2 is
eliminated from Schedule H expenses on line 5.
Attach a statement listing the amount of the adjustment
for each of the following categories.
1. Expenses included on line 1a of entities whose
expenses are not includible in the corporation's expenses
for U.S. tax purposes.
2. Temporary differences (for example, costs
capitalized under section 263A, carrying charges under
section 263(g), depreciation and amortization, and
general loan loss reserves).
3. Permanent differences (for example, interbranch
transactions other than interest; non-deductible meals and
entertainment and executive salary compensation).
Do not allocate and apportion expenses to ECI and
non-ECI on line 2. In addition, do not make adjustments
on line 2 to reflect book-to-tax adjustments for any home
office interest expense (including interbranch interest
expense) included on line 1a. Interest expense included
on line 1a is adjusted on line 4. The allocation of
deductible interest expense to ECI is reported on
Schedule I (Form 1120-F).
Instructions for Schedule H (Form 1120-F) (2025)

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Part I—Home Office Deductible
Expenses Definitely Related Solely to
ECI or Non-ECI

expenses may be entered on line 1a, although such
amounts are adjusted on line 2. If the consolidated group’s
expenses are used, the corporation must attach a
statement listing the foreign consolidated group members.
Expenses recorded on non-Schedule L books of
disregarded entities (and not on the home office books)
that are allocated and apportioned to ECI are reported on
line 19. If the corporation uses management cost
accounting statements for its home office books that
include expenses of one or more disregarded entities, and
also maintains certified audited third-country GAAP (or
other applicable accounting standards) statements for a
disregarded entity, the expenses of the disregarded entity
must be included on line 1a in either U.S. dollars or the
home office's functional currency even if the audited
third-country GAAP (or other applicable accounting
standards) statements are in another non-U.S. dollar
functional currency.

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If the corporation is a foreign bank that charges its U.S.
branch office cost reimbursements for services and
overhead which are booked by the branch in the
third-party category of expense actually incurred rather
than as a lump sum interbranch amount, list the
adjustment for each third-party category expense
separately on the statement for permanent differences.
Line 3. Combine lines 1a and 2 and enter the result on
line 3. The amount reported on line 3 is the total amount of
deductible expenses (determined under U.S. tax
principles before apportionment between ECI and
non-ECI) of the foreign corporation that files Form 1120-F,
other than those that are included on the corporation's
Schedule L books.
Line 4. Enter on line 4 the total amount of interest
expense (including interbranch interest), if any, recorded
on the home office books that is included on line 3.

Line 7. Subtract line 6 from line 3 and enter the difference
on line 7. This is the corporation's remaining home office
deductions which are to be allocated and apportioned
between ECI and non-ECI in Parts I and II of Schedule H.
Lines 8 through 10. The amounts reported on lines 8
through 10 are deductions that are definitely related to
non-ECI under Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations section 1.861-8T. If
the corporation has deductions included on line 7 that are
definitely related and allocable to ECI that is exempt from
tax under the Code or an income tax treaty, the
deductions should be treated as allocable to non-ECI for
purposes of Schedule H and included in the amounts
reported on lines 8 through 10.
Line 8. Enter on line 8 deductions included on line 7
that are definitely related to non-ECI received from
subsidiaries (other than disregarded entities whose
income and deductions are treated as income and
deductions of the corporation filing Form 1120-F). See, for
example, Regulations section 1.861-8(e)(4)(ii) and
Regulations section 1.861-17 (relating to treatment of
stewardship expenses and research and experimentation
expenses).
Line 9. Enter on line 9 deductions included on line 7
(other than amounts included on line 8) that are definitely
related under Regulations sections 1.861-8 and 1.861-17
and Temporary Regulations section 1.861-8T to non-ECI
of the corporation that is booked in the corporation's home
office and in other locations in the corporation's home
country. For example, line 9 includes deductions included
on line 7 that are definitely related to non-ECI of a banking
corporation that is booked in the corporation's home office
and in its retail banking branches in the corporation's
home country. The amount of any interoffice or
interbranch charges from the home office to various
locations and departments recorded on the home office
books as home office “service” fees for internal
management or home office tax accounting purposes
(which amounts are eliminated on line 2) is not
Instructions for Schedule H (Form 1120-F) (2025)

