U. S. Business Income Tax Return

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2025

Instructions for Schedule I
(Form 1120-F)
Interest Expense Allocation Under Regulations Section 1.882-5
Section references are to the Internal Revenue Code unless
otherwise noted.

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

General Instructions
Schedule I (Form 1120-F) is used to report the amount of
interest expense allocable to effectively connected income
(ECI) and the deductible amount of such allocation for the tax
year under section 882(c) and Regulations section 1.882-5.
The schedule discloses the basic calculations for the year
and also identifies the various elections the taxpayer uses
under Regulations sections 1.882-5(a)(7) and (d)(5) and
under the branch profits tax rules of Regulations section
1.884-1(e)(3).
Note: The tax election under Regulations section 1.884-1(e)
(3) is not effectuated under the regulations by its identification
on Schedule I (Form 1120-F). See Regulations section
1.884-1(e)(3)(iv) for the time, place, and manner for making
the liability reduction election and the separate disclosures
required to be attached to Form 1120-F for each liability
reduction election made.
Under Regulations section 1.882-5, the amount of interest
expense of a foreign corporation that is allocable under
section 882(c) to income which is effectively connected (or
treated as effectively connected) with the conduct of a trade
or business within the United States is the sum of the interest
expense allocable by the foreign corporation under the
three-step process set forth in Regulations sections
1.882-5(b), (c), and (d) or (e), and the directly allocated
interest expense determined under Regulations section
1.882-5(a)(1)(ii). The interest allocation rules of Regulations
section 1.882-5 are the exclusive rules for allocating interest
expense under section 882(c) to ECI and for attributing
interest expense to business profits of a U.S. permanent
establishment under all income tax treaties other than
treaties that, pursuant to their express provisions and
accompanying documents, permit attribution of business
profits to a U.S. permanent establishment under application
of the OECD Transfer Pricing Guidelines, by analogy. If the
foreign corporation files its tax return using a treaty-based
method of the type provided in these treaties, see
Treaty-based return positions below for reporting
requirements.

Oct 14, 2025

All foreign corporations that have interest expense allocable
to ECI under section 882(c) must complete Schedule I to
report this allocation, regardless of whether the amount
allocable under Regulations section 1.882-5 is deductible in
the current year or is otherwise deferred or permanently
disallowed under other sections of the Internal Revenue
Code (for example, sections 163(e), 163(j), 263A, 265(a),
and 267(a)(3)). The information reported on Schedule I is
also needed to complete Form 1120-F, Section III (the
determination of the branch-level interest tax under section
884(f)). Interest expense that is treated as “branch interest”
under Regulations section 1.884-4(b) may be subject to
information reporting under section 1461 or section 6049 and
potential withholding under sections 1441 and 1442. A
foreign corporation that is a reporting corporation and
required to file Form 1120-F must complete Schedule I and
attach it to Form 1120-F.

Reporting corporation. A reporting corporation is any
foreign corporation that is engaged in a trade or business or
treated as engaged in a trade or business within the U.S.
directly or indirectly at any time during the tax year.
Treaty-based return positions. If the corporation
determines its interest expense attributable to its business
profits of a U.S. permanent establishment pursuant to the
express provisions and accompanying documents of an
applicable treaty, then Schedule I still must be completed
based on the treaty method used (substituting the amount of
assets, liabilities, and interest expense determined under the
treaty method for the amounts that would have been reported
under Regulations section 1.882-5) and attached to Form
1120-F. The corporation is also required to complete and
attach Form 8833, Treaty-Based Return Position Disclosure.

Exceptions From Filing Schedule I

A foreign corporation is not required to file Schedule I if it (a)
does not have a trade or business within the United States,
(b) has no worldwide interest expense for the tax year to
allocate under Regulations section 1.882-5, or (c) conducts
limited activities in the United States for the tax year that it
determines do not give rise to ECI or do not give rise to a U.S.
permanent establishment to which business profits are
attributable, and the corporation files a protective income tax
return under Regulations section 1.882-4(a)(3)(vi).
Protective elections on protective returns. A corporation
that files a protective tax return on Form 1120-F under
Regulations section 1.882-4(a)(3)(vi) may voluntarily file
Schedule I with the protective return to preserve timely
elections under Regulations section 1.882-5(a)(7) if the
return is filed by the original due date (including extensions)
of the corporation’s Form 1120-F. The protective elections are
not effective if filed during the additional extended period
described under Regulations section 1.882-4(a)(3). The

Instructions for Schedule I (Form 1120-F) (2025) Catalog Number 50606A
Department of the Treasury Internal Revenue Service www.irs.gov

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Purpose of Schedule

Who Must File

foreign corporation need only complete the relevant portions
of Schedule I that identify its right to use the following
elections:
• The Adjusted U.S.-Booked Liability (AUSBL) method or
Separate Currency Pools method (item B checkboxes).
• The actual or fixed ratio in Step 2 (line 6 checkboxes).
• The published rate election for banks under the AUSBL
method in Step 3 (line 10 checkbox).
• The de minimis foreign currency election under the
Separate Currency Pools method in Step 3 (line 16b
checkbox).
The corporation need only identify the protective election
in the first year it is required to be made under Regulations
section 1.882-5(a)(7) or in any year a taxpayer is eligible to
adopt or change an election and chooses to do so for that
year. For example, an election to use the AUSBL method or
the Separate Currency Pools method is an election that must
generally be maintained for a minimum 5-year period.
However, the election available to foreign banks to use a
published rate under the AUSBL method in Step 3 must be
made each year. If a corporation is subject to Regulations
section 1.882-5 for the first time, the election is due with an
original timely filed return (excluding the additional extended
period provided by Regulations section 1.882-4(a)(3))
whether or not the taxpayer files a protective return under
Regulations section 1.882-4(a)(3)(vi). The protective election
need not be filed with subsequent protective returns filed
under Regulations section 1.882-4(a)(3)(vi) for any
subsequent year to which the minimum 5-year period
applies. However, the indication of the election with a
protective return is only effective for a year that the
corporation is engaged in a trade or business or treated as
engaged in a trade or business within the United States.
Accordingly, if a protective election is made for a first year
protective return and in fact the taxpayer is not engaged in a
trade or business or treated as engaged in a trade or
business until the second year of activity within the United
States, the protective election made in the first year is not
effective for the corporation's second year of activity because
Regulations section 1.882-5 is not applicable to the
corporation until such second year. The elections used by a
taxpayer for all years in which it files Form 1120-F and reports
ECI must be shown on Schedule I, including years
subsequent to the year in which an election under
Regulations section 1.882-5(a)(7) is made.
A corporation that files a protective return under
Regulations section 1.882-4(a)(3)(vi) need not enter amounts
on Schedule I in order to preserve an allocation method. If a
taxpayer files a protective return under Regulations section
1.882-4(a)(3)(vi) and does not file Schedule I to identify the
relevant elections under Regulations section 1.882-5 for an
applicable year, then the Director of Field Operations is
authorized to make all applicable allocation method elections
on behalf of the corporation for such applicable year if it is
later determined that the taxpayer was engaged in a trade or
business or treated as engaged in a trade or business within
the United States and had ECI during the year.
Note: Under Regulations section 1.882-5(a)(7), no interest
expense allocation elections may be made on an amended
return. In addition, the relief for late tax elections provided
under the rules of Regulations section 301.9100-1 (and any
guidance promulgated thereunder) is not available.

