Possessions Corporation Tax Credit

Allowed Under Section 936

Form 5735

OMB No. 1545-0217 (Rev. January 1995)

Department of the Treasury

Internal Revenue Service © Attach to your tax return.

For calendar year 19 , or other tax year beginning , 19 , and ending , 19 .

Name Employer identification number

Gross Income in Applicable Period (See instructions.)

Periods in which trade or business was actively

conducted in a U.S. possession (Dates are

inclusive)

Tax year (Use a separate line for each tax year

ending with or within your applicable period. Start

with the earliest such tax year.)

(e)

To

(d)

From

(c)

Name of U.S. possession in which trade or

(b) business was actively conducted

Ending

(a)

Beginning

Gross income during periods shown in columns (d) and (e)

Gross income from the active conduct of a trade or business in a U.S. possession All other gross income

(l)

From sources in the

U.S.

(k)

From all other sources

outside the U.S.

(j)

From sources in U.S.

possessions

(i)

Gross qualified

possession source

investment income

(QPSII)

(h)

From sources in

the U.S.

(g)

From all other sources

outside the U.S.

(f)

From sources in U.S.

possessions

Totals

1 Total gross income in applicable period (add totals of columns (f) through (l)) 1

2 Gross income in applicable period from sources in U.S. possessions (add total of columns (f), (i), and (j)) 2

3 Divide line 2 by line 1 (if less than 80%, do not complete Parts II through VI) 3

4

Gross income from the active conduct of a trade or business in a U.S. possession (total of columns (f), (g),

and (h))

4

5 Divide line 4 by line 1 (if less than 75%, do not complete Parts II through VI) 5

Computation of Taxable Income From Possession Sources (See instructions.)

When completing Part II, do not take into account any deduction for possession income taxes.

6 Qualified gross income in current year:

From sources outside the U.S. from the active conduct of a trade or business in a

U.S. possession

a

b From sources outside the U.S. from the sale or exchange of substantially all assets

used in a possessions trade or business

c Total active business income. Add lines 6a and 6b

d Enter gross qualified possession source investment income

a Cost sharing amount

b Definitely allocable deductions

c Ratable part of other deductions not definitely allocable

d Add lines 8a, 8b, and 8c

7a Amounts received in the U.S

b Intangible property income (sec. 936(h)(2))

c Other intangible property income

d Add lines 7a, 7b, and 7c

Subtract line 7d, column A from line 6c, column A.

8 Applicable deductions

9 Qualified taxable income before adjustments. Subtract line 8d from line 7e

For Paperwork Reduction Act Notice, see page 1 of separate instructions. Cat. No. 12090G Form 5735 (Rev. 1-95)

Part I

Part II

A

Active Business

Income

B

Gross

QPSII

e

© See separate instructions.

Subtract line 7d, column B from line 6d, column B. %
Form 5735 (Rev. 1-95) Page 2

Part III Computation of Section 936 Credit Using the Percentage Limitation (See instructions.)

If the corporation elects to claim a reduced credit under section 936(A)(4)(B), check here and complete Part III. Skip Part IV and

go to Part V, line 28 ©

16 Multiply line 15, column A, by the applicable percentage for the tax year

17 Section 936 credit. Add line 15, column B, and line 16. Enter here and on Form 1120, Schedule

J, line 4b, or the appropriate line of other returns

18 Enter 60% of qualified compensation

19 Enter applicable portion of depreciation deductions

20 Add lines 18 and 19

Note: If the corporation used the profit split method, skip lines 23 and 24. Enter the amount from line

20 on line 25. Complete the rest of Part IV and go to Part V, line 32. If the corporation did not use the

profit split method, complete lines 23 through 27; skip Part V and go to Part VI.

21 Subtract line 20 from line 15, Column A

22 Divide line 21 by line 14. Enter the result as a decimal

23 Enter possession income taxes

24 Possession taxes allocable to nonsheltered income. Multiply line 23 by line 22

25 Add lines 20 and 24

26 Economic-activity limitation. Enter the smaller of line 15, column A, or line 25

27 Section 936 credit. Add line 15, column B, and line 26. Enter the result here and on Form 1120,

Schedule J, line 4b, or the appropriate line of other returns

16

17

Part IV Computation of Section 936 Credit Using the Economic-Activity Limitation (See instructions.)

18

19

20

21

22

23

24

25

26

27

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Computation of Taxable Income From Possession Sources (continued)

a Current year losses from nonqualified sources

b Recapture of prior year overall foreign losses

c Income against which foreign tax credit is claimed

d Add lines 10a through 10c

10 Adjustments

11 Qualified taxable income. Subtract line 10d from line 9

12

Total U.S. income tax against which sec. 936 credit is allowed ©

13

15 For each column, multiply line 14 by line 13

Part II

For each column, divide amount on line 11 by line 12. Enter result as a decimal

A

Active Business

Income

B

Gross

QPSII

Total taxable income from all sources (enter taxable income from the corporation’s

tax return) ©

14

Computation of Deduction For Possession Income Taxes (See instructions.)

28 Subtract line 16 from line 15, Column A 28

Divide line 28 by line 14. Enter the result as a decimal 29

Enter possession income taxes

31 Deduction for possession income taxes. Multiply line 30 by the decimal on line 29. Enter the result

on Form 1120, page 1, line 17, or the applicable line of other returns 31

Enter possession income taxes 32

33

Deduction for possession income taxes. Multiply line 32 by the decimal on line 22. Enter the result

on Form 1120, page 1, line 17, or the applicable line of other returns

Part V

Summary From Schedule P (Form 5735) (See instructions.)

34 Enter the total sales of possession products to which each income method applies:

a Cost sharing method 34a

b Profit split method 34b

35 Enter the total sales of possession products that qualify under each business presence test:

a Direct labor test 35a

b Value-added test 35b

c Alternative test 35c

d Start-up test 35d

e None of the above 35e

Part VI

29

30

32

33

Corporations Using the Economic-Activity Limitation and the Profit Split Method

Corporations Using Percentage Limitation (Reduced Credit)

Note: Complete Part V only if the corporation is electing the percentage limitation (reduced credit), or

the corporation is using the economic-activity limitation and the profit split method. Complete the lines

below that apply to the corporation.

30