Line 11. Enter on line 11 the portion of the deductions
included on line 7 that is definitely related to ECI under
Regulations sections 1.861-8 and 1.861-17 and
Temporary Regulations section 1.861-8T. Deductions
definitely related to ECI may include specifically
identifiable personnel and other associated costs incurred
in the home office with respect to persons who work on
the evaluation and approval of ECI-producing activities of
the corporation's trade or business within the United
States (for example, specifically identifiable home office
deductions incurred for the evaluation and approval of
U.S. loans to customers negotiated and solicited by the
corporation's U.S. branch office where a banking,
financing, or similar business is carried on). Also include
on line 11 deductible research and experimentation
expenditures that are definitely related to ECI under
Regulations section 1.861-17, deductible charitable
contributions that are included on line 7, and stewardship
expenses, if any.

Part II—Home Office Deductible
Expenses Allocated and Apportioned
to ECI
Line 13. Subtract line 12 from line 7 and enter the
difference on line 13. The amount on line 13 is the residual
amount of the deductions entered on line 7 that is not
definitely related solely to the corporation's ECI or
non-ECI. The amount on line 13 is subject to
apportionment under Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations section 1.861-8T.
Line 14. If the corporation reports expenses and
deductions in Part I in a non-U.S. dollar functional
currency, enter the average exchange rate that is used to
convert those deductions to U.S. dollars for purposes of
lines 15 and 17. The exchange rate must be rounded to at
least five places.

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Line 5. Enter on line 5 the bad debt expense, if any, that
is included on line 3. Any portion of the amount included
on line 5 that is allocable to ECI is reported directly on
Form 1120-F, Section II, line 15.

determinative of the amount of the home office's
deductible expense that is definitely related to non-ECI.
Line 10. Enter on line 10 all other deductions included
on line 7 that are definitely related solely to non-ECI of the
corporation (other than amounts included on lines 8 and
9). For example, if a banking corporation conducts global
banking operations through branch offices (including
through disregarded entities) in locations outside the
corporation's home country, the home office deductions
included on line 7 that are definitely related to non-ECI
booked in those locations are reportable on line 10. These
deductions include home office deductions definitely
related to non-ECI of disregarded entities, whether or not
the balance sheet from such entity is reportable on
Schedule L of Form 1120-F. (For corporations other than
banks, such non-ECI may be reflected as income from
includible entities on Schedule M-3 (Form 1120-F), Part I,
line 5. Foreign banks record such non-ECI on
Schedule M-3 (Form 1120-F), Part I, line 5, only if the
entity's sets of books are reportable on Form 1120-F,
Schedule L.) See the Instructions for Schedule M-3 (Form
1120-F), Part I.

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Note: You must round the result to more than five places
if failure to do so would materially distort the exchange
rate or the equivalent amount of U.S. dollars.
If the corporation reports amounts in Part I in U.S.
dollars, leave line 14 blank.
Line 15. Enter on line 15 the amount on line 13,
converted if necessary to U.S. dollars. If the amount on
line 13 is stated in a non-U.S. dollar functional currency,
divide line 13 by the line 14 exchange rate and enter the
result on line 15.

Line 17. Enter on line 17 the amount entered on line 11,
converted if necessary to U.S. dollars. If the amount on
line 11 is stated in a non-U.S. dollar functional currency,
divide line 11 by the line 14 exchange rate and enter the
result on line 17.
Line 18. Add lines 16 and 17 and enter the total on
line 18. The amount on line 18 is the total amount of
deductible expenses reported on the home office books
that is allocated and apportioned to ECI under
Regulations sections 1.861-8 and 1.861-17 and
Temporary Regulations section 1.861-8T.
Line 19. Enter on line 19, in U.S. dollars, the amount of
deductible expenses allocated and apportioned to ECI
under Regulations sections 1.861-8 and 1.861-17 and
Temporary Regulations section 1.861-8T that is recorded
on non-Schedule L books of foreign locations other than
those of the home office. Attach a statement listing the
amount of deductions allocated and apportioned to ECI
from each location.
Line 20. Add lines 18 and 19 and enter the total on
line 20. The amount entered on line 20 is the total amount
of deductible expenses reported on the corporation’s
non-Schedule L books that is allocated and apportioned
to ECI under Regulations sections 1.861-8 and 1.861-17
and Temporary Regulations section 1.861-8T. This
amount is also reported on Form 1120-F, Section II,
line 26, and, for banks only, on Schedule M-3 (Form
1120-F), Part III, line 31.

