Form 5713 Schedule C Guide: Tax Effect of Boycott Provisions

Introduction: What Is Form 5713 (Schedule C)?

Form 5713 (Schedule C), titled Tax Effect of the International Boycott Provisions, 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 Sections 908, 952(a)(3), 995(b)(1)(F)(ii), and 999 of the Internal Revenue Code (IRC). It serves as the master computational schedule that applies the financial penalties of U.S. anti-boycott laws to your federal income tax return.

While Schedule A calculates the broad “boycott factor” and Schedule B calculates “specifically attributable” amounts, Schedule C applies those numbers to determine the exact dollar reduction in your Foreign Tax Credits, the acceleration of taxable Subpart F income, and the disallowance of IC-DISC export benefits.

Purpose of the Form

Under IRC Section 999, U.S. taxpayers that agree to participate in or cooperate with an unsanctioned foreign boycott (such as the Arab League boycott of Israel) lose specific federal tax incentives. The tax code penalizes boycott participation across three distinct areas:

• Reduction of Foreign Tax Credit (IRC Section 908): Foreign taxes paid on boycott operations cannot be claimed as a credit against U.S. income taxes.
• Denial of Deferral Under Subpart F (IRC Section 952(a)(3)): Earnings of a Controlled Foreign Corporation (CFC) generated from boycott operations are treated as deemed Subpart F income, taxed immediately to U.S. shareholders.
• Denial of IC-DISC Benefits (IRC Section 995(b)(1)(F)(ii)): Export tax deferrals for Interest Charge Domestic International Sales Corporations (IC-DISCs) are reduced in proportion to boycott activity.

Schedule C acts as the bridge connecting your boycott calculations to your primary tax returns. It translates calculations from Schedule A or Schedule B into exact dollar adjustments that flow directly onto Form 1118, Form 1116, Form 5471, and Form 1120-IC-DISC.

Who Needs to File This Form

Schedule C must be completed and attached to Form 5713 by any taxpayer that participated in or cooperated with an international boycott and completed either Schedule A or Schedule B. You are required to file Schedule C if you are:

• Form 5713 Filers with Boycott Operations: A U.S. citizen, resident alien, domestic corporation, partnership, estate, or trust (or a foreign corporation with U.S. shareholders) that agreed to participate in an unsanctioned boycott during the tax year.
• Taxpayers Using the Factor Method: You computed an International Boycott Factor on Schedule A (Form 5713).
• Taxpayers Using the Specific Attribution Method: You calculated specifically attributable foreign taxes and income on Schedule B (Form 5713).

Who Is Exempt / Not Required to File

Many international businesses submitting Form 5713 do not need to complete Schedule C. You are exempt or not required to submit this schedule if:

• Non-Participating Filers: You conduct business in listed boycotting countries but had no agreements, requests, or cooperation with boycott operations (you file Form 5713 alone without Schedule A, B, or C).
• Recipients of Unaccepted Requests: You received a boycott request (such as a restrictive clause in a contract) but refused to comply and did not cooperate with the boycott.
• Taxpayers Without Boycott Operations: U.S. companies with no business dealings in or related to boycotting nations.

When to File

Schedule C is an integral attachment to Form 5713 and shares the same annual filing deadline as your primary federal income tax return:

• 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).
• Individual Filers (Form 1040): Due by April 15th (or October 15th with an automatic extension via Form 4868).

Where and How to File

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

• Attached to Primary Return: Attach Form 5713, Schedule C, and Schedule A or B directly to your annual federal income tax return (Form 1040, 1120, 1065, or 1120-IC-DISC) and file electronically or by mail as normal.
• Mandatory Duplicate Submission: In addition to your primary return, mail a separate duplicate copy of Form 5713 and all attached schedules directly to the dedicated IRS address as per official Form 5713 instructions (Internal Revenue Service Center, Ogden, UT).

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

Schedule C is organized into three primary operational parts corresponding to the three penalized tax benefits. In each part, you enter calculations under Method A (Boycott Factor) or Method B (Specific Attribution) based on which preceding schedule you filed.

Part / Section	Key Focus Areas	What to Enter / Calculate
Header Section	Identity Information	Enter the filer’s legal name, federal Taxpayer Identification Number (EIN or SSN), and the name of the foreign entity (if applicable).
Part I: Lines 1 – 2	Reduction of Foreign Tax Credit (Sec. 908)	Method A: Multiply total allowable foreign taxes by the boycott factor from Schedule A, Line 5. Method B: Enter the specifically attributable foreign taxes from Schedule B, Column (2). Transfers to Form 1118 (Schedule G) or Form 1116 (Part III).
Part II: Lines 3 – 4	Denial of Deferral Under Subpart F (Sec. 952(a)(3))	Method A: Multiply CFC net earnings by the boycott factor from Schedule A, Line 5. Method B: Enter the specifically attributable CFC income from Schedule B, Column (3). Transfers to Form 5471 (Schedule I, Line 3).
Part III: Lines 5 – 6	Denial of IC-DISC Benefits (Sec. 995(b)(1)(F)(ii))	Method A: Multiply IC-DISC taxable income by the boycott factor from Schedule A, Line 5. Method B: Enter the specifically attributable IC-DISC income from Schedule B, Column (4). Transfers to Form 1120-IC-DISC (Schedule J).

Part I: Reduction of Foreign Tax Credit (Lines 1 & 2)

If you use Method A, enter your total foreign taxes eligible for credit and multiply by the 6-decimal boycott factor from Schedule A. If you use Method B, enter the exact foreign taxes paid on boycott operations from Schedule B. The resulting disallowed credit reduces your foreign tax credit on Form 1118 or Form 1116.