2

Other Forms and Schedules Related to
Schedule I
Form 1120-F, Schedule L, and Schedule M-3 (Form
1120-F). The set(s) of books that give rise to U.S.-booked
liabilities under Regulations section 1.882-5(d)(2) are the
same set(s) of books and records that are reportable as of
the tax year end on Form 1120-F, Schedule L. They are also
the same set(s) of books and records that are used by foreign
banks to report income and expenses on Schedule M-3
(Form 1120-F).
Form 1120-F, Section III, Part II (branch-level interest
tax). The amount of interest expense from Schedule I,
line 24g is reportable on Form 1120-F, Section III, Part II,
line 7b. The amount of the allocation under Regulations
section 1.882-5 reportable on Schedule I, line 23 is
reportable on Form 1120-F, Section III, Part II, line 7c.
Schedule M-3 (Form 1120-F), Part III, lines 26b and 26c.
The amount of interest expense allocation reportable on
Schedule I, line 23 is includible in columns (d) and (e) of
Schedule M-3 (Form 1120-F), Part III, line 26b. The amounts
subject to deferral and disallowance on Schedule I, lines 24a
through 24f are reportable in columns (b), (c), and (e) of
Schedule M-3 (Form 1120-F), Part III, line 26c.
Schedule P (Form 1120-F). Enter amounts from column (b)
of Schedule P (Form 1120-F), lines 13, 11, 8, and 7 on
Schedule I, line 5; line 8, column (b); line 9, column (b), and
line 22; respectively, making any necessary adjustments to
comply with the rules in Regulations section 1.882-5.
Form 8990, Limitation on Business Interest Expense
Under Section 163(j). Business interest expense includes
any interest paid or accrued on indebtedness properly
allocable to a trade or business. Business interest expense is
generally limited to the sum of business interest income, 30%
of the adjusted taxable income, and floor plan financing
interest. Form 8990 is required, unless an exception for filing
is met. For more information, see section 163(j), Form 8990,
and the Instructions for Form 8990.

Assets and Liabilities Based on Schedule L
Set(s) of Books and Records

Generally, the assets and liabilities required to be reported on
Schedule L are the total assets and liabilities reflected on the
set(s) of books of the foreign corporation that give rise to
income effectively connected with the corporation's trade or
business within the United States and to U.S.-booked
liabilities (as defined in Regulations section 1.882-5(d)(2)).
The total assets and liabilities reflected on such books
include the third party U.S. assets (as defined in Regulations
section 1.884-1(d)) and third party liabilities (whether with
related or unrelated parties), as well as the interbranch
assets and liabilities and assets that give rise to
noneffectively connected income in whole or in part. Such
books reflect the assets of the foreign corporation located in
the United States and all of its other assets used in its trade
or business within the United States (other than all of its
assets giving rise to ECI under sections 864(c)(6) or (7)), as
authorized under Regulations section 1.6012-2(g)(1)(iii). A
foreign corporation may instead report its worldwide assets,
liabilities, and equity on Schedule L.
If the foreign corporation has more than one set of books
and records relating to assets located in the United States or
assets used in a trade or business conducted in the United
States, it must report the combined amounts on Schedule L
Instructions for Schedule I (Form 1120-F) (2025)

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and must eliminate asset and liability amounts recorded
between these books.

disallow the interest deduction in whole or in part. See
Regulations section 1.882-5(a)(5).

Required Reporting on Schedule I

Specific Instructions

Caution: Lines 1 through 9 must be completed by all
corporations required to file Schedule I, regardless of
whether the corporation allocates interest expense under the
AUSBL or Separate Currency Pools method for the
applicable year.
Lines 10 through 20. Allocations, direct interest allocations, deferrals, and other disallowances. Step 3 of the
AUSBL method is provided on lines 10 through 15. Step 3 of
the Separate Currency Pools method is provided on lines 16a
through 20. These Step 3 methods are mutually exclusive
and cannot both apply to the corporation in the same year.
The methods are subject to the general 5-year minimum
period election rules of Regulations section 1.882-5(a)(7).
AUSBL method filers. AUSBL method filers complete all
columns on lines 1 through 15 and lines 21 through 25. Do
not complete lines 16a through 20.
Separate currency pools method filers. Separate
Currency Pools method filers complete all columns on lines 1
through 9 and lines 16a through 25. Do not complete lines 10
through 15.
Lines 21 through 25. Summary—Interest expense allocation and deduction under Regulations section
1.882-5. All corporations required to file Schedule I must
report the summary amounts requested on lines 21 through
25.
Line 22. Direct interest allocations. Interest expense
that is directly allocable under Regulations section 1.882-5(a)
(1)(ii) in accordance with the rules of Temporary Regulations
section 1.861-10T(b) or (c) is reported on line 22.
Line 23. Summary of Regulations section 1.882-5
allocation. The amount of interest expense allocable to ECI
under Regulations section 1.882-5 is the sum of the amount
allocated under either the AUSBL or Separate Currency
Pools method on line 15 or 20 and the amount directly
allocated to ECI and reportable on line 22. The resulting
amount allocable and reported on line 23 is also reconciled
and reported on Form 1120-F, Section III, Part II, line 7c
(branch-level interest tax).
Line 24. Deferrals and disallowances under other
Code sections. The interest expense allocation reportable
on line 23 is determined under Regulations section 1.882-5
before application of other Code sections that defer or
Instructions for Schedule I (Form 1120-F) (2025)

Item A. Foreign banks. Check the box in item A if the
foreign corporation is a bank as defined in Regulations
section 1.882-5(c)(4). The term “bank” is defined in the
regulation as a bank that meets the statutory definition
applicable to domestic banks (except for the fact that the
corporation is foreign) and without regard to whether the
corporation's required banking activities are effectively
connected with its trade or business within the United States.
The required banking activities need only be conducted on a
worldwide basis. To qualify as a bank for interest expense
allocation purposes, the foreign corporation must be subject
to bank regulatory supervision and examination in its home
country of a type similar to that required of domestic banks by
a state or federal authority having supervision over banking
institutions and a substantial amount of the corporation's
business must consist of receiving deposits and making
loans and discounts or of exercising fiduciary powers similar
to those permitted to national banks under authority of the
Comptroller of the Currency. See sections 581 and 585(a)(2).
Note: The reference to the definition of the term “bank” for
purposes of determining the U.S.-booked liabilities of banks
under Regulations section 1.882-5(d)(2)(iii) requires that the
corporation meet the section 585(a)(2) regulated banking
requirements in its trade or business within the United States.
The section 585(a)(2) standard must also be satisfied at the
corporation's U.S. trade or business level for purposes of
electing the deposit liability safe harbor applicable to the
reduction of excess interest under Regulations section
1.884-4(a)(2)(iii).

