Instructions For Form 1118 - 2007 printable pdf download

Department of the Treasury

Instructions for Form 1118

Internal Revenue Service

(Rev. December 2007)

Foreign Tax Credit—Corporations

Passive Category Income

Section references are to the Internal

Computer-Generated

Revenue Code unless otherwise noted.

Passive category income includes

Form 1118

passive income and specified passive

category income.

The corporation may submit a

What’s New for 2007

computer-generated Form 1118 and

Passive income. Generally, passive

schedules if they conform to the IRS

income is:

Several categories of income have

version. However, if a software program

•

Any income received or accrued that

been eliminated. Section 404 of the

is used, it must be approved by the IRS

would be foreign personal holding

American Jobs Creation Act of 2004

for use in filing substitute forms. This

company income (defined in section

eliminated the following categories of

ensures the proper placement of each

954(c)) if the corporation were a

income, effective for tax years beginning

item appearing on the IRS version. For

controlled foreign corporation (CFC)

after December 31, 2006.

more information, see Pub. 1167, General

(defined in section 957). This includes

•

Rules and Specifications for Substitute

High withholding tax interest.

any gain on the sale or exchange of stock

•

Forms and Schedules.

Financial services income.

that is more than the amount treated as a

•

Shipping income.

dividend under section 1248. However, in

•

How To Complete

determining if any income would be

Dividends from a domestic international

foreign personal holding company

sales corporation (DISC) or former DISC.

Form 1118

•

income, the rules of section 864(d)(6) will

Taxable income attributable to foreign

apply only for income of a CFC.

trade income

•

Important. Complete a separate

Any amount includible in gross income

•

Certain distributions from a foreign

Schedule A; Schedule B, Parts I & II;

under section 1293 (which relates to

sales corporation (FSC) or former FSC.

Schedules C through G; and Schedule I

certain passive foreign investment

for each applicable separate category of

companies).

Income that was previously reported in

income. See Categories of Income below.

these categories is now either passive

Passive income does not include:

Complete Schedule B, Part III; Schedule

•

category income or general category

Any financial services income that is

H; and Schedule J only once.

•

income. See Categories of Income below

general category income (see General

Use Schedule A to compute the

for definitions of passive category income

Category Income on page 2),

corporation’s income or loss before

•

and general category income.

Any export financing interest unless it is

adjustments for each applicable category

also related person factoring income (see

of income.

Schedule A, column 11. Schedule A,

•

section 904(d)(2)(G) and Temporary

Use Schedule B to determine the total

column 11 (net operating loss deduction)

Regulations section 1.904-4T(h)(3)),

foreign tax credit after certain limitations.

•

has been added to reflect the provisions

Any high-taxed income (see General

•

Use Schedule C to compute taxes

of Temporary Regulations section

Category Income on page 2 and the

deemed paid by the domestic corporation

1.904(g)-3T(b), providing guidance on the

instructions for Schedule A, on page 5),

filing the return.

allocation of net operating losses to

•

Use Schedules D and E to compute

•

separate limitation income in tax years

Any active rents or royalties received

taxes deemed paid by lower-tier foreign

beginning after December 21, 2007.

from an unrelated person and active rents

corporations.

or royalties received from a related

•

Use Schedule F to report gross

person that were paid or accrued after

General Instructions

income and definitely allocable

September 20, 2004. See Temporary

deductions from foreign branches.

Regulations section 1.904-4T(b)(2)(iii) for

•

Purpose of Form

Use Schedule G to report required

definitions and exceptions.

reductions of tax paid, accrued, or

Use Form 1118 to compute a

Note. Certain income received from a

deemed paid.

corporation’s foreign tax credit for certain

CFC and certain dividends from a 10/50

•

Use Schedule H to apportion

taxes paid or accrued to foreign countries

corporation that would otherwise be

deductions that cannot be definitely

or U.S. possessions. See Taxes Eligible

passive income may be assigned to

allocated to some item or class of income.

for a Credit on page 3.

another separate category under the

•

Use Schedule I (a separate schedule)

look-through rules. See Look-Through

to compute reductions of taxes paid,

Who Must File

Rules on page 2.

accrued, or deemed paid on foreign oil

Any corporation that elects the benefits of

Specified passive category income.

and gas extraction income.

the foreign tax credit under section 901

•

This term includes:

Use Schedule J (a separate schedule)

•

must complete and attach Form 1118 to

Dividends from a DISC or former DISC

to compute adjustments to separate

its income tax return.

(as defined in section 992(a) to the extent

limitation income or losses in determining

such dividends are treated as foreign

the numerators of limitation fractions,

source income, and

year-end recharacterization balances,

When to Make the Election

•

Distributions from a former FSC out of

and overall foreign and domestic loss

The election to claim the foreign tax credit

earnings and profits attributable to foreign

account balances.

(or a deduction in lieu of a credit) for any

trade income or interest or carrying

tax year may be made or changed at any

charges (as defined in section 927(d)(1),

Categories of Income

time before the end of a special 10-year

before its repeal) derived from a

period described in section 6511(d)(3) (or

Compute a separate foreign tax credit for

transaction which results in foreign trade

section 6511(c) if the period is extended

each applicable separate category

income (as defined in section 932(b),

by agreement).

described below.

before its repeal).

Cat. No. 10905I

Instructions For Form 1118 - 2007

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