Form 5713 Schedule A Guide: International Boycott Factor

Introduction: What Is Form 5713 (Schedule A)?

Form 5713 (Schedule A), titled International Boycott Factor (Section 999(c)(1)), is an official international tax schedule published by the Internal Revenue Service (IRS) and the Department of the Treasury. It is filed as an attachment to Form 5713 (International Boycott Report).

This schedule is governed under Section 999(c)(1) of the Internal Revenue Code (IRC) and Treasury Regulation Section 7.999-1. It is used by U.S. taxpayers and multinational corporate groups that participated in or cooperated with an unsanctioned international boycott to compute their statutory “International Boycott Factor.”

Because U.S. tax policy strongly discourages participation in unauthorized foreign economic boycotts, Schedule A provides the mathematical formula used to reduce or eliminate valuable U.S. tax benefits, such as the Foreign Tax Credit and foreign earnings deferral.

Purpose of the Form

Under IRC Section 999, U.S. taxpayers that agree to participate in or cooperate with an unsanctioned international boycott (such as the Arab League boycott of Israel) are penalized through the loss of three major tax benefits: the Foreign Tax Credit under Section 908, the deferral of taxation on Controlled Foreign Corporation (CFC) earnings under Subpart F (Section 952(a)(3)), and IC-DISC export benefits under Section 995(b)(1)(F)(ii).

Taxpayers have two legal methods to determine the exact reduction in these tax benefits. One method is the specific identification method on Schedule B, and the other is the International Boycott Factor method on Schedule A.

Schedule A computes a worldwide fractional factor based on the ratio of your boycott-related foreign purchases, sales, and payroll to your total foreign purchases, sales, and payroll. This resulting decimal factor is then carried over to Schedule C (Form 5713) to proportionally disallow your tax credits and deductions.

Who Needs to File This Form

Schedule A must be completed and attached to Form 5713 by any taxpayer subject to international boycott reporting that elects the factor method. You are required to file Schedule A if you meet the following conditions:

• Form 5713 Filing Requirement: You are a U.S. person (individual, C-corporation, partnership, estate, or trust) or a foreign corporation with U.S. shareholders that had operations in or related to a boycotting country.
• Boycott Participation or Cooperation: You, or a member of your controlled corporate group, agreed to participate in or cooperate with an international boycott during the tax year.
• Factor Method Election: You choose to compute your loss of tax benefits using the International Boycott Factor formula under Section 999(c)(1) rather than the specific attribution method.

Who Is Exempt / Not Required to File

Many international taxpayers who submit Form 5713 do not need to complete Schedule A. You are exempt or not required to file this schedule under the following circumstances:

• Specifically Attributable Method Filers: Taxpayers who choose to compute their tax benefit disallowance using the specific allocation method on Schedule B (Form 5713) instead of Schedule A.
• Non-Participating Filers: Taxpayers who conduct business in listed boycotting countries but had no agreements, requests, or participation in boycott activities (they file Form 5713 alone without Schedule A or B).
• Purely Domestic Businesses: Taxpayers with no international operations or no trade with boycotting nations.

When to File

Schedule A is an integral attachment to Form 5713 and follows the filing deadline of your primary federal income tax return:

• Individual Filers (Form 1040): Due by April 15th (or October 15th with an automatic extension via Form 4868).
• Corporate Filers (Form 1120): Due by the 15th day of the 4th month after the end of the corporate tax year (typically April 15th for calendar-year filers, or October 15th on extension via Form 7004).
• Partnership Filers (Form 1065): Due by the 15th day of the 3rd month (typically March 15th, or September 15th on extension).

Where and How to File

Form 5713 and Schedule A are subject to a unique two-step filing rule under IRS regulations:

• Attached to Primary Return: Attach Form 5713 and Schedule A directly to your annual federal income tax return and file electronically or by mail as normal.
• Mandatory Duplicate Submission: In addition to filing with your tax return, you must mail a separate duplicate copy of Form 5713 and all attached schedules directly to the dedicated IRS address as per the official Form 5713 instructions (Internal Revenue Service Center, Ogden, UT).

Step-by-Step Instructions to Fill Form 5713 (Schedule A)

Schedule A calculates a mathematical fraction by comparing boycott-related business activity against total foreign business activity across three categories: purchases, sales, and payroll.

Line Number	Key Focus Areas	What to Enter / Calculate
Header Section	Identity Details	Enter the filer’s legal name, federal Taxpayer Identification Number (EIN or SSN), and the name of the foreign corporation or partnership (if applicable).
Line 1: Column (1) & (2)	Purchases	In Column (1) (Numerator), enter total purchases made in or related to boycotting countries involving boycott cooperation. In Column (2) (Denominator), enter total purchases made in all foreign countries worldwide.
Line 2: Column (1) & (2)	Sales	In Column (1), enter total sales made to or related to boycotting countries involving boycott cooperation. In Column (2), enter total sales made to all foreign countries worldwide.
Line 3: Column (1) & (2)	Payroll	In Column (1), enter total payroll paid for services performed in or related to boycotting countries. In Column (2), enter total payroll paid for services performed in all foreign countries worldwide.
Line 4	Totals	Calculate the sum of Lines 1, 2, and 3 for Column (1) (Total Numerator) and Column (2) (Total Denominator).
Line 5	International Boycott Factor	Divide the Line 4 Column (1) Total by the Line 4 Column (2) Total. Enter the resulting decimal fraction, carried to at least 6 decimal places.

Understanding the Numerator vs. Denominator

The numerator (Column 1) includes only the purchases, sales, and payroll clearly associated with operations where your business agreed to participate in or cooperate with the boycott. The denominator (Column 2) represents your entire operational footprint outside the United States. Do not include domestic U.S. purchases, sales, or payroll in the denominator.