Lines 1 Through 9: All Foreign
Corporations
Lines 1 Through 5. Step 1: Determination of
Total Value of U.S. Assets

Assets includible on lines 1 through 5 are the U.S. assets of
the corporation as defined in Regulations sections 1.882-5(b)
and 1.884-1(d). The U.S. assets are valued on an average
basis for interest expense allocation purposes.
Frequency of averaging. The average value of assets for
this step is to be computed at the most frequent, regular
intervals for which data is reasonably available. For large
banks (as defined in section 585(c)(2)) and dealers in
securities (within the meaning of section 475) the minimum
averaging period is monthly (beginning of tax year and
monthly thereafter). For any other taxpayer, the minimum
averaging period is semiannually (beginning, middle, and
end of the tax year). See Regulations section 1.882-5(b)(3).
Line 1. Under section 864(e)(2), the foreign corporation
must value its U.S. assets on lines 2 through 5, using the
adjusted basis method as described in Regulations section
1.882-5(b)(2)(i).
Line 2, column (a). Total assets per books. Enter the total
average assets derived from the combined set(s) of books
that are reportable on Schedule L. The total average assets
include interbranch balances with other set(s) of books of the
corporation that are not reportable on Schedule L.
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Lines 1 through 9. Schedule I requires disclosure of data
and interest allocation elections for all parts of the three-step
formula under Regulations section 1.882-5. On page 1, the
corporation is required to complete Step 1 (lines 1 through 5)
to determine its average U.S. assets, Step 2 (lines 6 through
7c) to determine its U.S.-connected liabilities, and Step 3
(lines 8 and 9) to determine its U.S.-booked liabilities under
Regulations section 1.882-5(d)(2) and its related
U.S.-booked interest expense. The total on line 9, column (c)
is also used for purposes of determining the corporation's
branch interest under section 884(f)(1)(A) and Regulations
section 1.884-4(b) and in the calculation of the corporation's
branch-level interest tax on excess interest under section
884(f)(1)(B) and Regulations section 1.884-4(a)(2). Line 8,
column (c), and line 9, column (c) are also included in the
interest expense allocation computation in Step 3 of the
AUSBL method if elected by the corporation.

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Line 3a, column (a). Total interbranch assets. Enter on
line 3a, column (a), the total of the corporation's average
interbranch assets included on line 2, column (a). The
average interbranch assets recorded on the set(s) of
Schedule L books do not create U.S. assets under
Regulations section 1.882-5(b)(1)(iv) and are disregarded for
purposes of the interest expense allocation rules.

Line 3b, column (a). Total non-ECI assets under section
864(c)(4)(D). Enter on line 3b, column (a), the average
assets included on line 2, column (a) that give rise to non-ECI
received from foreign related corporations under section
864(c)(4)(D). Such amounts include assets from transactions
with foreign related corporations that give rise to foreign
source dividends, interest, rents, or royalties, whether or not
such amounts are attributable to a U.S. office of the
corporation under section 864(c)(5). A foreign related
corporation is a foreign corporation the taxpayer owns (under
section 958(a)) or is treated as owning (under section 958(b))
more than 50% of the total combined voting power of all
classes of stock entitled to vote. Enter the average asset
number for assets described in section 864(c)(4)(D) on
line 3b, column (a), regardless of whether such assets give
rise to non-ECI under another Code section or regulation. For
example, report income that is non-ECI under section 864(c)
(4)(D) on line 3b, column (a) even if such income is also not
attributable to a U.S. office of a banking, financing, or similar
business under Regulations section 1.864-6(b)(2)(ii)(b) and
the principles of Regulations section 1.864-4(c)(5)(ii).
Line 3c, column (a). Total other non-ECI assets. Enter on
line 3c, column (a), all other assets (or portion thereof)
included on line 2, column (a), that give rise to domestic or
foreign source non-ECI. If income from a security is treated
as partially ECI and partially non-ECI under Regulations
section 1.864-4(c)(5)(ii), enter the amount of the asset on
line 3c, column (a), in the proportion that the income, gain, or
loss from such asset that is treated as non-ECI bears to the
total income, gain, or loss from such asset. Do the same for
the non-ECI portion of any asset whose income is allocated
under the proposed global dealing regulations or under an
Advance Pricing Agreement pursuant to a competent
authority agreement. See Proposed Regulations sections
1.884-1(d)(2)(vii) and 1.884-1(d)(2)(xi), Example 8. Attach a
statement which describes each type of “other” non-ECI
asset included on line 3c. For each type, show the calculation
of the amount included on line 3c for that type, including a
total for each type.
Line 3d, column (a). Adjustments for amounts from
partnerships and certain disregarded entities included
on line 2, column (a). With respect to amounts from
partnerships included on line 2, column (a), all such amounts
must be “backed out” on this line 3d, column (a). Enter on
line 3d, column (a), all amounts on the Schedule L books for
4

