Form 1120-F for foreign corporations doing business in the U.S.

If you’re the owner of a foreign corporation and you do business in the U.S., your business has specific tax filing obligations. One of these tax obligations is filing Form 1120-F, which serves as your corporation’s U.S. income tax return.

Learn more about Form 1120-F below, including what it is, who has to file, and other useful information to help you out come tax time.

What is Form 1120-F?

members of a foreign corporation who file Form 1120-f

Tax form 1120-F, U.S. Income Tax Return of a Foreign Corporation, is used by foreign corporations.

Your business may have to file this form if:

  • You had U.S. source income, the tax on which hasn’t fully been paid,
  • You’re making a protective filing
  • You’re making treaty-based claims
  • You have income that is “effectively connected” with a U.S. trade or business.

The term "effectively connected income" is technical, but you can understand it generally as income generated by services provided or a trade or business carried on in the United States.

Foreign corporations should file IRS form 1120-F to report their U.S. income, gains, losses, deductions, credits, and to figure their U.S. income tax liability similar to how a domestic corporation would report these on their tax return.

One thing to note is that because the rules regarding income being "effectively connected" to a U.S. trade or business are not clear cut, whether your foreign corporation needs to file Form 1120-F should be determined by a qualified tax professional.

Understanding the term "protective tax return"

Tax form 1120-F is sometimes known as a "protective return" because a filing it protects a foreign corporation’s rights to receive deductions and credits. This term is only used when activities conducted within the U.S. are so limited that no gross income that is effectively connected was generated.

Who must file Form 1120-F?

A foreign corporation with business ties to the U.S. must file this form. If you’re supposed to and you don’t, you may be penalized 5% of the unpaid tax, up to a maximum of 25%.