Part III—Allocation and
Apportionment Methods and
Financial Records Used To Complete
Parts I and II

Part III is used to identify the income, asset, and personnel
attributes of the U.S. trade or business and to report the
methodologies and financial records used to determine
the amount of the deductions that are allocated and
apportioned to ECI in Parts I and II of Schedule H. The
corporation's ratios of effectively connected gross income,
U.S. assets, and U.S. personnel to worldwide gross
income, worldwide assets, and worldwide personnel are
4

Check Boxes Above Line 21
New methods. Check the box to indicate if the
corporation used a method to allocate and apportion
deductions for the current tax year that was not used in
the prior year.
Interbranch amounts in Part IV. Check the box to
indicate if an expense in respect of any amount included
in Part II, line 20, in the home office allocation and
apportionment was recorded on the Schedule L books
that are used to complete Part IV of Schedule H. Include
the full amount of the interbranch charge in Part IV, line 35.

Lines 21 Through 23. Gross Income, Asset, and
Number of Personnel Ratios

The corporation must complete the gross income ratio for
line 21 whether or not it used such method to allocate and
apportion deductions in Parts I and II. If the corporation
used the asset or number of personnel method (whether
separately or as components of a multi-factor method), it
must report the attributes on lines 22 and 23. If the
corporation did not use either the asset or the personnel
method to allocate and apportion deductions for the year,
then, except as provided for worldwide assets reported on
line 22b, only the numerators of each method must be
reported on lines 22 and 23. See the instructions for
line 22b for disclosure of the asset ratio by corporations
that used the actual ratio to allocate interest expense
under Regulations section 1.882-5.
Line 21a. Enter on line 21a the corporation's gross ECI
reportable on column (e) of Schedule M-3 (Form 1120-F),
Part II, line 25, plus any additional gross income amounts
reportable on line 27, column (e). If the corporation is not
required to and does not file Schedule M-3 (Form 1120-F)
for the tax year, enter the amount of gross income from
Form 1120-F, Section II, line 11.
Line 21b. Enter on line 21b the corporation's worldwide
gross income stated in U.S. dollars. Corporations other
than banks enter the worldwide gross income amount
from Schedule M-3 (Form 1120-F), Part II, line 25, column
(a), plus any additional gross income amounts included on
line 27, column (a). However, if the corporation's
worldwide income is effectively connected to its trade or
business within the United States, the corporation should
instead enter the gross income amount from
Schedule M-3, Part II, line 25, column (e) (plus any
additional gross income amounts included on line 27,
column (a)), but only if there are no permanent differences
for tax-exempt income under section 103 or under a treaty
(for example, force of attraction income not attributable to
a U.S. permanent establishment) that would otherwise be
removed in column (c). If the corporation is not required to
and does not report worldwide gross income in column (a)
of Schedule M-3 (Form 1120-F), enter the worldwide
gross income from any other reasonable source.
Instructions for Schedule H (Form 1120-F) (2025)

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Line 16. Enter on line 16 the amount of deductions
included on line 15 that is allocated and apportioned to
ECI under Regulations sections 1.861-8 and 1.861-17 and
Temporary Regulations section 1.861-8T. Attach a
statement describing the apportionment methods used,
identifying the numerator and denominator of any
ratio-based method, and listing the amount apportioned
under each method to ECI.

reported on lines 21 through 23. Other ratio-based
methods and any non-ratio-based methods the
corporation used for the tax year to allocate and apportion
deductions to non-ECI on lines 8 through 10 and to ECI on
lines 11, 16, and 19 are identified in statements required
by the instructions for lines 24 and 25.