Note: Partnership interests are reported in Step 1 as follows:
The corporation's adjusted outside basis in a partnership
(from Schedule P (Form 1120-F), line 13, “Total” column) that
is treated as a U.S. asset under Regulations sections 1.882-5
and 1.884-1(d)(3) is generally entered on Schedule I (Form
1120-F), line 5, column (b).
With respect to amounts from disregarded entities
included on line 2, column (a), enter on line 3d, column (a),
any adjustment needed to reflect the following: Investments
in disregarded entities should not be included on line 2,
column (a) if the set(s) of books are reportable on
Schedule L. Instead, the total assets of such disregarded
entity's Schedule L books should be combined on line 2,
column (a), with all other set(s) of books reportable on
Schedule L. If another Schedule L book reflects an
investment in a disregarded entity whose books are not
reportable on Schedule L, then the assets of the disregarded
entity are not reported on line 2, column (a). The amount of
the investment in the disregarded entity that is included in the
total assets reported on line 2, column (a), must be reversed
on line 3d, column (a), to reflect its disregarded treatment in
Regulations section 1.882-5.
Line 3e, column (a). Adjustments for assets that give
rise to direct interest expense allocations under Regulations section 1.882-5(a)(1)(ii). Enter on line 3e, column
(a), the average value of the portion of all assets included on
line 2 that give rise to direct interest expense allocations
under Regulations section 1.882-5(a)(1)(ii) in accordance
with the requirements of Temporary Regulations section
1.861-10T(b) or (c), and Temporary Regulations section
1.861-10T(d). A foreign corporation that allocates its interest
expense under the direct allocation rules shall reduce the
basis of the asset that meets the requirements of Temporary
Regulations section 1.861-10T (b) or (c) by the principal
amount of the indebtedness that meets the requirements of
Temporary Regulations section 1.861-10T (b) or (c). The
amount of directly allocable interest under Regulations
section 1.882-5(a)(1)(ii) is reported on line 22.
Line 3f, column (a). Other adjustments to average assets included on line 2. Enter on line 3f, column (a), the
average asset balances for any other amounts included on
line 2, column (a), that do not constitute U.S. assets as
defined in Regulations section 1.884-1(d). Assets includible
on this line may include, for example, amounts with respect to
securities that are marked-to-market for tax purposes under
section 475 that are not marked-to-market on the set(s) of
books reported on line 2, column (a). If the mark-to-market
amount includible for tax purposes is an increase to the basis
of the assets included on line 2, column (a), include such
increase as a negative number on line 3f, column (a).
Similarly, if the mark-to-market amount decreases the basis
of the assets included on line 2, column (a), include such
decrease as a positive number on line 3f, column (a). Other
adjustments for book-to-tax differences with respect to asset
values on line 2, column (a), such as depreciation and
amortization, are also reportable on line 3f, column (a). Enter
an aggregate net increase as a negative number. Enter an
aggregate net decrease as a positive number.
Line 4, column (a). Combine lines 3a through 3f and enter
the result on line 4, column (a). The result on line 4, column
(a), constitutes the total net adjustment to the average book
Instructions for Schedule I (Form 1120-F) (2025)

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Note: If under Proposed Regulations section 1.863-3(h)
(“the proposed global dealing regulations”), which references
the Proposed Regulations section 1.482-8 principles, the
corporation recognizes an amount recorded as an
interbranch asset, such amount is treated as the allocation
and source of third-party securities dealing income and is not
eliminated from U.S. assets on line 3a, column (a). Such
interbranch assets are eliminated only to the extent they are
allocated under the proposed global dealing regulations to
foreign source non-ECI. The allocable amount to non-ECI is
eliminated from U.S. assets on line 3c, column (a) (total other
non-ECI assets).

investments in partnerships (whether recorded as an
investment in the partnership interest or in the partnership
assets) included on line 2, column (a).

TREASURY/IRS AND OMB USE ONLY DRAFT
assets from the Schedule L set(s) of books reported on
line 2, column (a).

Line 5. Total Value of U.S. Assets for the Tax Year
Line 5, column (a). Average U.S. assets on set(s) of
Schedule L books. Subtract the amount on line 4, column
(a), from line 2, column (a), and enter the amount on line 5,
column (a). The resulting amount is the total average value of
U.S. assets under Regulations section 1.884-1(d) included
on the Schedule L set(s) of books, excluding any partnership
interests included on line 2.

Line 5, column (c). Average U.S. assets not includible in
set(s) of Schedule L books reported on line 5, column
(a), or from partnerships reported on line 5, column (b).
Enter on line 5, column (c), the average value of U.S. assets
(other than the corporation's outside basis in partnership
interests that is a U.S. asset) from set(s) of books that are not
reportable on Schedule L. Such assets may generally include
certain securities attributable to a U.S. office of a banking,
financing, or similar business under Regulations section
1.864-4(c)(5)(iii) that are booked in a foreign bank's home
office or other foreign location. Other assets reportable on
line 5, column (c), may generally also include assets that are
no longer held in connection with a trade or business within
the United States that give rise to ECI under section 864(c)
(6) or section 864(c)(7). However, not all assets that give rise
to ECI, including ECI recognized under section 864(c)(7),
constitute U.S. assets under Regulations section 1.884-1(d).
See Regulations section 1.884-1(d)(2)(xi), Example 5, and
Regulations section 1.884-1(d)(5).
Line 5, column (d). Total average value of U.S. assets included in Step 1. Combine the amounts on line 5, columns
(a), (b), and (c), and enter the amount on line 5, column (d).
This amount is the total average value of the corporation's
United States assets included in Step 1 of the Regulations
section 1.882-5 formula. If the corporation uses the Separate
Currency Pools method to allocate interest expense in Step 3
of the Regulations section 1.882-5 formula, see the
instructions for line 16a, later. The amount on line 5, column
(d), is also reportable on Schedule H (Form 1120-F),
line 22a.

Lines 6 Through 7c. Step 2: Determination of
U.S.-Connected Liabilities—Regulations Section
1.882-5(c)
Line 6. Actual ratio or fixed ratio method. Check the
applicable box to specify whether the corporation uses the
actual ratio or the fixed ratio method for the tax year to
determine its U.S.-connected liabilities in Step 2 of the
allocation formula. The amount of U.S.-connected liabilities is
the total value of U.S. assets for the tax year (line 5, column
Instructions for Schedule I (Form 1120-F) (2025)

Actual ratio information. If the corporation uses the actual
ratio, complete lines 6a through 6c and skip line 6d.
Fixed ratio information. If the corporation uses the fixed
ratio, skip lines 6a through 6c and enter the applicable fixed
ratio on line 6d. For foreign banks (described in Regulations
section 1.882-5(c)(4)), the fixed ratio is 95%. For
corporations other than foreign banks and insurance
companies, the fixed ratio is 50%.

Actual Ratio Filers—Regulations Section
1.882-5(c)
Line 6a. Average worldwide liabilities. Enter on line 6a
the average worldwide liabilities as adjusted for U.S. tax
principles for the year. The corporation's worldwide liabilities
include the liabilities of only the corporation filing the Form
1120-F, plus the corporation's share of partnership liabilities
and any liabilities of any disregarded entities that are treated
as liabilities of the foreign corporation under U.S. tax
principles. The books of the foreign corporation and any such
disregarded entities must be combined, with applicable
eliminating entries for transactions between them. See
Regulations section 1.882-5(c)(2)(viii). The classification of
the worldwide liabilities is determined under U.S. tax
principles. See Regulations section 1.882-5(c)(2)(ii). The
value of the worldwide liabilities must be determined
substantially in accordance with U.S. tax principles. Large
banks (as defined in section 585(c)(2)) must average the
worldwide liabilities using the beginning, middle, and end of
year values. Corporations other than large banks must
average the worldwide liabilities using the year-to-year values
of its liabilities.
Line 6b. Average worldwide assets. Enter the average
worldwide assets as adjusted for U.S. tax principles on
line 6b, using the same nonconsolidated books for reporting
average worldwide liabilities on line 6a. Transactions with
disregarded entities included in the actual ratio computation
constitute interbranch transactions under U.S. tax principles
and must be eliminated. See Regulations section 1.882-5(c)
(2)(viii). Use the same averaging period applicable to
worldwide liabilities. If the corporation uses the actual ratio
method, the amount entered on line 6b is also reported on
Schedule H (Form 1120-F), line 22b.