Controlled Group Rules

Under IRC Section 999(c)(1), if you are a member of a controlled corporate group (such as a parent corporation and its domestic and foreign subsidiaries), you must combine the purchases, sales, and payroll of all controlled group members to calculate a single consolidated boycott factor.

Required Documents and Information Needed Before Filling

Before preparing Schedule A, assemble the following accounting and operational records:

• Global Trial Balances & Sales Ledgers: Accounting reports isolating all foreign purchases, sales, and payroll categorized by country.
• Boycott Transaction Records: Invoices, purchase orders, shipping manifests, and contracts containing boycott clauses or certifications.
• Controlled Group Allocation Schedules: Financial statements from all domestic and foreign affiliates belonging to the controlled corporate group.
• Treasury List of Boycotting Countries: The current quarterly list published by the Department of the Treasury (including countries such as Iraq, Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, and Yemen).

Common Mistakes to Avoid

• Failing to Carry Decimals to 6 Places: Rounding the boycott factor on Line 5 to two or three decimal places. IRS rules require carrying the factor to at least six decimal places (e.g., 0.045612).
• Including U.S. Operations in the Denominator: Adding domestic U.S. sales, purchases, or payroll into Column (2). The denominator must contain only foreign operations.
• Omitting Controlled Group Members: Calculating the factor using only the parent company’s figures while ignoring foreign subsidiaries or sister corporations.
• Filing Both Schedule A and Schedule B: Attempting to use both the factor method and the specific attribution method for the same entity’s operations.
• Forgetting the Duplicate Mailing: Failing to send a separate copy of Form 5713 and Schedule A to the IRS Service Center in Ogden, Utah.

Penalties and Compliance Risks

Violating international boycott reporting rules carries both criminal penalties and severe tax consequences under federal law:

• Criminal Penalties for Willful Failure: Under IRC Section 999(f), any person who willfully fails to file Form 5713 or required schedules is guilty of a crime and, upon conviction, may be fined up to $25,000, imprisoned for up to 1 year, or both.
• Disallowance of Foreign Tax Credits: Under Section 908, your allowable foreign tax credit on Form 1118 or Form 1116 is reduced by multiplying the credit by the boycott factor calculated on Schedule A.
• Acceleration of Subpart F Income: Under Section 952(a)(3), an amount of foreign subsidiary earnings equal to the boycott factor is treated as immediate taxable Subpart F income to U.S. shareholders.
• Loss of IC-DISC Tax Deferrals: Under Section 995(b)(1)(F)(ii), export tax deferral benefits are reduced in proportion to the boycott factor.

Related Forms and Schedules

When computing and applying the International Boycott Factor, corporate tax departments coordinate with these related IRS documents:

• Form 5713: International Boycott Report (the master parent return).
• Schedule B (Form 5713): Specifically Attributable Taxes and Income (the alternative specific allocation method).
• Schedule C (Form 5713): Tax Effect of the International Boycott Provisions (where the Line 5 factor is applied to reduce tax benefits).
• Form 1118: Foreign Tax Credit—Corporations (Schedule G applies the boycott reduction).
• Form 1116: Foreign Tax Credit—Individual (Part III applies the boycott reduction).
• Form 5471: Information Return of U.S. Persons With Respect to Certain Foreign Corporations.
• Form 1120-IC-DISC: Interest Charge Domestic International Sales Corporation Return.

Frequently Asked Questions (FAQs)

1. What is an unsanctioned international boycott?

An unsanctioned international boycott is a trade boycott organized by foreign countries against a nation friendly to the United States (such as the boycott of Israel) that is not authorized by U.S. law or executive order.

2. What is the difference between Schedule A and Schedule B on Form 5713?

Schedule A uses the formula approach (the International Boycott Factor) to reduce tax benefits globally based on a ratio. Schedule B uses the specific identification approach to determine the exact foreign taxes and income directly tied to the boycott operations.

3. How does the factor from Schedule A reduce my Foreign Tax Credit?

The 6-digit decimal factor on Line 5 transfers to Schedule C (Form 5713). That factor is multiplied by your total foreign tax credit on Form 1118 or Form 1116 to determine the exact dollar amount of foreign tax credit disallowed under Section 908.

4. Do I file Schedule A if I only received a boycott request but refused it?

No. If you received a boycott request (such as a restrictive clause in a shipping document) but refused to comply and did not cooperate, you report the request on the main Form 5713, but you do not complete Schedule A or lose tax benefits.

5. Why must the International Boycott Factor have 6 decimal places?

Treasury Regulation Section 7.999-1 requires high mathematical precision to ensure that multi-million dollar corporate tax credits and Subpart F deferrals are calculated accurately.

6. Where do I send the duplicate copy of Form 5713 and Schedule A?

You must mail a separate duplicate copy of Form 5713 and Schedule A directly to the Internal Revenue Service Center in Ogden, Utah, as specified in the official Form 5713 instructions.

Conclusion

IRS Form 5713 (Schedule A) is a critical compliance schedule that enforces U.S. anti-boycott tax policy. By calculating the ratio of boycott-related operations to total foreign business activity, Schedule A establishes the official International Boycott Factor used to reduce foreign tax credits, Subpart F deferrals, and IC-DISC export benefits.

To ensure full compliance and avoid criminal penalties under Section 999(f), multinational filers must accurately isolate foreign purchases, sales, and payroll, carry the factor to at least 6 decimal places, apply controlled group aggregation rules, and submit the required duplicate filing to the IRS Ogden Center.