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Reasonable sources include worldwide income
statements used to report allocations of income or capital
to other regulatory or non-federal tax authorities or the
worldwide income statements that would be used if the
corporation was required to report worldwide gross
income in column (a) of Schedule M-3 (Form 1120-F).
Worldwide gross income is worldwide gross receipts less
only cost of goods sold, if applicable.

Line 22b. If the corporation used the worldwide actual
ratio under Regulations section 1.882-5(c)(2) to allocate
interest expense to ECI, enter the amount from Schedule I
(Form 1120-F), line 6b. If the corporation did not use the
actual ratio, but used a worldwide asset ratio to apportion
deductions to ECI for purposes of line 11, 16, or 19, enter
the worldwide assets used in that ratio. If a worldwide
asset ratio is not available from either Schedule I (Form
1120-F), line 6b, or Schedule H, line 11, 16, or 19, leave
line 22b blank.
Line 22c. If an amount is entered on line 22b, divide
line 22a by line 22b to determine the asset ratio and enter
the percentage on line 22c. If line 22b is blank, leave
line 22c blank.
Line 23a. Enter on line 23a the number of personnel who
worked in the corporation's U.S. trade or business during
the tax year. The corporation may use any reasonable
method to determine the number of personnel, including
data that is already prepared and used by the corporation
for a non-tax business purpose. For example, if the
corporation maintains headcount data (such as weighted
average headcount data) in its personnel records or for
other purposes such as budgeting, planning, and control,
such numbers may be used in the numerator.
Line 23b. If the corporation used a ratio based on
number of personnel to apportion deductions on line 11,
16, or 19, enter the worldwide personnel count used in the
denominator of such ratio on line 23b. If the corporation
does not apportion deductions using a number of
personnel ratio, leave line 23b blank.
Line 23c. If an amount is entered on line 23b, divide
line 23a by line 23b to determine the number of personnel
ratio and enter the percentage on line 23c. If line 23b is
blank, leave line 23c blank.
Line 24. If the corporation used any other ratio-based
method to allocate and apportion deductions to ECI and
non-ECI on line 8, 9, 10, 11, 16, or 19 of Schedule H,
attach a statement describing the ratio used on each line.
Instructions for Schedule H (Form 1120-F) (2025)

Line 25. If the corporation used a non-ratio-based
method to allocate and apportion deductions to ECI and
non-ECI on line 8, 9, 10, 11, 16, or 19 of Schedule H,
attach a statement describing each such method and the
percentage used, if any, for each applicable line. These
may include methods for which percentage allocations to
ECI or non-ECI are estimated and documented by
questionnaires or home office department interviews (for
example, estimated percent of time spent by employees of
particular home office departments or sub-departments
on U.S. trade or business activities).

Lines 26 Through 28. Identification of Financial
Records Used

Check the “Yes” or “No” box to indicate whether the types
of financial books and records indicated were used to
complete Parts I and II of Schedule H.

Line 28. If the “Yes” box is checked, attach a statement
listing the other documentation used to complete Parts I
and II of Schedule H (for example, home country
regulatory reports or functional analyses).

Part IV—Allocation and
Apportionment of Expenses on Books
and Records Used To Prepare Form
1120-F, Schedule L
Use Part IV of Schedule H to report the allocation and
apportionment of deductions recorded on the
corporation's Schedule L books, other than interest and
bad debt expense, to ECI and non-ECI under Regulations
sections 1.861-8 and 1.861-17 and Temporary
Regulations section 1.861-8T.