Fixed Ratio Filers—Regulations Section 1.882-5(c)
(4)
Line 7a. U.S.-connected liabilities before Regulations
section 1.884-1(e)(3) election(s). Multiply the average
U.S. assets from line 5, column (d), by the ratio entered on
line 6e and enter the result on line 7a. The result is the
amount of U.S.-connected liabilities determined before the
application of any liability reduction election(s) made under
Regulations section 1.884-1(e)(3).

5

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Line 5, column (b). Average value of partnership interests that is a U.S. asset. Enter on line 5, column (b), the
amount from Schedule P (Form 1120-F), line 13 (“Total”
column) that is treated as a U.S. asset under Regulations
sections 1.882-5 and 1.884-1(d)(3). This amount is the sum
of the corporation's outside basis in partnership interests as
adjusted under Regulations section 1.884-1(d)(3). The
amount entered from Schedule P, line 13, may include the
corporation's outside basis in partnerships whose book value
is included on line 2, column (a), as well as partnership
interests whose book value is not recorded on the
Schedule L books and is not included on line 2, column (a).

(d)) multiplied by the actual ratio or the applicable fixed ratio
the corporation has timely elected and is eligible to use for
the tax year. The actual ratio or fixed ratio election must be
made on an original timely filed tax return for the first year the
corporation is subject to Regulations section 1.882-5 and is
subject to the minimum 5-year period under Regulations
section 1.882-5(a)(7). An election to change the method after
such minimum 5-year period is also subject to the minimum
5-year period.

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Line 7b. U.S. liability reduction election amount. Enter
the total amount of U.S. liability reductions made under
Regulations section 1.884-1(e)(3) for the current year.

Line 7c. U.S.-connected liabilities. Subtract line 7b from
line 7a and enter the amount on line 7c. The amount entered
is the amount of U.S.-connected liabilities for purposes of
determining the amount of interest expense allocable to ECI
in Step 3. If the corporation uses the Separate Currency
Pools method for Step 3, the sum of all U.S.-connected
liabilities shown on line 17b (including any statements for
lines 16a through 19 for additional separate currency pool
computations) must equal the amount shown on line 7c after
the liability reduction election has been taken into account.

Lines 8 and 9. Step 3: Interest Expense
Allocation (Including U.S.-Booked Liabilities and
U.S.-Booked Interest Expense Included in the
Determination of Branch Interest)
Line 8. Average Third Party U.S.-Booked Liabilities
Line 8, column (a). Schedule L U.S.-booked liabilities.
Enter on line 8, column (a), the average amount of third-party
U.S.-booked liabilities from the set(s) of books reportable on
Schedule L using the most frequent averaging period
available but not less frequently than the minimum averaging
periods required for U.S. assets reported on line 5. The
average U.S.-booked liabilities include all third-party liabilities
on the set(s) of Schedule L books whether interest bearing or
not. Exclude interbranch liabilities shown on the Schedule L
books unless such amounts are treated as allocations of
third-party amounts with respect to a global dealing operation
under the proposed global dealing regulations (for example,
mark-to-market valuations of dealer derivative securities may
constitute liabilities that are treated as U.S.-booked liabilities
includible on line 8, column (a)). Do not include liability
amounts on line 8a to the extent they give rise to directly
allocable interest under Regulations section 1.882-5(a)(1)(ii)
or are partnership liabilities includible in column (b).
• Corporations other than banks. The definition of
U.S.-booked liability for a foreign corporation other than a
bank is described in Regulations section 1.882-5(d)(2)(ii).
Liabilities reflected on the Schedule L books must be
recorded on such books reasonably contemporaneous to the
time the liability is incurred.
• Foreign banks. The liability recorded on the set(s) of
Schedule L books must be that of a foreign bank that
conducts regulated banking operations in the United States
as described in section 585(a)(2)(B).
Note: This requirement applies only for the determination of
U.S.-booked liabilities and corresponding U.S.-booked
6

Line 8, column (b). U.S.-booked liabilities of partnership
interests. Enter on line 8, column (b), the portion of the
amount from Schedule P, line 11 (“Total” column) that
constitutes U.S. booked liabilities under Regulations section
1.882-5(d)(2). This amount is the corporation's average
U.S.-booked liabilities with respect to its distributive share of
liabilities during the averaging period from partnerships
engaged in a trade or business or treated as engaged in a
trade or business within the United States. The amount
reportable on line 8, column (b), is the corporation's share of
partnership liabilities for which it is allocated a distributive
share of interest expense. See Regulations section
1.884-1(d)(3)(vi).

Line 9. U.S.-Booked Interest Expense
Line 9, column (a). Schedule L booked interest expense.
Enter the amount of third-party interest expense from the
Schedule L set(s) of books with respect to liabilities reported
on line 8, column (a). Do not include interest expense that is
directly allocable under Regulations section 1.882-5(a)(1)(ii),
including the corporation's distributive share of direct interest
expense allocations from partnerships otherwise reportable
in column (b). All direct interest expense allocations to ECI
are reported on line 22.
Line 9, column (b). U.S.-booked interest expense from
partnerships. Enter on line 9, column (b), the portion of the
amount from Schedule P (Form 1120-F), line 8 (“Total”
column) that is interest expense on U.S.-booked liabilities. Do
not include interest expense that is directly allocable under
Regulations section 1.882-5(a)(1)(ii) from the corporation's
distributive share of a partnership's direct interest expense
allocations. All direct interest expense allocations to ECI are
reported on line 22.
Line 9, column (c). Total U.S.-booked interest expense.
Add the amounts on line 9, column (a), and line 9, column
(b), and enter the result on line 9, column (c). This result is
also required to be reported on Form 1120-F, Section III,
line 8. This amount plus line 22 is the corporation’s tentative
branch interest for purposes of the branch level interest tax
under Regulations section 1.884-4(b). See the instructions
for Form 1120-F, Section III, Part II, line 8.