Part II: Denial of Deferral Under Subpart F (Lines 3 & 4)

This section calculates the portion of your Controlled Foreign Corporation’s earnings that lose tax deferral. The calculated boycott income is treated as immediate taxable Subpart F income on Line 3 of Form 5471 (Schedule I), requiring U.S. shareholders to pay tax on those foreign earnings in the current year.

Required Documents and Information Needed Before Filling

Before preparing Schedule C, assemble the following tax returns and supporting calculations:

• Completed Schedule A or Schedule B: Your finalized International Boycott Factor calculation (Schedule A) or Specifically Attributable Taxes and Income breakdown (Schedule B).
• Form 1118 / Form 1116 Workpapers: Foreign tax credit calculations showing total foreign taxes paid or accrued before boycott reductions.
• Form 5471 (Schedule C & Schedule H): Financial statements and Earnings and Profits ledgers for all participating Controlled Foreign Corporations.
• Form 1120-IC-DISC Records: Export gross receipts and taxable income calculations for IC-DISC entities.
• Master Form 5713: The completed parent return detailing boycott operations and reportable requests.

Common Mistakes to Avoid

• Mixing Calculation Methods: Attempting to apply both Method A (factor) and Method B (specific) within the same part for the same entity.
• Failing to Transfer Numbers to Primary Forms: Calculating disallowance amounts on Schedule C but forgetting to transfer them onto Form 1118, Form 1116, Form 5471, or Form 1120-IC-DISC.
• Forgetting the Section 164 Tax Deduction: Failing to claim a tax deduction for foreign taxes disallowed as credits. Foreign taxes lost under Section 908 can generally be deducted as business expenses under IRC Section 164.
• Inaccurate Factor Decimals: Using a rounded factor instead of carrying the Schedule A factor to at least six decimal places.
• Omitting the Duplicate Filing: Forgetting to mail a separate duplicate copy of Form 5713 and Schedule C to the IRS Service Center in Ogden, Utah.

Penalties and Compliance Risks

Failing to report boycott tax adjustments on Schedule C triggers severe criminal and civil tax liabilities:

• Criminal Penalties for Willful Failure: Under IRC Section 999(f), willful failure to file Form 5713 and required schedules is a federal crime punishable by fines of up to $25,000, imprisonment for up to 1 year, or both.
• 20% Accuracy-Related Penalties: Understating U.S. tax liabilities by failing to reduce foreign tax credits or failing to include Subpart F boycott income triggers a 20% penalty under IRC Section 6662.
• Statutory Interest Charges: The IRS assesses compounding daily interest on all back taxes resulting from unadjusted foreign tax credits or unreported boycott earnings.

Related Forms and Schedules

When completing Schedule C, corporate tax departments frequently coordinate with these related IRS schedules and forms:

• Form 5713: International Boycott Report (the master parent return).
• Schedule A (Form 5713): International Boycott Factor (formula method).
• Schedule B (Form 5713): Specifically Attributable Taxes and Income (specific allocation method).
• Form 1118: Foreign Tax Credit—Corporations (Schedule G applies the Part I credit reduction).
• Form 1116: Foreign Tax Credit—Individual (Part III applies the Part I credit reduction).
• Form 5471 (Schedule I): Summary of Shareholder’s Income From Foreign Corporation (where Part II Subpart F income is included).
• Form 1120-IC-DISC (Schedule J): Deemed and Actual Distributions (where Part III IC-DISC reductions are applied).

Frequently Asked Questions (FAQs)

1. What is the main purpose of Schedule C on Form 5713?

Schedule C is the master computational form that takes the results of Schedule A (boycott factor) or Schedule B (specifically attributable amounts) and calculates the exact dollar loss of Foreign Tax Credits, Subpart F deferrals, and IC-DISC export benefits.

2. Can I deduct foreign taxes that are denied as credits on Schedule C?

Yes. Foreign taxes that are disallowed as a credit under IRC Section 908 in Part I of Schedule C can generally be deducted as an itemized business expense on Form 1120 or Form 1040 under IRC Section 164.

3. How does Schedule C impact my Form 5471 filing?

The amount calculated in Part II of Schedule C represents foreign corporate earnings that lose tax deferral. This figure transfers directly to Line 3 of Form 5471 (Schedule I) as taxable Subpart F income for U.S. shareholders.

4. Can a corporate group use Method A for credits and Method B for Subpart F income?

Generally, a taxpayer must apply a consistent method across its operations. However, members of a controlled group may apply different methods if their books and records clearly establish specific attribution for separate operating entities under Treasury regulations.

5. Where do I send the duplicate copy of Form 5713 and Schedule C?

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

6. What happens if I file Schedule A or B but forget to attach Schedule C?

Failing to attach Schedule C means you have not computed the actual tax effect of the boycott provisions. The IRS may treat your return as incomplete, assess statutory Section 6038/999 penalties, and disallow associated credits on audit.

Conclusion

IRS Form 5713 (Schedule C) is the critical enforcement schedule that applies the financial penalties of U.S. anti-boycott regulations to your federal tax return. By calculating exact reductions to Foreign Tax Credits, computing deemed Subpart F income inclusions, and disallowing IC-DISC benefits, Schedule C ensures full compliance with IRC Section 999.

To avoid criminal penalties and accuracy-related fines, verify that calculations from Schedule A or B flow accurately into Schedule C, transfer all resulting adjustments onto Form 1118, Form 5471, and Form 1120, and submit the mandatory duplicate filing to the IRS Ogden Center on time.