Line 29. Enter on line 29 the total expenses recorded on
the Schedule L books.
Note: The Schedule L books may be maintained using
GAAP, or other applicable accounting standards, other
than U.S. GAAP. The Schedule L books may include more
than one set of books, including the set(s) of books of
disregarded entities. See the Instructions for
Schedule M-3 (Form 1120-F), Part I, lines 4 and 5, for the
Schedule L treatment of disregarded entities and the
combined reporting of multiple sets of books. These rules
apply to both banks and non-banks for purposes of
determining the expenses reportable on Schedule H,
line 29. Interbranch income and expenses recorded
between separate sets of books must be eliminated in the
combined reports.
Line 30. Enter on line 30 the total of the adjustments
necessary to conform the amounts on line 29 to the
amounts that are deductible for U.S. tax purposes. See
the instructions for Part I, line 2, for a general description
of the types of temporary and permanent differences that
are reportable as adjustments to the book expenses in
determining current year tax deductions under U.S. tax
principles. However, do not include on line 30 any
adjustments that are otherwise reportable on lines 32a
through 35. Specifically, third-party interest expense and
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Line 22a. Enter on line 22a the average assets reported
on Schedule I (Form 1120-F), line 5, column (d). These
are the average U.S. assets included in the corporation's
Regulations section 1.882-5 interest expense allocation. If
the corporation does not have any interest expense for the
year and does not file Schedule I (Form 1120-F), enter the
average assets derived from the beginning and ending
U.S. assets included in the computation of U.S. net equity
on Form 1120-F, Section III, lines 4a and 4b. If the
corporation is exempt from the branch profits tax under an
applicable income tax treaty and is not required to
complete Form 1120-F, Section III, Part I, the average U.S.
assets should be derived from the beginning and ending
U.S. assets included on Form 1120-F, Schedule L.

Include the numerator and denominator of the ratio used
for each applicable line.

TREASURY/IRS AND OMB USE ONLY DRAFT

Line 32a. Enter on line 32a the amount of third-party
interest expense (whether owed to unrelated or related
parties) that is included in the amount reported on line 31.
Interest expense is allocated to ECI under Regulations
section 1.882-5 and reported on Schedule I (Form
1120-F).
Line 32b. Enter on line 32b any interbranch interest
expense that is included in the amount reported on
line 31.
Line 33. Enter on line 33 any bad debt expense that is
included in the amount reported on line 31. Any portion of
the amount eliminated on line 33 that is allocated and
apportioned to ECI is reported directly on Form 1120-F,
Section II, line 15.
Line 34. Enter on line 34 other third-party expenses that
are included in the amount reported on line 31 and that
are not allocated and apportioned between ECI and
non-ECI under Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations section 1.861-8T.
Periodic expense from a notional principal contract is not
allocated and apportioned under Regulations section
1.861-8 and Temporary Regulations section 1.861-8T if
the amount is includible in the profits and losses of a
global dealing operation and the corporation allocates and
apportions such amounts under Proposed Regulations
section 1.863-3(h). Such periodic expense is subject to
allocation and apportionment under Proposed
Regulations section 1.863-3(h) in accordance with the
principles of Proposed Regulations section 1.482-8. If
such periodic expense is included on line 31, it should be
included on line 34 and reported separately on Form
1120-F, Section II, as either part of the global dealing
income reported on Form 1120-F, Section II, line 10, or as
a separately identified deduction under Form 1120-F,
Section II, line 27.
Line 35. Enter on line 35 all interbranch expenses, other
than interbranch interest expense, that are included in the
6

amount reported on line 31. The interbranch amounts
reportable on line 35 include home office charges
reflected on the Schedule L books for home office
management services provided to the U.S. trade or
business.
Note: Amounts paid or accrued on the Schedule L books
to the home office are not determinative of the amount of
home office expense allocated and apportioned to ECI on
Schedule H, Part II, line 20.
Line 36. Add the amounts on lines 32a through 35 and
enter the total on line 36. This amount reflects the
deductions included on line 31 for which there are special
rules to which the general allocation and apportionment
rules under Regulations sections 1.861-8 and 1.861-17
and Temporary Regulations section 1.861-8T do not
apply.
Line 37. Subtract the amount on line 36 from the amount
on line 31 and enter the difference on line 37. The amount
reported on line 37 is allocated and apportioned to ECI
and non-ECI under Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations section 1.861-8T
and reconciled on lines 38a through 41.