Lines 10 Through 15. Step 3: Adjusted
U.S.-Booked Liabilities Method
If the amount on line 7c exceeds the amount on line 8,
column (c), the corporation has “excess interest” as defined
in section 884(f)(1)(B). Complete lines 10 through 13 and
skip lines 14a and 14b. If the amount on line 7c is less than or
equal to the amount on line 8, column (c), skip lines 10
through 13 and complete the determination of the scaling
ratio on lines 14a and 14b.

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

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Note: A liability reduction election may be made only to the
extent needed to reduce a dividend equivalent amount under
section 884(b) to zero. See Regulations section 1.884-1(e)(3)
(iv) for the time, place, and manner for making the liability
reduction election and the separate disclosures required to
be attached to Form 1120-F for each liability reduction
election made.
If the corporation uses the Separate Currency Pools
method for Step 3 (lines 16a through 20), the amount
included on line 7b must also be allocated to determine the
U.S.-connected liabilities for each currency. See the
instructions for lines 7c below and line 17b later. If no liability
reduction election is made for the tax year, enter -0- on
line 7b.

interest expense. It does not apply for other purposes such
as determining the eligibility for the fixed ratio under Step 2,
reportable on line 6d. The liability must be recorded on the
Schedule L books before the close of the day on which the
liability is incurred unless an inadvertent error is shown under
the facts and circumstances. See the definition and
requirements for U.S.-booked liabilities of foreign banks
under Regulations section 1.882-5(d)(2)(iii).
Note: The section 585(a)(2)(B) standard also applies for
eligibility to reduce excess interest using the deposit liability
safe harbor under the branch-level interest tax on excess
interest under Regulations section 1.884-4(a)(2)(iii).

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Lines 10 Through 13. Computation of AUSBL
Method Allocation With Excess Interest
Line 10. Published rate election for banks. If the
corporation is a foreign bank that elects to compute excess
interest under the AUSBL method using the average
published 1-month Term Secured Overnight Financing Rate
published by the Chicago Mercantile Exchange Group
Benchmark Administration, Ltd. (or any successor
administrator) (“Term SOFR”) for the tax year, plus a static
spread adjustment of 0.11448% for the tax year, check the
box on line 10 and skip lines 10a through 10c. Enter the
published rate on line 10d. See Regulations section
1.882-5(d)(5)(ii)(B) for additional information. The published
rate election does not apply to corporations other than
foreign banks. For this purpose, the corporation is eligible to
make the published rate election under the same standard
that qualifies the corporation as a bank eligible to make the
95% fixed ratio election in Regulations section 1.882-5(c)(4).
The published rate election is an annual election.

Line 10a. Actual U.S. dollar interest. If the corporation
does not properly make or is not eligible to make a published
rate election for the tax year, enter the interest expense paid
or accrued by the corporation for the tax year on its average
worldwide U.S. dollar liabilities, excluding U.S.-booked
liabilities included on line 8, column (c).
Line 10b. Enter on line 10b the average worldwide U.S.
dollar denominated liabilities (whether or not interest bearing)
that are not U.S.-booked liabilities included on line 8, column
(c). See Regulations section 1.882-5(d)(5)(ii).
Line 10e. If the amount on line 10b is zero and the foreign
corporation does not properly make or is not eligible to make
the published rate election, enter on line 10e an interest rate
that is reasonable under the facts and circumstances. One
reasonable approach in determining such interest rate would
include using an interest rate that:
• Approximates the foreign corporation's actual average
U.S.-dollar borrowing rate with respect to interest-bearing
U.S.-dollar denominated liabilities, and
• Is consistently applied by the foreign corporation from year
to year.
Examples of interest rates that would generally be
considered reasonable include the actual average interest
rate on interest-bearing U.S.-dollar denominated liabilities
that are U.S.-booked liabilities or an average arm's length
rate of interest that would be charged to the foreign
corporation on its interest-bearing U.S.-dollar denominated
liabilities. A U.S.-dollar borrowing rate of zero would generally
not be considered reasonable.
If the rules set forth above apply to the foreign corporation,
attach a statement to Schedule I (Form 1120-F) explaining
how the interest rate entered on line 10e was derived.
Line 12. Excess interest. Multiply the rate on line 10e by
the amount of excess U.S.-connected liabilities on line 11
and enter the result on line 12. This amount is the
corporation's excess interest expense portion of its overall
Regulations section 1.882-5 allocation that is allocable to ECI
under the AUSBL method in Regulations section 1.882-5(d)
(5). The amount on line 12 also constitutes the corporation's
excess interest under section 884(f)(1)(B). See Regulations
section 1.884-4(a)(2).
Instructions for Schedule I (Form 1120-F) (2025)

Lines 14a Through 15. Computation of AUSBL
Method Allocation Under the Scale-Down Ratio

If U.S.-connected liabilities on line 7c are less than
U.S.-booked liabilities on line 8, column (c), the AUSBL
method allocation is subject to a “scale-down” of the
U.S.-booked interest expense reported on line 9, column (c).
Complete lines 14a and 14b in lieu of lines 10 through 13. If
line 7c exceeds line 8, column (c), leave lines 14a and 14b
blank.
Line 14b. Scaled-down U.S. book interest. Multiply the
amount of U.S. booked interest on line 9, column (c), by the
scale-down ratio on line 14a and enter the result on line 14b.
The allocated amount is the total amount of the AUSBL
method allocation under Regulations section 1.882-5(d)(4).
The amount on line 14b does not include any amount directly
allocable to ECI under Regulations section 1.882-5(a)(1)(ii).
Hedging amounts. If the corporation has income,
expense, gain, or loss from a hedging transaction of a
U.S.-booked liability that gives rise to interest expense
subject to the scale-down ratio, such hedging income,
expense, gain, or loss amount is also subject to reduction
under the same scaling ratio reported on line 14a. See
Regulations section 1.882-5(d)(4) and Proposed Regulations
section 1.882-5(d)(2)(vi). Do not report such scale-down
reductions of hedging income, expense, gains, or
losses on line 14b. The ratio reported on line 14a shall be
applied to each type of item in accordance with its
characterization and the scaled down hedging income,
expense, gain, or loss is reported on Form 1120-F, Section II,
in the appropriate category to which the hedging item is
characterized. For instance, periodic expense from an
interest rate notional principal contract hedging transaction
that is recorded on the set(s) of books reportable on
Schedule L and that is subject to the scaling ratio is reported
on Form 1120-F, Section II, line 27. Such amount is also
subject to reporting on Schedule H (Form 1120-F), line 38a,
as allocable in part to ECI and in part to non-ECI in
accordance with the scaling ratio of line 14a.

Lines 16a Through 20. Step 3:
Separate Currency Pools Method

Corporations that allocate interest expense under a Separate
Currency Pools election report the allocations under a
three-step method for each currency in which the corporation
has U.S. assets (as defined in Regulations section
1.884-1(d)), on Schedule I, lines 16a through 20. The amount
of the interest expense allocation is the sum of the separate
interest expense allocations in each currency. If the
corporation makes a 3% currency election under Regulations
section 1.882-5(e)(1)(i), check the box on line 16b and
include the U.S.-dollar value of all currencies for which the
3% currency election applies in the U.S.-dollar denominated
column on line 16a.
Schedule I accommodates reporting of the interest
expense allocations in four currencies (including the U.S.
7

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Lines 10a Through 10c. Excess
Interest—Average Actual U.S. Dollar Rate

Line 13. Interest expense allocation. Add the amount
reported on line 12 and the amount of U.S.-booked interest
expense from line 9, column (c) and enter the result on
line 13. This amount is the corporation's total amount of
interest expense allocable under the three-step formula when
U.S.-connected liabilities exceed U.S.-booked liabilities under
the AUSBL method. It does not include any amounts directly
allocable to ECI under Regulations section 1.882-5(a)(1)(ii).

dollar and the foreign corporation's functional currency). If the
foreign corporation has U.S. assets in more than four
currencies that are not subject to a 3% currency election,
attach separate sheets using the same size and format as
shown on the schedule and provide the information
requested on lines 16a through 19 on the attached sheets for
all such additional currencies. Report on Schedule I, line 20,
column (d), the total results for all separate currency
allocations shown on line 19 for columns (a) through (d), plus
any additional line 19 amounts shown on attached separate
sheets (if any).

enter the worldwide U.S. dollar interest paid or accrued. For
all other separate currency pools, enter the worldwide
interest expense in the functional currency of the currency
pool. Do not enter the U.S. dollar value of the functional
currency pool in column (b) or for any other non-U.S. dollar
currencies for which a separate currency pool allocation is
made in additional columns. See Regulations section
1.882-5(e)(2). The worldwide interest expense in each
currency pool includes interest expense in each currency that
is recorded on the Schedule L books and reportable in
column (c) of Schedule I, line 9.

Line 16a. U.S. Assets — U.S. dollar value denominated
in currency. Enter the U.S. dollar value of the average
amount of U.S. assets in the appropriate column (a) through
(d) (or on the attached separate sheets for additional
currencies). Enter in column (a) the U.S. dollar denominated
U.S. assets, plus the U.S. dollar value of any U.S. assets for
which a 3% currency election is applicable for the tax year. In
column (b), enter the average U.S. dollar value of U.S. assets
denominated in the corporation's home country functional
currency. Enter the average U.S. assets of all other currency
pools beginning with column (c).

Line 18b. Worldwide average liabilities in each separate
currency pool. Enter on line 18b the average liabilities
(whether or not interest bearing) denominated in each
separate currency pool. In column (a), enter the average
worldwide liabilities (whether or not interest bearing)
denominated in U.S. dollars. For all other separate currency
pools, enter the average amount of liabilities (whether or not
interest bearing) denominated in the currency of the currency
pool. Do not enter the U.S. dollar value of the currency pool
for any column other than column (a). In determining the
average worldwide borrowing rate, the liabilities in each
currency pool include the amounts recorded on the set(s) of
books reportable on Schedule L and included in column (c)
of Schedule I, line 8. Determine the average third-party
liabilities using the most frequent averaging period for which
data is reasonably available in accordance with the principles
of Regulations sections 1.882-5(b)(3) and (c)(2)(iv).

Note: The sum of all U.S. assets in columns (a) through (d)
(and in any columns shown on any attached separate sheets)
must equal the total average U.S. assets entered on line 5,
column (d).
A transaction that hedges a U.S. asset is taken into
account for purposes of determining the currency
denomination and the value of the U.S. asset. See
Regulations section 1.882-5(e)(1)(i).
Line 17b. U.S.-connected liabilities per currency.
Complete line 17b as follows:
Determination of U.S.-connected liabilities if no U.S.
liability reduction election is made. For each applicable
column, multiply the U.S. assets on line 16a by the
U.S.-connected liability ratio on line 17a and enter the
amount on line 17b. The resulting amount constitutes the
U.S.-connected liabilities for each currency pool when the
corporation does not make a U.S. liability reduction election
under Regulations section 1.884-1(e)(3).
Determination of U.S.-connected liabilities if a U.S.
liability reduction election is made. If the corporation
makes one or more U.S. liability reduction elections for the
tax year under Regulations section 1.884-1(e)(3), the total
amount of the liability reduction shown on line 7b must be
allocated to each of the separate currency pools in proportion
to the U.S. assets in each pool. The amount entered on
line 17b for each column is computed as:
1. The amount on line 16a multiplied by the ratio on
line 17a, less
2. The amount of the liability reduction election entered
on line 7b multiplied by the proportion that the average U.S.
assets in the separate currency pool bears to all of the U.S.
assets in all separate currencies (that is, the total average
U.S. assets entered on line 5, column (d)).
Attach a statement showing the computation and the
allocation of the liability reduction election to each separate
currency pool.
Line 18a. Worldwide book interest expense for each
separate currency pool. Enter for each column on line 18a
the corporation's worldwide interest expense paid or accrued
for the tax year in the separate currency pool. In column (a),
8

Line 18c. Borrowing rate. Divide line 18a by line 18b. The
result is the average worldwide borrowing rate for each
separate currency pool.
Line 19. Interest expense allocation by separate currency pool. For each column, multiply the amount on line 17b
by the borrowing rate on line 18c and enter the result on
line 19. The amount on line 19 is the amount of interest
expense allocable to ECI in each separate currency pool.
Line 20. Total interest expense allocable to ECI under
the separate currency pools method. On line 20, enter
the sum of the amounts in each column on line 19 (including
amounts from line 19 of attached statement, if any). The
amount on line 20 is the total amount of interest expense
allocable to ECI under the Separate Currency Pools method.
The amount on line 20 does not include any amount of
interest expense directly allocable under Regulations section
1.882-5(a)(1)(ii).