Lines 38a Through 41. Reconciliation of
Allocable Expenses on Books Under
Regulations Section 1.861-8 (from line 37)

The amount of deductions reported on line 37 that is
allocated and apportioned to ECI and non-ECI is reported
on lines 38a through 41, columns (a) through (c). With
respect to each of lines 38a through 41, enter the amount
included on line 37 that is allocated or apportioned to ECI
in column (a) and the amount allocated or apportioned to
non-ECI in column (b). Add columns (a) and (b) for each
line and enter the total amount in column (c).
Line 38a. Enter on line 38a the amount of derivative
transaction deductions included on line 37 that are
definitely related to ECI or non-ECI under Regulations
section 1.861-8 and Temporary Regulations section
1.861-8T. Deductions included on line 38a are periodic
expense from notional principal contracts that are sourced
under Regulations section 1.863-7 with respect to
non-dealer securities hedging transactions or from
securities trading or non-global dealing operations. If
notional principal contract periodic expense is allocated
and apportioned under the global dealing rules of
Proposed Regulations section 1.863-3(h), such amounts
should be included on line 34 and, therefore, are not
definitely related to ECI or non-ECI under Regulations
section 1.861-8 and Temporary Regulations section
1.861-8T.
Note: Periodic expenses from notional principal contracts
may be allocated and apportioned to ECI and non-ECI in
accordance with the ECI and non-ECI treatment of the
item(s) the notional principal contract hedges.
Line 38b. Enter on line 38b all other deductions included
in the amount reported on line 37 that are definitely related
to ECI or non-ECI under Regulations sections 1.861-8 and
1.861-17 and Temporary Regulations section 1.861-8T.

Instructions for Schedule H (Form 1120-F) (2025)

DRAFT

DRAFT

interbranch interest expense included on line 29 is
adjusted on lines 32a and 32b, instead of line 30. Bad
debt expense included on line 29 is adjusted on line 33,
instead of line 30. Other third-party deductible expenses
not allocated or apportioned to ECI and non-ECI under
Regulations section 1.861-8 are adjusted on line 34,
instead of line 30. Interbranch expenses (other than
interest expense) included on line 29 (including
interbranch book charges for home office services
provided to the U.S. trade or business) are adjusted on
line 35, instead of line 30. However, if the corporation is a
foreign bank that charges its U.S. branch office cost
reimbursements for services and overhead which are
booked by the branch in the third-party category of
expense actually incurred rather than as a lump sum
interbranch amount, the interbranch amounts charged and
recorded by the U.S. branch Schedule L books should not
be reported on line 35 as interbranch expenses, but
should be left in the third-party categories to which they
are assigned on the U.S. books and records. If any such
amounts require adjustment for U.S. tax principles, then
such adjustment should be shown on line 30.
Attach a statement detailing the items adjusted and
amounts of each adjustment.

TREASURY/IRS AND OMB USE ONLY DRAFT
Line 39. Add lines 38a and 38b and enter the total on
line 39 for each of columns (a) through (c). The amounts
on line 39 are the portion of total deductions reported on
line 37 that are definitely related to ECI and non-ECI.

DRAFT

DRAFT

Line 40. Enter on line 40 the deductions included on
line 37 that are not definitely related to ECI or non-ECI that
are apportioned to ECI and non-ECI under Regulations
sections 1.861-8 and 1.861-17 and Temporary
Regulations section 1.861-8T. The total on line 40, column
(c), must equal line 37 minus line 39, column (c).

Line 41. Add lines 39 and 40 and enter the total on
line 41 for each of columns (a) through (c). The amount
entered on line 41, column (a), is the total amount of
deductions included on line 37 that is allocated and
apportioned to ECI. These deductions are included on
Form 1120-F, Section II, lines 12, 13, 14, 16, 17, 19
through 24, and 27. The total amount on line 41, column
(c), must equal the amount on line 37.

Instructions for Schedule H (Form 1120-F) (2025)

7