Lines 21 Through 25.
Summary—Interest Expense
Allocation and Deduction Under
Regulations Section 1.882-5
Line 22. Interest expense directly allocable under Regulations section 1.882-5(a)(1)(ii). Enter the amount of
interest expense directly allocable to ECI under Regulations
section 1.882-5(a)(1)(ii), including such amounts from
Schedule P (Form 1120-F), line 7. A foreign corporation that
has a U.S. asset and indebtedness that meet the
requirements of Temporary Regulations section 1.861-10T(b)
or (c), as limited by Temporary Regulations section
1.861-10T(d)(1), shall directly allocate interest expense from
such indebtedness to income from such asset in the manner
and to the extent provided in Temporary Regulations section
1.861-10T.
Instructions for Schedule I (Form 1120-F) (2025)

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Line 23. Total interest expense allocable to ECI under
Regulations section 1.882-5. Add lines 21 and 22 and
enter the result on line 23. This result is the total amount of
interest expense allocable to ECI, including directly allocated
interest. This allocable amount may not exceed the total
interest expense paid or accrued by the corporation. See
Regulations section 1.882-5(a)(3). The amount on line 23
does not include any interest expense that was allocable to
ECI under Regulations section 1.882-5 in a previous tax year
and was subject to limitation and deferral by another section
of the Internal Revenue Code in that previous tax year but
deductible in the current tax year. If the corporation's total
interest expense paid or accrued is less than the amount of
allocation that would result by adding lines 21 and 22, enter
such lesser amount on line 23. The amount entered on
line 23 is the amount of interest expense taken into account
for branch-level interest tax purposes under section 884(f)(1)
(B) and Regulations section 1.884-4(a), regardless of
whether the deductibility of such amount is temporarily
deferred or disallowed for allocation to tax-exempt income
(including treaty exempt income). The amount reportable on
line 23 is reconciled and reported on Form 1120-F,
Section III, line 7c, and in columns (d) and (e) of
Schedule M-3 (Form 1120-F), Part III, line 26b.
Line 24. Tax-exempt allocations, disallowances, deferrals, and capitalization of interest expense allocation
from line 23. The amount of interest expense allocable to
ECI entered on line 23 is subject to additional rules that may
defer or disallow deductibility in whole or in part.
Line 24a. Tax-exempt allocations and other
permanently disallowed interest expense. Enter on
line 24a the amount of allocable interest expense on line 23
that is subject to further allocation and apportionment to
tax-exempt income under section 265 or under the provisions
of an applicable income tax treaty. Attach a statement
showing how such allocation between exempt and
nonexempt ECI has been made. See Regulations section
1.882-5(a)(5) and Regulations section 1.882-5(a)(8),
examples (3) and (4). Treaty-exempt income may include
income that is ECI under the force of attraction principle of
section 864(c)(3) but which is business profits not attributable
to a U.S. permanent establishment of the corporation under
an applicable treaty to which Regulations section 1.882-5
applies in determining the attributable business profits. For
such treaties, the amount allocable to ECI reported on line 23
requires additional allocation and apportionment between
taxable ECI and treaty-exempt ECI under Regulations section
1.882-5(a)(5). Also include on line 24a any other interest
expense that is permanently disallowed by a section of the
Internal Revenue Code (for example, section 163(f)(2)) or an
income tax treaty. Include in the attached statement the
amount of interest expense disallowed for each applicable
provision or income tax treaty.

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

Note: Enter all amounts on line 24a as a negative amount.
These line 24a amounts are a reduction of the allocation in
determining the deductible interest expense for the year.
The amount reportable on line 24a is included on
Schedule M-3 (Form 1120-F), Part III, line 26c, column (c).
Line 24b. Deferred interest expense. Enter on line 24b
the amount of allocable interest expense on line 23 that is
deferred as a deduction in the current tax year by a provision
of the Internal Revenue Code other than section 163(j) (for
example, section 163(e) or section 267(a)(3)) but may be
allowed as a deduction in a subsequent tax year. Attach a
statement indicating the amount of current year deferral for
each applicable provision.
Note: Enter all amounts on line 24b as a negative amount.
These line 24b amounts are a reduction of the allocation in
determining the deductible interest expense for the year.
The amount reportable on line 24b is included in
Schedule M-3 (Form 1120-F), Part III, line 26c, column (b).
Line 24c. Disallowed business interest expense under
section 163(j). Enter on line 24c the amount of allocable
interest expense on line 23 that cannot be deducted in the
current year because it is disallowed business interest
expense under section 163(j). Attach Form 8990, Limitation
on Business Interest Expense Under Section 163(j).
Note: Enter all amounts on line 24c as a negative amount.
These line 24c amounts are a reduction of the allocation in
determining the deductible interest expense for the year.
The amount reportable in line 24c is included in column
(b) of Schedule M-3 (Form 1120-F), Part III, line 26c.
Line 24d. Capitalized interest expense. Enter on
line 24d the amount of allocable interest expense on line 23
that is capitalizable (for example, under section 263A). Attach
a statement describing how such allocation has been made.
Note: Enter all amounts on line 24d as a negative amount.
These amounts are treated as a reduction of the allocation in
determining the deductible interest expense for the year.
The amount reportable on line 24d is included in column
(c) of Schedule M-3 (Form 1120-F), Part III, line 26c.
Line 24e. Current year deduction of interest expense
deferred in a prior year. Enter on line 24e the amount of
allocable interest expense deductible in the current tax year
that was deferred in a prior tax year under a provision of the
Internal Revenue Code other than section 163(j) (for
example, section 163(e) or section 267(a)(3)). Attach a
statement indicating the amount of current year deduction of
a prior year deferral for each applicable provision.
The amount reportable on line 24e is included in column
(b) of Schedule M-3 (Form 1120-F), Part III, line 26c.
Line 24f. Current year deduction of business interest
expense disallowed in a prior year under section 163(j).
Enter on line 24f the amount of business interest expense
deductible in the current tax year that was disallowed in a
prior tax year under section 163(j). Attach Form 8990.
Note: Enter all amounts on lines 24e and 24f as positive
amounts. These amounts are treated as an increase to the
deductible interest expense for the year.
The amount reportable on line 24f is included in column
(b) of Schedule M-3 (Form 1120-F), Part III, line 26c.
Line 24g. Total deferrals and disallowances. Combine
lines 24a through 24f and enter the result on line 24g. The
amount entered on line 24g is also reported and reconciled
9

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Note: See Temporary Regulations section 1.861-10T(d) for
rules requiring reductions in basis to assets required by the
direct interest allocation rules in Temporary Regulations
section 1.861-10T(b) or (c). The rules of Temporary
Regulations section 1.861-10T(c) apply only to nonfinancial
institutions. Financial institutions are permitted to directly
allocate interest expense only under the nonrecourse
indebtedness rules described in Temporary Regulations
section 1.861-10T(b).

TREASURY/IRS AND OMB USE ONLY DRAFT
for its temporary and permanent differences in columns (b)
and (c) of Schedule M-3 (Form 1120-F), Part III, line 26c. See
the Instructions for Schedule M-3 (Form 1120-F), Part III,
line 26c.

enter the result on line 25. The result is the corporation's
deductible amount of interest expense allocation for the tax
year and is reportable on Form 1120-F, Section II, line 18.

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Line 25. Amount of allocation deductible on Form
1120-F, Section II, line 18. Combine lines 23 and 24g and

10

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